Supreme Court stays govt’s Hindustan Zinc stake sale

The Supreme Court on Tuesday stayed a proposed 29.54% stake sale in Hindustan Zinc Ltd (HZL) by the central government, which could affect the government’s disinvestment plans for the current financial year at a time when it is struggling to stay on the path to fiscal consolidation.

This could also delay the effort by majority stakeholder Vedanta Resources Plc to take total control of the zinc maker.

A bench comprising chief justice of India T.S. Thakur and justices A.K. Sikri and R. Banumathi was hearing a plea filed by the National Confederation of Officers’ Association, an employees union that is against the divestment.

Questioning the motive behind the proposed sale, justice Thakur asked the government why it was in a hurry to divest the residual stake.

Senior advocate C.A. Sundaram, appearing for Vedanta, pushed for the proposed sale and informed the court that the company had started making profits after the 2002 sale.

“If the company is making profits, then let the government also make some profit from the remaining stake. Why disinvest in that case,” the court remarked.

Referring to the earlier sale of 26% stake in the firm to Sterlite Ltd (now Vedanta Ltd) in 2002, the court told the government that the sale was a circumvention of the law.

“You’ve done it once and we can’t allow you to do it again,” it said.

The remark was in the context of the apex court-mandated probe by the Central Bureau of Investigation into the alleged irregularities in the 2002 sale.

“No divestment can happen in a public sector undertaking without Parliament amending the concerned statute,” the court said.

In 2003, the Supreme Court ruled that any disinvestment in a government-owned company incorporated through a statute cannot be done without amending the statute concerned.

The court, in a case filed by the Centre for Public Interest Litigation, restrained the central government from divesting its stake in two public sector undertakings—Hindustan Petroleum Corp. Ltd and Bharat Petroleum Corp. Ltd.

Attorney general Mukul Rohatgi told the court that the government had already lost its majority stake after the 2002 divestment and does not require Parliamentary sanction.

HZL was formed under an Act of Parliament on 10 January 1966 as an integrated zinc-lead-silver producing company.

Subsequent to the 26% stake sale for ₹ 445 crore in 2002, the government in 2003 sold an additional 18.92% in HZL to Sterlite for ₹ 323.88 crore. Sterlite went on to acquire a further 20% through an open offer to shareholders. As against the disinvestment target of ₹ 69,500 crore in 2015-16, the government has so far managed to garner ₹ 12,700 crore.

Due to the volatile market conditions, the government has been able to sell stakes in only four public sector undertakings—Indian Oil Corp. Ltd, Power Finance Corp. Ltd, Rural Electrification Corp. Ltd and Dredging Corp. of India Ltd.

HZL and Vedanta declined to comment.

Vedanta, controlled by billionaire Anil Agarwal, is looking to simplify its structure to leverage synergies between its various units.

It is considering merging Cairn India Ltd and HZL into Vedanta, the Press Trust of India reported on 12 January 2015, quoting Agarwal.

The court will hear the case after four weeks.

Asit Ranjan Mishra in New Delhi and P.R. Sanjai in Mumbai contributed to this story.