The Central government now faces two more hurdles in the demerger of Shipping Corporation of India Land and Assets (SCILAL) and the Shipping Corporation of India (SCI) and the eventual divestment of SCI, multiple sources aware of the proceedings told Moneycontrol.
SCI still implements the old Employees' Provident Funds Scheme for its employees. That, coupled with ongoing legal proceedings against the company for non-payment of past medical dues, by former employees of SCI, have emerged as problems for the stock exchanges to approve the demerger of the company, multiple sources said.
Emails sent to the Ministry of Ports, Shipping and Waterways and Shipping Corp of India remained unanswered at the time of publishing this article.
"In the case of the Shipping Corporation’s strategic sale, an issue has come up. Shipping Corporation of India is still operating under the old Employees' Provident Funds Scheme. It has emerged as a new hurdle in its strategic sale, which may delay the process. The government was not aware it could delay the process, the issue has come to light recently. Not sure about how it will be tackled going further," a senior government official told Moneycontrol.
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As SCI follows the old pension scheme, which involved paying retired personnel who joined a government service before 2004 a pension from government revenue as long as they lived, the divestment of the parent company into two parts would involve the government setting up a separate dedicated fund to provide for the two demerged entities to provide pension for its employees, multiple sources told Moneycontrol.
This also means that the government will be liable to pay pensions to SCI’s current and former employees post the demerger and strategic sale of the company, sources said.
"The demerger and the strategic sale of SCI can only take place if the government sets up dedicated funds to provide pensions for SCI employees," the second government official said.
The old pension scheme has been largely disbanded in India but some public sector utilities are slowly adopting the old scheme again at the request of state governments.
Similarly, another senior official said that a writ petition in the Mumbai High Court filed by the Ship India Retired Employees Welfare Association seeking to recover unpaid medical dues to former employees of SCI has emerged as an obstacle for the planned demerger and strategic sale of the company.
"The writ petition by former SCI employees will be next heard on April 25, 2024 and the stock exchange regulator has indicated that any decision on the demerger of SCI will be taken once the case is settled," the second government official said.
The petition filed by the ex-employees of SCI deals with the non-transfer of funds to the trusts formed for implementing the Post-Retirement Medical Scheme (PRMS) - one for those who retired prior to 2007, and for which meagre sums are available, as the SCI management did not contribute the amount mandated by the guidelines issued by the Department of Public Enterprises (DPE).
The ‘Ship India Retired Employees Welfare Association’ has repeatedly requested the SCI management to settle various issues pending for years, a former SCI employee told Moneycontrol.
According to SCI's former employees, SCI neither pays employees who retired before 2007 a pension, nor does it have a medical scheme that offers adequate compensatory cover.
The government had issued guidelines in 2008 under which the company concerned transfers a tiny fraction of its annual profit into a corpus to take care of the medical needs of such retirees.
"SCI has hardly made any contribution to the corpus for retired employees in the years it was in profit," a former SCI employee told Moneycontrol.
According to the employees, SCI has pending dues to around 800 former employees across the country, including former executives, officers, peons, clerks, and workers who retired before 2007.
"SCI still holds on to crores of rupees contributed by the employees from their salaries. We had requested SCI to provide details of the contributions made by the employees from January 1 2007, the expenditure incurred towards medical reimbursement and the interest earned,” said S C Lingam, a former employee, and the General Secretary of the Ship India Retired Employees Welfare Association.
SCI, according to the Association, has cited ‘non-availability of funds’ for its inability to implement the new PRMS for employees who superannuated before 1 January 2007.
The PRMS, with contributions from the management and the employees, was introduced in SCI for the first time in 1994 with retrospective effect from 1992.
In 2005, a new scheme - Life Time Scheme - was drawn up and the employees were given the option either to continue with the old scheme or join the new scheme. Those who opted for the new scheme were required to pay 50 percent of their last drawn basic pay at the time of retirement.
However, with the revision of pay scale in 2007 per the DPE guidelines, employees retiring after 1 January 2007 were required to contribute 4 percent of their salary towards the PRMS and the management was to introduce a new scheme through insurance for employees retiring post January 2007. SCI implemented the new scheme only in October 2020 after a lapse of 13 years.
Earlier this month, the Department of Investment and Public Asset Management (DIPAM) Secretary, Tuhin Kanta Pandey, had told Moneycontrol in an interview that the listing of the shares of SCILAL on stock exchanges is likely to be completed within a month as the Board has been set up and hurdles around the stamp duty exemption sorted.
“I think within a month it (SCILAL) will be listed. The Board has been constituted for SCILAL by the Ministry of Shipping and certain decisions have also been taken by the Maharashtra government. The Cabinet has also given a stamp duty exemption on this demerger. So, from SCI to SCILAL, the lease transfers, the lease name change, et cetera is taking place,” Pandey told Moneycontrol in an interview.
The stamp duty waiver of around Rs 300 crore, if not granted would have been a major hitch to the demerger. The demerger of SCI and SCILAL into separate entities was approved by the Ministry of Corporate Affairs in February 2023 but it has since faced multiple delays.
SCILAL was formed in November 2021 to hold the non-core assets of SCI, which falls under the Ministry of Ports, Shipping and Waterways.
As part of the strategic sale process, the government hived off the real estate assets of SCI — Shipping House, a 19-storey building, and the Maritime Training Institute, both in Mumbai — and certain other non-core assets to SCILAL.
The listing of SCILAL will pave the way for the financial bids for the strategic sale of Shipping Corp. As per the balance sheet of SCI, the value of non-core assets meant for demerger as on March 31, 2022, stood at Rs 2,392 crore.
As part of the divestment of SCI, the central government is looking to sell its 63.75 percent stake in SCI for approximately Rs 3,000 crore. SCI has a fleet strength of 70 vessels and is the largest Indian shipping company, catering to the overseas and coastal transportation of goods.
In November 2020, the Union cabinet gave in-principle approval for the strategic divestment. In December 2020, the Department of Investment and Public Asset Management invited expressions of interest for the disinvestment of the government’s entire 63.75 percent stake in SCI.
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