A Critical Analysis of Balco Case

PROJECT REPORT
ON
“A CRITICAL ANALYSIS OF THE BALCO CASE”

A CRITICAL ANALYSIS OF THE BALCO CASE
 LITERATURE SURVEY
The study has been carried out with the help non secondary data available in the books and
internet. The information regarding the topic has been taken from the internet while the basic
views & thoughts of “A Critical Analysis of BALCO Case” contain annotations from books.
This study has been done taking the help of secondary data i.e. websites, articles. It is
descriptive in nature. To construct this project, the help of dictionaries, legal websites as well
as social science websites are referred. The points as discussed in this project include the
study of different sources on the topic as well as the points guided by the faculty.
Research Methodology is systematic approach and methods of study concerning for
obtaining new knowledge and generalization and the formulation of theories.
 NATURE OF STUDY-
Non empirical research work has been used in this project as the material in this project
mainly consists of the work of people which is already done. The project is basically
doctrinal in nature. Citations are also provided wherever they were necessary.
 SOURCES OF DATA-
This Project is made on the basis of secondary sources of information, which include:
1) Books, and
2) Information from the internet.
 LITERATURE REVIEW
1. Madhusudan Saharay, Arbitration & Conciliation with Alternative Dispute Resolution
(3rd Edition, Universal Law Publishing Co.) (2015).
This book is a comprehensive study on different dispute resolution mechanism that are viable
alternatives to the courts. It studies the evolution of the alternative dispute resolution (ADR)
methods in India. The text covers important topics of Alternative Dispute Resolution
techniques. This book elaborately prescribes about the law of Arbitration & Conciliation in
India.
To the relevant topic the book covers about the applicability of the Part I of the Act in case
Arbitration takes place outside India as a particular topic in which the Bhatia International
II | P a g e
HIDAYATULLAH NATIONAL LAW UNIVERSITY
v. Bulk Trading S.A.1 and Venture Global Engineering v. Satyam Computer Services Ltd.2
are also discussed and it is followed by Bharat Aluminium Co. v. Kaiser Aluminium
Tevhnical Services Inc.,3.
2. Avtar Singh, Law of Arbitration & Conciliation and Alternative Dispute Resolution
Systems (10th Edition, Eastern Book Company,) (2013).
This book discusses the Arbitration and Conciliation Amendment Act, 1996 and its
predecessor legislations—the Arbitration and Conciliation Act of 2006 and 1940 in the
present day legal context. It also explains other types of Alternative Dispute Resolution
methods – conciliation, negotiation, mediation and lok adalat. The text covers important
topics of Alternative Dispute Resolution such as the history of arbitration law in India,
International Centre for Alternative Dispute Resolution-its scheme and objects, arbitration
agreement, interim measures, International Commercial Arbitration, arbitration proceeding
before the tribunal, judicial intervention, procedure for appointment and removal of
arbitrators, powers of arbitrators and grounds for their removal, appeals, enforcement of
foreign awards, international conventions, duties and power of a conciliator etc.
To the relevant topic the book covers about the application of the Part I of the Act as a
particular topic in which the Bhatia Case, Venture Case & BALCO Case are discussed.
 STATEMENT OF PROBLEM
1. Whether Part I of the Arbitration and Conciliation Act, 1996 is applicable in both Domestic
and International Arbitration Hypothesis?
 HYPOTHESIS
In Bharat Aluminium Co. v. Kaiser Aluminium Tevhnical Services Inc.,4 the constitutional
bench of the Supreme Court held that the Part I of the Arbitration and Conciliation Act, 1996
apply to all arbitration within India and not to International Commercial Arbitration outside
India.
Part I governs only arbitrations which have their judicial or legal seat within India i.e
domestic arbitrations and Part II governs arbitrations which have their judicial or legal seat
outside India i.e foreign arbitrations.
1
(2002) 4 SCC 105.
2
(2008) 4 SCC 190.
3
(2012) 9 SCC 648
4
Id
III | P a g e
 RESEARCH QUESTIONS
1. Whether Part I of Arbitration and Conciliation Act, 1996 applies to International Commercial
Arbitration outside India?
2. Whether Part I and Part II of Arbitration and Conciliation Act, 1996 are mutually exclusive of
each other?
 OBJECTIVES
1. To study the brief description of the facts of the BALCO case.
2. To study in detail about the contentions of the parties involved.
3. To examine the decision of BALCO judgement.
4. To study the implications that follows the BALCO judgement.
 SCHEME OF CHAPTERISATION
The presented study is a detailed research on the topic “A Critical Analysis of the BALCO
Case”. The research study has been presented with the chapterization scheme. Each part of
the study has a significant role in the completion of study. Here is a chapterwise introduction
of each chapter.
1. INTRODUCTION
2. A BRIEF DESCRIPTION OF THE FACTS OF THE CASE
2.1 IMMEDIATE FACTS LEADING TO THE PRESENT CASE
2.2 CHRONOLOGICAL ORDER OF EVENTS
2.3 CONTENTION OF THE PARTIES
2.3.1 ON BEHALF OF THE BALCO EMPLOYEES UNION.
2.3.2 ON BEHALF OF THE UNION OF INDIA.
3. A CRITICAL ANALYSIS OF THE DECISION.
4. COMPETING APPROACHES OF THE APEX COURT ON KEY ISSUES
5. IMPLICATIONS THAT FOLLOW FROM THE JUDGEMENT.
6. SOME PERTINENT OBSERVATIONS OF THE COURT IN THE CASE
7. CONCLUSION
8. BIBLIOGRAPHY
IV | P a g e
TABLE OF CONTENTS
CHAPTER TITLE PAGE NO.

DECLARATION II
ACKNOWLEDGEMENTS III
LITERATURE SURVEY IV
LITERATURE REVIEW IV
STATEMENT OF PROBLEM V
HYPOTHESIS V
RESEARCH QUESTIONS VI
OBJECTIVES VI
1 INTRODUCTION 1-3
2 A BRIEF DESCRIPTION OF THE FACTS 4-12
2.1 IMMEDIATE FACTS LEADING TO THE PRESENT CASE 4
2.2 CHRONOLOGICAL ORDER OF EVENTS 4
2.3 CONTENTION OF THE PARTIES 8
2.3.1 ON BEHALF OF THE BALCO EMPLOYEES UNION 8
2.3.2 ON BEHALF OF THE UNION OF INDIA 9
3 A CRITICAL ANALYSIS OF THE DECISION 13-15
4 COMPETING APPROACHES OF THE APEX COURT ON 16-23
KEY ISSUES
5 IMPLICATIONS THAT FOLLOW THE JUDGEMENT 24-25
6 SOME PERTINENT OBSERVATIONS OF THE COURT IN 26-30
THE CASE
7 CONCLUSION 31-33
8 BIBLIOGRAPHY 34
V|Page
TABLE OF CASES
NAME OF CASE CITATION

