Delhi High Court

Ifci Ltd. vs Ravinder Balwani on 17 August, 2010

Author: S. Muralidhar

       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                 W.P. (C) 4596/2007

                                              Reserved on: 2nd August 2010
                                              Decision on: 17th August 2010

       IFCI LTD.                                           ..... Petitioner
                                 Through: Mr. Dinkar Singh and
                                 Mr. Bharatshree, Advocates.

                        versus


       RAVINDER BALWANI                  ..... Respondent
                   Through: Mr. Shyam Moorjani with
                   Mr. Deepak Goel, Advocate.


       CORAM: JUSTICE S. MURALIDHAR


              1. Whether reporters of local paper may be allowed
                  to see the judgment?                                   No
              2. To be referred to the reporter or not?                  Yes

              3. Whether the judgment should be referred in the Yes
                 digest?


                                 JUDGMENT

17.08.2010

1. Is the Industrial Finance Corporation of India Ltd. („IFCI Ltd.‟) a

„public authority‟ within the meaning of Section 2(h) of the Right to

Information Act, 2005 („RTI Act‟)? That is the question that arises for

consideration in this writ petition, which challenges an order dated

31st May 2007 passed by the Central Information Commission

(„CIC‟). The CIC answered the question in the affirmative.

2. A complaint was made by the Respondent before the CIC stating

that the Petitioner IFCI Ltd. had not published particulars on its

website nor appointed Central Public Information Officers („CPIOs‟)

which it was required to do in terms of Section 4, Section 5(1) and

5(2) of the RTI Act respectively, on account of which information

available with the IFCI Ltd. concerning the complaints made to it was

not able to be accessed. In response to the said complaint, the

Petitioner IFCI Ltd. took the stand that it was not a public authority

within the meaning of the RTI Act.

3. In the appeal before it, the CIC framed two questions: first, whether

an institution established under a law, would cease to be a public

authority once that law was repealed? And second, whether in this

case the shareholding by government can be treated as substantial

finance? The first question was answered by holding that IFCI Ltd.

was "established" under the Industrial Finance Corporation (Transfer

of Undertaking and Repeal) Act, 1993 („the 1993 Act‟) which was an

Act made by Parliament. In answering the second question, the CIC

noted that IFCI Ltd. "admitted in the hearing and in the written

submission that the GOI owned/controlled banks/FI equity in IFCI is

23.53% as on 31-3-2007." Further, it clarified that "funds need not be

directly provided to constitute substantial finance to a body. In this

case it stands admitted that indirect finance of 23.53% exists, which

cannot be construed to be insubstantial." Thus, it held IFCI Ltd. to be

a public authority within the definition prescribed under Section

2(h)(d)(i) of the RTI Act.

History of IFCI Ltd.

4. A brief enumeration of the history of IFCI Ltd. is necessitated to

appreciate the issue that arises in the present petition. The IFCI was

established as a statutory corporation in 1948 by the enactment of the

Industrial Financial Corporation of India Act, 1948 („the 1948 Act‟).

It was the first developmental financial institution set up as a statutory

corporation under an Act of Parliament to pioneer institutional credit

to medium and large scale industries.

5. The Parliament enacted the 1993 Act which was deemed to have

come into force on 1st October 1992. Under Section 2(b) of the 1993

Act, "Company" means "the Industrial Finance Corporation of India

Ltd., to be formed and registered under the Companies Act, 1956."

Under Section 2(c), the "Corporation" means the Industrial Finance

Corporation of India established under Section 3(i) of the Industrial

Finance Corporation Act, 1948. Section 3 of the 1993 Act states, "(o)n

such date as the Central Government may, by notification in the

Official Gazette, appoint, there shall be transferred to, and vest in, the

Company, the undertaking of the Corporation." The other provisions

concerned the general effect of the vesting of the undertaking in the

company, tax exemptions, officers and other employees of the

Corporation etc.

6. Section 11 of the 1993 Act reads as follows:

"11. (1) On the appointed day, the Industrial Finance Corporation Act, 1948 shall stand repealed.

(2) Notwithstanding the repeal of the Industrial Finance Corporation Act, 1948, the Company shall, so far as may be, comply with the provisions of sections 33, 34, 34A, 35 and 43 of the Act so repealed for any of the purposes related to the annual accounts of the Corporation."

