Even as next round of legalese start on the issue of deep discount bonds, shouldn’t citizens ask questions about the institutions, which failed to carry out due diligence in 1993 and even neglected sane advice from the CAG?
On 8 February 2016, two news items appeared in the newspapers. The first was about an announcement by Mukesh Jhaveri, Director of Sardar Sarovar Narmada Nigam Ltd (SSNNL) that Narmada waters will reach Pragpar Chokdi in Mundra by end of this year
, after a delay of many years. The second news ironically was about investors, who had put their money in Deep Discount Bonds (DDB) of SSNNL and planned to wait for 20 years to get the return on investment as promised and had to come to terms with Gujarat model’s anti-investor face
The second news story was in reference to a recent Gujarat High Court
verdict that termed SSNNL (Conferment of Power to Redeem Bonds) Act, passed in Gujarat assembly in March 2008 as “ultra vires” and “void”. The Act was resorted to when SSNNL suddenly faced a situation wherein servicing the debt liability on these bonds till the maturity turned out to be a task that may drive its coffers dry. Investors had approached Gujarat, Maharashtra and Karnataka High Courts and the petitions were clubbed together when the matter reached Supreme Court. In December 2013, Supreme Court clubbed all these similar petitions together and sent the matter back to Gujarat High Court for combined hearing.
The latest High Court verdict however does not yield immediate relief to bondholders, as it stipulates many riders. The first hurdle that investors have to cross is to prepare themselves to further legal proceedings as High Court verdict directs them to approach the Civil Court to adjudicate and determine the amount of loss incurred by them due to the Act. The Court verdict also restricts such a forum for adjudication to only those bondholders, who received proceeds of premature redemption of bonds enabled by the impugned Act, if and only if they had recorded their protests! So, investors are again planning to move to Supreme Court on this matter
Is the question merely that of investors being lured with promises of higher returns backed by state government standing guarantee or should we be asking more fundamental question on the due diligence by regulatory institutions in this entire episode of indiscriminate market borrowing resorted to by SSNNL and then the manner in which it went about to pre-retire the debt unilaterally?
The sordid tale of how these investors were lured to support a controversial dam building project by putting their hard earned money as investment into bonds and thereby lend a helping hand to SSNNL to portray as if that controversial dam enjoyed popular support started unfolding in early 1990s. Thanks to an audit report by Comptroller and Auditor General (CAG) for Gujarat (Commercial) for FY2001, citizens know that in the revised cost estimates of 1991-92 had remained unapproved. But oblivious of this, SSNNL was allowed to indulge in market borrowing in February 1993 and then again in November 1993. None of the cost-benefit estimates had identified this route of project financing and hence failed to calculate the debt liabilities arising from them.
On 1 November 1993, SSNNL announced a public issue of DDBs and Non-convertible Bonds (NCBs) to raise a part of finances required for a project, which had come under heavy criticism by World Bank appointed Independent Review Mission. So did SSNNL stand a chance to lure investors to subscribe to these bonds? It appears that SSNNL had initially planned to sell it to non-resident Indian (NRI) segment to raise the money, but the promotional events in the US were stormed by protestors. If a letter to editor by Narmada Bachao Andolan (NBA) published in Economic and Political Weekly is to be believed, it appears that the efforts by SSNNL to access investments from financial market were hit by roadblocks raised by two religious agglomerations: Bharat Sant Samaj and Mumbai Jain Sangh
. The size bond issue was Rs300 crore and SSNNL was allowed to retain 25% extra of the size of public offer in case of it getting over-subscribed.
The NBA alleged that SSNNL spent Rs30 crore on media advertisements and hoped that the issue will get 12-fold subscription, but eventually could raise around Rs570 crore, even as underwriters themselves subscribed to the issue. It was also alleged by NBA that SSNNL’s claim that bonds were supported by state government standing guarantee to this were hollow, since all that existed were “letters of comfort”. NBA also alleged that the Reserve Bank of India (RBI) had made strong reservation against cooperatives investing into the bonds and even the National Bank for Agriculture and Rural Development (NABARD) had taken strong exceptions to cooperatives investing into bonds. A public interest litigation (PIL) was filed in Gujarat High Court by Ashwini Bhatt and others and the case was pending as of early 1994.
(Himanshu Upadhyaya works with Azim Premji University. Opinions expressed in this article are personal.)