Breaking: Supreme Court Allows Centre To Further Disinvest Its 29.5% Shares In Hindustan Zinc Ltd., Orders CBI Investigation Into 2002 Disinvestment Case
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The Supreme Court on Thursday ruled that the Union of India may disinvest its residual shareholding of 29.5% in HZL.The Court also directed that a prima facie case for registration of Regular Case by the CBI as regards the illegalities in the March, 2002 disinvestment of 26% shares is concerned, and order the CBI to do the needful.The bench headed by Justice D. Y. Chandrachud was pronouncing...
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The Supreme Court on Thursday ruled that the Union of India may disinvest its residual shareholding of 29.5% in HZL.
The Court also directed that a prima facie case for registration of Regular Case by the CBI as regards the illegalities in the March, 2002 disinvestment of 26% shares is concerned, and order the CBI to do the needful.
The bench headed by Justice D. Y. Chandrachud was pronouncing its judgment on the plea by National Confederation of Officers' Associations of Central Public Sector Undertakings and one more petitioner in the Hindustan Zinc disinvestment case.
"There is no challenge to the disinvestment which took place in 1991- 1992 or 2002, the latter having resulted in HZL ceasing to be a government company. That being the position it would be inconsistent to read an implied limitation on the transfer by the government of its residual shareholding in HZL representing 29.5% of the equity. The government now acts as any other shareholder in a company to be able to transfer shares on the basis of financial and economic exigencies", the bench held.
"The decision in CIPL is distinguishable for the reason that Hindustan petroleum and Bharat petroleum were government companies when the disinvestment action was challenged before this court. In the present case the disinvestment is of little consequence as HZL ceased to be a government company as a result of disinvestment which took place in March 2002. What is in question is the first relief sought as regards the 29.5% residual shareholding in HZL after it ceased to be a government company. The union government is a shareholder of HZL, though its control and management does not vest with the union government. The shareholding of SOVL has increased to 62.9% after the first call option in 2002. During the course of the hearing this court has been apprised by SOVL that it does not seek to exercise a second call option in view of the share purchase agreement. In this backdrop the decision has been taken by the union government to sell its shares in the open market. The union government as it is in its capacity as shareholder of HZL has the right to take certain decisions 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", the bench has stated.
The bench further ruled that the disinvestment in 2002 evidences a prima facie case for registration of a regular case- "We abstain from commenting on some crucial facts and names of individuals involved so as to not cause prejudice to the investigation of the matter, though we set out details from the CBI officers investigation as regards the registration of a regular case which have not been addressed adequately...The registration of a regular case followed by a full fledged investigation must be conducted. This court shall be duly apprised of the status of the investigation."
The bench held-
(1) The summary dismissal of an earlier petition under article 32 of the Constitution does not bar the present writ petition on the grounds of res judicata as there has been no substantive decision on the merits of the issue
(2)the decision in Centre for Public interest litigation does not apply to the present facts as HZL ceased to be a company before the stage of the disinvestment which is to be challenged. The union government decision to disinvest 29.5 % shares is not governed by the principle laid down by the principal in CPIL.
(3) SOVL has stated before the court that it is not exercising its secondCall option. The union government has said the shares will be divested in the open market and the rules and regulation of SEBI to secure the best price.
(4) There is sufficient material for registration of a regular case with regard to the 26% disinvestment in HZL in 2002. The CBI is directed to register a regular case, and periodically submit status report of investigation to this court, every quarter or as otherwise directed by this court.
Background
On October 25, Advocate Prashant Bhushan opened the arguments for the petitioners, telling the bench of Justices D. Y. Chandrachud and B. V. Nagarathna how the Metal Corporation of India was nationalised by an Act of Parliament in 1965 and incorporated as Hindustan Zinc. "The Act of the Parliament stated that the government has the power to vest it in a government company. So it was vested in a government company. Sometime around 2000, the government divested a very substantial part of its shares in it, thereby rendering it to cease to be a government company in the technical sense, in the sense of the government holding being left at 29.5%. At that point of time, some employees challenged that disinvestment.That writ petition was dismissed in limine in 2012. Then we came to know that the government is proposing to disinvest even these 29.5% shares that they have which gives them any valuable rights- Under the Companies Act, if you hold more than 29% shares, it gives you several valuable rights over the company. Meanwhile, we also learnt by this time that the HPCL disinvestment judgment (CPIL v. UOI; 2003) had come where it was held by the Supreme Court that if an Act of Parliament says that an undertaking is nationalised and can only be vested in a government company, then you cannot disinvest so as for it to cease to be a government company without a Parliamentary legislation", he submitted.
"Meanwhile, we also learnt that a complaint to the CBI was filed by the brother of a petitioner in this case that the original disinvestment was done dishonestly, at an undervaluation, and therefore, ought to be enquired into. The CBI registered a PE (Preliminary Enquiry) which went on for many years. We have filed an affidavit where we have learnt that the investigating officer, the head of branch, the Director of prosecution- everybody said that this is a fit case for it to be converted into a Regular Case and for an FIR to be lodged. Despite that, it appears that the PE was closed. Despite the fact that this court's judgment in Lalitha Kumari clearly says that any complaint disclosing a cognisable offence should be rendered into an FIR, and that in certain very small percentage of cases, there may be a preliminary enquiry done within seven days only to determine whether the complaint makes out an offence or not. Then you decide whether to register a case or to dismiss it. But there also, a copy of reasons has to be given to the complainant as to why the preliminary enquiry was not converted into an FIR", he continued.
