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03-29-2012, 09:15 AM #1
Vedanta hits legal bar in HZL stake race
Vedanta Group chairman Anil Agarwal's attempt to pick up the government's residual stake in Hindustan Zinc Ltd (HZL) has run into a major controversy. Leading Supreme Court lawyer and crusader against corruption Prashant Bhushan has in a letter addressed to finance minister Pranab Mukherjee questioned the proposal under consideration of the government on legal grounds .
The letter states: "The transfer of control over the management of HZL of the government by way of disinvestment in 2002-03 to a private company was against the law laid down by the Supreme Court and, therefore, any further disinvestment would automatically be illegal."
Agarwal's Sterlite Opportunities and Ventures Ltd (SOVL) had first acquired a 26 per cent stake in HZL as a strategic partner in April, 2002, for Rs 445 crore. The value was estimated on the basis of the stock market price of Rs 40.50 per share for the company. It picked up an additional 20 per cent share from the market to raise its holding in the company to 46 per cent.
Subsequently, Sterlite acquired another 18.92 per cent share in HZL from the government in November 2003 to increase its share to 64.92 per cent and become a majority stakeholder.
"Thus, the management of the undertakings of HZL, which was acquired by the Government of India (GOI) through a statute, was handed over by the GOI to SOVL by an executive decision without parliamentary clearance. This was in total contravention with the judgment of the Supreme Court in Centre for Public Interest Litigation v. Union of India (16th Sept, 2003) wherein the Supreme Court held that the method adopted by the government in exercising its executive powers to disinvest HPCL (Hindustan Petroleum) and BPCL (Bharat Petroleum) without repealing or amending the law is not permissible at all," the letter points out.
"Further, the majority shareholding of the government in HZL was sold in 2002-03 at much undervalued price and this time also if the aforesaid offer is accepted, it would be at an undervalued price," the letter adds. Official records accessed by Mail Today reveal that after the takeover, Sterlite has raked in Rs 452 crore merely by selling the scrap of HZL, which includes processing plants that were set up by the public sector company. This exceeds the sum of Rs 445 crore that Sterlite had paid to become a strategic partner in HZL.
Sterlite has also claimed Rs 63.25 crore as refunds from the income tax department for excess tax that was paid between 1992-2001, when HZL was entirely a public sector company. Insiders point out that the Act under which HZL was set up states that the output of the mines in Rajasthan will be exploited to "subserve the common good". HZL is increasingly flogging scarce natural resources and depending on exports to generate money for private profit. According to them, HZL is also depending on contract labour and outsourcing for running its operations.
However, an HZL spokesman said that "the consumption of zinc in India is lower than overall global zinc production. Therefore, any surplus production after addressing domestic demand is exported". Since disinvestment in 2002, Hindustan Zinc has grown five fold in production capacities, from about 204,000 tonnes to 1.06 million tonnes currently.
The company has executed three successful phases of expansions with an investment of about Rs 12,000 crore. Hindustan Zinc has been a significant contributor to the exchequer, about Rs 14,500 crore, post disinvestment till 2010-11, the company claimed.