| The terminally ill patient is on the operation table, with surgery as his only hope for survival. The surgeons wield their scalpels carefully, cutting away at waste tissues while ensuring that the patient's life is not at risk. Everything is proceeding according to plan when someone walks in and orders the operation to be stopped immediately. |
This is not the script of a poorly produced TV melodrama. The patient is the National Textile Corporation (NTC)-the sick PSU that has guzzled Rs 5,000 crore of taxpayers' money to foot its wage bill in the past 25 years. The operation was a revival plan that entailed selling mill land and using the proceeds to pay off the NTC's debts and turn it around. Playing spoilsport was the October 17 order of the Bombay High Court which held that the land sale contravened two Supreme Court orders and a plan sanctioned by the Board for Industrial and Financial Reconstruction (BIFR).
The BIFR sanction had come after 14 years of deliberations during which NTC slipped from a partially ill to a chronically sick corporation. The corporation has been kept alive on artificial support of varying degree for the past 25 years. A conglomerate of 119 mills spread across eight states, it has accumulated losses of Rs 8,000 crore. It has 27,000 employees on its payrolls. Till three years ago, this number was almost three times more before a voluntary retirement scheme helped trim the workforce by 49,000 workers in 2002. Right now only 32 NTC mills are operational.
Despite the liabilities, the PSU owns assets worth several thousand crores of rupees. It has 1,888 acres of surplus land in downtown areas of metros and large cities. NTC was banking on the sale of this land to restart defunct mills and replace its 35-40 year old machines with new equipment.
|66 MILLS SHUT DOWN, 53 BEING REVIVED |
Action taken by the NTC so far on BIFR approved scheme for revival:
It has already sold 500 acres of land across India worth Rs 2,500 crore. This includes 45 acres in five Mumbai mills which were to fetch a total of Rs 2,000 crore. Before the high court order, NTC had received Rs 1,600 crore from the buyers of the five mills, which it has already spent on settling workers' and lenders' claims. It is yet to receive the balance Rs 400 crore, the fate of which now depends on the Supreme Court verdict. NTC has appealed against the Bombay High Court order in the apex court.
The mills NTC had sold in Mumbai were Jupiter, Apollo, Bombay, Elphinstone and Kohinoor-all at Parel in central Mumbai. The sale was one of the key elements in NTC's restructuring and modernisation plans. Sixty-six of the 119 mills have been closed in line with the BIFR sanction and outstandings worth Rs 2,681 crore have already been settled (see graphic). BIFR had estimated that the modernisation of the mills would require around Rs 1,700 crore. With NTC having settled most of the claims and liabilities, it hoped to raise the funds for modernisation from sale of mills. However, before the modernisation plans could get off the drawing board, the court stepped in.
Hearing a PIL by the Bombay Environmental Action Group (BEAG), the court declared that the sales contravened Supreme Court orders of September 27, 2004 and May 11, 2005 which asked NTC to comply with the BIFR revival package in conducting the sale of mills and make available land from other than the five mills sold in case the PIL against the sale is upheld.
The PIL upheld by the high court blames NTC for not giving adequate land to the Mumbai authorities. The epicentre of the dispute lies at the state's Development Control Regulation 58 which permits changes in the use of land belonging to Mumbai's textile mills only if they release parts of the land for the city's green belts and low-cost housing projects. When it first came into being in 1991, the rule required two-thirds of a plot to be handed over to the Brihanmumbai Municipal Corporation (BMC) and the Maharashtra Housing Development Authority (MHADA), if the mill structures on the plot were demolished for changing the land use. As a result, redevelopment of mills remained confined within the existing structure and prime land remained locked in defunct textile mills in the heart of Mumbai. The Phoenix mill is an example of a glitzy entertainment hub created out of an old mill structure to avoid parting with land for the city.
In 2001, the state government amended Regulation 58 after the Supreme Court lifted the ban on the redevelopment of textile mills. This amendment is at the heart of NTC's woes. The new rule required only the open land (land where no construction has taken place) to be shared equally between BMC and MHADA and the mill. With no need to share the built-up area, more land was available for redevelopment.
The definition of open land can also be interpreted to include land released by demolishing a structure. A further clarification was issued in 2003 stating open land will exclude the portion of plots that become available after the demolition of mill complexes. This freed up more land for redevelopment.
The October 17 high court judgement struck down this clarification and declared that lands freed by demolishing existing structures will be included in open land. This has cast fog over the amount and price of land that NTC can sell. Before the ruling, NTC had planned to sell 135 acres from 18 more mills. Now all its plans are on hold till the Supreme Court verdict.
The ruling also impinges on the 60-odd private textile mills redeveloped on the basis of the previous interpretation of open land. Many of them will now have to give up more land to the city. This has irked textile mill owners who complain of unfair treatment as the Development Control regulation does not apply to non-textile mill land. In the past 15 years, several non-textile companies have moved their factories outside the city and sold the premises to real estate developers without having to share their land with the city. "We support more open space for the city but why isn't the same rule being applied to other industrial mills," asks BJP MLA M.P. Lodha who has bought 12 acres at Shrinivas Mill for Rs 300 crore.
NTC is one of the few mills that has tendered land to BMC and MHADA. It has handed over two mills complete with their land in lieu of the land it should have shared with the city in each of the five mills. The coporation, along with private textile mill owners has approached the apex court. The court will hear petitions from all mill owners on December 13 for final settlement of the case.
NTC's story is a lesson on how not to handle an enterprise afflicted with losses. Insiders recall that in the early 1990s, of the 150 NTC mills, only 20 were sick. Instead of closing them, revenues from the profitable mills were used to pay salaries for them, which dragged another 30 down. By the late 1990s, 50 mills had turned sick. With escalating cost of revival, the Government proposed three packages of Rs 300 crore, Rs 3,000 crore and Rs 8,000 crore. Ten years and Rs 8,000 crore later, NTC is closing more than double the number of mills. "NTC is a sordid case of the consequences of the Government not making up its mind in time," declares former cabinet secretary T.S.R. Subramanium.
Such uncertainties also affect the investment climate especially since real estate investment are of long gestation. Says David Choen, managing partner with Noonday Asset Management, manager of Farallon Capital Funds-one of the investors in the disputed NTC mills: "We are disappointed with recent developments despite the clear judgement (May 2005) from the Supreme Court, which we had relied on."
Vice-chairman and managing director of Welspun, B.K. Goenka warns that getting the money alone will not be enough for NTC. Efficient use of the funds is key because NTC is right now a non-player in the textile industry. This will be possible if the Government pulls out of the business, he says. Adds Subramanium: "India has over 4,000 private textile mills benchmarked to global standards set by producers in China and Mexico. NTC with its 50 mills that are sick and 50 mills that are saddled with 40-year-old machinery makes no difference to the economy."
However, with privatisation almost out of the question under the UPA Government, if and when the mills are revived and modernised they will be government owned. The group of ministers set up under the NDA government had recommended winding up of the NTC as a holding company and let the nine subsidiaries (each owning a cluster of mills) to operate as independent companies competing with each other. The UPA Government plans to merge all the nine subsidiaries into one NTC directly under the Textile Ministry.
The Supreme Court admitted and heard the appeal against the Bombay High Court ruling on November 21. Top legal minds in the country appeared on behalf of different mill owners. These included Arun Jaitley, Ram Jethmalani, Fali S. Nariman and Soli Sorabji. Whichever way the final order goes, it will be for NTC to prove that it has not outlived its utility.