SC orders CBI probe into 2002 HZL stake sale


The Supreme Court on Thursday ordered a court-monitored CBI investigation into the sale of Hindustan Zinc Ltd (HZL) to Anil Agarwal’s Sterlite Opportunities and Ventures Ltd during Atal Bihari Vajpayee’s government in 2002, even as it allowed the government to sell its residual stake in the miner.

A bench, led by justice D.Y. Chandrachud, allowed the government to sell its 29.5% remaining stake in Hindustan Zinc since the state was a minority shareholder in the company, but directed the CBI to register a regular case into the 2002 sale and submit quarterly reports of its investigation to the court.

The court cited instances of alleged irregularities in the decision to sell a 26% stake in Hindustan Zinc instead of 25%, reducing the government’s shareholding to 49.92%; irregularities in the bidding process; irregularities in the valuation of the stake and a report by the government auditor on the improper valuation of the company’s assets.

“A prima facie case for a cognizable offence, as mandated under the CBI Manual, has been made out in this case and warrants the registration of a regular case. 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,” directed the bench, which also included justice B.V. Nagarathna.

A preliminary enquiry was registered by the CBI in November 2013 to look into the alleged corrupt practices, but the government in 2020 told the top court that the case was closed in March 2017 since no evidence of criminality was found.

Rejecting this closure report, the bench said that some of the CBI officials involved in the preliminary investigation had recommended further investigation. “Some of the aforesaid observations of the CBI officials, who recommended the conversion of the preliminary enquiry into a regular case, satisfy this court’s conscience for exercising its exceptional powers to direct the CBI to conduct an investigation into the matter,” held the court.

The bench further turned down the plea by the Centre and Sterlite Opportunities to dismiss the petition filed in 2014 by the National Confederation of Officers Association of Central Public Sector Enterprises—an association of officers related to the PSU firm, on the ground that a similar petition was rejected in December 2012.

Highlighting the contemporary reality of “ambush public interest litigations”, the court lamented a trend of poorly pleaded PILs being filed instantly, with a conscious intention to obtain a dismissal from the court and preclude genuine litigants from approaching the court in public interest.

The bench said that a court must remain conscious that grave issues of public interest are not lost in the woods merely because a petition was initially filed and dismissed without a substantial adjudication on merits. As there was no substantive decision on the merits of the issues in 2012, the bench said, the PIL by the association of officers could not be dismissed without examining the issues.

About disinvestment of the government’s residual 29.5% stake in Hindustan Zinc, the court said that the government is entitled to sell its shareholding so long as the process of disinvestment is transparent and the government follows a process that results in the best price being realized for its shareholding.

In 2000, the Centre decided to sell its controlling shares in Hindustan Zinc, and the Cabinet Committee of Disinvestment approved the Core Group of Secretaries on Disinvestment’s proposal of disinvestment of 26% equity to a strategic partner with management control and appointment of an advisor. Sterlite Opportunities emerged as the successful bidder, and the transaction was completed in April 2002.

Sterlite Opportunities also acquired 20% of the equity in Hindustan Zinc from the open market through a mandatory open offer. Further, as part of the ‘call option’ part of the deal, the government further divested around 19% at the same price to the private entity in November 2003. Following this acquisition, Sterlite Opportunities became a majority shareholder with a 64.92% equity stake in Hindustan Zinc.

In 2012, the Union government announced its decision to disinvest its residual shareholding of 29.5% in Hindustan Zinc. In October 2012, Maton Mines Mazdoor Sangh approached the Supreme Court against the proposed disinvestment, but the petition was dismissed on 10 December 2002.

The association of officers filed a fresh PIL in 2014, alleging illegalities in the disinvestment to bestow benefits to a few by undervaluing the shares. The plea asked for a CBI probe into the deal and restraining the government from further divesting its share. The petition pointed out that the final decision to close the case has been taken even though several officers of the CBI had recommended registration of a regular case for a further inquiry.

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