Ajay Hasia and Ors. v. Khalid Mujib Sehravardi andOrs (1981) 1 SCC 722
Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc 2012 (9) SCC 648
Bhatia International v Bulk Trading S.A (2002) 4 SCC 105
Bhavesh D. Parish and Ors. v. Union and India and Anr (2000) 5 SCC 471
Central Inland Water Transport Corp. Ltd.. v. Brojo Nath Ganguly (1986) 3 SCC 156
Duncans Industries Ltd. vs. State of U.P. and Others (2000) 1 SCC 633
East Coast Shipping Co. v. M.J Scrap Pvt. Ltd 1997 3 ICC 429(Cal)
Fertilizer Corporation Kamgar Union v. Union of India and Ors (1981) 1 SCC 568
G.B. Mahajan and Others v. Jalgaon Municipal Council and Ors (1991) 3 SCC 91
Marriott International Inc v. Ansal Hotels Ltd. AIR 2000 Del 377
Narmada Bachao Andolan v. Union of India and Ors. (2000) 10 SSC 664
National Textile Workers' Union and Ors. v. P.R. Ramakrishnan (1983) 1 SCC 228
Peerless General Finance and Investment Co. Ltd. v. RBI (1992) 2 SCC 343
Premium Granites and Anr v. State of T.N. and Ors (1994) 2 SCC 691
Ram Jawaya Kapoor v. State of Punjab AIR 1955 SC 549
Rustom Cavasjee Cooper v. Union of India (1970) 1 SCC 248
State of Punjab and Ors. v. Ram Lubhaya Bagga and Ors (1998) 4 SCC 117
TDM Infrastructure Limited v. UE Development India Pvt. Ltd 2008 14 SCC 271
Venture Global Engineering v. Satyam Computer Services Ltd. (2008) 4 SCC 190
VI | P a g e
CHAPTER-1
INTRODUCTION
Judicial decision making has been a subject of great discussion since long because of the
whims and caprices being involved in it. History is full of examples and is enriching day by
day of the instances in which judicial decisions have been set aside on grounds of them being
arbitrary, suffering from mala fide, based on non-satisfactory grounds, irrational, to name a
few of them.
The study of one such instance forms the essence of this paper i.e. the critical analysis of the
overruling of the law laid down in 2002 by the Supreme Court in Bhatia International v Bulk
Trading S.A.5 (hereinafter referred as “BHATIA International”) by a Constitutional Bench of
the Supreme Court, delivering a landmark judgment in Bharat Aluminium Co v Kaiser
Aluminium Technical Services Inc.6(hereinafter referred as “BALCO”)
This problem emanated originally from uncertainty over the powers of courts to issue interim
measures under Section 9 of the Indian Arbitration and Conciliation Act 1996 (hereinafter
referred as the “Act”) or say, broadly the applicability of Part I of the Act to International
Commercial Arbitration. This raises the question as to what powers were available if the
arbitration takes place outside India. For example, if arbitration takes place in Hong Kong but
the relevant assets are in India, can Indian courts prevent dissipation of the assets prior to the
award? In Bhatia International the Supreme Court decided that the courts did have such
power. Section 9 of the Act did not just apply to Indian arbitrations but could also apply to
foreign arbitrations while the Court in BALCO decided to the contrary.
Therefore recognising the problems that had arisen, the author attempts to critically evaluate
the controversies raised in BALCO beginning by stating the facts of a case, then observing
the judgement of the case. Further the author throws some light on the controversies involved
and thus arrives at the suitable conclusion.
Administrative decision making has been a subject of great discussion since long. The
application of a mind, which is in not a strict sense judicial, the presence of arbitral
preferences coupled with the fact of discretion allowed to the executive in decision making,
5
(2002) 4 SCC 105
6
2012 (8) SCC 648
1|Page
more often than not, carries the impression of whims and caprices being involved while such
decision has been taken. The question of why at all this is so, is to be answered not from a
legal but from a humanitarian standpoint. Each human differs from other and when subjective
satisfaction of a group of individuals is concerned, the executive wing of the state in the
present case; it is bound to happen that one there will be a number of groups who do not
agree with the decision so taken for they have their own criterias and yardsticks to measure
the same.
Possible the same is the case with administrative decision making. When the Government is
satisfied, based upon the material considered and issues involved, that a given decision is
appropriate for a circumstances, it may equivocally be true that it may not satiate each and
every individual concerned with the similar set of issues and therefore there may arise a
conflict. History is full of examples and is enriching day by day of the instances in which
executive decisions have been challenged on grounds of they being arbitrary, suffering from
mala fide, based on non-satisfactory grounds, irrational, to name a few of them.
The study of one such instance forms the essence of this paper. The decision of the
Government of India to disinvest M/s Bharat Aluminum Company Limited, popularly known
as BALCO was challenged by the employees of BALCO , State of Chattisgarh (the state in
which BALCO is located) and by some public spirited individuals before various High Court
and finally before the Supreme Court. It was challenged that the decision to disinvest
BALCO was contrary to the legal and social interests of the employees as well as certain
other legal issues were raised by different parties.
The present study is to analyse the judgment of the Supreme Court in the instant case with a
critical angle and also trace its legal impact with a special focus on the impact it has made
upon Administrative law.
To introduce the case, it would be advisable to dwell in the broad frame the case dealt with
rather than to deal with the precise facts and issues. To categorize, the case dealt with a
challenge to the administrative power of the Government on the matter ofdisinvestment of its
stake in a government company as regards the procedure followed while so deciding and also
the provisions that needs to be examined while deciding the issue. On a broader level, an
administrative policy was under a challenge before the Court. The precise impact that this
decision, therefore, had was on the level of administrative discretion that the executive
2|Page
enjoyed in the selection of and following of a policy which had a vital impact on the
economic position of the country. Nevertheless, the answer of the Supreme Court has been
affirmative and it was categorical in mentioning that unless the policy adopted by the
government suffered from the vires of illegality or malafide. Not stopping at this, the Court
also gave a substantive reflection on the aspect of natural rights and their applicability as
regards the choice of administrative policy.
For a detailed analysis and to have a diverse perspective, the study has been divided into
different chapters which deal with a host of issues involved in the case and for having a
varied dimension.
3|Page
CHAPTER-2
A BRIEF DESCRIPTION OF THE FACTS OF THE CASE
2.1 IMMEDIATE FACTS LEADING TO THE PRESENT CASE

The case arose to challenge the validity of the decision of the Union of India to disinvest and
transfer 51% shares of M/s Bharat Aluminum Company Limited (hereinafter referred to as
'BALCO ’). The case was filed by way of a writ petition by the BALCO Employees’ Union
by filing Writ Petition No. 2249 of 1999 in the High Court of Delhi when upon the
recommendation of the Disinvestment Commission, the Cabinet Committee on
Disinvestment approved the sale of 51% of the shares of BALCO to private ownership and
thus reducing the status of the company from a Government Company to a private enterprise.
Further, upon the same issue, a Public Interest Litigation (PIL) was filed by one Dr. B.L.
Wadhera in the Delhi High Court and similarly writ petition filed by Mr. Samund Singh
Kanwar in the High Court of Chattisgarh wherein different steps of the disinvestment
procedure were challenged. With the filing of the writ petitions in the High Court of Delhi
and in the High Court of Chattisgarh, an application for transfer of the petitions was filed by
the Union of India in the Supreme Court and by Order dated 9thApril, 2001, the writ petitions
which were pending in the High Court of Delhi and Chattisgarh were transferred to the
Supreme Court.
2.2 CHRONOLOGICAL ORDER OF EVENTS

 BALCO was incorporated in 1965 as a Government of India Undertaking under the
Companies Act, 1956. Prior to its disinvestment it had a paid-up share capital of Rs. 488.85
crores which was owned and controlled by the Government of India. The company was
engaged in the manufacture of aluminium and had plants at Korba in the State of Chattisgarh
and Bidhanbag in the State of West Bengal. The Company has integrated aluminium
manufacturing plant for the manufacture and sale of aluminium metal including wire rods and
semi-fabricated products.
 In pursuance to the Industrial policy of disinvestment by a Resolution dated 23rd August,
1996 the Ministry of Industry (Department of Public Enterprises) Government of India
constituted a Public Sector Disinvestment Commission initially for a period of three years.
The Disinvestment Commission was to be an advisory body and the Government was to take
a final decision on the companies to be disinvested and mode of disinvestment on the basis of
4|Page
advice given by the Disinvestment Commission. The Public Sector Undertakings (PSUs)
were to implement the decision of the Government under the overall supervision of the
Disinvestment Commission.
 The Disinvestment Commission in its 2nd Report submitted in April, 1997 advised the
Government of India that BALCO needed to be privatised. The recommendation which it
made was that the Government may immediately disinvest its holding in the Company by
offering a significant share of 40% of the enquiry to a strategic partner. The Report further
advised that there should be an agreement with the selected strategic partner specifying that
the Government would within two years make a public offer in the domestic market for
further sale of shares to institutions, small investors and employees thereby bringing down its
holding to 26%.
 The Commission also recommended that there should be an on-going review of the situation
and the Government may disinvest its balance equity of 26% in full in favour of investors in
the domestic market at the appropriate time. The Commission had recommended the
appointment of a Financial Advisor to undertake a proper valuation of the company and to
conduct he sale process. The Commission had categorised BALCO as a non-core group
industry.
 The Chairman of the Disinvestment Commission wrote a letter dated 12thJune, 1998 to the
Secretary, Ministry of Mines, Government of India drawing the Government's attention to the
recommendations of the Commission for sale of 40% of equity in BALCO and to bringing
down of the Government holding to 26% within two years and observed that, “it may be
difficult to get in a multilateral financial institution to act fast in taking up shares of BALCO.
The Chairman of the Commission then recommended that "in keeping with the spirit of the
recommendations of the 5th Report, you may now kindly consider offering 51% or more to
the strategic buyer along with transfer of management. This sale will enable a smooth
transaction with the participation of more bidders and better price for the shares.”
 In the meanwhile, Global advertisement was issued Cabinet Committee on Economic Affairs,
inviting from interested parties Expression of Interest for selection as a Global Advisor.
 Following the advertisement, eight Merchant Banks showed their interest in appointment of
the Global Advisor. The lowest bid of M/s Jardine Fleming Securities India Ltd. was
accepted and approved by the Cabinet Committee on Disinvestment on 9thMarch, 1999. In
the meanwhile, the Cabinet Committee on Disinvestment also approved the proposal of
strategic sale of 51% equity in respect of BALCO.
5|Page
 This decision of the Government to the aforesaid strategic sale was challenged by the
BALCO Employees' Union by filing Writ Petition No. 2249 of 1999 in the High Court of
Delhi. This petition was disposed of by the High Court vide its order dated 3rd August, 1999.
 On 3rd March, 2000, the Union Cabinet approved the Ministry of Mines' proposal to reduce
the share capital of BALCO from Rs. 488.8 crores to Rs. 244.4 crores.
 A formal Agreement between Jardine Fleming, the Global Advisor and the Government of
India was executed on 14thJune, 2000. The scope of work of the Global Advisor was also
agreed thereon.
 Thereafter, on 16thJune, 2000 the Global Advisor, on behalf of the Government of India,
issued an advertisement calling for "Expression of Interest" in leading journals and
newspapers all over the world.
 This advertisement was responded by eight companies which submitted their Expression of
Interest.
 Upon this, M/s Jardine Fleming, the Global Advisor made an analysis of the various bids on
the basis of the financial and technical capability, familiarity with India and overall
credibility. Thereupon two companies were rejected. Of two other companies, they were
treated as one by Inter-Ministerial Group set up by the Union of India as belonging to the
same group and thus there remained five prospective bidders out of the total eight.
 Of these five, two dropped out and there remained three bidders who conducted their due
diligence inspection. These were,
 ALCOA, USA,
 Hindalco Industries Ltd. and
 Sterlite Industries (India) Ltd.
 The drafts of the Shareholders' Agreement and the Share Purchase Agreement, as presented
by these three prospective bidders were considered by the Inter-Ministerial Group and it had
discussion with them. Ultimately the said drafts were finalized on 11thJanuary, 2001.
 For the purpose of carrying out the asset valuation of BALCO, the Global Advisor short
listed four parties from the list of Registered Government Valuers approved by the Income-
Tax Department. On 18thJanuary, 2001, BALCO invited quotations from the four Registered
Valuers, so short listed, and the quotation of Shri P.V. Rao was accepted.
 On 14thFebruary, 2001 Shri P.V. Rao submitted his asset valuation report to M/s Jardine
Fleming.
6|Page
 The three contenders, namely, Alcoa, Hindalco and Sterlite Industries Ltd. submitted their
sealed bids to the Secretary (Mines) and Secretary (Disinvestment) on 16thFebruary, 2001.
 When the financial bids were opened, it was found that the bid of Sterlite was the highest at
Rs. 551.5 crores, the bid of Hindalco was Rs. 275 crores while ALCOA had opted out.
 The report of the Evaluation Committee for acceptance of the bid which was higher than the
reserve price was considered by the IMG which recommended the acceptance of the bid of
Sterlite Industries to the core group of Secretaries.
This core group in turn made its recommendation to the Cabinet Committee on
Disinvestment which on 21stFebruary, 2001 approved/accepted the bid of Sterlite Industries
at Rs. 551.5 crores. The Government's decision was communicated to Sterlite Industries on
that date.
 The announcement of the decision to accept the bid of Sterlite Industries led to the initiation
of legal proceedings challenging the said decision. On 23rd February, 2001, Dr. B.L. Wadhera
filed Civil Writ Petition No. 1262 of 2001 in the Delhi High Court. This was followed by
Writ Petition No. 1280 of 2001 filed by the employees of BALCO on 24thFebruary, 2001
also in the High Court of Delhi. On that very date, i.e., on 24thFebruary, 2001 another
employee of BALCO, namely, Mr. Samund Singh Kanwar filed Civil Writ Petition No. 241
of 2001 in the High Court of Chhattisgarh.
 While the aforesaid writ petitioners were pending there was a Calling Attention Motion on
Disinvestment with regard to BALCO in the Rajya Sabha. Discussions on the said motion
took place in the Rajya Sabha on 27thFebruary, 2001 and the matter was discussed in the Lok
Sabha on 1stMarch, 2001. The motion "that this House disapproves the proposed
disinvestment of Bharat Aluminium Company Ltd." was defeated in the Lok Sabha by 239
votes to 119 votes.
 Soon thereafter on 2nd March, 2001, Shareholders Agreement and Share Purchase
Agreement between the Government of India and Sterlite Industries Limited were signed.
Pursuant to the execution of sale, 51% of the equity was transferred to Sterlite Industries
Limited and a cheque for Rs. 551.5 crores was received.
 It was upon these events that the Petitions filed before the Delhi and Chattisgarh High Courts
and were finally transferred to the Supreme Court after the application of the Union of India
before the Court for the transfer of the transfer of the same.
7|Page
2.3 CONTENTION OF THE PARTIES
2.3.1 ON BEHALF OF THE BALCO EMPLOYEES' UNION.

