Finance Ministry says Centre allowed to sell stake in IDBI Bank, refers Delhi HC's 2018 judgement to defend dilution

The Finance Ministry in an official statement today, 17 October, clarified legislative developments concerning the Centre’s shareholding in IDBI Bank and defended its dilution plan for the lender.

The PIB release reiterated that during the discussions of Union Budget, 2003 and the parliamentary debate on the IDBI (Repeal) Act, 2003, an amendment seeking to restrict the dilution of the government’s stake was moved but was ultimately rejected and did not form part of the enacted legislation.

It added that the matter was subsequently examined by the Delhi High Court in All India IDBI Officers’ Association v. Union of India & Others decided on 17 December 2018. It said the judgement did not preclude the Centre from diluting its stake and statements made before the House cannot override a statue enacted by the Parliament.

Quick answers to key questions

•5 QUESTIONS

1

Did the Delhi High Court allow the Centre to dilute its stake in IDBI Bank?⌵

Yes. In its 17 December 2018 judgment, the Delhi High Court said parliamentary statements from the 2003 debate did not prevent the Centre from reducing or divesting its stake.

2

Did the IDBI (Repeal) Act, 2003 prohibit the government from selling its IDBI Bank stake?⌵

No. The Delhi High Court held that the enacted Act contained no provision preventing the government from reducing or divesting its stake in IDBI Bank.

3

Why did the Delhi High Court reject promissory estoppel in the IDBI Bank stake-sale case?⌵

The Court said statements made during parliamentary debates could not override the enacted law or be treated as a representation that barred the government from diluting its shareholding.

4

How did Union Budget speeches support the government’s IDBI Bank disinvestment policy?⌵

The Finance Ministry cited Budget speeches in 2017 and 2022 that referred to transforming IDBI Bank, considering a stake reduction and pursuing its strategic disinvestment.

5

What is Fairfax’s proposed stake in IDBI Bank, and what approvals does the sale need?⌵

Fairfax Financial Holdings is set to acquire a 60.72% stake for about ₹53,000 crore, including shares held by the Centre and LIC. The transaction still requires RBI, CCI and other statutory approvals.

According to the release, the High Court, while dismissing the writ petition, adjudicated in paragraphs 41 and 42 as follows:

• Paragraph 41:

“This Court is of the view that the statements made before the House almost 15 years earlier, in a debate relating to a legislative activity, would not preclude the Central Government from diluting its stake in IDBI Ltd.”

“Indisputably, the legislation enacted by the Parliament after the debate did not contain the amendment that was sought to be introduced. The statements made before the House cannot substitute or override the statue so enacted by the Parliament. Surely, the Parliament was conscious of the import of not including the proviso as proposed.”

“The principles of promissory estoppel are wholly inapplicable in the aforesaid context. It is not possible to accept that the statements made in Parliament amounted to a representation made to the employees and they had acted to their prejudice based on such representation. The statements made before the House were in the context of enacting a legislation (the IDBI Repeal Act, 2003), and the said Act has to be interpreted in conformity with the settled principles of statutory interpretation.”

• Paragraph 42:

“There is no ambiguity in the language of the IDBI Repeal Act, 2003 and there is no scope to read any provision into the said enactment which proscribes the Government from reducing or divesting its stake in IDBI Ltd.”

As per the ministry, the Delhi HC judgment is significant “as it specifically addresses the doctrine of promissory estoppel, which was relied upon in challenging the Government’s decision to dilute its shareholding”.

“The doctrine could not be invoked to prevent the Government from reducing or divesting its stake in IDBI,” it added.

As per the statement, the HC judgment dated 17 December 2018, “clarifies beyond doubt that the doctrine of promissory estoppel cannot be invoked on the basis of statements made during parliamentary debates to restrict the Government’s power to dilute its shareholding in the IDBI Bank Ltd.”

The Court further held that the enacted legislation contained no prohibition against reducing the Government’s stake in the IDBI Bank, it added.

It added that the Centre’s policy to transformation and strategic disinvestment of IDBI Bank was reiterated in successive Union Budget Speeches in the Parliament as follows:

• Union Budget 2017 — Speech of the then Finance Minister, Arun Jaitley (Paragraph 93): “Our Public Sector Banks will have to be strong and competitive. The Bank Board Bureau will be operationalized during 2016-17 and a roadmap for consolidation of Public Sector Banks will be spelt out. The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50%.”
• Union Budget 2022 — Speech of Finance Minister Nirmala Sitharaman (Paragraph 84): “In spite of COVID-19, we have kept working towards strategic disinvestment. A number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited among others would be completed in 2021-22. Other than IDBI Bank, we propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22. This would require legislative amendments and I propose to introduce the amendments in this Session itself.”

As per the ministry, the legislative history of the IDBI Act, Delhi HC's judicial pronouncement and successive Budget speeches collectively demonstrate the evolution of the Centre’s policy towards the strategic disinvestment of IDBI Bank.

Canada's Fairfax Financial Holdings will acquire a 60.72% stake in IDBI Bank for about ₹53,000 crore ($5.5 billion), in what would be the largest foreign investment in an Indian bank, PTI reported on 14 October.

The deal was approved by the Cabinet Committee on Economic Affairs (CCEA), which approved Fairfax as strategic buyer for the government's 30.48% stake (for about ₹26,620 crore) and state-run Life Insurance Corporation of India's (LIC) 30.24% (for about ₹26,440 crore).

The sale process began in 2022 and faced a setback earlier this year when initial bids fell below the government's reserve price. Canadian billionaire Prem Watsa-led Fairfax will pay ₹81/share, higher than the benchmark fair value of ₹75.99 determined by two independent valuation agencies, an official statement said.

The transaction still needs approval from the Reserve Bank of India (RBI), which will conduct a “fit and proper” assessment, as well as the Competition Commission of India (CCI) and other statutory authorities.

Jocelyn Fernandes is a journalist and editor with nearly 13 years of experience covering the business, corporate, economy and markets beats in news.<br> As chief content producer for around three years at Livemint (Hindustan Times), Jocelyn publishes breaking stories, explainers, features and live blogs on a range of business and economy topics, including the Budget, corporate developments, stock markets, income tax, money and personal finance, cryptocurrency, government policy, impact of US tariffs, international developments and more.<br> Jocelyn's writing philosophy is focused on delivering news in an accurate and accessible format for readers. She thus focuses her news coverage on explainers and FAQs in order to breakdown business, corporate, economic, and policy topics that are of importance to everyday readers.<br> She holds a Bachelors in Mass Media (BMM) and Post Graduate Diploma (PGD) in Journalism and Communication and has previously written for online business and markets news site Moneycontrol (Network18), Business-to-business (B2B) trade publications — the industry magazines Power Today and Solar Today (ASAPP Media), and the national news agency United News of India (UNI).<br> Outside of work, Jocelyn keeps up-to-date with local and international news, enjoys reading fiction books, novels and short stories, and enjoys movies, travelling and art. <br> She can be found on X and LinkedIn, and reached by email: <a href="jocelyn.fernandes@htdigital.in">jocelyn.fernandes@htdigital.in</a> <br> X/ Twitter handle: <a href="https://x.com/scribeJocelyn">@scribeJocelyn</a> <br> LinkedIn: <a href="https://in.linkedin.com/in/jocelyn-fernandes-journalist">LinkedIn</a>

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