Skip to main content

High Court order on "costly" Narmada bonds may force Gujarat government to shell out Rs 7,500 crore

By Our Representative
The Gujarat government’s controversial, indeed costly, Deep Discount Bonds, floated way back in 1993 in order to raise money for building the Narmada dam after the World Bank put stringent environmental conditions for providing loan, are back in news.
Fingers are crossed on how it would manage whopping around Rs 7,500 crore it was to pay to lakhs of bond holders, who were to be paid by January 2014 on the bond's 20 year maturity. In all, 6.69 lakh bonds were issued.
The Gujarat High Court has struck down a 2008 law of the state assembly, which allowed the state government to prematurely “retire” the costly bonds in 11 years (by May 2004) cheap, 10 years before were to mature.
The bonds were issued after the state government decided not to comply by World Bank conditions, put forward through the Bank’s well-known Morse Committee report, and thereby forego the loan. It first mulled over roping in Gujarati diaspora to mobilize financial resources. But this failed.
On November 1, 1993, it allowed the Sardar Sarovar Narmada Nigam Ltd (SSNNL), the state agency building the dam, to issue bonds worth Rs 300 crore, each for Rs 3,600. As the redemption amount promised was unprecedented – Rs 1,11,000 – after 20 years (January 2014, at the interest rate of 17.5 per cent), it was a huge success.
However, in 2008, the state government "found" that the bonds would mean a huge financial burden of state coffers – Rs 7,448 crore by January 2014, when the bonds were to mature. This led it to pass the Sardar Sarovar Narmada Nigam (Conferment of Power to Redeem Bonds) Act, 2008, declaring, this would help the SSNNL to save around Rs 4,500 crore immediately.
While many investors allowed their bonds to be redeemed, a petition was filed in the high courts of Gujarat, Maharashtra and Karnataka challenging the vires of the Act. The matter reached the Supreme Court through a transfer petition. In 2013, the apex court directed that all the matters to be decided by the Gujarat High Court.
The petitioners challenged the Act on grounds of legislative competence, Article 14 and 19 of the Constitution, and extra-territorial operation. It was argued that the framing of such Acts was the prerogative of Parliament, and not of the state assembly, as it fell within the ambit of company laws and acts related to the Security and Exchange Board of India (SEBI).
With the High Court striking down the law allowing premature retirement of the bond, state government, say observers, is left with little option but to payments to all those who allowed their bonds to be prematurely redeemed, as also those who had not returned the bonds. The SSNNL claimed in December 2008 that 3.39 lakh bonds had been "surrendered", which meant 50 per cent of them were not surrendered.
Interestingly, before deciding on prematurely redeeming the bonds through an Act, the SSNNL attempted to hold an extraordinary general body meeting to take consent of more than 75 per cent of bondholders to pre-redeem all the outstanding bonds compulsory at the end of 11 years (May 2004). This met with failure.
The state government knew, much of its debt burden was due to the SSNNL, which had already spent Rs 717 crore, Rs.944 crores and Rs.766 crores respectively, for years 2002-03, 2003-04 and 2004-05 on interest payments and debt servicing alone. Cumulatively, SSNNL spent Rs 2428 crore over the three years.
Criticizing the Deep Discount Bonds against this backdrop, it noted, “Without any systematic plan for redemption of bonds”, the SSNNL “went on borrowing for redemption of earlier debts, which resulted in abnormal increase in the expenditure on servicing the debt”.
In 2002, the CAG also said that the SSNNL issued bonds at the rate of 17.5 per cent, when “co-arrangers of the said issue Kotak Mahindra Finance Limited had specified 16.25 per cent interest rate for a similar issue (October 1995) of Nuclear Power Corporation” and the “Industrial Finance Corporation of India, one of the merchant bankers of this issue had recommended (February 1997) fixation of rate of interest between 15.5 and 16 per cent.”

Comments

Anonymous said…
They have 3 to 4000 cr as money to build a statue but they feel helpless when they have to return the 7000 cr to investors?

