Acting on market regulator Sebi’s plea, the Supreme Court has issued notice to the Centre, National Stock Exchange, Mysore Paper Mills Employees’ Group Gratuity Trust Fund and and others in a matter related to compulsory premature redemption of deep discount bonds (DDB) issued by public sector Sardar Sarovar Narmada Nigam Ltd (SSNNL) in 1993, allegedly a unilateral move aimed at depriving investors and bond-holders of their legitimate dues.
A bench headed by Chief Justice SH Kapadia sought reply from the corporate affairs ministry, NSE, Mysore Paper Mills Employees’ Group Gratuity Trust Fund (GTF) and its member Mohan D Kulkarni, Mysore paper Mills Employees’ Provident Fund Trust, the Gujarat government, SSNNL and others as to why their petitions should not be transferred from Karnataka High Court to the apex court.
Earlier, the apex court had tagged two other similar petitions filed by a trust of the Hotel Janpath Employees Provident Fund (HJEPF) and SSNL Investors Grievance Forum (SIGF) with the Gujarat government’s plea seeking transfer of all the related cases from Maharashtra to Gujarat. GTF and others have challenged the constitutional validity of SSNNL (Conferment of Power to Redeem Bonds) Act 2008, enacted through the Gujarat government after the public sector undertaking failed to get consent of bondholders, as disclosed in the prospectus, to redeem the DDBs prematurely in 2004.
Sebi submitted that the basic challenge to the 2008 Act was on account of lack of legislative competence of Gujarat to legislate on the subject and thus amounts to usurpation of the legislative functions of Parliament.
Alleging that SSNL cannot unilaterally seek premature redemption of deep discount bonds (DDBs), HJEPF and SIGF had also challenged the Act on the grounds that it was contrary to the guarantee given by the state.
They also challenged the validity of SSNL’s notice issued on November 3, 2008, informing investors about the early redemption of the bonds at a face value of Rs 50,000 on Jan 10, 2009, and the payment of money through the electronic clearing system, which was contrary to the terms and conditions of the prospectus dated March 29, 1993.
Sarovar Narmada Nigam had no call option unless the bond-holder prematurely encashed the bonds at the end of 7, 11 and 15 years or on maturity on January 11, 2014, at a maturity value of Rs 1,11,000, according to the trust.
?As such it is illegal and unjust on the part of SSNL to seek premature redemption of DDBs after the expiry of 15 years from the date of issue, whereas these were issued for a tenure of 20 years. It amounts to breach of trust,? the petitioners stated. Sarovar Narmada Nigam had issued non-convertible bonds and also DDBs in September 1993 to part-finance constructing the Sardar Sarovar Dam over the Narmada.