PIL on stock valuation stumps Hind Zinc stake sale
20 January 2016
Stock valuations remain a hurdle to the sale of a residual stakes in the two central public sector undertakings – Hindustan Zinc Ltd and Bharat Aluminium Company Ltd – after the Supreme Court stymied the sale of government of India's 29.54-per cent remaining stake in Hindustan Zinc.
The apex court said the government should seek parliamentary approval before divesting stake in the erstwhile Central Public Sector Enterprises (CPSEs), dealing a blow to the Narendra Modi government's hopes of raising Rs69,500-crore through sale of PSU stakes this fiscal.
Hindustan Zinc and Balco the two erstwhile central public sector undertakings are now effectively owned by Anil Agarwal's Vedanta Group, which holds a majority stake in the two companies.
The initial sale of a 26-per cent stake in Nalco by the previous NDA government under Prime Minister Atal Behari Vajpayee to Anil Agarwal's Vedanta Ltd back in 2002, was itself mired in controversy.
It was alleged that the government received only Rs300 crore when it sold a 26-per cent stake in HZL to the Vedanta group as the deal was priced at Rs40 per share against a "minimum valuation" of Rs119 per share.
Vedanta had later ramped up its holding to 64.92 per cent after the UPA 2 regime undertook a further divestment about 17 months ago.
A PIL filed by the National Confederation of Officers has challenged the selloff and argued that the deal ought to be valued at several lakh crores of rupees. Counsel for the petitioners Prashant Bhushan argued that the court could not permit the Union government to commit a "second transgression" of the law.
A bench comprising Chief Justice TS Thakur and Justices AK Sikri and R Banumathi asked attorney-general Mukul Rohatgi, who tried to defend the selloff, to reveal why the government was in such a "tearing hurry" to divest the remaining 29.54 per cent in favour of private sector mining giant Vedanta Aluminium.
Hindustan Zinc, a government of India undertaking, was set up by an Act of Parliament under the Metal Corporation of India Acquisition Act in 1966.
The apex court also took on record a sealed cover report submitted by additional solicitor-general Pinky Anand on behalf of the CBI relating to the preliminary inquiry conducted into the controversial divestment process.
The agency had registered a preliminary inquiry in 2013 against the Vedanta Group company for fraudulent transactions relating to the divestment process in 2002.
Appearing for the PIL petitioners, Bhushan argued that the government of India could not disinvest in the company without amending the Act in Parliament. Despite this, the government initially divested 26 per cent shares and sold off close to 71 per cent of the shares in the company to Vedanta Group, thus becoming a minority stake holder.
Now, the present government, he said, proposed to divest the remaining shareholding.
Bhushan told the court that the government received only Rs300 crore when it sold a 26-per cent stake in HZL to the Vedanta group as the deal was priced at Rs40 per share against a "minimum valuation" of Rs119 per share, thereby causing a substantial loss to the exchequer. He said the Comptroller and Auditor General (CAG) had in an earlier report indicted the government for the disinvestment process.
"Therefore, how could you sell it for Rs40 (per share)? Today, the quarterly profit of Vedanta from the company taken over from the government is Rs3,200 crore, which is almost Rs10,000 crore annually," Bhushan told the court.
Intervening during the arguments, attorney-general Mukul Rohatgi told the court that Hindustan Zinc had ceased to be a government company.
He also argued that the centre did not agree with an earlier apex court ruling in the Hindustan Petroleum Corporation Limited (HPCL) case that no divestment can be permitted in government companies without Parliamentary approval.
"There was no challenge at that time (divestment). The correctness of the judgment (HPCL) is doubted by us (government). Whatever happened in 2002 has happened. It is not a government company anymore," Rohatgi asserted.
The bench then asked the AG about the progress of the CBI investigation.
When Rohatgi did not answer, the bench went through the status report placed by CBI and said: "It has conducted a preliminary inquiry. Matter is under consideration of competent authority."
Bhushan also told the court that a challenge to the disinvestment was made in 2002 through a PIL filed by another person. But this person subsequently withdrew the PIL as he secured employment in the Vedanta group.
"So these are the credibility of the petitioners in PILs," Justice Sikri observed.
Bhushan said this was precisely the reason why he was representing an organisation called the Centre for Public Interest Litigation (CPIL). He said CPIL would scrutinise every PIL minutely and only then file it before the court.
The bench then told the counsel: "This takeover was in 2002. Government is out of the company. It is very old. They have attained finality. Your grievance is that there should not be any further disinvestment. Today it is no longer a government company. They want to disinvest because it is not a government company."
Rohatgi said: "Disinvestment is a policy decision".
"Is there a legal bar," Justice Thakur asked.
Bhushan: "One wrong is committed.. but it can be .....corrected.
Justice Thakur initially hinted that Hindustan Zinc could not be described as a government company. "The statutory amendment may not be required though the shares may have a higher price," Justice Thakur observed.
Bhushan insisted that will of Parliament is expressed by an act of Parliament. Therefore, the assets can be vested in the government company again.
"Unfortunately, there is transgression of law. The government still has a 29 per cent stake. Under company law, it still has an important say," he argued. "It would be a second transgression."
The bench then turned to the attorney-general and observed: "Mr Rohatgi what are the compulsions for disinvestment?"
"You can't do it without amending the law. The law doesn't allow you to disinvest without amendment. What is the compelling reason," Justice Thakur asked.
The AG reiterated that it was a policy decision.
"Is there a basis? We can't put the clock back, but you must consider," Justice Thakur said.
But the AG argued, "If I have to sell, why should I not?"
Justice Thakur snapped at him, "Then amend the Act. Take Parliamentary sanction for your disinvestments."
AG argued that Parliamentary approval was not required.
"You have disinvested. Then the residual remains, which also you want to part with," Justice Thakur remarked.
AG, "Government does not want to be in the mining business".
The CJI said, "Ordinary business is different. This is where you have to go to Parliament. What is the hurry. You should not be in a hurry. Don't insist. No disinvestment till you obtain permission of this court."
Senior counsel A Sundaram, appearing for Vedanta, tried to put forward his submission saying the company had already made huge investments in Hindustan Zinc.
But the CJI stopped him in his tracks saying he had no right to argue that the remaining stake should also be sold to Vedanta.
Later the bench passed a terse order, "Status quo with regard to the proposed disinvestment of Hindustan zinc limited shall be maintained and remain until further orders."
The bench posted the matter for further hearing after four weeks.