7. The effect of the above enactment of 1993 was that IFCI was

incorporated as a company under the Companies Act, 1956 by virtue

of the above statute. The other peculiar feature of the 1993 Act was

that notwithstanding the incorporation of IFCI Ltd. under the

Companies Act, Sections 33, 34, 34A, 35 and 43 of the 1948 Act

continue to be applicable in terms of Section 11(1) of the 1993 Act.

Of these, Sections 34(4), 34(6), 34(7), 35(3), 43(1) and 43(3) are

significant, and read as under:

"34(4). The Central Government may in consultation with the Development Bank at any time issue directions to the auditors requiring them to report to it upon the adequacy of measures taken by the Corporation for the protection of its shareholders and creditors or upon the sufficiency of their procedure in auditing the affairs of the Corporation, and may at any time enlarge or extend the scope of the audit or direct that a different procedure in audit be adopted or direct that any other examination be made by the auditors if in its opinion the public interest so requires.

...

34(6). Without prejudice to anything contained in the proceeding sub section, the Central Government may, at any time, appoint the Comptroller and Auditor General of India to examine and report upon the accounts of the Corporation and any expenditure incurred by him in connection with

such examination and report shall be payable by the Corporation to the Comptroller and Auditor General of India.

34(7). Every audit report shall be forwarded to the Central Government and the Government shall cause the same to be laid before both House of Parliament.

...

35(3). The Reserve Bank and the Development Bank within five months of the close of the financial year a statement in the prescribed form of its assets and liabilities as at the close of that year together with a profit and loss account for the year and a report of the working of the Corporation during the year, and copies of the said statement, account and report shall be published in the Official Gazette and shall be laid before Parliament.

...

43(1) The Board may, with the previous approval of the Development Bank make and by notification in the official Gazette regulations not inconsistent with this Act and the rules made there under, to provide for all matters for which provision is necessary or expedient for the purpose of giving effect to the provisions of this Act.

...

43(3) Every regulation made under this Section shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the regulation or both Houses agree that the

regulation should not be made the regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that regulation."

8. It is apparent that notwithstanding the fact that the IFCI Ltd. was

incorporated as a company under the Companies Act by virtue of

Section 11 of the 1993 Act, the provisions of the 1948 Act, which talk

of control by the Central Government over the affairs of the IFCI Ltd.,

continue to apply. In terms of sub-clause (7) of Section 34, the audit

reports of IFCI Ltd. are to be forwarded to the Central Government

which will cause it to be laid before the Parliament. In terms of

Section 35(3), the statement of accounts and the annual report of IFCI

Ltd. are required to be published in the Official Gazette by the Central

Government and laid before the Parliament. Sub-section (3) of Section

43 requires any modification in the regulations to be approved by both

the Houses of the Parliament. This makes IFCI Ltd. very different

from any other company registered under the Companies Act.

Submissions of Counsel

9. The main thrust of the argument of Mr. Dinkar Singh, the learned

counsel for the Petitioner was that the expression "public authority"

under Section 2 (h) RTI Act had to be interpreted in pari materia with

"other authorities" under Article 12 of the Constitution of India. It was

submitted that insofar as the IFCI Ltd. does not answer the test of an

„authority‟ within the meaning of Article 12 of the Constitution on

applying the tests laid down by the Supreme Court in Pradeep Kumar

Biswas v. Indian Institute of Chemical Biology 2002 (5) SCC 111, it

would not be a public authority for the purposes of the RTI Act.

Second, it was submitted that the Petitioner is not a body established

or constituted by a law made by the Parliament. Since the 1948 Act

stood repealed by the 1993 Act, the Petitioner was like any other

company incorporated under the Companies Act. In other words, with

the repeal of the 1948 Act, IFCI Ltd. was no longer a company

incorporated by an Act of Parliament but was one incorporated

„under‟ an Act of Parliament. Therefore it did not satisfy the

requirement of Section 2(h)(b) of the RTI Act. It was submitted that

the erstwhile assets of the predecessor of IFCI Ltd. were transferred to

and vested in a new company called the Industrial Finance

Corporation of India Limited, subsequently named as IFCI Ltd.