TRENDING

Importance of Bangladesh for India amidst 'growing might' of China in South Asia

By Samara Ashrat*  The basic key factor behind the geopolitical importance of Bangladesh is its geographical location. The country shares land borders with Myanmar and India. Due to its geographical position, Bangladesh is a natural link between South Asia and Southeast Asia.  The country is also a vital geopolitical ally to India, in that it has the potential to facilitate greater integration between Northeast India and Mainland India. Not only that, due to its open access to the Bay of Bengal, Bangladesh has become significant to both China and the US.

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

'BBC film shows only tip of iceberg': Sanjiv Bhatt's daughter speaks at top US press club

By Our Representative   The United States' premier journalists' organisation, the National Press Club (NPC), has come down heavily on Prime Minister Narendra Modi for recent "attacks on journalists in India." Speaking at the screening of an episode of the BBC documentary “India: The Modi Question,” banned in India, in the club premises, NPC President Eileen O’Reilly said, “Since Modi came to power we have watched with frustration and disappointment as his regime has suppressed the rights of its citizens to a free and independent news media."

Chinese pressure? Left stateless, Rohingya crisis result of Myanmar citizenship law

By Dr Shakuntala Bhabani*  A 22-member team of Myanmar immigration officials visited Rohingya refugee camps in Cox's Bazar to verify more than 400 Rohingya refugees as part of a pilot repatriation project. Does it hold out any hope for the forcibly displaced people to return to their ancestral homes in the Rakhine state of Myanmar? Only time will tell.

Unlike other revolutionaries, Hindutva icon wrote 5 mercy petitions to British masters

By Shamsul Islam*  The Hindutva icon VD Savarkar of the RSS-BJP rulers of India submitted not one, two,or three but five mercy petitions to the British masters! Savarkarites argue: “There are no evidences to prove that Savarkar collaborated with the British for his release from jail. In fact, his appeal for release was a ruse. He was well aware of the political developments outside and wanted to be part of it. So he kept requesting for his release. But the British authorities did not trust him a bit” (YD Phadke, ‘A complex Hero’, "The Indian Expres"s, August 31, 2004)

China ties up with India, Bangladesh to repatriate Rohingyas; Myanmar unwilling

By Harunur Rasid*  We now have a new hope, thanks to news reports that were published in the Bangladeshi dailies recently. Myanmar has suddenly taken initiatives to repatriate Rohingyas. As part of this initiative, diplomats from eight countries posted in Yangon were flown to Rakhine last week. Among them were diplomats from Bangladesh, India and China.

40,000 Odisha adolescent girls ask CM: Why is scheme to fight malnutrition on paper?

By Our Representative  In unique a postcard campaign to combat malnutrition, aimed at providing dietary diversity, considered crucial during adolescence, especially among girls, signed by about 40,000 adolescent girls from over 10,000 villages, have reminded Odisha chief minister Naveen Patnaik that his government's Scheme for Adolescent Girls (SAG), which converged with Pradhan Mantri Poshan Shakti Nirman  ( POSHAN ) 2.0 in 2021, is not being implemented in the State.

Natural farming: Hamirpur leads the way to 'huge improvement' in nutrition, livelihood

By Bharat Dogra*  Santosh is a dedicated farmer who along with his wife Chunni Devi worked very hard in recent months to convert a small patch of unproductive land into a lush green, multi-layer vegetable garden. This has ensured year-round supply of organically grown vegetables to his family as well as fetched several thousand rupees in cash sales.

Over-stressed? As Naveen Patnaik turns frail, Odisha 'moves closer' to leadership crisis

By Sudhansu R Das  Not a single leader in Odisha is visible in the horizon who can replace Chief Minister Naveen Patnaik. He has ruled Odisha for nearly two and half decades. His father, Biju Patnaik, had built Odisha; he was a daring pilot who saved the life of Indonesia’s Prime Minister Sjahrir and President Sukarno when the Dutch army blocked their exit.