An organization called the National Confederation of Officers Association1 has invoked the jurisdiction of this Court under Article 32 of the Constitution. The Confederation, which is a trade union registered ...
No Acts & Articles mentioned in this case
1
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
Writ Petition (C) No 229 of 2014
National Confederation of Officers Association
of Central Public Sector Enterprises and Ors. ....Petitioners
Versus
Union of India & Ors . .... Respondents
2
J U D G M E N T
Dr Dhananjaya Y Chandrachud, J
A Introduction ........................................................................................................... 3
B Submissions of Counsel ....................................................................................... 9
C Res Judicata and PILs ........................................................................................ 22
D The decision in Centre for Public Litigation ........................................................ 29
E CBI’s preliminary enquiry .................................................................................... 45
F Conclusion .......................................................................................................... 61
PART A
3
A Introduction
1 An organization called the National Confederation of Officers Association
1
has
invoked the jurisdiction of this Court under Article 32 of the Constitution. The
Confederation, which is a trade union registered under the Trade Unions Act 1926,
is joined in these proceedings by three other petitioners, including a former
employee of Hindustan Zinc Limited
2
. The members of the Confederation are, or
have been, employees of public sector undertakings. Their grievance in these
proceedings arises from the Union Government’s disinvestment of its shareholding
in HZL, the fourth respondent. According to the petitioners, HZL is not a loss
incurring unit and the disinvestment does not sub- serve public interest. Parliament
acquired the undertaking by the Metal Corporation (Nationalisation and
Miscellaneous) Provisions Act 1976
3
. In pursuance of its acquisition, the undertaking
came to be vested in a government company. HZL is stated to be a ‘m ini-navratna’
company with a cash liquidity resource of over Rs 20,000 crores. According to the
petitioners, the Union Government’s divestment of its shareholding in HZL is in
violation of the judgment of a two- judge Bench of this Court in Centre for Public
Interest Litigation v. Union of India
4
. In the proceedings as they stand, the
challenge is to the proposed disinvestment of the residual shareholding of the Union
Government in HZL, representing 29.54 per cent (approx.) of the equity capital.
1
“Confederation”
2
“HZL”
3
“Nationalisation Act 1976”
4
[“Centre for Public Interest Litigation”] (2003) 7 SCC 532
PART A
4
2 Metal Corporation of India Limited was incorporated in 1944 as a public
limited company under the Companies Act 1913. It was the sole producer of zinc
and lead from its mines situated at Zawar in Rajasthan. The company had
established a lead smelter plant at Tundoo, near Dhanbad, in the then State of Bihar
for producing lead, silver and other by-products. Subsequently it installed a zinc
smelter at Debari, near Udaipur. Given the strategic importance of zinc and lead, the
Union Government took a decision to acquire the company by a legislation.
3 On 22 October 1965, the President promulgated the Metal Corporation of
India (Acquisition of Undertaking) Ordinance for acquisition of the undertaking by the
Union Government. Possession, control and administration was taken over by the
Union Government on 23 October 1965. A petition under Article 226 of the
Constitution was instituted in 1965
5
by the corporation and its managing director
before the Circuit Bench in New Delhi of the then Punjab High Court, for challenging
the constitutional validity of the O rdinance. During the pendency of the proceedings,
the Ordinance was replaced by Act 44 of 1965 which led to the institution of another
writ petition
6
challenging its validity. On 10 January 1966, HZL was incorporated as
a public sector company to develop the mining and smelting capacities, so as to
substantially fulfil the domestic demand for zinc and lead.
4 On 14 March 1966, the Punjab High Court held that the O rdinance and the
enactment that replaced it, violated Article 31 of the Constitution and were void. The
5
WP 631-D of 1965
6
WP 832-D of 1965
PART A
5
appeal by the Union of India was dismissed by this Court on 5 September 1966, i n
Union of India v. Metal Corporation of India Ltd
7
. On 13 September 196 6 another
Ordinance, Ordinance No 10 of 1966, was promulgated by the President for the
acquisition of the undertaking of Metal Corporation of India Limited. The Ordinance
was replaced by an Act of Parliament (Act 36 of 1966) which came into force on 3
December 1966. This led to another round of proceedings under Article 226 of the
Constitution
8
before the Calcutta High Court. The petition was dismissed by a Single
Judge of the Calcutta High Court on 1 April 1969
9
on the ground of res judicata.
