Cabinet empowers state-run firms to decide on divestment of arms

New Delhi: Giving more autonomy to state-owned companies, the Cabinet on Wednesday empowered their boards to decide on the closure and divestment of units/subsidiaries.

Presently, the board of directors of holding or parent public sector enterprises have powers to make decision on equity investments for setting up joint ventures (JVs) and wholly-owned subsidiaries and undertaking mergers/acquisitions, subject to a net worth threshold.

However, the boards do not have powers for disinvestment or closure of their subsidiaries or units or stake in JVs, except for some limited powers given to Maharatna public sector enterprises (PSEs) for minority stake disinvestment in their subsidiaries.

Therefore, approval of the Cabinet was required for both strategic disinvestment and minority stake sale or closure of the subsidiaries/units or sale of their stakes in a JV, irrespective of the size of operations or capital deployed of such subsidiaries.

"The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the proposal for empowering the Board of Directors of the Holding / Parent Public Sector Enterprises to recommend and undertake the process for Disinvestment (both strategic disinvestment and minority stake sale) or closure of any of their subsidiaries/units/stake in JVs," an official statement said.

The alternative mechanism on disinvestment will accord 'in principle' approval for disinvestment (both strategic disinvestment and minority take sale) / closure of subsidiaries of Maharatna PSEs, which was delegated to them and review the process of disinvestment or closure by the parent or holding PSEs.

The process for undertaking the strategic disinvestment transactions/closures to be followed by the PSEs should be based on the principles of competitive bidding and consistent with the guiding principles to be laid down.

"For strategic disinvestment, such guiding principles will be laid down by DIPAM. For closure, DPE shall issue guiding principles," the statement added.

J Sagar Associates Partner Lalit Kumar said giving greater decision making power to boards of PSEs will lead to greater autonomy in the hands of such boards of directors.

"This will speed up decision making process and should achieve larger objective of disinvestment of government stake in such companies," Kumar added.

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