(1) Before disinvestment, the entire paid-up capital of BALCO was owned and controlled by
the Government of India and its administrative control co-vested in the Ministry of Mines.
BALCO was, therefore, a State within the meaning of Article 12 of the Constitution7.
Therefore, by the reason of disinvestment the workmen had lost their right and protection
under Articles 14 and 16 of the Constitution. This was an adverse civil consequence and,
therefore, they had a right to be heard before and during the process of disinvestment.
(2) The type of consultation with the workmen which was necessary was
i. Whether BALCO should go though the process of disinvestment;
ii. Who should be the strategic partner; and
iii. How should the bid of the strategic partner be evaluated.
(3) It was further submitted that the workmen had reason to believe that apart from the sale of
51% of the shares in favour of Sterlite Industries the Agreement Postulated that balance 49%
will also be sold to them with the result that when normally in such cases 5% of the shares
are disinvested in favour of the Employees8 the same would not happen in the present case.
(4) It was also contended that the implementation of the policy of disinvestment in the
present case had failed to evolve a comprehensive package of socioeconomic and political
reform and to structure the decision making process so as to achieve in a just, fair and
reasonable manner, the ultimate goal of the policy and that the interest of the workers in the
industrial sector, which could not have been undermined and, therefore, any decision which
was likely to affect the interest of the workers and employees as class as whole cannot and
ought not to be taken to the exclusion of such class, lest it may be counter productive.
(5) It was contended that the Disinvestment Commission had recommended that some
percentage of equity share may be offered to the workers to solicit their participation in the
enterprise and which would go a long way in proving the disinvestment plan meaningful and
successful. In this regard, it was not shown from any material or record that the Government
of India had at any stage addressed itself to this vital aspect of the disinvestment process or
had taken into consideration the likely repercussions on the interest, right and status of the
7
The Petitioner, for the said contention relied on Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and
Ors. (1981) 1 SCC 722; Central Inland Water Transport Corporation Limited and Anr. v. Brojo Nath
Ganguly and Anr. (1986) 3 SCC 156.
8
Relying on National Textile Workers' Union and Ors. v. P.R. Ramakrishnan and Ors., (1983) 1 SCC
228.
8|Page
employees and workers. This non-consideration indicates that there has been an arbitrariness
in not taking into consideration relevant facts in the decision making process.
(6) It was also contented by the employees that the State of Chattisgarh was not properly
consulted and the decision to disinvest was taken without the knowledge of the State
Government, was also refuted by the Supreme Court by referring to the various documents
presented by the Counsels for the Union and also the various steps wherein the involvement
of the State Government was explicit.
(7) The contention of the Advocate General for the state of Chattisgarh that the whole process
and decision of the disinvestment of BALCO lacked transparency was dismissed by the Court
by analyzing the entire procedure adopted and the various steps at which notification and
public announcements were made.
(8) There was another contention of the State of Chattisgarh that the land on which BALCO
was setup was a tribal land thus the said land could have been acquired and used by public
sector undertaking but the tribal land could not be transferred to a non-tribal. Therefore it was
contended that once the majority shares in BALCO were transferred to a non-tribal company,
the prohibition contained against the transfer of tribal land came into operation. For this the
State relied upon the decision of the Supreme Court in Samatha v. State of A.P. and others9.
2.3.2 ON BEHALF OF THE UNION OF INDIA