Mr. Bhushan then took the bench through the earlier orders passed in this case-
(1) order of January 19, 2016 stating "Issue rule. Post for final hearing. Status quo as it exists today with regard to proposed disinvestment of government interest in Hindustan Zinc shall be maintained pending further orders from the court. Status report submitted by the CBI shall be kept in a sealed cover"
"By that time, apparently they had not closed the preliminary enquiry. They said we are still continuing with the enquiry", said Mr. Bhushan.
(2) order of July 4, 2020 stating, "List after two weeks. In the meantime, CBI to file preliminary enquiry report in a sealed cover"
"So by this time, they said that we have completed the preliminary enquiry and we have found it unfit to register a regular case and therefore, the court said all right filed the preliminary enquiry report in a sealed cover", commented Mr. Bhushan.
(3) "Thereafter, an application was made by Vedanta Corporation saying that there is some arbitration which is held up because of this interim order of status quo regarding the proposed disinvestment, on which the court made a further order of August 13, 2020 which effectively says that that Arbitration can go on unimpeded by the status quo order passed by the court", continued the advocate.
Justice Chandrachud asked for the dates on which the disinvestment progressively took place in the company. Senior Advocate Harish Salve, for Vedanta, of which Hindustan Zinc is a subsidiary, responded, "24.08% shares were disinvested in 1991-92. The government was left with 75.92. It continued to be a government company. In 2002, 26% were disinvested and the government share came to 49. In April, 2002, Vedanta acquired this 26%"
"On the date of the judgment of our court in CPIL, this company had ceased to be a government company?", asked the judge. "Probably", said Mr. Bhushan.
"Not 'probably', yes, it had ceased to be a government company", replied Mr. Salve.
"Considering there is no challenge to the earlier decision when disinvestment of 1991-1992 etc took place, as a result of which government stake falls below 50%, then can we apply the principle which has been laid down in the HPCL judgment?", asked Justice Chandrachud.
Mr. Bhushan responded, "The law department of the government also says that the disinvestment was illegal in violation of the law laid down in the HPCL judgement. The Parliamentary committee also said the same thing- that the disinvestment was not only illegal but also against national and public interest. Parliamentary committee further said that in any case now there should not be any further disinvestment because even while holding 29.5% of the shares, the government has several valuable rights in this company which is holding the bulk of the country's deposit of these strategic minerals of zinc etc. Our first prayer is to stop even this disinvestment by which the government will lose valuable rights over these minerals. One question is whether the government, having committed an illegality in the first place and gone contrary to the express mandate of the statute, can now compound that illegality by going on and divesting even all the other valuable rights that still remain with the government?"
"The second issue is that there is a Preliminary Enquiry registered by the CBI and we have filed an additional affidavit in which we have pointed out that the investigating officer, head of branch, senior public prosecutor, director of prosecution-all of them unanimously said that this is a fit case for registration of Regular Case and filing a FIR because of undervaluation in the disinvestment process in 2002 of the 26% share. Yet the CBI decided to close that preliminary enquiry and that is why this court first asked them to file a status report and then asked them to file the preliminary enquiry report! And they have not even supplied the reasons for not registering a Regular Case to the complainant. It is a very, very strange case", continued Mr. Bhushan.
'Post-COVID, country needs money; We are selling shares in public following SEBI regulations, in most transparent manner'- SG Tushar Mehta
At this, SG Tushar Mehta intervened to advance, "Before making this submission, an experienced lawyer like you should have told the court that there is an affidavit saying that 'I am not the complainant and therefore I have not been given the reasons'"
Continuing, the SG told the Court, "We have said that we are selling the shares in public following all SEBI regulations, in the most transparent manner! That is my case!"
"40,000 crores is right now the market value of these shares. It is very well for my friend to argue out of air, but post Covid the country is in need of money. And we are getting this through market price, through SEBI regulations. This is not a private sale! This is all pie in the sky!", he urged.
'Share price is very high, I am not interested and have given up rights option'- Senior Advocate Harish Salve for Vedanta
"I am agnostic today because I have given up my rights option. The government will now sell it in public. I have filed an affidavit saying that I am not interested, the share price is very high and I will not buy it at that...It is not that they are selling it to me", Mr. Salve told the bench.
Mr. Salve continued to vehemently argue, "There is no complainant here! This only shows what irresponsible complaints are filed! The complaint is that shares are sold at an undervalue? They are sold in a public auction, much above the listed price! Somebody has to say something and Mr. Prashant Bhushan has to get excited about not being the CBI de-facto chair and wanting to run the CBI!"
"There was a public sale of shares, there were multiple bids, the value becomes so important! So they would undervalue it? This is all humbug! They have been listed much above the value. This is just to create prejudice about every industry in India, every business in India! Just pursuing an ultra-left agenda through the court!", he pressed.
Mr. Salve had earlier pointed out that there are some issues as to the maintainability of the proceedings and that the bench may deal with it at some stage even though Mr. Bhushan has opened the case.
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