Final round of Balco stake sale arbitration next week

Judgement expected in the following fortnight.

Arbitration on sale of the residual government stake in Bharat Aluminium Company (Balco) has reached the final lap, in the hearing by a bench of three retired judges.

The next and final round of hearings would start this Sunday for the next three days and the judgement is expected in the following fortnight.

The arbitration started at the end of last year and has already had two hearings, in December and February, in which former Union law minister Shanti Bhushan represented Sterlite Industries, the majority owner in Balco, and senior counsel A K Ganguli represented the government's case.

"I believe that should be the last hearing in the process," said M S Mehta, chief executive officer of Vedanta Resources, the Sterlite parent, in a conference call last week. "Thereafter, the panel will take its own time, may be a fortnight or two, to announce the award.

Sterlite, a subsidiary of London-listed Vedanta, bought 51 per cent of Balco in March 2001 for Rs 552 crore, when the National Democratic Alliance government decided to divest the government's stake in the public sector company. Sterlite was given the right to buy the remaining stake after a three-year period. So, in March 2004, Sterlite sent the government a call notice and a cheque of Rs 1,099 crore for Balco's residual stake, in accordance with the shareholders' agreement. But, differences in the value of the government's residual stake came up after the United Progressive Alliance came to power in May 2004.

The issue was referred to the Attorney General, who then termed the call option invalid under Section 111A of the Companies Act. He said, however, that the residual stake could be sold at the market price. In 2006, Sterlite moved the Delhi High Court for interim relief, to ensure the government did not sell the stake to anyone else. The high court asked for reconciliation and arbitration.

The government then directed a committee of secretaries to explore ways to reconcile the issue. In May 2008, the committee recommended that to discover the correct price of the stake in the unlisted company, the government should sell 10 per cent in an initial public offer (IPO). That July, the Cabinet Committee on Economic Affairs approved the IPO after the ruling UPA parted ways with the Left parties.

Sterlite, however, rejected the IPO; it said it had the right to buy the entire residual stake. The dispute then went to arbitration, in 2009. The arbitration panel is chaired by V N Khare and also has S P Bharucha; both had been Chief Justices of India. The third member is another retired Supreme Court judge, B P Jeevan Reddy. If the arbitration fails, the case may be settled before a Supreme Court bench.

The government, meanwhile, has accelerated its move to divest stake in a number of public sector units. It hopes to raise around Rs 40,000 crore through stake sales in state-run firms in the current financial year.