5 On 2 August 1976, the President promulgated the Metal Corporation
(Nationalisation and Miscellaneous Provisions) Ordinance. This O rdinance was
replaced by Act No. 100 of 1976, on 7 September 1976.
6 The Union Government took steps for the disinvestment of its shareholding in
HZL. In 1991- 92, in the first tranche, the Union G overnment 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.
7
(1967) 1 SCR 255
8
WP 551 of 1966
9
AIR 1970 Calcutta 15
PART A
6
7 The second tranche of disinvestment of the Union G overnment’s shareholding
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’, by selling 10,98,58,294
fully paid-up equity shares of Rs 10 each, at Rs 40.51 per share, aggregating to Rs
445 crores (approx.). A Shareholders’ Agreement and a Share Purchase Agreement
were executed on 4 April 2002 with Sterlite Opportunities & Ventures Ltd.
10
, the third
respondent, who was chosen as the strategic partner. In terms of these agreements,
the Union G overnment disinvested 26 per cent of its equity in HZL in favour of
SOVL. Consequent to the sale of the equity stake, the Union G overnment was left
with an equity holding of 49.92 per cent.
8 On 5 November 2003, a public interest litigation, invoking the jurisdiction
under Article 226 of the Constitution, was instituted before the Jodhpur Bench of the
Rajasthan High Court
11
by a person named Rajendra Kumar Razdan, to challenge
the second tranche of disinvestment - of the 26 per cent equity holding of the Union
Government in HZL. After the petition was entertained by the High Court, the Union
Government moved a transfer petition
12
before this Court under Article 139A (1) in
which further proceedings were stayed on 9 February 2004 by a three- judge Bench
of this Court. On 11 October 2004, this Court allowed the transfer petition, together
with other similar petitions seeking a transfer of proceedings, also challenging the
disinvestment by the Union Government in other government companies. On 23
10
“SOVL”
11
DB (C) Writ Petition No 6340 of 2003
12
Transfer Petition (C) No 830 of 2003
PART A
7
August 2006, a three- judge Bench of this Court dismissed writ petitions challenging
the disinvestment of the shareholding of the Union G overnment in other government
companies – namely, Engineers India Limited, National Fertilizers Limited and Burn
Standard Company Limited
13
.The dismissal of these petitions followed upon
affidavits filed on 14 December 2005, 27 July 2005 and 18 August 2005 stating that
the Union G overnment was reconsidering the sale of these companies, rendering
the writs infructuous.
9 While the challenge to the disinvestment of the 26 per cent shareholding was
pending before this Court, on 10 April 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 E xchange Board of I ndia’s
14
norms. As a consequence of the
acquisition, the holding of SOVL in HZL rose to 46 per cent. The Board of Directors
of HZL was reconstituted. Following this acquisition, the shareholding pattern in HZL
was as follows:
• SOVL – 46 per cent (comprising 26 per cent shares purchased from the
Union Government and 20 per cent acquired from the open market);
• Union Government – 48.45 per cent; and
• Public – 5.55 per cent.
13
WP (C) Nos. 487, 569, 586 and 587 of 2003
14
“SEBI”
PART A
8
10 On 13 May 2009, Rajendra Kumar Razdan’s writ petition challenging the
disinvestment of the Union Government’s 26 per cent equity holding in HZL, was
dismissed as withdrawn, following an application for withdrawal by the petitioner.
11 The Shareholders’ Agreement between the Union Government and SOVL
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 acquisition, SOVL became a majority shareholder with a 64.92
per cent equity stake in HZL.
12 In 2012, the Union Government announced its decision to disinvest its
residuary shareholding of 29.54 per cent in HZL
15
. On 31 October 2012, Maton
Mines Mazdoor Sangh instituted a petition
16
under Article 32 of the Constitution
before this Court challenging the proposed disinvestment of the residuary
shareholding of the Union G overnment. This petition was summarily dismissed by a
three- judge Bench of this Court on 10 December 2002.
13 On 6 November 2013, the Central Bureau of Investigation
17
- the fifth
respondent - initiated a preliminary enquiry into suspected irregularities in the course
of the disinvestment of the 26 per cent of equity holding of the Union G overnment to
SOVL in 2002.