1. It was submitted that disinvestment had become imperative both in the case of Centre and
the States primarily for three reasons.
a. Firstly, despite every effort the rate of returns of governmental enterprises had been
woefully low, excluding the sectors in which government have a monopoly and for which
they can, therefore, charge any price. The rate of return on central enterprises came to minus
4% while the cost at which the government borrows money is at the rate of 10 to 11%. In the
States out of 946 State level enterprises, above 241 were not working at all; about 551 were
making losses and 100 were reported not to be submitting their accounts at all.
b. Secondly, neither the Centre nor the States have resources to sustain enterprises that are
not able to stand on their own in the new environment of intense competition.
c. Thirdly, despite repeated efforts it was not possible to change the work culture of
governmental enterprises. As a result, even the strongest among them have been sinking into
increasing difficulties as the environment is more and more competitive and technological
change has become faster.
9
(1997) 8 SCC 191
9|Page
2. Further it was submitted that the wisdom and advisability of economic policies of
Government are not amenable to judicial review. It was not for Courts to consider the relative
merits of different economic policies. Court was not the forum for resolving the conflicting
clauses regarding the wisdom or advisability of policy. It would therefore be appropriate to
consider some relevant decisions of this Court in relation to judicial review of policy
decisions.
Thus it was stated by the Attorney General on behalf of the Union of India that the Court
should not interfere in the entire process as it was purely an administrative decision, to which
the power of judicial review did not extend. The Union relied on a number of authorities of
the Supreme Court wherein similar opinions had been observed. The relevant portions have
been reproduced herein below.
1. "It is again not for this Court to consider the relative merits of the different political
theories or economic policies...This Court has the power to strike down a law on the ground
of want of authority, but the Court will not sit in appeal over the policy of the Parliament in
enacting a law...10"”
2. "...We certainly agree that judicial interference with the administration cannot be
meticulous in our Montesquien system of separation of powers. The Court cannot usurp or
abdicate, and the parameters of judicial review must be clearly defined and never exceeded. If
the Directorate of a Government company has acted fairly, even if it has faltered in its
wisdom, the court cannot, as a superauditor, take the Board of Directors to task. This function
is limited to testing whether the administrative action has been fair and free from the taint of
unreasonableness and has substantially complied with the norms of procedure set for it by
rules of public administration11."
3. "...The criticism of the project being 'unconventional' does not add to or advance the legal
contention any further. The question is not whether it is unconventional by the standard of the
extant practices, but whether there wassomething in the law rendering it impermissible. There
is, no doubt, a degree of public accountability in all governmental enterprises. But, the
present question is one of the extent and scope of judicial review over such matters. With the
expansion of the State's presence in the field of trade and commerce and of the range of
economic and commercial enterprises of government and its instrumentalities there is an
increasing dimension to governmental concern for stimulating efficiency, keeping costs
10
Rustom Cavasjee Cooper v. Union of India, (1970) 1 SCC 248 at page 294
11
Fertilizer Corporation Kamgar Union (Regd.), Sindri and Ors. v. Union of India and Ors., (1981) 1 SCC
568 at page 584.
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down, improved management methods, prevention of time and cost overruns in projects,
balancing of costs against time scales, quality control, cost-benefit ratios etc. In search of
these values it might become necessary to adopt appropriate techniques of management of
projects with concomitant economic expediencies. These are essentially matters of economic
policy which lack adjudicative disposition, unless they violate constitutional or legal limits on
power or have demonstrable pejorative environmental implications or amount to clear abuse
of power.12
4. “The function of the Court is to see that lawful authority is not abused but not to
appropriate to itself the task entrusted to that authority. It is well settled that a public body
invested with statutory powers must take care not to exceed or abuse its power. It must keep
within the limits of the authority committed to it. It must act in good faith and it must act
reasonably. Courts are not to interfere with economic policy which is the function of experts.
It is not the function of the courts to sit in judgment over matters of economic policy and it
must necessarily be left to the expert bodies. In such matters even experts can seriously and
doubtlessly differ. Courts cannot be expected to decide them without even the aid of
experts.13"
5. “It is not the domain of the Court to embark upon unchartered ocean of public policy in an
exercise to consider as to whether the particular public policy is wise or a better, public
policy can be evolved. Such exercise must be left to the discretion of the executive and
legislative authorities as the case may be..."14
6. “Unless the policy framed is absolutely capricious and, not being informed by any reason
whatsoever, can be clearly held to be arbitrary and founded on mere ipse dixt of the executive
functionaries thereby offending Article 14 of the Constitution or such policy offends other
constitutional provisions or comes into conflict with any statutory provision, the Court cannot
and should not outstep its limit and tinkder with the policy decision of the executive
functionary of the State.”15
7. “So far as questioning the validity of governmental policy is concerned in our view it is not
normally within the domain of any court, to weight the pros and cons of the policy or to
scrutinize it and test the degree of its beneficial or equitable disposition for the purpose of
varying, modifying or annulling it, based on howsoever sound and good reasoning, except
12
G.B. Mahajan and Others v. Jalgaon Municipal Council and Ors., (1991) 3 SCC 91.
13
Peerless General Finance and Investment Co. Limited and Anr. v. Reserve Bank of India, (1992) 2 SCC 343
14
Premium Granites and Anr v. State of T.N. and Ors., (1994) 2 SCC 691.
15
Premium Granites and Anr v. State of T.N. and Ors., (1994) 2 SCC 691.
11 | P a g e
whether it is arbitrary or violative of any constitution, statutory or any other provision of law.
When Government forms its policy, it is based on a number of circumstances on facts, law
including constraints based on its resources. It is also based on expert opinion. It would be
dangerous if court is asked to test the utility, beneficial effect of the policy or its appraisal
based on facts set out on affidavits. The Court would dissuade itself from entering into this
realm which belongs to the executive.”16
8. “… [Matters of economic policy] are best left to the wisdom of the legislature and in
policy matters the accepted principle is that the courts should not interfere. Moreover in the
context of the changed economic scenario the expertise of people dealing with the subject
should not be lightly interfered with. The consequences of such interdiction can have large-
scale ramifications and can put the clock back for a number of years. The process of
rationalistation of the infirmities in the economy can be put in serious jeopardy and,
therefore, it is necessary that while dealing with economic legislations, this Court, while not
jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should
interfere only in those few cases where the view reflected in the legislation is not possible to
be taken at all.”17
9. “It is now well settled that the Courts, in the exercise of their jurisdiction, will not
transgress into the field of policy decision. Whether to have an infrastructural project or not
and what is the type of project to be undertaken and how it has to be executed, are part of
policy-making process and the Courts are ill-equipped to adjudicate on a policy decision so
undertaken. The Court, no doubt, has a duty to see that in the undertaking of a decision, no
law is violated and people's fundamental rights are not transgressed upon except to the extent
permissible under the Constitution.”18
16
State of Punjab and Ors. v. Ram Lubhaya Bagga and Ors (1998) 4 SCC 117.
17
Bhavesh D. Parish and Ors. v. Union and India and Anr., (2000) 5 SCC 471.
18
Narmada Bachao Andolan v. Union of India and Ors., (2000) 10 SSC 664.
12 | P a g e
CHAPTER- 3
A CRITICAL ANALYSIS OF THE DECISION
 Besides the dispute that arose between the employees and the Government of India, the major
controversy that arose as regards the Union’s decision to disinvest was on political lines. It
was an accusation by the state Chief Minister that there were irregularities committed by the
Union in coming up to disinvestment decision as well as the decisions suffered from arbitrary
exercise of power and malafide. Thus, if we see the circumstances surrounding the case, the
challenge was both legal and political for the reason that a state government was frontally
taking on the Union government on matters that concerned central PSUs.19
Another important factor which can be observed from a careful reading of the decision is that
though the challenge was primarily to challenge the policy of disinvestment as being adopted
and followed by the Union of India, the matter, as decided by the Supreme Court, revolved
primarily around the rights of the employees and their consequent protection after BALCO
had actually been disinvested. The Court declined to review the policy decision of the Union
Government on the adoption of a policy of disinvestment though in fact it was tried to be
justified on behalf of the Union as reflected from the submissions of the Attorney General.
Thus it can be said that the Court actually did not, at any stage, examine the correctness of the
disinvestment policy for India. The Court tried to evade deciding upon this issue and thus
giving it a name of administrative policy, it was approved.
 It is also important to note while laying down the decision the significance of the judgment
far transcended the specifics of the BALCO transaction as it enunciates far-reaching
principles that will influence the tenor of jurisprudence on economic affairs for long. The
most pertinent example is of the case of Centre for Public Interest Litigation v. Union of
India20 wherein the disinvestment of HPCL and BPCL was approved on the grounds that
since the disinvestment of BALCO was already allowed therefore there is no case made out
whereby it could be proved unsuited to the Indian context though, in reality the process of
disinvestment was never in fact approved in the BALCO case based upon the merits of the
case.
19
The matter did not assume that level of serious conflict between a state and the federal government as it was
capable was. Though the fact that an accusation of a state that the centre was acting malafide was not
unprecedented in more than five decades of independent India, yet it was blatant as far as the fact that the
accusations were made openly and well quoted in press, is concerned.
20
MANU/SC/0710/2003
13 | P a g e
 It is important to note that in the specific case of the alleged malfeasance in the case of
BALCO, the Court categorically stated that “the facts herein show that fair, just and equitable
procedure has been followed in carrying out this disinvestment. The allegations of lack of
transparency or that the decision was taken in a hurry, or that there has been an arbitrary
exercise of power are without any basis. It is a matter of regret that on behalf of the State of
Chattisgarh such allegations against the Union of India have been made without any basis.
We strongly deprecate such unfounded averments which have been made by an officer of the
said State.” Thus the judgment was not simply a strong rebuke to the credibility of the Chief
Minister Mr. Ajit Jogi, it also served to forestall further challenges by state governments on
the federal government’s prerogatives on privatization.
 Also, the Court circumscribed the extent to which matters of economic policy and
disinvestment in particular, and consequently matters of policy, shall be scrutinized by courts.
The Court was categorical in stating that ‘‘it is neither within the domain of the Courts nor
the scope of judicial review to embark upon an enquiry as to whether a particular policy is
wise or whether a better public policy can be evolved. Nor are our Courts inclined to strike
down a particular policy at the behest of a petitioner merely because it has been urged that a
different policy would have been fairer or wiser or more scientific or more logical. …
Parliament is the proper forum for questioning such policy.”21 Thus the Court held that such
disputes were beyond the realm of judicial determination and were left to the legislature to
have circumspection over such executive policies.
 Also, aware of the economic costs of the plant closure as a result of the judicial intervention,
the Court for the first time declared that, ‘‘No ex parte relief by way of injunction or stay
especially with respect to public projects and schemes or economic policies or schemes
should be granted. It is only when the Court is satisfied for good and valid reasons that there
will be irreparable and irretrievable damage can an injunction be issued after hearing all the
parties.’’ Thus the Court seems to have learned from its experience in the case of Narmada
Bachaoo Andolan wherein interim reliefs caused great barriers in the completion of the
project and thus millions were lost.
 As a sort of warning, the Court sought to deprecate the excessive use of PILs as a medium to
thrash government policies which were prima facie genuine and correct. It thus added, “the
21
The Court further stressed that it will refrain from interfering in economic decisions ‘‘unless the economic
decision... is demonstrated to be... violative of constitutional or legal limits on power or ... abhorrent to
reason…In the case of a policy decision on economic matters, the Courts should be very circumspect in
conducting any enquiry or investigation and must be most reluctant to impugn the judgement of the experts who
may have arrived at the conclusion unless the Court is satisfied that there is illegality in the decision itself.’’
14 | P a g e
Petitioner should be put on appropriate terms such as providing an indemnity or an adequate

