New Delhi/Kolkata: The Supreme Court on Tuesday passed a verdict asking the co-promoters of Haldia Petrochemicals Ltd (HPL) to resolve their long-standing dispute over control and majority ownership through arbitration, drawing the curtain on the West Bengal government’s proposed sale of its 40% stake in the beleaguered polymer maker to Indian Oil Corp. Ltd (IOC).

The dispute stems from a January 2002 pact under which the West Bengal government had agreed to transfer majority control in HPL to its partner, The Chatterjee Group (TCG), by selling 155 million shares to it. The deal, however, was eventually aborted after several attempts to rescue it because, according to the state government, TCG reneged on contractual obligations.

After several rounds of legal battle previously in the Company Law Board, the Calcutta high court and even the apex court, in which HPL successfully dismissed allegations of mismanagement against it, the two co-promoters again wound up in the Supreme Court this year. This time, TCG was seeking to establish its right to take the dispute over the aborted transaction to the International Chamber of Commerce in Paris for arbitration.

A division bench of the Calcutta high court and a single-judge bench of the same court had previously ruled that there was no scope for arbitration as claimed by the TCG. The apex court dismissed the orders passed previously and asked HPL’s feuding co-promoters to head for Paris. The Supreme Court had previously ruled in favour of HPL when allegations of mismanagement were levelled against it for not facilitating the transfer of the 155 million shares in question.

This means the state government cannot immediately sell its 675 million shares, or 40% stake in HPL, to IOC as planned two months ago. Whether it has the right to hold 675 million shares at all will now be determined in Paris. If TCG could seize control of the 155 million shares, it would gain control of HPL. It currently owns 41% in the firm.

IOC, the state-owned refiner and oil marketing company, had in early October offered 25.10 a share for the West Bengal government’s stake, which was way ahead of expectations in the light of HPL’s expanding losses. Had the sale gone through, West Bengal would have received around 1,700 crore from the deal.

West Bengal’s commerce and industries minister and HPL chairman Partha Chatterjee said on Tuesday that he couldn’t comment on Tuesday’s judgement until lawyers for the state had assessed its implications. A spokesperson for TCG couldn’t immediately be contacted for comments. For the company, which is struggling to raise working capital to keep its naphtha cracker running, this is an unfavourable development.

Unless the state government was able to bring in a strategic investor, lenders have said they would not make fresh loans to HPL. The only alternative now is for the West Bengal Industrial Development Corp. to make loans to HPL, according to state government officials, but the state’s own finances are stretched.