15
Interchangeably referred as “29 per cent”
16
“Maton Mines Mazdoor Sangh” WP (C) 513 of 2012
17
“CBI”
PART B
9
14 The present public interest litigation under Article 32, was instituted on 14
February 2014. Two reliefs have been sought in these proceedings: (i) A mandamus
directing the Union G overnment 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 (ii) a direction to the CBI to periodically file status
reports before this Court 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.
15 On 6 March 2017, CBI filed a closure report with reference to the preliminary
enquiry stating that it did not disclose facts which would warrant the registration of a
criminal case.
16 The filing of pleadings ha s been completed.
B Submissions of Counsel
17 Mr Prashant Bhushan, learned senior counsel appearing on behalf of the
petitioners has stressed upon the importance of the residual 29.54 per cent
shareholding of the Union Government in HZL. Learned senior counsel has clarified
that the challenge is not to the policy of disinvestment, but the manner in which it
has taken place. The submissions are summarized below:
PART B
10
(i) The decision to disinvest the residual shareholding of the Union
Government in HZL cannot be undertaken without amending the
provisions of the Nationalisation Act 1976;
(ii) Besides yielding profits, the 29 per cent shareholding of the Union
Government ensures that no decision which requires the passage of a
special resolution under the Companies Act 2013 can be adopted without
its support, which effectively gives it a veto over key decisions concerning
HZL. The control of the Union G overnment is wielded under the provisions
of Section 134(2) and Section 47 of the Companies Act 2013. Under the
Companies Act 2013, several matters requiring the passing of a Special
Resolution, are tabulated below:
PART B
11
Section
numbers
Matters requiring Special Resolution as per
the Companies Act 2013
5 Alteration of Articles of Association while
converting from Private Limited to Public
Limited and vice versa
12 To change the registered office of the company
outside the local limits of the city, town or
village
13 For Alteration of Memorandum of Association
of the Company
14 For Alteration of Article of Association of the
Company
13 & 27 Change in the Object Clause of the
Memorandum of Association of the Company
41 To issue Global Depositary Receipt in any
foreign country
54 Issue of Sweat Equity Shares (Except this
share cannot be issued at discount)
62 For issuing further shares to Employees of the
Company under the scheme of Employee
Stock Option Plan and to determine the terms
of issuing Debentures convertible into shares
PART B
12
66 Reduction of Share Capital
68 Buy Back of Shares
71 To issue Debenture convertible into Shares,
wholly or partly
140 Removal of Auditor appointed u/s.139 before
expiry of his term and after approval of Central
Government
149(1) Appointment of more than 15 Directors
149(10) Re-appointment of Independent Director for a
further period of 5 years
165 Member of the Company, may by Special
Resolution specify any lesser number of
companies in which a Director of the Company
may act as Director
180 Restriction of powers of Board
186 Loans and Investment by the Company
196 Appointment of persons aged 70 years or more
as Managing Director, Whole Time Director or
Manager
197 To pay Remuneration to Directors in excess of
Schedule V
PART B
13
210 To apply to the Central Government to conduct
an investigation into the affairs of the Company
212 To apply to the Serious Fraud Investigation
Office to conduct an investigation into the
affairs of the Company
248 To make an application to the Registrar for
Striking-off the name of the Company
271 Winding up of the Company by the Tribunal
371 For Addition of Table F in Schedule I (Article of
Association)
(iii) The Nationalisation Act was enacted in 1976, in pursuance of the policy of
the Union G overnment to acquire control over the deposits of lead and
zinc, as a matter of strategic national interest;
(iv) The strategic importance of the deposits of lead and zinc is underscored in
the Statement of Objects and Reasons accompanying the introduction of
Bill in the Parliament, and by the provisions of Sections 4, 7 and 9 of the
Nationalisation Act 1976, under which the acquired undertaking was
vested in a government company within the meaning of Section 617 of the
Companies Act 1956;
(v) In 2002, the Union Government acted in a manner contrary to the express
mandate of the statute when it disinvested its 26 per cent shareholding, in
favour of a strategic partner. The decision to offload 29 per cent of the
PART B
14
residual shareholding will compound the illegal act which wa s committed in
2002;
(vi) The Nationalisation Act 1976 prohibits the government from taking any
step by which the acquired undertaking ceases to be a government
company. Though HZL ceased to be a government company in 2002
following the disinvestment of 26 per cent of the equity shareholding of the
Union Government, yet the residual shareholding enables the government
to ensure that the strategic mineral deposits of lead and zinc would be
used for the common good. These strategic considerations have been
emphasized by the one hundred and fifth Parliamentary Committee
Report, 2002; and
(vii) The law on the subject has been enunciated in the judgment of this Court
in Centre for Public Interest Litigation (supra). In view of this elucidation
of legal principle, when the acquisition has taken place under an Act of
Parliament, any disinvestment by the Union G overnment can be
undertaken only with the approval of Parliament or through its intervention.
