LIC IPO: Supreme Court to hear petitions challenging passing of Finance Act, 2021 as money bill

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The Supreme Court will on Thursday hear a batch of appeals and a fresh plea against verdicts of the Madras and Bombay High Courts which dismissed challenges to the decision of the Central government to trade 5 per cent of its shareholding in Life Insurance Corporation (LIC) through an Initial Public Offering (IPO) [L Ponnammal v Union of India].

One of the petitioners, an LIC policyholder, had initially approached the Madras High Court challenging provisions of the Finance Act, 2021 and the Life Insurance Corporation (LIC) Act, 1956 on the ground that they were introduced by way of a Money Bill under Article 110 of the Constitution of India, even though the amendment did not fall in the category of a Money Bill.

The High Court, while dismissing the petition, held that, “it directly impacts the economic growth of the country and interference therein may have far reaching consequences, because the receipt of money into the Consolidated Fund of India is to be used for the development of the country.”

The appeal in the Supreme Court, which will be heard tomorrow by a Bench of Justices DY Chandrachud, Surya Kant and PS Narasimha, states that the amendments being challenged effectively reduce the share of LIC’s surplus which the petitioner is legally entitled to, causing losses to her and other participating policyholders to the tune of ₹4,14,919 crore.

The appeal filed through Advocate Abhishekh Jebaraj states that the High Court failed to appreciate that the amendments – Sections 128 to 146 of the Finance Act, 2021 – do not fall under Article 110(1) of the Constitution.

“Therefore, the Speaker’s certification of the Bill as a Money Bill, and its subsequent enactment as one, is a colourable exercise and a fraud on the Constitution,” the appeal stated.

Further, the appeal stated that decision of a Speaker certifying a Money Bill under Article 110(3) of the Constitution is justiciable and amenable to judicial review on the ground of illegality.

On the amendments to the LIC Act effected by the Finance Act, the plea argued,

“High Court failed to appreciate that in pith and substance the impugned amendments provide for a legislative framework for (i) creating a Board of Directors for the Corporation, (ii) issuing shares of the Corporation to the Public, (iii) allowing the Central Government to reduce its shareholding to up to 51% of the equity of the Corporation (but not below 75% in the first five years), (iv) capping voting rights of shareholders of the Corporation other than the Central Government at 5% and (v) permitting LIC to raise equity capital.”

Moreover, it has been stated that High Court failed to consider that for the first time since the passing of the LIC Act, 1956, amendments which have no relation to imposition, abolition, remission, alteration and regulation of any tax or the appropriation of moneys out of the Consolidated or Contingency Fund of India are being passed through the Finance Act as a “Money Bill” under Article 110.

The lead petition, filed by one Thomas Franco Rajendra Dev through Advocate S Prasanna, makes the following prayers, among others:

Declaration that Section 5 of LIC Act is void and inoperative to the extent that the capital of the Corporation is declared “equity capital”;

Declaration that Sections 130, 131, 134 and 140 of the Finance Act and Sections 4, 5, 24 and 28 of the LIC Act are void and inoperative;

Declaration that Part III of Finance Act, 2021 is void ab initio for certification as a money bill;

Direction to Central government not to go ahead with LIC IPO.

Last month, the Bombay High Court had also refused to stay the Draft Red Herring Prospectus (DRHP) filed by LIC for the issuance of shares through its IPO.

The petitioners had contended that an allocation or reservation immediately gives every policyholder an estate in the surplus of the corporation.

“…every single existing policyholder from LIC has a direct, enforceable and realizable interest in surplus. That surplus is, therefore, the “property of” every policyholder and of all policyholders as a class”, the petition stated.

The Court was, however, not convinced that policyholders could have an enforceable estate in the surplus of LIC fund.

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