undertaking to make good the loss or damage in the event the PIL is dismissed.’’ It
categorically held that ‘‘every matter of public interest or curiosity cannot be the subject
matter of PIL. Courts are not intended to and nor should they conduct the administration of
the country. Courts will interfere only if there is a clear violation of Constitutional or
statutory provisions or noncompliance by the State with its Constitutional or statutory
duties.’’ In regard to disinvestment specifically, it held, ‘‘The decision to disinvest and the
implementation thereof is purely an administrative decision relating to the economic policy of
the State and challenge to the same at the instance of a busybody cannot fall within the
parameters of Public Interest Litigation.’’
 The Court also specified the contours of the rights of labour when policy changes were
affected, for instance when the Government disinvests its equity in an enterprise. While
holding that in the BALCO disinvestment case, the Government had exerted itself to protect
the interests of employees of the company, more enerally it was open for the Government,
like any other employer, to take workers along, to keep them informed about prospective
changes and to allay their apprehensions but, labour could not claim a right, either on the
basis of natural justice or any other foundation, to be consulted, or the right to receive prior
notice, or to be consulted at every stage of the process. The Court also specially held that
‘‘even a government servant, having the protection of not only Articles 14 and 16 of the
Constitution but also of Article 311, had no absolute right to remain in service’’ and therefore
the decision to change the control of the company from government to private hands was the
sole prerogative of the government and could not be challenged by the employees.
15 | P a g e
CHAPTER-4
COMPETING APPROACHES OF THE APEX COURT ON KEY ISSUES

The long-anticipated BALCO judgment involved many controversies which are critically
evaluated here under. For the sake of convenience the author has enumerated seven main
issues rose in this case and have contrasted and discussed them.
 Applicability of Part I either to domestic or international commercial arbitration

and the reference to the omission of the word ‘only’ in the Section 2(2) of the Act
The first issue deals with Section 2(2)22 of the Act where the court broadly talks about the
applicability of Part I either to domestic or international commercial arbitration and the
reference to the omission of the word ‘only’ in the Section.
The Court in Bhatia International opined that the word ‘only’ was omitted from Section
2(2)and such omission was not unintentional because the act as a whole has been based on
the UNICTRAL model law,1995 in which corresponding Art. 1(2) refers to word ‘only’ and
hence it held that the absence of the word ‘only’ in S. 2(2) clearly signifies that Part I shall
compulsorily apply if the place of arbitration is in India. It does not mean that Part I will not
apply if place of arbitration is not in India whereas in the BALCO the court has tried to add
the word ‘only’ by judicial interpretation.
In the author’s view the use of the language is significant and important while interpreting a
statute. The omission of this word ‘only’ changes the whole complexion of the sentence.
However there is a marginal area in which the courts can mould or creatively interpret the
law as has been done in the BALCO. Art. 1(2) of the UNICITRAL model law consciously
omitted its global scope. According to the provisions of its Articles 8,9,35 and 36
UNICITRAL model law would apply even if the arbitration was not within the territory of
the particular state and therefore the remedy would be International in character. Now,
Section 2(2) of the Act does not provide for such an exception and clearly indicates that
provisions of part I will apply to the arbitration proceedings where the place of arbitration is
in India23. Such a deviation from the model law reveals the intention of the legislature to limit
the scope of part I of the Act to the arbitration proceedings where the place of arbitration is in
22
Section 2(2) of The Arbitration and Conciliation Act 1996 reads: This Part shall apply where the place of
arbitration is in India.
23
East Coast Shipping Co. v. M.J Scrap Pvt. Ltd, 1997 3 ICC 429(Cal).
16 | P a g e
India. So, the judgment in the BALCO in this regard establishes a good law.
 Applicability of the part I of the Act in the territory of Jammu & Kashmir vis-à-vis
India
The second issue deals with applicability of the part I of the Act in the territory of Jammu &
Kashmir vis-à-vis India. Section 1(2) states: “It extends to the whole of India: Provided that
Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they
relate to international commercial arbitration or, as the case may be, international
commercial conciliation.
The Hon’ble court in BHATIA International opined that “An anomalous situation would arise
if it is held that Part I only applies if the arbitration is held in India because Part I would
apply to Jammu and Kashmir with respect to all international commercial arbitrations
including those taking place outside India but Part I would not apply to the rest of India if the
arbitration takes place out of India.”
The Supreme Court in the BALCO suggested the necessity of a proviso to update the Jammu
and Kashmir Act, 1945, which does not contain any provision relating to International
Commercial Arbitration. The Proviso to Section 1(2) of the Act incorporates those provisions
which relate to international commercial arbitrations into the Jammu and Kashmir legislation.
All other aspects of arbitration in that State are covered by a special statute24 owing to Jammu
and Kashmir’s special constitutional status.
In view of the author this is an illustration of application of the Mischief Rule of

25
Interpretation where the Court in BHATIA International was guided by what it perceived
to be the object of the Act. But, it can be argued that the circular reasoning adopted by the
Court is faulty because the Court itself construed the Proviso as being an exception to the
general norm so obviously, no anomalous situation occurs if in the rest of India the general
rule, of Part I being limited only to domestic arbitrations, is followed. The true purpose
behind the Proviso was not to make applicable provisions of Part I to international
commercial arbitration taking place outside India, but in fact to limit the application of Part I
24
Jammu & Kashmir Arbitration and Conciliation Act, 1997.
The Mischief Rule of interpretation also known as the Heydon’s Rule of interpretation states that a provision
25
must be interpreted according to the objective of the Statute.