Consequently, IFCI Ltd. ceases to be a body established by a statute.

10. Thirdly, it is submitted by Mr. Dinkar Singh that for the purposes

of Section 2(h)(d), the appropriate government, i.e., the Central

Government had to issue a notification notifying IFCI Ltd. to be a

public authority within the meaning of Section 2(h) of the RTI Act.

Since it had failed to do so, the Petitioner was not a public authority.

Fourthly, it is submitted that the IFCI Ltd., was not substantially

financed by the Central Government. It is pointed out that the Central

Government holds no shares whatsoever in the Petitioner. 76% of the

shares are subscribed by private companies including public financial

institutions, private banks, cooperative banks and mutual funds. The

balance 24% is subscribed by scheduled commercial banks and

national insurance companies etc. It is further submitted that in terms

of Clause 122 read with 124 of the Articles of Association of the IFCI

Ltd., the number of directors shall not be less than 3 or more than 15

excluding the government directors and debenture directors. It is

submitted that the Government of India could at the most appoint two

directors on the Board of the Petitioner. It is maintained that the

Petitioner is purely a commercial organization and the government

has neither a functional nor organizational/administrative "deep and

pervasive" control over the day-to-day affairs of the Petitioner.

Relying on the judgment in Ramana Dayaram Shetty v. International

Airport Authority of India AIR 1979 SC 1628, it is submitted that

since there is no pervasive control of the Petitioner by the Central

Government, it is not an authority within the meaning of Article 12 of

the Constitution and therefore not a „public authority‟ under Section 2

(h) of the RTI Act.

11. Mr. Shyam Moorjani, learned counsel for the Respondent on the

other hand submitted that at the time of the conversion of the

Petitioner into a public limited company under the Companies Act,

assets worth Rs. 9060 crores stood vested in it by virtue of the 1993

Act. It is pointed out that once a body comes into existence by virtue

of a central enactment, in this case the 1948 Act, it does not cease to

be a public authority within the meaning of Section 2(h)(b) of the RTI

Act only because it has been converted into a public limited company

subsequently. It is further submitted that in this case it is the 1993 Act

which actually brought about the transformation and, therefore in one

sense, the Petitioner in its present structure, is also an entity that has

been created by a central enactment.

12. Referring to Section 2(h)(d)(i) RTI Act, Mr. Moorjani submitted

that the extensive financial control over the affairs of the Petitioner by

the Central Government was evident from the manner in which the

Central Government rescued it from bankruptcy. A reference is made

to the Annual Report of the IFCI Ltd. for the year ending 31st March

2008 which shows that the 33.22% of the equity capital of the

Petitioner is held by public sector banks, financial institutions and

insurance companies. They formed the single largest bloc of

shareholders of the Petitioner. In other words, the extent of

shareholding held by government controlled or government owned

organizations was indicative of indirect substantial financing. It is

pointed out that the government owned companies held preferential

shares of Rs. 263.84 crores for a period of 20 years in the IFCI Ltd.

and had acquired a preferential right to vote under Section 87(2)(b) of

the Companies Act. Optional Convertible Debentures (OCDs) to the

extent of Rs. 923 crores were held by the Government of India. These

were convertible at par into equity shares at the option of the

government any time up to 2023. It is further pointed out that a total

sum of Rs. 5220 crore towards grants has been communicated to the

IFCI Ltd. by the Ministry of Finance. Out of this, Rs. 2409 crore was

released by the Government of India between 2002-03 to 2006-07

directly from the Union Budget. Further budgetary provision of Rs.

433 crore has been made in respect of the grants to be given by the

Central Government in the Union Budget for 2008-09. The entire

amount is to be released during a ten years period, i.e., up to 2011-12.

13. Thirdly, Mr. Moorjani pointed out that under Section 4A of the

Companies Act, the Petitioner was a „public financial institution‟, a

status that has been recently affirmed by the Division Bench of this

Court in its judgment dated 9th July 2010 in W.P.(C) 7097 of 2008

(Finite Infratech Ltd. v. IFCI). It is pointed out that the Petitioner

had, in that case, argued contrary to its stand in the present case. There

IFCI Ltd. had submitted, and which submission was accepted by the

Division Bench, that notwithstanding the 1993 Act, it continues to be

a public financial institution.

