In a setback to the Gujarat government, the high court today ruled that an act passed by the state assembly in 2008 to empower Sardar Sarovar Narmada Nigam Ltd (SSNNL) to redeem its bonds before maturity was illegal.
A bench of acting Chief Justice Jayant Patel and Justice N V Anjaria termed the SSNNL (Conferment of Power to Redeem Bonds) Act, passed in March 2008, as "ultra-vires" and "void".
However, the court also said that its order would come into effect after two months.
The court further directed the petitioners as well as investors, who have already redeemed their bonds, to approach the civil court to collect the amount of loss they have incurred due to the Act.
The matter had reached the high courts of Gujarat, Maharashtra and Karnataka after the Gujarat government passed the Act in March 2008, which empowered SSNNL, a government company, to redeem the deep discount bonds (DDB) issued to investors before maturity, which was ending in January 2014.
These bonds were issued in 1994 to raise funds for the Sardar Sarovar project, comprising the dam and canal network. Through these bonds, which had a 20-year tenure, government raised Rs 257 crore in 1994.
The bonds offered a lucrative 18.9 per cent interest. Thus, total amount payable to investors against each bond of Rs 3,600 came to Rs 1.11 lakh in 2014.
However, the new Act empowered the government to terminate the bonds prematurely by making a payment of Rs 50,000 per bond in 2009. Thus, investors suffered a loss of Rs 61,000 per bond. As per the rough estimate, around 4.1 lakh people across India had invested in these bonds.
With this premature termination, Gujarat government aimed at saving around Rs 4,500 crore, as the final figure would have been Rs 7,000 crore at the end of maturity in 2014, as argued in the court by the lawyers of petitioners.
As several cases were filed in various high courts
over the years by investors and subsequently reached the Supreme Court in December 2013, the apex court clubbed all the cases and transferred them to Gujarat High Court for a combined hearing.
During the arguments here, investors, who became petitioner, stated that framing such Acts is the prerogative of the Parliament, not of state Assembly, as it falls in the purview of Company Laws and Acts related to Security and Exchange Board of India (SEBI).
Petitioners further stated that the bonds were issued across India and investors from across the country have invested their hard-earned money in the bonds.
It is also argued that the government became a guarantor in these bond scheme and there was no clause in the prospectors about premature termination.
In its defence, Gujarat government through Advocate General Kamal Trivedi argued that the Act related to bonds falls into the category of 'Public Debt' and hence the state government can frame laws regarding it.
Countering these arguments, investors' lawyers stated that SSNNL is a company and its debt does not fall into the category of 'state debt'.