17 | P a g e
in J&K to only international commercial taking place in India. Use the phrase ‘only in so far’
in the proviso makes it evidently clear which the Court has conveniently ignored.
The phrase ‘only in so far’ is restrictive in import instead of being expansive qualifies
international commercial arbitrations. Thus, it is this author’s opinion that the Supreme Court
in the BHATIA International erroneously relied on Proviso to Section 1(2) for holding that
Part I of the 1996 Act applied outside India.
 The conflict of Section 2(2) with Section 2(4) and Section 2(5) of the Act
It deals with the conflict of Section 2(2)26 with Section 2(4) and Section 2(5) of the Act. On
this point of law BHATIA International held that if Part I does not apply to foreign
arbitrations, there is a conflict between Section 2(2) and Section 2(5)27, which is made subject
to Section 2(4)28 alone and not Section 2(2). Consequently, Section 2(2) would have to be
interpreted in such a manner that it did not contradict Section 2(5) while on the contrary the
hon’ble Court in the BALCO case held that Section 2(2) does not conflict with section 2(4) or
with section 2(5). Section 2(5) only implies that the Act applies to all arbitrations where it
would be otherwise applicable. Section 2(5) does not indicate that it would apply to
arbitrations which are not held in India.
Author opines that sub-section (2), (4) and (5) of Section 2 of the Act have to be read
conjointly. The expression ‘every arbitration under any other enactment’ 29
and ‘all
arbitration’30 do not mean that Part I of the Act will apply even to arbitrations taking place
outside India. Arbitrations are held under an agreement between the parties but there can be
many other types of arbitrations, namely, arbitration under certain statutes like the Telegraph
Act etc. and other the rules and bye-laws of certain associations such as association of
26
Section 2(2) of the Arbitration and Conciliation Act 1996 reads: This Part shall apply where the place of
arbitration is in India.
27
Section 2(5) of the The Arbitration and Conciliation Act, 1996 reads that: Subject to the provisions of sub-
section (4), and save insofar as is otherwise provided by any law for the time being in force or in any agreement
in force between India and any other country or countries, this Part shall apply to all arbitrations and to all
proceedings relating thereto.
28
Section 2(4)of the The Arbitration and Conciliation Act,1996reads that: This Part except sub-section (1) of
section 40, sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in
force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an
arbitration agreement, except insofar as the provisions of this Part are inconsistent with that other enactment or
with any rules made thereunder.
29
Section 2(4), The Arbitration and Conciliation Act,1996.
30
Section 2(5), The Arbitration and Conciliation Act,1996.
18 | P a g e
merchants, stock exchanges and different chambers of commerce etc. 31 The applicability of
Part-I of the Act to “all arbitrations” means this part shall apply to all such arbitrations being
held and not only under any agreement between the parties but also under the provisions of
the rules and bye-laws of such associations of merchants, stock exchanges and chambers of
commerce etc.32 The expression ‘every arbitration’ and ‘all arbitrations’ cannot be stretched
to mean an arbitration being held outside India. Therefore, the only way in which sub-section
(2) and (5) of Section 2 can be harmoniously read together is that part I of the Act shall apply
to all arbitrations being held either under the agreement between the parties or under the rules
and bye-laws of certain associations of merchants, stock exchanges and chambers of
commerce or under the statute where the place of arbitration is in India. 33 Therefore, Section
2(2) does not conflict with section 2(4) or with section 2(5). On the basis of this reasoning it
is argued that good law is laid down by the Supreme Court in BALCO.
 Applicability of the award in a non-convention country
This deals with the applicability of the award in a non-convention country. It was held
in BHATIA International that if Part I does not apply to foreign arbitrations , an award of
Tribunal in a country that is party to neither the New York nor the Geneva Convention will
be unenforceable in India because it is neither a domestic or a foreign award, and this
“lacuna” could not have been intended by Parliament.
In BALCO the court has responded to the question by stating that the Parliament has
intentionally not provided a mechanism for enforcement of a non-convention award by not
including such an award within the definition of a ‘foreign award’ in Sections 44 and 53 of
the Act. This being so, courts cannot provide an enforcement mechanism for such awards by
deeming them to be domestic awards. There is therefore no lacuna that needs to be filled.
Also the court pointed out that in the 5th edition of Justice Bachawat’s Law of Arbitration
and Conciliation, it is argued that non-convention awards may be treated to be contractual
debts and a civil suit may be filed to enforce such a debt. The authors of the said book state
that the decision in Bhatia creates a situation by which it becomes easier to enforce non-
convention awards than convention awards- a situation that was definitely not intended.
The author submits that it is true that if Part I is restricted only to domestic arbitrations
31
PC Markanda, Law Relating to Arbitration And Conciliation 94 (Lexis Nexis, New Delhi.7th edn., 2009).
32
Ibid.
33
Marriott International Inc v. Ansal Hotels Ltd. (AIR 2000 Del 377).
19 | P a g e
then there would be no law in India governing arbitrations in non-convention country. But the
Court in BHATIA failed to explain the reason as to why the Indian Arbitration Act should
cover such arbitrations. The court gave only one reason to support its view that the way in
which the term “international commercial arbitrations” is defined in Section 2(1)(f) of the Act
is very expansive and includes all the arbitrations taking place outside India even those
arbitrations which took place in a non-convention country. The Court thus used the literal
method of interpretation while interpreting Section 2(1)(f) saying that since Part II was
limited to governing arbitrations in convention countries therefore Part I must be assumed to
be employed to cover arbitrations taking place outside India in a non-convention country thus
making the Act extraterritorial.
It is further contended that even Part II of the Act does not attempt to control foreign
arbitrations and instead is only concerned with recognition and enforcement of foreign
awards, delivered in pursuance of foreign arbitrations taking place in convention countries,
within the territorial limits of India. Moreover, Parliament could not have intended to apply
Part I, as a whole, to foreign arbitrations because as a general rule the Parliament is
authorized to make laws to be operational only within the territory of India since the
Constitution itself does not have extra-territorial operation.
 Whether any party would be left remediless if it is held that Part I doesn’t apply to
arbitrations held outside India
The fifth issue is whether any party would be left remediless if it is held that Part I
doesn’t apply to arbitrations held outside India. It was held in BHATIA International that
party is left entirely remediless if Part I does not apply to arbitrations conducted outside India
as the party would not be able to apply for interim relief in India even though the properties
and assets are in India. Thus a party may not be able to get any interim relief at all.
To this question the court in BALCO held that the parties will have a remedy before
the courts at the seat of arbitration. Merely, because this remedy may be onerous does not
mean that the party is left remediless. Since the parties voluntarily chose the seat, they are
deemed to have voluntarily chosen the consequences of such a selection. In arguendo that the
parties are left remediless, that needs to be addressed by the Legislature and not the Courts.
20 | P a g e
The author opines that the issue which BALCO judgement has not been able to
answer is the one arising in a situation where the assets of a party are located in India, and
there is a likelihood that the party will spend its assets in the near future, the other party will
lack an effective remedy if the seat of the arbitration is abroad. It would present the latter
party with two possible remedies, but none of these would be efficacious. Firstly, it can
obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit
to enforce the right created by the interim order. The interim order would not be enforceable
directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for
the purposes of Sections 13 and 44A of the Code of Civil Procedure (which provide a
mechanism for enforcing foreign judgments). Secondly, in the event that the former party
does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for
contempt in the foreign court and enforce the judgment of the foreign Court. Neither of these
remedies is likely to provide a practical remedy to the party seeking to enforce the interim
relief obtained by it.
The possibility of a party being unable to take these steps greatly reduces the efficacy
of arbitration proceedings. This fact has been recognized by most countries and most
international conventions including UNCITRAL Model Law which allows extraterritorial
operation of domestic arbitration law with respect of interim measures of protection and
national legislations have conferred national courts with the power to order interim measures
of relief even in case of foreign arbitrations. In this regard the BHATIA judgment has raised
a pertinent issue which has not been convincingly addressed by BALCO judgment.
 Suitability of the phrase “where the place of arbitration is in India” in Section 28 of