14. In response to the third submission, counsel for the Petitioner

dissociated from the submissions made on behalf of the IFCI Ltd.

before this Court in the Finite Infratech Ltd. case and stated that it

arose in a very different context. He maintained that the release of

Rs.2409 crores to IFCI Ltd. by the Government of India to meet the

liabilities of the IFCI Ltd. was not substantial financing. He submitted

that the funds of the IFCI Ltd. came from the bond holders and not

from the Government of India. Although earlier the Government of

India had guaranteed the bonds issued by the Petitioner, it no longer

continues to do so. Reliance was placed on the judgment in Executive

Committee of Vaish Degree College, Shamli v. Lakshmi Narain

(1976) 2 SCC 58 to urge that the privatization of the Petitioner

brought about by the 1993 Act resulted in the Petitioner no longer

being a statutory corporation.

IFCI Ltd. is a body 'established' and 'constituted' by an Act of Parliament

15. This Court would first like to note that for the purposes of Section

2(h) of the RTI Act, two distinct submissions were made in support of

the plea that IFCI Ltd. is a „public authority‟. One relates to Section

2(h)(b) RTI Act and the second relates to Section 2(h)(d)(i) RTI Act.

16. Section 2(h) of the RTI Act reads as under:

"2. In this Act, unless the context otherwise requires - ...

(h) "public authority" means any authority or body or institution of self-government established or constituted,-

              (a)       by or under the Constitution;
              (b)       by any other law made by Parliament;
              (c)       by any other law made by State Legislature;
              (d)       by notification issued or made by the
                        appropriate Government,

       and includes any-

(i) body owned, controlled or substantially financed;

(ii) non-Government Organisation substantially financed,

directly or indirectly by funds provided by the appropriate Government;"

17. There is a clear distinction made by the legislature between bodies

that have been „established or constituted‟ „by or under the

Constitution‟ and bodies that that have been „established or

constituted‟ „under‟ a central or state enactment. In other words

where the body is not one falling under Section 2 (h) (d) (a) of the

RTI Act, then to come within the purview of Section 2 (h) (d) (b) RTI

Act, it is not enough that it is established or constituted „under‟ a

central or state enactment. It has to be established or constituted „by‟

such enactment. Take the Companies Act. Every public or private

limited company is established (or „incorporated‟) under that

enactment. However, that would not make them „public authorities‟

for the purposes of the RTI Act only on that score. It would have to be

shown that they have been established or constituted „by‟ a central or

state enactment.

18. At this juncture, this Court would like to deal with the submission

of the learned counsel for the Petitioner that the test for determining

whether a body is a „public authority‟ for the purposes of the RTI Act

is no different from the test for determining whether a body is an

„authority‟ for the purposes of Article 12 of the Constitution. Given

the fact that there is a specific definition of what constitutes a „public

authority‟ for the purposes of the RTI Act, there is no warrant for

incorporating the tests evolved by the Supreme Court in Pradeep

Kumar Biswas for the purposes of Article 12 of the Constitution.

While it is possible that an authority within the meaning of Article 12

of the Constitution is likely to be a „public authority‟ under the RTI

Act, the converse need not be necessarily true. Given the purpose and

object of the RTI Act the only consideration is whether the body in

question answers the description of a „public authority‟ under Section

2 (h) of the RTI Act. There is no need to turn to the Constitution for

this purpose, particularly when there is a specific statutory provision

for that purpose. Even for the purposes of Section 2(h)(d) (i) or (ii)

RTI Act for determining if the body is "owned", "controlled" or

"substantially financed" directly or indirectly by the appropriate

government the Article 12 tests, which talk of "deep and pervasive"

control or "dominance", are not helpful.

