SEBI, ITC Made Party To Petition Seeking Sale Of PSU Insurers’ Stake In Tobacco Firms

Retail investors and tobacco growers on Thursday argued in the Bombay High Court that any move to make state-run insurers divest their stake in tobacco companies will only hurt them.

The argument was made during the hearing of a public interest litigation (PIL) which wants the government-owned insurers to sell their stake in cigarette major ITC Ltd. and other tobacco companies.

Some of Mumbai’s most-respected senior counsels, including Iqbal Chagla, Janak Dwarakads, Ravi Kadam and Rafique Dada, appeared either for the insurance companies and the government, or to file applications seeking to be made party to the case.

The petition was filed earlier this month by R Venkataramanan, managing trustee of Tata Trusts and six others, including doctors and the widow of a former minister in the Maharashtra government who succumbed to throat cancer. It contends that such investments are contradictory to the government’s initiatives to curb the health menace resulting from tobacco consumption.

Appearing for the petitioners, senior counsel Venkatesh Dhond told the court that India was a signatory to the Framework Convention on Tobacco Control and that investing in tobacco companies was in violation of the convention’s norms.

Janak Dwarakadas, who appeared for a retail investor, said that a divestment by the Life Insurance Corporation of India would do nothing to curb tobacco consumption, and all it would achieve would be to adversely affect retail shareholders and crores of farmers who were dependent on tobacco cultivation for a livelihood.

He also questioned that if the government earns close to Rs 20,000 crore from taxing tobacco, why should there be a problem in a subsidiary investing in a tobacco company?

Senior Counsel Sajan Poovayya, appearing for the Federation of Karnataka Virginia Tobacco Growers Association, said that the divestment would impact over four crore farmers and their livelihoods, and filed an impleadment application asking the court to make the federation a party.

The court accepted the application and also asked the petitioners to file an amendment within a week, making ITC, the Securities and Exchange Board of India (SEBI), the Ministry of Finance, the Ministry of Industry and Commerce, and the Ministry of Agriculture parties to the case.

The respondents will have six weeks to file affidavits in reply and the matter will be heard after eight weeks (around June 29). The Additional Solicitor General was asked to appear on behalf of the government at the next hearing.

The public sector insurers – LIC, New India Assurance Company Ltd., General Insurance Company Ltd., Oriental Insurance Company Ltd. and National Insurance Company Ltd.– together own shares worth Rs 76,500 crore in ITC and other cigarette companies. Such investments, the petition stated, have enabled tobacco companies to gain “size, scale and clout”.

With a 32 percent stake, held through five public sector insurers and SUUTI (Specified Undertaking of the Unit Trust of India), the government is the biggest shareholder in ITC. Its total stake is worth Rs 1.07 lakh crore. The petition contended that such investments go against the Constitutional mandate vested in the PSUs.