Two decades after the first NDA government, led by then Prime Minister Atal Bihari Vajpayee, decided to divest stake in Hindustan Zinc Ltd (HZL) to a strategic partner – SOVL, the Supreme Court Thursday ordered the CBI to register a case into the various alleged irregularities.
On perusal of reports and recommendations of CBI officials, it is of considered opinion that the 2002 disinvestment in the ”Mini-Ratna” designated firm evinces a prime facie case for registration of a regular case, the court said.
It did not stall however the proposed disinvestment of the government’s 29.54 per cent residual stake in the open market and said it should be done strictly in accordance with SEBI rules and regulations to ensure that the best price is realised for the sale of the shareholding.
The Sterlite Opportunities and Ventures Ltd (SOVL), the majority shareholder of HZL has stated before the court that it is not exercising its second call option under the Share Purchase Agreement.
A bench of Justices DY Chandrachud and BV Nagarathna said, “There is sufficient material for registration of a regular case in relation to the 26 per cent disinvestment of HZL by the Union Government in 2002. The CBI is directed to register a regular case and proceed in accordance with law”.
It said the CBI shall periodically submit status reports of its investigation to the Court and the reports are to be submitted every quarter, or as otherwise directed by this Court.
“Some of the 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,” it said, adding that a prima facie case for a cognizable offence, as mandated in the CBI Manual, has been made out.
“We are desisting from commenting on some crucial facts and names of individuals involved, so as to not cause prejudice to the investigation of the matter,” the court said.
It noted that a Preliminary Enquiry (PE) on the basis of ‘confidential source information” in relation to the HZL disinvestment during 1997-2003, was registered by the CBI on November 6, 2013.
In compliance of this Court’s order dated November 3, 2014, a status report was submitted by the CBI and on January 19, 2016, it had directed CBI to submit another status report in a sealed cover.
The PE was closed on March 6, 2017 by the CBI without registering a regular case stating that it did not disclose facts which would warrant the registration of a criminal case.
The bench noted that in an affidavit filed before it on July 14, 2020 there is a ‘self-contained note’ dated March 6, 2017, detailing the closure of the PE and it contains various opinions given by various officials both for and against the registration of regular case.
It said that some details in the CBI officials” recommendations to register a regular case, which have not been adequately addressed by the self-contained note closing the PE are — Irregularities in the decision to disinvest 26 per cent, instead of 25 per cent, Irregularities in the bidding process and irregularities in the valuation of 26 per cent equity for disinvestment.
Dealing with the proposed disinvestment of residuary share in the HZL, the bench said that the Centre is a shareholder of HZL and the control and management of HZL does not vest with it as it 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…The Union Government, in its capacity as a shareholder of HZL, is entitled to take such a decision,” the bench said. It said that the Union Government, in the present case, is exercising its rights as a shareholder and has taken a decision to disinvest its residual shareholding of 29.54 per cent in HZL.
“The HZL is no longer a government company. In any event, the decision of the Union Government, as an incident of its policy of disinvestment, to sell its shares in the open market, cannot be questioned by reading a bar on its powers to do so, from the provisions of the Nationalisation Act 1976,” it said.
In 1991-92, the Centre first took steps for the disinvestment of its shareholding in HZL and disinvested 24.08 per cent of its shareholding in the domestic market.
As a result of the disinvestment, the Union Government was left with a 75.92 per cent stake in HZL. The second tranche of disinvestment of the Centre’s shareholding in HZL took place in pursuance of its decision to disinvest 26 per cent of its shareholding in HZL to a ‘strategic partner’ (SOVL) in 2002.
On April 10, 2002, SOVL acquired another 20 per cent of the equity in HZL from the open market by a mandatory open offer, in compliance with the SEBI norms.
The Shareholders’ Agreement between the Centre and SOVL envisaged two call options and the SOVL exercised its first call option for 18.92 per cent of the equity holding in August 2003, 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.
In 2012, the Union government announced its decision to disinvest residual shareholding of 29.54 per cent in HZL.
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