19. Reverting to the case on hand, IFCI Ltd. in its earlier form was

initially brought into existence or „established‟ by a central enactment,

i.e., the 1948 Act. Later, when on account of the changes in the

financial sector, coupled with the continued decline in the availability

of concessional funds from the Government of India and the Reserve

Bank of India, it became necessary for the predecessor of IFCI Ltd. to

raise finances from the market, it was unable to do so on account of

the provisions of the 1948 Act. In the Statement of Objects and

Reasons of the 1993 Act after noting that it was necessary to respond

to the needs of a fast changing financial system it was thought

necessary "to establish a new company under the Companies Act

1956 to which the entire undertaking, business and functions of IFCI

as well as the assets and liabilities and the staff of IFCI will be

transferred on such day as will be notified by the Central

Government." Consequently, Section 2 (b) of the 1993 Act states that

"Company" means "the Industrial Finance Corporation of India Ltd.,

to be formed and registered under the Companies Act, 1956." There

can be no doubt that but for the 1993 Act the IFCI Ltd. in its present

form would not have come about. In other words, IFCI Ltd. in the

present form is a creature of the 1993 Act having been created by the

1993 Act. Further, as already noticed, the added peculiar feature is

that even while the 1993 Act converts the Petitioner into a company

under the Companies Act, it retains the applicability of certain

provisions of the 1948 Act, which have been extracted hereinbefore.

These provisions underscore the extensive control of the Central

Government over the affairs of the IFCI Ltd.

20. The peculiar character of the IFCI Ltd. with reference to both the

1948 Act and the 1993 Act, both of which are Acts made by the

Parliament, makes the IFCI Ltd. answer the description of a „public

authority‟ within the meaning of Section 2(h)(b) of the RTI Act.

Consequently, this Court concurs with the view of the CIC that the

IFCI Ltd. is a public authority since it has been brought about in its

present status as a result of the joint operation of the 1948 Act and the

1993 Act in the circumstances noticed hereinbefore.

IFCI is a public authority within the meaning of Section 2(h)(d)(i) RTI Act as well

21. Before examining whether IFCI Ltd. is a „public authority‟ within

the meaning of Section 2(h)(d)(i) RTI Act, this Court would like to

deal with the submission of the learned counsel for the Petitioner that

without a notification by the central government under Section 2(h)(d)

IFCI Ltd. cannot be said to be a „public authority‟. This submission is,

in the considered view of this Court, based on a misreading of the

provision. The words "and includes" starting from the left margin (as

the provision is published in the official gazette) indicates that the

categories that follow those words are separate categories that expand

the scope of the earlier clauses (a) to (d). In other words, a body might

be a „public authority‟ even if there is no notification to that effect by

the central government as long as it satisfies the requirement of

Section 2(h)(d) (i) or (ii).

22. For the purposes of Section 2(h)(d)(i) RTI Act, the question that

arises is whether the IFCI Ltd. is a body that is "controlled" by the

central government (which is the appropriate government) or

"substantially financed" "directly or indirectly by funds provided by"

the central government? For the reasons set out hereafter, this Court

answers the question in the affirmative.

23. The word "financed" is qualified by the word "substantially"

indicating a degree of financing. It must be shown that the financing

of the body by the government is not insubstantial. The word

„substantial‟ does not necessarily connote „majority‟ financing.

Black's Law Dictionary (6th Edn.) defines the word „substantial‟ as

being "of real worth and importance; of considerable value; valuable.

Belonging to substance; actually existing; real: not seeming or

imaginary; not illusive; solid; true; veritable. Something worthwhile

as distinguished from something without value or merely nominal.

Synonymous with material." The word "substantially" has been

defined to mean "essentially; without material qualification; in the

main; in substance; materially." The Shorter Oxford English

Dictionary (5th Edn.) the word „substantial‟ means "of ample or

considerable amount of size; sizeable, fairly large; having solid worth

or value, of real significance; sold; weighty; important, worthwhile; of

an act, measure etc. having force or effect, effective, thorough." The

word "substantially" has been defined to mean "in substance; as a

substantial thing or being; essentially, intrinsically." Therefore the

word „substantial‟ is not synonymous with „dominant‟ or „majority‟. It

is closer to "material" or "important" or "of considerable value."

"Substantially" is closer to "essentially". Both words can signify

varying degrees depending on the context. In the context of the RTI

Act it would be sufficient to demonstrate that the financing of the

body by the appropriate government is not insubstantial.

