Relief for Vedanta! SC allows proceedings against govt for taking over full control of Hindustan Zinc

In a major relief to billionaire Anil Agarwal-controlled mining conglomerate Vedanta Resources Plc, the Supreme Court on Thursday allowed it to proceed with the arbitration proceedings initiated against the government for taking over full control of Hindustan Zinc (HZL). The SC had in January 2016 ordered status quo in HZL’s shareholding pattern till further orders, thereby stalling the arbitration proceedings and also the government’s plan to proceed with the residual stake sale in the company.

A bench led by CJI SA Bobde vacated its status quo order with regard to arbitration proceedings on the proposed disinvestment of HZL, a PSU.

But it said that the issue related to residual stake sale of 29% will be taken up after four weeks.

Vedanta had initiated arbitration proceedings against the government after the latter had rejected the call option given to former to buy the residual stake at a specified price at a specified time frame.

“We are of the view that the arbitration initiated by Vedanta before a three-member arbitration panel headed by former SC judge DP Wadhwa shall go on unimpeded by the status quo order by this court on January 19, 2016,” the CJI said while posting the matter for final hearing in mid-September.

The apex court noted that the CBI in its closure report had stated that it found nothing “incriminating” or “illegal” or any “undervaluation” during investigations in the acquisition of shares by Vedanta. The investigating agency had also stated that it was not prosecuting anyone as on date. “Why should we interdict now,” the CJI asked counsel Prashant Bhushan , appearing for the National Confederation of Officers’ Association, an employee union, which has challenged the divestment of government’s residual stake in HZL on the grounds that the divestment was not legally permissible.

“Vedanta is already owner of 64%, if they pick up further 29%, how does it hurt anyone… Issue seems to have concluded, HZL is no longer a PSU, Vedanta has 64% stake,” the CJI asked the petitioners during the hearing.

While seeking urgent hearing in the matter, Solicitor General Tushar Mehta reiterated that government is in favour of divesting 29.5% shares of the company and there was no irregularity or illegality in the earlier stake sale of 64.92% of the company. He further stated that the government needs money from disinvestments. “The government is desperately generating revenue. Put it for hearing within a week,” Mehta contended.

On Thursday, Hindustan Zinc’s share price closed at Rs 239.5, up 3.41% from the previous closing price, on the BSE. At current prices, the Centre’s 29.54% stake in the company is worth Rs 29,893 crore.

Vedanta senior lawyer Harish Salve argued that that those opposing the divestment want to reverse the clock to 2002 when the first tranche of divestment of HZL took place with Vedanta’s predecessor Sterlite Industries acquiring 26% shareholding. He accused Bhuhan of wanting to “run the government from outside.”

Salve argued “HZL has ceased to be a government company” since then as the Anil Agarwal company holds 64.92%. He said that now the petitioners are challenging the last transche of residual take of 29.5%. “The government is not in owner, I am in the management since 2002,” he argued, adding that “if the government does not want to sell us, then let them put it in the open market. Anyone who bids higher will get it,” Salve said, adding that the residual stake sale does not need any amendment to the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act 1976 or parliamentary sanction as HZL, as of now, is a private entity. “Once a company ceases to have over 50% government stake, the Parliamentary Act can’t apply on it,” the Vedanta counsel argued.

The employees’ organization is opposing the sale on the ground that information received through RTI claimed that the Department of Legal Affairs in a December 2012 note had opined that changing the nature of HZL from a public company to an ordinary company itself was not permissible and was illegal till the Metal Corporation Act was amended for this purpose.

The association had alleged that Sterlite Industries, part of Vedanta Resources, had picked up a majority stake in the PSU at an undervalued price, resulting in estimated losses running into hundreds of crores to the exchequer.

The government had in 2014 fiscal plans to raise at least Rs 15,000 crore through the residual stake it held in HZL and Balco. Vedanta Resources had acquired the majority shareholding of the two companies in the previous NDA regime in 2003. While the union cabinet had approved a stake sale in Hindustan Zinc in 2014 but the employee association approached the SC seeking a CBI probe into the alleged irregularities in HZL’s stake sale to Vedanta Ltd (earlier called Sesa Sterlite Ltd) in 2002.