the Act
This issue deals with the suitability of the phrase “where the place of arbitration is in
India” in Section 28 of the Act. On this point the Supreme Court in Bhatia International states
that if Part I did not apply, there was no need to have used the words “where the place of
arbitration is in India” in Section 28(1) because if Part I does not apply when the seat is
abroad, neither will section 28 and it would make these words superfluous. The use of these
words hints that the act is applicable in place other than India.
On contrary the Court in BALCO held “The section merely shows that the legislature has
segregated the domestic and international arbitration. Section 28 indicates its only purpose is
21 | P a g e
to identify the rules that would be applicable to “substance of dispute”. In other words, it
deals with applicable “conflict of law” rules. This section makes a distinction between purely
domestic arbitrations and international commercial arbitrations, with a seat in India. Section
28(1) (a) makes it clear that in an arbitration under Part I to which Section 2(1) (f) does not
apply; there is no choice but for the Tribunal to decide “the dispute” by applying the Indian
“substantive law applicable to the contract”. In that event, the “conflict of laws” rules of the
country in which arbitration takes place would have to be applied. Therefore, the emphasis
placed on the expression “where the place of arbitration is situated in India”, by the appellant,
is not indicative of the fact that the intention of Parliament was to give an extra-territorial
operation to Part I of the, 1996 Act.
By taking into consideration the view of the Hon’ble Supreme Court in both the above cases
author opines that Section 28(1) as it now stands opens with the words ‘where the place of
arbitration is situate in India’ indicate that clause (a) deals with purely domestic arbitration
and clause (b) deals with purely international arbitration. With a view to remove the
impression arising from the opening words in Section 28(1); it can be said that they are used
in with respect to sub-section (1) (b) of the Section 28 which deals with international
commercial arbitration. This section deals with the rules relating to substance of the dispute
and the provision applies only when the place of arbitration is in India irrespective of whether
arbitration is domestic or international commercial.
 The over-riding effect Sec 45 of the Act over Part I of the Act
It deals with over-riding effect Sec 45 of the Act over Part I of the Act. The use of the phrase
“notwithstanding anything contained in Part I, or in the Code of Civil Procedure, 1908”, in
Section 45, which is contained in Part II of the Act. The Hon’ble court in Bhatia International
indicated that Part I and Part II can apply concurrently in certain situations and since Part II
only applies where place of arbitration is abroad, it would mean that Part I could apply in
certain situations where place of arbitration is foreign while the court in BALCO held that the
Parliament in order to avoid any confusion has used the expression “notwithstanding
anything contained in Part I” out of abundant caution, i.e., “ex abundanti cautela”.
The real purpose of Section 45 is to ensure that at some stage, whether pre-award, post-award
or both, a judicial authority must decide the validity, operation and capability of the
22 | P a g e
performance of arbitration agreement.34 The section starts with a non obstante clause35,
namely, “notwithstanding anything contained in Part I, or in the Code of Civil Procedure,
190836” which is a legislative device, which is usually employed to give overriding effect to
certain provisions over some contrary provisions that may be found either in the same
legislation or in some other legislation. Therefore, looking at the provisions of the section
which is in part II, it can be noticed that it overrides Part I. Though it has overriding effect
where it takes into consideration Part I of the Act, the author agrees with the reasoning given
by the Supreme Court in BALCO judgement. This reasoning was not given in vacuum as
there might be a possibility where parties out of error in procedure may file an application to
judicial authorities in India to refer parties to arbitration under Section 45 and how one can
say that this error of procedure will not arise.
34
PC Markanda, Law Relating to Arbitration And Conciliation 94 (Lexis Nexis, New Delhi. 7th edn., 2009).
35
Ibid.
36
Section 45, The Arbitration and Conciliation Act, 1996.
23 | P a g e
CHAPTER- 5
IMPLICATIONS THAT FOLLOW FROM THE JUDGMENT
It is true that the decision given by the Court in the BALCO case was based upon a sound
appreciation of arguments, yet there are many implications which may follow pursuant to the
decision.
1. The major emphasis is on the policy of disinvestment. Though the Court did not go into the
merits of the disinvestment policy per se yet, it did silently approve the policy to be followed
by the Union. Thus the court supported the revival of the national economic with the support
of private lines. The earlier policy of socialist economy, as upon which the Constitution was
based and is as well enshrined in the Preamble, read with the State’s duty to avoid
concentration of wealth in private hands as envisaged under the Directive Principles was not
considered an appropriate solution for meeting the present day need i.e. boosting the national
economic growth.
2. The observations of the Court on the aspect of natural justice may have been insignificant
in terms of words spoken on it or portion of the judgment dealing with it yet; the impact
which it has created is enormous. The Court held that the principles of natural justice did not
apply even in case the rights of the employees were affected as regards the change of their
employer. They were not even given an opportunity to be heard and this was the sole bone of
contention. For the very reason that Sterlite industries (the buyer) had given an undertaking
that no employee of BALCO would be removed and the government had taken sufficient
steps towards the protection of the employees, they had no reason to be heard. Sounds
innocuous yet despairing. Employees, being connected with the manufacturing and other
process in a much closer manner than any other body had, at least, the minimum right to put
their views before the Court. Thus the participation of employees in the betterment of their
organisation at the Board level was also discouraged.
3. Also, an important fact that may have evaded the critics, the method of computation of
BALCO’s capital. Of the three different methods, the accounting method adopted for arriving
at the reserve price for the sale of BALCO was the one with the lowest result. It was never
questioned by the Court. Thus it can be used in later cases before the Court that the method
adopted by the Government is beyond judicial review too as it falls within the ambit of
administrative discretion too. It may seem to be a remote issue nevertheless may be raised in
the Courts.
4. Further, the Court never did accept or upheld that disinvestment as a policy per se was a
24 | P a g e
good policy to be implemented in the pursuance of national economic growth. Yet it was so
stated in the later case wherein the disinvestment of HPCL and BPCL was challenged and it
was contended by the Union of India that the policy of disinvestment was upheld by the
Supreme Court in the BALCO case.
These are some of the implications that may arise pursuant to the decision of the Supreme
Court in the matter of the BALCO disinvestment process, as being conceived by this author.
25 | P a g e
CHAPTER- 6
SOME PERTINENT OBSERVATIONS OF THE COURT IN THE CASE
 It is evident from the above that it is neither within the domain of the Courts nor the scope of
the judicial review to embark upon an enquiry as to whether a particular public policy is wise
or whether better public policy can be evolved. (para 46)
 Process of disinvestment is a policy decision involving complex economic factors. The
Courts have consistently refrained from interfering with economic decisions as it has been
recognized that economic expediencies lack adjudicative disposition and unless the economic
decision, based on economic expediencies, is demonstrated to be so violative of constitutional
or legal limits on power or so abhorrent to reason, that the Courts would decline to interfere.
In matters relating to economic issues, the Government has, while taking a decision, right to
"trial and error" as long as both trial and error are bona fide and within limits of authority.
(para 47)
 There is no case made out by the petitioner that the decision to disinvest in BALCO is in any
way capricious, arbitrary, illegal or uninformed. Even though the workers may have interest
in the manner in which the Company is conducting its business, inasmuch as its policy
decision may have an impact on the workers rights, nevertheless it is an incidence of service
for an employee to accept a decision of the employer which has been honestly taken and
which is not contrary to law. Even a government servant, having the protection of not only
Articles 14 and 16 of the Constitution but also of Article 311, has no absolute right to remain
in service. For example, apart from cases of disciplinary action, the services of government
servants can be terminated if posts are abolished. If such employee cannot make a grievance
based on part III of the Constitution or Article 311 then it cannot stand to reason that like the
petitioners, non-government employees working in a company which by reason of judicial
pronouncement may be regarded as a State for the purpose of part II of the Constitution, can
claim a superior or a better right than a government servant and impugn it's change of status.
(para 47)
 In taking of a policy decision in economic matters at length, the principles of natural justice
have no role to play. While it is expected of a responsible employer to take all aspects into
consideration including welfare of the labour before taking any policy decision that, by itself,
will not entitle the employees to demand a right of hearing or consultation prior to the taking
of the decision. (para 47)
26 | P a g e
 Merely because the workmen may have protection of Article 14 and 16 of the Constitution,
by regarding BALCO as a State, it does not mean that the erstwhile sole shareholder viz.,
Government had to give the workers prior notice of hearing before deciding to disinvest.
There is no principle of natural justice which requires prior notice and hearing to persons who
are generally affectedas a class by an economic policy decision of the Government. (para 48)
 If the abolition of a post pursuant to a policy decision does not attract the provisions of
Article 311 of the Constitution as held in State of Haryana v. Shri Des Raj Sangar and Anr.,
(1976) 2 SSC 844, on the same parity of reasoning the policy of disinvestment cannot be
faulted if as a result thereof the employees loss their rights or protection under Articles 14
and 16 of the Constitution. In other words, the existence of rights of protection under Articles
14 and 16 of the Constitution cannot possibly have the effect of vetoing the Government's
right to disinvest. Nor can the employees claim a right of continuous consultation at different
stages of the disinvestment process. If the disinvestment process is gone through without
contravening any law, then the normal consequence as a result of disinvestment must follow.
(para 48) The Court approved the decision of the Madras High Court in Southern Structurals
Staff Union v. Management of Southern Structural Ltd. and Anr., [1994] 81 Comp Cases 389
(Mad).
 Thus the Supreme Court observed, “What may have been in the public interest at a point of
time may no longer be so. The Government has taken a policy decision that it is in public
interest to disinvest in BALCO. An elaborate process has been undergone and majority shares
sold. it cannot be said that public funds have been frittered away. In this process, the change
in the character of the company cannot be validly impugned. While it was a policy decision
to start BALCO as a company owned by the Government, it is as a change of policy that
disinvestment has now taken place. If the initial decision could not be validly challenged on
the same parity of reasoning, the decision to disinvest also cannot be impugned without
showing that it is against any law or mala fide.” (para 51)
 Further, the Court observed that it was satisfied that the workers' interests are adequately
protected in the process of disinvestment. Apart from the aforesaid undertaking given in the
Court, the existing laws adequately protect workers' interest and no decision affecting a huge
body of workers can be taken without the prior consent of the State Government. (para 55)
 The Court categorically held that, “Even though the employees of the company may have an
interest in seeing as to how the company is managed, it will not be possible to accept the
contentions that in the process of disinvestment, the principles of natural justice would be
27 | P a g e
applicable and that the workers, or for that matter any other party having an interest therein,
would have a right of being heard. As a matter of good governance and administration
whenever such policy decisions are taken, it is desirable that there should be wide range of
consultations including considering any representations which may have been filed, but there
is no provision in law which would require a hearing to be granted before taking a policy
decision. (para 57)
Summary: One of the objects of giving a hearing in application of the principles of natural
justice is to see that an illegal action or decision does not take place. Any wrong order may
adversely affect a person and it is essentially for this reason that a reasonable opportunity
may have to be granted before passing of an administrative order. In case of the policy
decision, however, it is impracticable, and at times against the public interest, to do so, but
this does not mean that a policy decision which is contrary to law cannot be challenged. Not
giving the workmen an opportunity of being heard cannot per se be a ground of vitiating the
decision. If the decision is otherwise illegal as being contrary to law or any constitutional
provision, the persons affected like the workmen, can impugn the same, but not giving a pre-
decisional hearing cannot be a ground for quashing the decision.
 Distinguishing the case of National Textile Workers' Union and Others vs. P.R.
Ramakrishnan, as relied upon by the employees, the Court held that, “No judicial or quasi-
judicial functions are exercised by the Government when it decides, as a matter of policy, to
disinvest shares in a Public Sector Undertaking.” Thus the Court held that the principle that
natural justice was applicable and it was available for employees wherein they had to be
heard before the government decided to wind up the company, was not applicable to the
instant case and as such no hearing was to be required of the employees. (para 58)
 The Court dismissed the petition of Shri B.L. Wadhera on the grounds that the decision to
disinvest and the implementation thereof was purely an administrative decision relating to the
economic policy of the State and challenge to the same at the instance of a busy-body
therefore could not have fallen within the parameters of Public Interest Litigation. (para 88)
This stand was arrived at by reviewing a number of its earlier decisions wherein the Supreme
Court had explained the meaning, scope and extent of PIL, the most recent one being the
Narmada Bachaoo Andolan Case.
28 | P a g e
 The Court also gave a conclusion to the entire matter in the judgment and held as follows;
 The decision to disinvest and the implementation thereof is purely an administrative
decision relating to the economic policy of the State and challenge to the same at the
instance of a busy-body cannot fall within the parameters of Public Interest Litigation.
 Wisdom and advisability of economic policies are ordinarily not amenable to judicial
review unless it can be demonstrated that the policy is contrary to any stuttered provision
or the Constitution. In other words, it is not for the Courts to consider relative merits of
different economic polices and consider whether a wiser or better one can be evolved. For
testing the correctness of a policy, the appropriate forum is the Parliament and not the
Courts. Here the policy was tested and the Motion defeated in the Lok Sabha on 1st
March, 2001.
 Thus, apart from the fact that the policy of disinvestment cannot be questioned as such, the
facts herein show that fair, just and equitable procedure has been followed in carrying out
this disinvestment. The allegations of lack of transparency or that the decision was taken
in a hurry or there has been an arbitrary exercise of power are without any basis.
 The offer of the highest bidder has been accepted. This was more than the reserve price
which was arrived at by a method which is well recognized and, therefore, we have not
examined the details in the matter of arriving at the valuation figure. Moreover, valuation
is a question of fact and the Court will not interfere in matters of valuation unless the
methodology adopted is arbitrary.37
 The ratio of the decision in Samatha's case is inapplicable here as the legal provisions here
are different. The land was validly given to BALCO a number of years ago and today it is
not open to the State of Chattisgarh to take a summersault and challenge in management
the land remains with BALCO to whom it had been validly given on lease.
 Judicial interference by way of PIL is available if there is injury to public because of
dereliction of Constitutional or statutory obligations on the part of the government. Here it
is not so and in the sphere of economic policy or reform the Court is not the appropriate
forum. Every matter of public interest or curiosity cannot be the subject matter of PIL.
Courts are not intended to and nor should they conduct the administration of the country.
Courts will interfere only if there is a clear violation of Constitutional or statutory
37
For this purpose the court refereed to the case of Duncans Industries Ltd. vs. State of U.P. and Others,
(2000) 1 SCC 633.
29 | P a g e
provisions or non-compliance by the State with it's Constitutional or statutory duties. None
of these contingencies arise in this present case.
 In the case of a policy decision on economic matters, the courts should be very
circumspect in conducting any enquiry or investigation and must be most reluctant to
impugn the judgment of the experts who may have arrived at a conclusion unless the Court
is satisfied that there is illegality in the decision itself.
 Lastly, no ex-parte relief by way of injunction or stay especially with respect to public
projects and schemes or economic policies or schemes should be granted. It is only when
the Court is satisfied for good and valid reasons, that there will be irreparable and
irretrievable damage can an injunction be issued after hearing all the parties. Even then the
Petitioner should be put on appropriate terms such as providing an indemnity or an
adequate undertaking to make good the loss or damage in the event the PIL filed is
dismissed.
30 | P a g e
CHAPTER- 7
CONCLUSION
Whilst the BALCO decision has many positives but there are several serious questions which
remain unanswered and dilute the ratio of this judgment. Concern arises from the fact that the
BALCO decision will apply prospectively i.e. only to arbitration agreements which are
concluded on or after 6 September 2012 which means that Part I of the Act will continue to
apply to foreign-seated arbitrations with respect to arbitration agreements concluded prior to
that date, unless the parties have either expressly or impliedly agreed otherwise. The apex
court has done this to avoid hardships to the parties who have already entered into arbitration
agreements in view of the law laid down by the BHATIA International judgment. Despite
Bhatia International38 and Venture Global39 being expressly overruled, it is ironic
continuation of these precedents to guide the Indian courts for another decade or so in matters
of arbitration agreements entered into prior to 6 September 2012. A lot of confusion will be
there in any attempt made by the Indian courts to maintain two parallel regimes for next
decade or so unless the Indian Supreme Court subsequently backpedals on this issue.
Despite BALCO verdict, it is arguable on the basis of the decision of the Supreme Court in
TDM Infrastructure Private Limited v. UE Development India Private Limited40 that it is
inconsistent with Indian public policy for an Indian incorporated entity to contract out of the
application of Indian substantive law in contract that it enters into with another Indian
incorporated entity. This is despite the fact that such a contract may contain a foreign-seated
arbitration clause. If two Indian incorporated entities wish to enter into a contract that
provides for a foreign-seated arbitration, one can still stipulate Indian law as the governing
law of such a contract.
The Supreme Court, in the celebrated case of Ram Jawaya Kapoor v. State of Punjab41,
observed thus, “the executive function comprises both the determination of policy as well as
carrying into execution. The evidently includes the initiation of legislation, the maintenance
of order, the promotion of social and economic welfare, the direction of foreign policy, in fact
38
Bhatia International v Bulk Trading S.A. and Anr., (2002) 4 SCC 105.
39
Venture Global Engineering v Satyam Services Ltd and Anr,(2010) 8 SCC 660.
40
2008 14 SCC 271
41
AIR 1955 SC 549
31 | P a g e
the carrying on or supervision of the general administration of the State”42
Thus we find that the determination of policy has always been within the domain of the
Executive. Therefore there remains no doubt that the government had the power to decide as
to the adoption of a policy of disinvestment. It is this very precise reason that the same could
not have been challenged successfully before the Court. Thus, it was challenged indirectly by
taking the stand that such a policy would under the legal and constitutional rights of the
employees of BALCO. Thus we find that the litigation, the reason for challenge and the
motive behind such a challenge were flawed from its very beginning.
The success of the petition was, therefore, never guaranteed. The main reason seems more of
so political rather than legal, which initiated the present litigation. Nevertheless the Court was
categorical in dealing with the issues. It laid to rest its critics while also issuing a stern
warning that Public Interest Litigation should not be used as a means to invalidate policy
decisions of government which in ordinary course were beyond judicial review. The Court
also severely deprecated the action of the State officials who accused the Union Government
of malafide and abuse without stating firm grounds for the same.
On the aspect of the impact that the decision has created on administrative law, it can be said
that it was not much except for the fact that it reiterated certain fundamental principles which
had already been incorporated in the Indian legal stream. The fact of the administrative
discretion and power to adopt and implement policy decisions being beyond the scope of
judicial review unless it suffered from illegalities or malafide was upheld.
Further the Court upheld that there was no violation of principles of natural justice by non-
hearing of the employees in the entire disinvestment process as it was purely a matter of
administrative choice wherein the employees had no stake. It may be hard to adjust but seems
to be a sound legal principle indeed. After all the rights of the employees were protected
under different labour and industrial legislations no matter who the employer was. Thus
accepting the fact that they had an interest in the management of the company yet, it was not
incumbent or essential to take their views before deciding the entire process.
The silent approval of the disinvestment process by the Apex Court also symbolises the fact
that the Court also feels it in the interest of national interests and the economy on the whole.
42
Id. at 556
32 | P a g e
This the Court expounded in a later case when it approved the sale of HPCL and BPCL on
similar lines as BALCO.
Thus, on a whole, though the case may failed to give any novel concept, yet it is landmark of
its own kind. It was an attempt on the part of the Court to define its own limits on judicial
review. It also stretched the scope for the exercisal of administrative powers in making policy
decision. The limits of Public Interest Litigation vis-à-vis disinvestment were also laid for the
first time.
33 | P a g e
BIBLIOGRAPHY
STATUTE:
1. The Arbitration and Conciliation Act, 1996.