24. In Indian Olympic Association v. Veeresh Malik [judgment dated

7th January 2010 in W.P. (C) No. 876 of 2007] the learned Single

Judge of this Court was examining whether the Indian Olympic

Association, the Sanskriti School and the Organising Committee

Commonwealth Games 2010, Delhi were „public authorities‟ under

the RTI Act. While answering that question in the affirmative, it was

held as under (para 58):

"This court therefore, concludes that what amounts to "substantial" financing cannot be straight-jacketed into rigid formulae, of universal application. Of necessity, each case would have to be examined on its own facts. That the

percentage of funding is not "majority" financing, or that the body is an impermanent one, are not material. Equally, that the institution or organization is not controlled, and is autonomous is irrelevant; indeed, the concept of non-government organization means that it is independent of any manner of government control in its establishment, or management. That the organization does not perform - or pre-dominantly perform

- "public" duties too, may not be material, as long as the object for funding is achieving a felt need of a section of the public, or to secure larger societal goals. To the extent of such funding, indeed, the organization may be a tool, or vehicle for the executive government‟s policy fulfillment plan."

25. The Respondent has placed on record a copy of the Annual Report

2007-08 of the Ministry of Finance, Government of India. It states

that the Banking Division of the Ministry of Finance "looks after

issues relating to Public Sector Banks and administers policies having

a bearing on the working of banks and term lending Financial

Institutions such as the NABARD, SIDBI, NHB, IIFCL, EXIM Bank,

IFCI, IDFC, IIBI etc."

26. Among the main functions of the Banking Division are

"legislative and administrative work relating to All India Financial

Institutions, appointment of Chief Executives of Financial Institutions,

appointment of Chairman, and Members of Board for Industrial and

Financial Reconstruction (BIFR), etc." Under the chart showing the

organizational set up of the Department of Financial Services, there is

one Joint Secretary for Institutional Finance in respect of the "matters

relating to IIFCL, IFCI, IDFC, IBI, Exim Bank." Para 6.4 of the

Report reads as under:

"6.4 Industrial Finance Corporation of India Limited (IFCI)

Industrial Finance Corporation of India (IFCI) is the first Development Financial Institution of India set up in 1948 as a Statutory Corporation under an Act of Parliament to pioneer institutional credit to medium and large scale industries. It was converted into a Public Limited Company on July 1, 1993. The Govt. of India does not have any shareholding in IFCI.

During the year 2006-07, IFCI continued to focus on recoveries from existing loan assets and reconstructing of remaining high cost liabilities. IFCI sanctioned short term loans of Rs.1,050 crore and disbursed Rs.550 crore during 2006-07 to top performing and highly-rated corporates and banks. Further, during the 9 months period ended on December 31, 2007, IFCI sanctioned short term loans of Rs.1,500 crore and disbursed Rs.2000 crore of the previous year. Cumulatively, up to December 31, 2007, IFCI had made aggregate sanctions of Rs.48,712 crore to 4,872 projects and disbursed Rs. 47,139 crore. In respect of North- Eastern Region, including Sikkim, cumulatively, up to December 31, 2007, IFCI has sanctioned and disbursed an aggregate sum of Rs.328 crore to 61 projects.

During the year 2006-07, IFCI earned a net profit of Rs.898 crore as compared to a net loss of Rs.74 crore in the previous year. The accumulated loss as on March 31, 2007 stood at Rs.836 crore. The improved performance was largely due to higher recoveries from Non Performing Assets and consequent reversal of provisions/write-off and also lower cost of funds. During the current financial year 2007-08, IFCI has made a net profit of Rs.1,063 crore for

the 9 months ended on December 31, 2007 against a net profit of Rs.230 crore during the corresponding period of the previous year. Further, as at December 31, 2007, IFCI, having complied with RBI‟s Regulatory Capital Adequacy Norm at 10% contemplates to start new business to top rated corporates."

