Hindustan Zinc Disinvestment Case: Supreme Court Commences Hearing

The Supreme Court on Monday commenced hearing on the plea by National Confederation of Officers' Associations of Central Public Sector Undertakings and one more petitioner in the Hindustan Zinc disinvestment case.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...

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 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 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. The 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.

Case Title: National Confederation Of Officers Association Of Central Public Sector Enterprises & Ors. v. Union Of India & Ors.

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Hindustan Zinc Disinvestment Case: Supreme Court Commences Hearing

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