18 On the basis of the above propositions, the petitioners question the decision
of the Union G overnment to disinvest its residual shareholding of 29.54 per cent.
Besides the first limb of submissions noted above, the second limb of submissions,
seeks to question the decision of the CBI to close the preliminary enquiry. In this
context, it has been urged that:
PART B
15
(i) The decision of the Constitution Bench in Lalita Kumari v. Government
of Uttar Pradesh
18
stipulates that if an FIR is not registered following a
preliminary enquiry (a class of cases was carved out where a preliminary
enquiry may be held before the registration of an FIR involving a
cognizable offence), the complainant must be f urnished with a copy of the
reasons for closing the enquiry;
(ii) Normally, the informant at whose behest an FIR is registered can
challenge the final report under Section 173 of the CrPC, but this avenue
is not available in a case where the CBI decides not to register a regular
case after a preliminary enquiry;
(iii) CBI’s submission to the effect that the preliminary enquiry was conducted
not on the basis of the complaint which was lodged by the brother of one
of the petitioners, but on the basis of source information is an attempt to
obviate compliance with the mandate of the decision in Lalita Kumari
(supra);
(iv) The decision to close the preliminary enquiry disregarded the advice
tendered to the CBI by several of its officers that a regular case should be
registered; and
(v) A disclosure of the circumstances which have led to the closure of the
preliminary enquiry should be made to the petitioner, particularly in the
18
[“Lalita Kumari”] (2014) 2 SCC 1
PART B
16
context of the allegations which have been levelled against the then
Attorney General in respect of an opinion tendered by him.
19 Opposing the above submissions, Mr Tushar Mehta, learned Solicitor General
appearing on behalf of the Union G overnment submitted that:
(i) The petition is barred by the principles of res judicata since this Court had
dismissed Maton Mines Mazdoor Sangh’s writ petition on 10 December
2012 on the very issue which has been pres sed in the present
proceedings;
(ii) The disinvestment of the equity shareholding of the Union G overnment in
public sector corporations commenced after the Industrial Policy
Statement of 24 July 1991. In 1991- 92, the minority shareholding of the
Union Government in thirty central public sector enterprises was sold to
selected financial institutions – the Life Insurance Corporation, General
Insurance Corporation and Union Trust of India. The Union Government
sold 24.08 per cent of its shareholding in HZL in 1991-92 to these financial
institutions;
(iii) According to the White Paper on D isinvestment of P ublic Sector
Enterprises dated 31 July 2007, the policy of disinvestment has evolved
through the Budget Speeches of Union Finance Ministers;
(iv) In spite of the policy of disinvestment, the following industries were
proposed to be reserved for the public sector in terms of the industrial
policy statement dated 24 July 1991:
PART B
17
“(i) Arms and Ammunitions and Allied items of defence
equipment, defence aircraft and warships.
(ii) Atomic Energy
(iii) Coal and Lignite
(iv) Mineral Oils
(v) Mining of iron ore, manganese ore, chrome ore, gypsum,
sulphur, gold and diamond.
(vi) Mining of copper, lead, zinc, tin, molybdenum and
wolfram.
(vii) Minerals specified in the Schedule to the Atomic Energy
(Control of Production arid Use) Order, 1953.
(viii) Railway transport.”
(v) After the establishment of the Public Sector Disinvestment Commission on
23 August 1996, the Union G overnment on 16 March 1999 classified
public sector enterprises into ‘strategic’ and ‘non-strategic areas’ for the
purpose of disinvestment. Strategic industrial public sector enterprises
were those functioning in the areas of
“(i) Arms and Ammunition and the allied items of defence
equipment, defence aircrafts and warships;
(ii) Atomic Energy (except in the area related to the
generation of nuclear power and applications of radiation and
radio- isotopes to agriculture medicine and non- strategic
Industries);
(iii) Railway Transport.”
