The Supreme Court Thursday gave a go-ahead to the Centre to disinvest its 29.54 per cent residual shares in Hindustan Zinc Ltd (HZL). At the same time, it directed a CBI probe into alleged irregularities in the process of disinvestment of 26 per cent government shares in the company in 2002.
A bench of Justices D Y Chandrachud and B V Nagarathna said that after the 2002 disinvestment, HZL had ceased to be a government company within the meaning of the Companies Act, 1956, and was only a shareholder in the company and, therefore, entitled to sell its shareholding.
The decision came on a 2014 plea by the National Confederation of Officers Association of Central Public Sector Enterprises and certain others, challenging the government’s proposed sale of its residual shareholding.
When The Indian Express sought his comments on the direction for a CBI probe, Arun Shourie, who was Union Disinvestment Minister in 2002, said: “If the SC has said register a case, let the case be registered. I am sure everyone concerned will cooperate fully. But here the point to see is this was challenged when it was disinvested. SC rejected the petition challenging the disinvestment. Now the SC has disregarded that order and asked the CBI to probe. CBI had filed a closure report in the matter. Now you say investigate again.”
“The officers who were dealing with this particular case (disinvestment) were very meticulous and cautious. It is not possible that these officers would do something that was contrary to the laid down procedures. The production of the company increased manifold after disinvestment. It was regarded as a great success at that time. If after 20 years, you are going to say that even though the CBI has found nothing, even though the SC has rejected a similar petition earlier, still a case should be registered, then the officers better watch out,” he said.
The disinvestment of HZL started in 1991-92 when the Union government sold 24.08 per cent of its shareholding in the domestic market. In 2002, the government disinvested 26 per cent of its equity in HZL in favour of Sterlite Opportunities & Ventures Ltd (SOVL).
In April 2002, SOVL acquired 20 per cent of HZL equity from the open market by a mandatory open offer, in compliance with norms of the Securities and Exchange Board of India.
In August 2003, SOVL exercised its first call option for 18.92 per cent of the equity holding, which was transferred in its favour in November 2003. Following this acquisition, SOVL became a majority shareholder with a 64.92 per cent equity stake in HZL.
Writing for the bench, Justice Chandrachud said “the Union Government is a shareholder of HZL. The control and management of HZL does not vest with the Union Government which has a residual stake of 29.54 per cent. The shareholding of SOVL stood increased to 64.92 per cent after the exercise of the first call option in 2002. During the course of hearing, this Court has been apprised by SOVL that it does not seek to exercise the second call option, in terms of the Share Purchase Agreement. It is in this backdrop that a decision has been taken by the Union Government to sell its residuary shareholding in the open market. The Union Government, in its capacity as a shareholder of HZL, is entitled to take such a decision”.
The government had opposed the petition, saying it was barred by principles of res judicata since the Supreme Court had dismissed a petition on the same issue by Maton Mines Mazdoor Sangh’s writ petition on December 10, 2012.
But the bench rejected this, saying the 2012 dismissal was “in limine, without a substantive adjudication on the merits of their claim” and hence “the present writ petition is not barred by res judicata”.
The bench also rejected the argument that its 2003 decision in Centre for Public Interest Litigation vs Union of India — wherein it said divestment of government stake in HPCL and BPCL, as a result of which the companies would cease to be government companies, could not be undertaken without amending the statutes under which they were nationalised — will apply in the case of HZL.
It said HPCL and BPCL were government companies when the disinvestment action was challenged, but HZL had ceased to be a government company in March 2002.
The CBI had registered a Preliminary Enquiry in the matter on November 6, 2013, but decided to file a closure report in 2017. While the Special Prosecutor, CBI Head Office, New Delhi, Director of Prosecution and Special Director recommended closure, the Additional Director, CBI, and some others recommended converting the preliminary enquiry into a regular case.
In view of the difference of opinion between the CBI Director and Director of Prosecution, the matter was to be referred to the Attorney General on October 17, 2014, the judgment said, adding “however, the status of this referral has not been alluded to before us, for determination of the closure of the preliminary enquiry”.
Directing a CBI probe, the bench referred to some of the points flagged by the investigators who had recommended registration of a regular case.
It pointed out that the Disinvestment Commission had recommended HZL disinvestment, though not beyond 25 per cent of the equity in order to retain control, but “the Core Group of Secretaries on Disinvestment, on 17 February 2000, had allegedly disregarded this recommendation and proposed a sale of 26 per cent, without any justification”. Ultimately, 26 per cent was sold, the ruling noted, adding “this was allegedly done on the basis of a senior government official’s note dated 27 August 2000, without further details or reasoning”.
The bench said “some… observations of the officials of the CBI, who recommended the conversion of the preliminary enquiry into a regular case, satisfy this Court’s conscience for exercising its exceptional powers to direct the CBI to conduct an investigation into the matter”.
Stating that “a prima facie case for a cognizable offence, as mandated in… the CBI Manual, has been made out in this case”, the bench directed registration of a regular case “by a full-fledged investigation” with status reports to the court.