Public sector entities get power to close, divest units

The cabinet also delegated additional powers to the alternative mechanism to accord ‘in principle’ approval for disinvestment and minority stake sale in Maharatna PSUs.

The decision is aimed at reforming the functioning of PSEs, allowing them greater autonomy and helping the boards to take timely and speedy financial decisions, an official statement said.

This proposal will allow them to timely exit their investments in subsidiaries, units or joint ventures (JVs), enabling them to monetise their investment at an opportune time or close their loss-making and inefficient units at the right time. “This will result in expeditious decision making and saving of wasteful operational/financial expenditure by the PSEs,” it said.

Currently, the board of directors of holding or parent PSEs have the powers to decide on equity investments for setting up JVs and wholly owned subsidiaries and undertaking mergers or acquisitions, subject to a net worth threshold. However, they do not have the powers to decide on disinvestment or closure of their subsidiaries or units or stake in JVs. An exception are Maharatna PSEs that have some limited powers to decide minority stake disinvestment in their subsidiaries.

Therefore, the Cabinet’s approval is 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 at such subsidiaries.