(vi) The Union Government disinvested 26 per cent of its shareholding through
a strategic sale to SOVL, through a S hare Purchase Agreement on 27
March 2002. It also executed a S hareholders’ Agreement dated 4 April
2002 with SOVL. The Union G overnment also sold 1.47 per cent of its
shareholding to employees of HZL in November 2002. In November 2003,
SOVL exercised its first call option under Article 5.8 of the Shareholders’
Agreement and acquired 18.92 per cent of the shareholding. P rior to this,
PART B
18
SOVL acquired 20 per cent of the share capital of HZL from the public in
an open offer. As a cumulative consequence, the shareholding of SOVL
had risen to 64.92 per cent in 2003. HZL ceased to be a government
company from March 2002;
(vii) Significantly, the executive decisions to disinvest the shareholding of the
Union Government until 2002 have not been challenged by the petitioners
and only the proposed sale of the residual shareholding of 29.54 per cent
is raised in these proceedings;
(viii) The decision in Centre for Public Interest Litigation ( supra) would have
no application for the reason that HZL had ceased to be a government
company following the process of disinvestment which took place in 1991-
92 and 2002;
(ix) The Union Government cannot be restrained from disinvesting its
shareholding in a company which is listed as a limited company, especially
since the process of disinvestment by which the company ceased to be a
government company within the meaning of Section 617 of the Companies
Act 1956 has not been challenged;
(x) The Union G overnment has stated on affidavit that the residual
shareholding of 29.54 per cent will be sold in the open market, strictly in
accordance with SEBI rules and regulations ; and
(xi) The assumption that zinc is a strategic asset whose control must continue
to remain with the Union G overnment is no longer valid.
PART B
19
20 As regards the second limb of submissions, relating to the preliminary enquiry
by CBI, an affidavit dated 4 March 2020 has been filed in these proceedings stating
that (i) the former Attorney General had not advised SOVL at any stage in regard to
the process of disinvestment in HZL; and (ii) CBI had, after considering the entire
material which has been obtained during the course of the preliminary enquiry,
decided to close the preliminary enquiry . In any event, the sale of the residual 29.54
per cent shareholding cannot be interdicted on the basis of a CBI enquiry into what
transpired nearly two decades ago in 2002, in respect of an earlier disinvestment.
21 The Solicitor General submitted that it is estimated that the 29.54 per cent
residual shareholding has a value of about Rs 40,000 crores and a considered
decision has been taken by the Union Government to offload it in the open market
so as to strengthen revenues for public purposes.
22 Mr Harish Salve, learned Senior Counsel appearing on behalf of SOVL, has
urged the following submissions:
(i) The first prayer which seeks to challenge the disinvestment of the residual
29.54 per cent shareholding of the Union G overnment is barred by the
principles of res judicata, following the dismissal on 10 December 2012, of
the earlier writ petition instituted by Maton Mines Mazdoor Sangh ;
(ii) At the time of privatization in 2002, a contract was entered into in the form
of a S hareholders’ Agreement which conferred SOVL with a call option to
PART B
20
acquire shares in HZL, upon fulfilling certain parameters, including the
residual 29.54 per cent shares;
(iii) Since the disinvestment of 70.5 per cent shares in the first instance is not
under challenge, HZL has ceased to be a government company governed
by the Nationalisation Act 1976. Effective management and control stand
transferred to SOVL. The transfer of 29.54 per cent of the residual equity
shareholding by the Union Government of a company in which it has no
surviving control would only raise finances for the government and does
not impact management or control;
(iv) Following the disinvestment in HZL in 1991- 92, 24.08 per cent of its equity
shareholding was sold by the Union G overnment in the domestic market,
reducing its stake to 75.92 per cent. In April 2002, when the government
transferred another 26 per cent in favour of SOVL, its shareholding was
reduced to 49.92 per cent. SOVL further acquired 20 per cent of equity
from the open market, by an open offer, which raised its holding in HZL to
46 per cent;
(v) In August 2003, SOVL exercised its first call option to acquire 18.92 per
cent equity shares from the government, increasing its shareholding in
HZL to 64.92 per cent; and
(vi) HZL is a listed public company whose shares are traded on the Bombay
Stock Exchange and National Stock Exchange. There is no prohibition in
the judgment of this Court in C entre for Public Interest Litigation (supra)
on the sale of shares held by the government in such a company. The
PART B
21
earlier disinvestment in 2002 took place as a result of competitive bidding
and there is not a tittle of evidence before the Court to show that the
valuation was incorrect.