27. The extent of financial control over the IFCI Ltd. by the

Government of India is plain from the above passage in the Annual

Report of the Ministry of Finance. The Respondent has also placed on

record a copy of the letter dated 29th January 2004 written by the

Director (EA & IF-I) Department of Economic Affairs (Banking

Division) of the Ministry of Finance to the Chairman-cum-Managing

Director of the IFCI Ltd. with regard to the restructuring and bailout

of the IFCI Ltd. The said letter is instructive, and reads as under:

"Dear Shri Singh,

With the model of Development Banking coming under strain, the future of financial institutions has been occupying the attention of the Government for some time. Narsimhan Committee II and Khan Working Group have recommended that Development Financial Institutions (DFIs) be converted either into banks or into NBFCs. The Government have had to step in from time to time to bail out IFCI from bankruptcy. The Government of India contributed Rs. 400 crore as part of a capital infusion package in 2001 and yet again committed to provide Rs. 5220 crore over ten years as a part of the package to restructure the liabilities to IFCI. Out of this, Rs. 2096 crore has already been released. Operationally, however, no headway could be made in recovery of NPAs or hiving off the bad assets.

2. The matter has been deliberated at length in Government. It is felt that IFCI does not appear to have long term sustainability on a stand alone basis. It appears that the only viable course of action is to merge IFCI with a large Public Sector Delhi based Bank with which the IFCI has operational and financial synergy. In this context the option of merger with Punjab National Bank may be contemplated by the Board of IFCI. A note on the subject, bringing out how the merger could be of useful, is attached. I shall be grateful, if you would kindly have the issue taken up with the Board for favourable action in the matter.

With best regards, Yours sincerely

--sd--

(Atul Kumar Rai)"

Shri VP Singh CMD, IFCI New Delhi

28. Annexed to the letter is the detailed plan of the government‟s

financial support through the restructuring package. The above

communication was followed by the speech of the Finance Minister

on 3rd February 2004 in Parliament during the presentation of the

Interim Budget 2004-05 in which he informed that the IFCI "will be

restructured through transfer of its impaired assets to an Asset

Reconstruction Company and merger with a large public sector bank.

Both these institutions, the IDBI and IFCI, should be functional in the

new financial year after their transformation."

29. It is plain that but for the intervention of the Government of India,

the IFCI would not have been able to be restructured. Also placed on

record are the minutes of the meeting of the stakeholders of the IDBI

and IFCI held in New Delhi on 26th November and 2nd December

2002 by the Director (EA & IF-I) Department of Economic Affairs

(Banking Division) of the Ministry of Finance which shows that

several decisions have been taken to squeeze the outstanding liability

of the IFCI. Para 9 of the proceedings reads as under:

"9. As a part of the restructuring process, the stakeholders also decided the following:

i) A Group comprising representatives from IDBI, SBI, PNB and Bank of Baroda may be constituted to monitor the cash flows and approve the outflows of IFCI for at least the next six months.

ii) IFCI may prepare a business plan and communicate the same to the lenders inviting their suggestions immediately.

iii) A meeting under the chairmanship of Joint Secretary (IF) may be convened on a monthly basis to monitor performance of IFCI."

30. The above is further evidence of the fact that even in 2002 the

monitoring of the performance of the IFCI was being undertaken by

the Government of India.

31. A copy of the letter dated 1st March 2006 from the Office of the

Director General of Audit to the Chief Executive Officer of the IFCI

Ltd., calls for further information from the IFCI Ltd. on the loan

grants worth Rs. 2412 crore released to the IFCI pursuant to the

sanctions of the Ministry of Finance, the utilization of such grants and

so on. There can be no manner of doubt that there is extensive control

of the Central Government over IFCI Ltd.

32. The facts narrated hereinbefore show that the entire bailout

package for the IFCI has been devised, monitored and controlled even

till now by the Central Government. Providing more than 5000 crores

of rupees to the IFCI Ltd. for its bailout cannot but be considered as

„substantial financing‟ by the Central Government. The holding of

OCDs of Rs. 522 crores by the Central Government, which has not

been denied by the Petitioner, is another pointer to the substantial

financing of the IFCI Ltd. Consequently, this Court finds merit in the

contention that there is both "control" and "substantial financing" of

the IFCI Ltd. by the Central Government and therefore answers the

description of a „public authority‟ under Section 2(h)(d)(i) of the RTI

Act.

IFCI Ltd. is a public financial institution under Section 4A Companies Act

33. The third aspect is that whether the Petitioner is a public financial

institution within the meaning of the Companies Act. This is

important from the perspective of Section 2 (h) (d) (i) of the RTI Act

since a public financial institution in terms of Section 4A of the

Companies Act connotes control by the Central Government.