2. Jammu & Kashmir Arbitration and Conciliation Act, 1997.
BOOKS:
1. Madhusudan Saharay, Arbitration & Conciliation with Alternative Dispute Resolution

(3rd Edition, Universal Law Publishing Co.) (2015).
2. Avtar Singh, Law of Arbitration & Conciliation and Alternative Dispute Resolution
Systems (10th Edition, Eastern Book Company,) (2013).
3. PC Markanda, Law Relating to Arbitration And Conciliation 94 (Lexis Nexis, New
Delhi.7th edn., 2009).
4. Jain & Jain, Principles of Administrative Law, (Wadhwa & Co., Nagpur, 4th edition,
2003)
5. I. P. Messy, Principles of Adminstrative Law, (Eastern Book Company, Lucknow, 2003)
PUBLISHED ARTICLES:
1. Dolvi Oswal, The Harmony Judgement and its After Math, Journal on Contemporary
Issues of Law (JCIL) Vol 2 Issue 11
2. Jain, Tarun, A Critical Analysis of the Balco Case, Available at
SSRN: https://ssrn.com/abstract=1087593 or http://dx.doi.org/10.2139/ssrn.1087593
3. Anuradha Godrey & Kanwar Vivswan, Arbitration Law in India: A Paradigm Shift,
International Journal of Research and Analysis Volume 2 Issue 1 (2014).
4. Presentation on Disinvestment, as presented by the Union of India at the OECD
CONFERENCE on Privatisation, Employment and Employees, 10-11 OCTOBER 2002,
Turkey)
WEBSITES/ WEB PAGES

1. Promod Nair, The Decision of the Indian Supreme Court in BALCO v. Kaiser William,
available at http://www.jsalaw.com/wp-content/uploads/2015/09/The-Decision-of-the-
Indian-Supreme-Court-in-BALCO-v-Kaiser-Aluminium.pdf
34 | P a g e

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PROJECT REPORT

“A CRITICAL ANALYSIS OF THE BALCO CASE”

CHAPTER TITLE PAGE NO.

NAME OF CASE CITATION

Bhatia International v Bulk Trading S.A (2002) 4 SCC 105

Ram Jawaya Kapoor v. State of Punjab AIR 1955 SC 549

Rustom Cavasjee Cooper v. Union of India (1970) 1 SCC 248

2.1 IMMEDIATE FACTS LEADING TO THE PRESENT CASE

2.2 CHRONOLOGICAL ORDER OF EVENTS

2.3 CONTENTION OF THE PARTIES

2.3.1 ON BEHALF OF THE BALCO EMPLOYEES' UNION.

2.3.2 ON BEHALF OF THE UNION OF INDIA

Petitioner should be put on appropriate terms such as providing an indemnity or an adequate

COMPETING APPROACHES OF THE APEX COURT ON KEY ISSUES

 Applicability of Part I either to domestic or international commercial arbitration

In view of the author this is an illustration of application of the Mischief Rule of

must be interpreted according to the objective of the Statute.

 Applicability of the award in a non-convention country

 Suitability of the phrase “where the place of arbitration is in India” in Section 28 of

the carrying on or supervision of the general administration of the State”42

1. The Arbitration and Conciliation Act, 1996.

1. Madhusudan Saharay, Arbitration & Conciliation with Alternative Dispute Resolution

WEBSITES/ WEB PAGES

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