23 In compliance with an interim direction, CBI has submitted an affidavit dated 4
March 2020, detailing its submissions with respect to the allegations regarding the
irregularity in the disinvestment of the 26 per cent shareholding of the Union
Government in HZL, in 2002. It has stated:
(i) A preliminary enquiry was registered on 6 November 2013, on the basis of
“source information” received. C P Babel, the brother of the third petitioner ,
is not the original complainant. The memo of parties (sic) does not mention
his name;
(ii) The CBI Manual details a decision- making process where opinions of
various authorities in the administrative hierarchy are recorded and a final
decision is taken by the competent authority;
(iii) The subject was never placed before the Attorney General, and he has
had no occasion to opine on the matter; and
(iv) Based on the preliminary enquiry conducted in accordance with the CBI
Manual, a self-contained note dated 6 March 2017 was submitted, closing
the preliminary enquiry, without registering a regular case.
24 In rejoinder, Mr Prashant Bhushan, submitted that:
(i) HLZ holds 80 per cent of the national deposits of zinc;
PART C
22
(ii) HZL is the largest producer of zinc, which is used in the defence sector;
(iii) Parliamentary legislation, the Nationalisation Act 1976 in the present case,
cannot be overridden by the executive arm of the government;
(iv) 26 per cent of the equity holding of the government was sold in 2002 for a
paltry consideration of Rs 400 crores; and
(v) There is no document or material before this Court to indicate that the
value of the residual shareholding of the Union Government stands at Rs
40,000 crores.
25 The rival submissions come up for analysis .
C Res Judicata and PILs
26 The Union Government and SOVL have objected to the maintainability of the
present writ petition, and sought its dismissal at the threshold on the ground of res
judicata. It has been contended that the reliefs sought in the petition overlap with the
reliefs sought by the petitioners in the earlier petition instituted by Maton Mines
Mazdoor Sangh, which was dismissed by a three- judge Bench of this Court on 10
December 2012. The reliefs sought in the earlier petition were in the following terms:
“(i) To appoint a High Powered Committee comprising of such
individuals of technical / financial expertise whom this Hon'ble
Court deems fit to assess the net worth of Hindustan Zinc Ltd.
at the time of initial disinvestment in the year 2002 and
therefore, declare the initial disinvestment of 2002 to be void
ab initio and against the law of land laid down by this Hon’ble
Court in the case of ‘Centre of Public Interest Litigation Vs.
Union of India' reported in (2003) 7 SCC 532 as per the
Judgment dated 16.09.2003 and issue consequential
directions in that regard;
PART C
23
(ii) Direct the Respondent No. l to refrain from further sale of
the remaining equity of 29.54% to SOVL or any other party
and thereby swindling of properties, Plant & Machineries and
other valuable assets for all times to come, as reported in the
Newspapers and quoted in the preceding paragraphs:
(iii) Direct the Respondent No.1 to retake the 18.92% equity
sold to SOVL and manage 3% more equity either from open
market or from SOVL so as to make it a total of more than
51% in the light of Apex Court Judgment dated 16.09.2003 to
retain the: structure of the Company as a Government
Company thereby restoring the Government control over the
Company;
(iv) Direct the Respondents No.1 & 2 through Government of
lndia - or otherwise to put a halt for further expansion of
capacities of various Lead/ Zinc Plants including Silver I Zinc
Refineries installed in Uttaranchal so that perpetual revenue
loss to Central Government in Income Tax and Sales Tax
loss to Government of Rajasthan can be stopped;
(v) Direct the SOVL through Government of India or otherwise
to put a halt for further expansion of mining activities and
produce these critical base metals to the extent of
requirement for the existing plants as the base metals are
critical for the future requirement of the nation and defence
requirement also;
(vi) Recruit workmen in workmen cadre for regular nature of
jobs in all the units as per practices stood prior to
disinvestment in 2002 and give due preference as per law to
ST/SC, physically handicapped and other socially backwards
classes as per law and refrain the company from further
violation of Contract Labor Abolition & Regulation Act;
(vii) Direct the SOVL through Government of India to stop
export of the critical base metals like lead and Zinc etc. either
in the form of concentrated or as finished products; and
(viii) Pass any such other order or order(s) which Your
Lordships may deem fit in the interest of justice.”
PART C
24
27 The petition was summarily dismissed by this Court on 10 December 2002 in
the following terms:
“[…] we are not inclined to entertain the writ p etition, which is
accordingly dismissed.”