34. In Finite Infratech Ltd., the question that arose was whether the

Petitioner was a "financial institution" within the meaning of Section

2(1)(m) of the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 („SARFAESI Act‟)

and whether, if it had ceased to be such an institution, the proceedings

initiated by it under the SARFAESI Act against the Petitioner in that

case, i.e., Finite Infratech Ltd. before the Debt Recovery Tribunal,

were not maintainable. In those proceedings, the IFCI Ltd. urged that

it in fact continued to remain a public financial institution. The

argument of the borrower was that since on the date of the institution

of the recovery proceedings, the Central Government did not hold any

shares (although it did on the date on which the notice under Section

13(2) of the SARFAESI Act was issued), it was not a public financial

institution within the meaning of Section 2(1)(m) of the SARFAESI

Act. This submission of the borrower was negatived by the Court.

This is encapsulated in para 21 of the judgment, which reads as under:

"21.Let us now consider the second condition stipulated in the proviso to Section 4A(2) of the Companies Act that no institution in which the Central Government holds or controls less than 51% of the paid up share capital of such institution, can be specified as a public financial institution. There is no doubt and it is an admitted position that as on the date on which the notification was issued, this condition stood satisfied. The Central Government did hold or control more than 51% of the paid up share capital of IFCI Limited. It has already been mentioned above that as on 15.02.1995, though the Central Government by itself did not hold any shares in IFCI Limited, it controlled 53.98% of the paid up share capital through institutions such as IDBI, LIC, GIC, UTI, SBI and other public sector banks and subsidiaries. It

is also true that on the date on which the notice under Section 13(2) of the said Act was issued and on subsequent dates, the Central Government neither held nor controlled more than 51% of the paid up share capital of IFCI Limited. This means that the said condition does not continue to be satisfied, though on the date on which the notification was issued, the condition with regard to ownership and control of shareholding was satisfied. An argument was made by Mr. Sibal that the said condition with regard to shareholding was not only a condition precedent but also a condition subsequent and subsisting. His contention was that the moment this condition was not no longer satisfied, IFCI Limited would lose its status as a public financial institution. On first impression, this may be an attractive argument. But, if it were to be accepted, it would perhaps lead to a chaotic situation. An example would illustrate. Suppose at one point of time the Central Government had 55% shareholding in such an institution. Suppose further that ten days later, the Central Government sold of 10% of its holding and another ten days later, the Central Government restored its shareholding to 55%. In such a situation, if the argument of the learned counsel for the petitioner was to be accepted, the notification would be valid till such time the Central Government held 55% shares, then, ten days later it would become invalid because the shareholding dropped to 45% and again a further ten days on, the notification would again become valid because the Central Government would then hold 55% shares in the said institution. Such a fluctuation or flip-flop in the status of the institution is certainly not contemplated by the provisions of Section 4A(2) apart from the fact that it would lead to a very chaotic situation. Therefore, we are in agreement with the submission made by the learned counsel

for the respondents that the validity of the notification from the standpoint of shareholding would have to be examined as on the date on which the notification under Section 4A(2) of the Companies Act is issued. The condition with regard to the government owning or controlling not less than 51% of the paid up share capital of an institution is, in our view, merely a condition precedent for the purposes of examining the status of the institution as a public financial institution and for the purposes of determining the validity of the notification under Section 4A(2) of the Companies Act, 1956. It is open to the Central Government, at any subsequent point of time to „de-notify‟ an institution as a „public financial institution‟ if it deems fit."

35. While interpreting the words "established or constituted by or

under any Central Act", occurring in the proviso to Section 4A (2) of

the Companies Act, the Division Bench held that "an institution

constituted by or under any Central Act could have reference to a

company which, though formed and registered subsequently under the

Companies Act, was conceived and contemplated under a Central Act

such as the Repeal Act of 1993." Consequently, it was concluded that

"IFCI Limited would have to be regarded as a public financial

institution under Section 4A of the Companies Act. As a consequence,

it would be a financial institution under Section 2(1)(m)" of the

SARFAESI Act. This Court therefore held that even though the

Central Government subsequently ceased to hold shares in IFCI Ltd.,