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Supreme Court orders CBI probe into HZL divestment in 2002 – Times of India

NEW DELHI: The Supreme Court on Thursday ordered registration of a regular case for a full-fledged CBI inquiry into alleged irregularities in the sale of 26% of government stake in Hindustan Zinc Ltd to Sterlite, a subsidiary of the Vedanta Group, for Rs 445 crore in 2002 when its value was alleged to be Rs 39,000 crore.
Faulting the closure of CBI’s preliminary enquiry (PE) despite listing numerous irregularities in the sale in the PSU while brushing aside the CAG’s critical report, a bench of Justices DY Chandrachud and BV Nagarathna ordered CBI to conduct full-fledged investigations into 18 suspicious grounds surrounding the deal.

“There is sufficient material for registration of a regular case in relation to the 26% disinvestment of HZL by the Union government in 2002. The CBI is directed to register a regular case and proceed in accordance with law. The CBI is directed to register a regular case and periodically submit status reports of its investigation to this court. The aforesaid reports shall be submitted every quarter, or as otherwise directed by this court,” the bench said, while green-signalling the selling of the government’s residuary 29.5% stake in HZL, a decision taken in 2012 by the UPA government. The sale had taken place during the tenure of the Vajpayee government.
Writing the judgment, 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%. The shareholding of Sterlite Opportunities and Ventures Ltd (SOVL) stood increased to 64.92% after the exercise of the first call option in 2002. During the course of hearing, this court has been apprised by Sterlite 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 fact that the Union government is amenable to the norms set out in Part III of the Constitution would not impose a restraint on its capacity to decide, as a shareholder, to disinvest its shareholding, so long as the process of disinvestment is transparent and the Union government is following a process which comports with law and results in the best price being realised for its shareholding.”
The bench further said, “The Union government has stated through the solicitor general Tushar Mehta that the residual shareholding shall be divested in the open market and shall take place in accordance with the rules and regulations of SEBI to ensure that the best price is realized for the sale of the shareholding.”
The Centre first divested 24.08% of its stake in HZL in 1991-92 when Manmohan Singh was finance minister and scripted the liberalisation of the Indian economy. In April 2002, the Centre had sold off 26% of its share for Rs 445 crore to SOVL. Sterlite acquired another 20% of HZL share from the open market, raising its shareholding in the erstwhile PSU to 46%.
Under the 2002 shareholders’ agreement, which envisaged two call options, Sterlite exercised its first one for 18.92% of HZL equity in August 2003, which was transferred in its favour in November 2003. Sterlite became majority shareholder with 64.92% stake in HZL. In 2012, the Centre had decided to disinvest its residuary shareholding of 29.54% in HZL.
On November 6, 2013, the CBI had initiated a PE investigation into suspected irregularities in the course of the disinvestment of the 26% equity holding of the Union government to Sterlite in 2002. The CBI special prosecutor, director of prosecution and the special director had concurred on closure of the PE. But the CBI additional director had insisted on converting the PE into a regular case.
After scrutinising the reasons given for closure of PE, the bench said, “Upon perusal of the aforementioned reports and recommendations, it is our considered opinion that the disinvestment in 2002 evinces a prime facie case for registration of a regular case.” It then listed out 18 counts on which a regular case should have been registered, while agreeing with advocate Prashant Bhushan for a full fledged CBI probe.