28 The present writ petition was filed seeking the following reliefs:
“(i)Issue a writ of mandamus directing the respondents 1 & 2
herein from disinvesting the residual shareholding of the
Govt. of India to the extent of 29.5% in the respondent no. 4
without amending the Metal Corporation (Nationalisation and
Miscellaneous Provisions) Act, 1976,
(ii) Direct the Central Bureau of Investigation to file status
report in this Hon’ble Court from time to time in respect of
investigation being carried by it and this Hon’ble Court
monitor the investigation till filing of the charge-sheet in
appropriate court; and
(iii) Pass any other order or orders which this Hon’ble Court
may think fit and proper in the facts and circumstances of the
case as well as in the interest of justice.”
29 The first relief which has been sought in th e petition in the present case - that
the residual disinvestment can occur only after the amendment of the Nationalisation
Act 1976- is substantially similar to the first and second reliefs sought by Maton
Mines Mazdoor Sangh, when they challenged the disinvestment of 2002 and 2014,
on the basis of the decision in Centre for Public Interest Litigation (supra).
PART C
25
30 Section 11
19
of the Code of Civil Procedure 1908 embodies the principles of
res judicata and bars the court from deciding issues which have been directly or
substantially in issue in an earlier proceeding between the same parties or parties
claiming under the same title and have been finally decided.
31 The principles of res judicata and constructive res judicata, which Section 11
of the Code of Civil Procedure 1908 embodies, have been applied to the exercise of
the writ jurisdiction
20
, including public interest litigation
21
. Yet courts have been
circumspect in denying relief in matters of grave public importance, on a strict
application of procedural rules. I n Rural Litigation and Entertainment Kendra v.
State of U.P.
22
, this Court observed:
“16. The writ petitions before us are not inter-partes disputes
and have been raised by way of public interest litigation and
the controversy before the court is as to whether for social
safety and for creating a hazardless environment for the
people to live in, mining in the area should be permitted or
stopped. We may not be taken to have said that for public
interest litigations, procedural laws do not apply. At the
same time it has to be remembered that every
technicality in the procedural law is not available as a
defence when a matter of grave public importance is for
consideration before the court. Even if it is said that there
19
“11. Res judicata.—No Court shall try any suit or issue in which the matter directly and substantially in issue has
been directly and substantially in issue in a former suit between the same parties, or between parties under whom
they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit
in which such issue has been subsequently raised, and has been heard and finally decided by such Court.
[…]
Explanation IV.—Any matter which might and ought to have been made ground of defence or attack in such former
suit shall be deemed to have been a matter directly and substantially in issue in such suit.
Explanation V.—Any relief claimed in the plaint, which is not expressly granted by the decree, shall, for the purposes
of this section, be deemed to have been refused.
[…]”
20
Kantaru Rajeevaru (Sabrimala Temple Review- 5J) v. Indian Young Lawyers Association, (2020) 2 SCC 1
(Constitution Bench); State of U.P. v. Nawab Hussain, (1977) 2 SCC 806 (three- judge Bench); Sarguja Transport
Service v. State Transport Appellate Tribunal, M.P., Gwalior, (1987) 1 SCC 5 (two-judge Bench)
21
Forward Construction Co. v. Prabhat Mandal (Regd.), (1986) 1 SCC 100 (three- judge Bench)
22
1989 Supp (1) SCC 504
PART C
26
was a final order, in a dispute of this type it would be
difficult to entertain the plea of res judicata. As we have
already pointed out when the order of 12- 3-1985, was made,
no reference to the Forest (Conservation) Act of 1980 had
been done. We are of the view that leaving the question open
for examination in future would lead to unnecessary
multiplicity of proceedings and would be against the interests
of society. It is meet and proper as also in the interest of the
parties that the entire question is taken into account at this
stage.”
