The government is likely to reject an offer by the Anil Agarwal-led metals and mining conglomerate Vedanta Resources to buy the residual stakes in group firms Hindustan Zinc Ltd (HZL) and Bharat Aluminium Co Ltd (Balco) for about Rs 17,000 crore.
A senior government official associated with the process said the Committee of Secretaries (CoS) was against accepting the offer. The CoS has already drafted a response to the offer, with the help of legal experts. It has to be vetted by the Empowered Group of Ministers (EGoM).
The official explained the new offer put forth as an alternative solution was based on the same assumptions the government was contesting.
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“If you are already contesting an assumption, then a new proposal based on the same doesn’t move forward,” he said.
The official stressed the government was set to tread cautiously, keeping in mind the high stakes and the litigation process involved.
At present, the government has a residual stake of 49 per cent in Balco and 29.53 per cent in Hindustan Zinc. The Vedanta offer includes Rs 15,000 crore for Hindustan Zinc and Rs 2,000 crore for Balco.
Sterlite Industries, an arm of Vedanta, had bought 51 per cent stake in Balco for Rs 551 crore in 2001. The deal had a call option. That meant the buyer had an option to buy the remaining government equity in the company at a future date and price.
When Sterlite chose to exercise the option in 2004, three years after the deal was completed, the Congress-led United Progressive Alliance had replaced the Bharatiya Janata Party-led National Democratic Alliance at the Centre. Since the Balco disinvestment had come in for severe criticism and the new government had given up the policy of strategic sale, the government did not reciprocate with a “put” option.
The government cited Section 111A of the Companies Act, which says shares of a company are freely transferable — in other words, the government could not be forced to sell its remaining stake to the company. In 2007, when the company went to court against the government’s decision, the court held that since the dispute arose out of the shareholder agreement, it should be resolved through arbitration prescribed in the agreement.
While rejecting Sterlite’s plea in early 2011, the arbitration award held the law of the land would come first, followed by the articles of association of a company and then the mutual contract between two partners. The dispute has not ended though, with both the government and Sterlite deciding to approach the Delhi High Court — the former on the valuation of shares whenever it decides to go for sale, and the latter for its claims on the call option being rejected.
In Hindustan Zinc, Sterlite had acquired a part of the government’s stake in 2003 for around Rs 750 crore. The government holds 29.5 per cent in Hindustan Zinc, India’s only and the world’s largest integrated producer of zinc and lead.
