Explained: Why has SC ordered a CBI probe into 2002 Hindustan Zinc Limited disinvestment?

The judgment will enable the government to carry forward the disinvestment of HZL and raise revenue for other public purposes by offloading the residual stake estimated to be worth Rs 40,000 crore in the open market.

On Thursday, the Supreme Court gave the go-ahead to the Centre to disinvest its 29.54 per cent residual shares in Hindustan Zinc Ltd (HZL).

The top court also directed a CBI probe into alleged irregularities in the process of disinvestment of 26 per cent of government shares in the company in 2002.

The judgment, which came on a petition filed by the National Confederation of Officers Association of Central Public Sector Enterprises and some others, including a former employee of HZL, will enable the government to carry forward the disinvestment of HZL and raise revenue for other public purposes by offloading the residual stake estimated to be worth Rs 40,000 crore in the open market.

What is the history of HZL?

The Metal Corporation of India Limited was incorporated in 1944 as a public limited company under the Companies Act 1913. On August 2, 1976, the President promulgated the Metal Corporation (Nationalisation and Miscellaneous Provisions) Ordinance. This ordinance was replaced by The Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976.

When was HZL disinvested?

The Union Government took steps for the disinvestment of its shareholding in HZL in 1991-92. In the first tranche, the government disinvested 24.08 per cent of its shareholding in the domestic market. Of this, 12.54 per cent was acquired by financial institutions, 7.58 per cent by corporate bodies and non-resident Indians and 3.96 per cent by Indian nationals. HZL was listed on stock exchanges. As a result of the disinvestment, the Union Government was left with a 75.92 per cent stake in HZL.

The second tranche of disinvestment in HZL took place in pursuance of the Union Government’s decision to disinvest 26 per cent of its shareholding in HZL to a ‘strategic partner’. A Shareholders’ Agreement and a Share Purchase Agreement were executed on April 4, 2002 with Sterlite Opportunities & Ventures Ltd., who was chosen as the strategic partner. The Government accordingly disinvested 26 per cent of its equity in HZL in favour of SOVL leaving it with only 49.92 per cent stake.

On April 10, 2002, SOVL acquired 20 per cent of the equity in HZL from the open market by a mandatory open offer, in compliance with the Securities and Exchange Board of India norms. As a consequence, SOVL holding in HZL rose to 46 per cent. The Shareholders’ Agreement envisaged two call options. SOVL exercised its first call option for 18.92 per cent of the equity holding in August 2003, which was transferred in its favour in November 2003. Following this, SOVL became a majority shareholder with a 64.92 per cent equity stake in HZL.

What were the cases filed against HZL disinvestment?

In November 2003, a PIL was filed before the Jodhpur Bench of the Rajasthan High Court by one Rajendra Kumar Razdan, challenging the second tranche of disinvestment. The SC stayed the proceedings and transferred this and other similar petitions to itself. They were dismissed in August 2008.

On October 31, 2012, Maton Mines Mazdoor Sangh instituted a writ petition before the SC challenging the proposed disinvestment of the Union government’s residuary shareholding. This petition was summarily dismissed by the SC on December 10, 2002.

Following this, the National Confederation filed a writ petition in February 2014.

What did the National Confederation petition seek?

The petition sought a direction to the Government and the Department of Disinvestment to refrain from disinvesting the residual shareholding of 29.54 per cent in HZL without amending the Nationalisation Act 1976 and a direction to the CBI to periodically file status reports before the SC in respect of the investigation being conducted by it, so that it can be monitored by this Court till the filing of the charge-sheet in the appropriate court.

What was the CBI case?

The CBI initiated a preliminary enquiry into suspected irregularities in the course of the disinvestment of the 26 per cent of equity holding of the Union Government to SOVL in 2002 on November 6, 2013. In March 2017, the agency decided to file a closure report.

What did the Union Government argue?

Opposing the petition, the Union government had said that it is barred by principles of res judicata since the SC had dismissed a petition on the same issue by Maton Mines Mazdoor Sangh’s writ petition on December 10, 2012.
But the SC rejected this saying the 2012 dismissal was “in limine, without a substantive adjudication on the merits of their claim” and hence “the present writ petition is not barred by res judicata”.

The bench said that “while determining the applicability of the principle of res judicata under Section 11 of the Code of Civil Procedure 1908, the Court must be 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. There is a trend of poorly pleaded public interest litigations being filed instantly following a disclosure in the media, with a conscious intention to obtain a dismissal from the Court and preclude genuine litigants from approaching the Court in public interest. This Court must be alive to the contemporary reality of “ambush Public Interest Litigations” and interpret the principles of res judicata or constructive res judicata in a manner which does not debar access to justice. The jurisdiction under Article 32 is a fundamental right in and of itself”.

What did the SC say on the CBI probe?

The SC noted that there were differences of opinion regarding the closure. While the Special Prosecutor, CBI Head Office, New Delhi, Director of Prosecution and Special Director recommended closure, the Additional Director, CBI and some others recommended converting the preliminary enquiry into a regular case.

The court, which went into the materials said they “satisfy this Court’s conscience for exercising its exceptional powers to direct the CBI to conduct an investigation into the matter” and that “a prima facie case for a cognizable offence, as mandated in…the CBI Manual, has been made out in this case”. The SC directed registration of a regular case to be followed “by a full-fledged investigation” and directed that status reports be filed before it.

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