(emphasis supplied)
32 In Daryao v. State of U.P.
23
, a Constitution Bench of this Court has held that
orders dismissing writ petitions in limine will not constitute res judicata. The Court
noted that while a summary dismissal may be considered as a dismissal on merits, it
would be difficult to determine what weighed with the Court without a speaking
order. Justice PB Gajendragadkar (as the learned Chief Justice then was),
observed:
“26...If the petition is dismissed in limine without passing a
speaking order then such dismissal cannot be treated as
creating a bar of res judicata. It is true that, prima facie,
dismissal in limine even without passing a speaking order in
that behalf may strongly suggest that the Court took the view
that there was no substance in the petition at all; but in the
absence of a speaking order it would not be easy to decide
what factors weighed in the mind of the Court and that makes
it difficult and unsafe to hold that such a summary dismissal is
a dismissal on merits and as such constitutes a bar of res
judicata against a similar petition filed under Article 32…”
23
(1962) 1 SCR 574
PART C
27
33 In State of Karnataka v. All India Manufacturers Organization
24
, a three
judge Bench has also held that res judicata would be applicable to a public interest
litigation if it was bona fide. Justice B N Srikrishna held:
“35. As a matter of fact, in a public interest litigation, the
petitioner is not agitating his individual rights but represents the
public at large. As long as the litigation is bona fide, a judgment
in a previous public interest litigation would be a judgment in rem.
It binds the public at large and bars any member of the public
from coming forward before the court and raising any connected
issue or an issue, which had been raised or should have been
raised on an earlier occasion by way of a public interest litigation.
It cannot be doubted that the petitioner in Somashekar
Reddy [(1999) 1 KLD 500 : (2000) 1 Kant LJ 224 (DB)] was
acting bona fide. Further, we may note that, as a retired
Chief Engineer, Somashekar Reddy had the special technical
expertise to impugn the Project on the grounds that he did
and so, he cannot be dismissed as a busybody. Thus, we are
satisfied in principle that Somashekar Reddy [(1999) 1 KLD
500 : (2000) 1 Kant LJ 224 (DB)] , as a public interest
litigation, could bar the present litigation.
[…]
47. All of these unequivocally show that the issue of excess land
(and connected issues) was specifically raised by the petitioner
in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1 Kant LJ 224
(DB)] and was also forcefully denied by the State. In fact, the
decision in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1
Kant LJ 224 (DB)] , went further with the High Court according its
imprimatur to the land requirements under the FWA amounting to
20,193 acres, which in no small measure, resulted from the
State's successful defence that it had provided the “bare
minimum of land” for the Project calculated by a “scientific
method”. The judgment also contains copious references to
the issue of land (including the acreage), the types of land to
be acquired, the land requirement for different aspects of the
Project, the scientific techniques involved in identifying the
land and road alignment, etc. In these circumstances, it
cannot be doubted that Explanation III to Section 11 squarely
applies. It is clear that the issue of excess land under the
24
(2006) 4 SCC 683
PART C
28
FWA was “directly and substantially in issue”
in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1 Kant LJ
224 (DB)] and hence, the findings recorded therein having
reached finality, cannot be reopened in this case.
[…]
50. As we have pointed out, the cause of action, the issues
raised, the prayers made, the relief sought in Somashekar
Reddy's petition and the findings in Somashekar Reddy [(1999) 1
KLD 500 : (2000) 1 Kant LJ 224 (DB)] and the claims and
arguments in the present petitions were substantially the same.
Therefore, it is not possible to accept the contention of the
appellants before us that the judgment in Somashekar Reddy
[(1999) 1 KLD 500 : (2000) 1 Kant LJ 224 (DB)] does not operate
as res judicata for the questions raised in the present petitions.”
(emphasis supplied)
34 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 th e 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.
PART D
29
35 In this case, since the three judge Bench of this Court rejected the petition
filed by Maton Mines Mazdoor Singh in limine, without a substantive adjudication
on the merits of their claim, the present writ petition is not barred by res judicata.
D The decision in Centre for Public Litigation
36 In order to place the controversy in perspective, it would be worthwhile to
reproduce a tabulated statement of the shareholding pattern in HZL, as submitted by
the Solicitor General. The statement is reproduced below:
Date GoI
shareholding
(%)
Strategic
partner
[Sterlite
Opportunities &
Ventures Ltd.
Shareholding
(%)
Public shareholding Total
(%)
Prior to
27.03.2002
75.92 - 24.08 100
After privatization
27.03.2002
49.92
[26% sold to
SOVL]
26
[26% acquired from
GoI]
24.08 100
SOVL acquired
20% from public
after giving an
open offer from
public as
mandated by
SEBI regulations.
49.92 46
[acquired 20% from
Public]
4.08
[Public tendered 20% in
Open Offer]
100
November, 2002 48.45
[1.47% sold
by GoI to
employees]
46 5.55
[1.47% sold by GoI to
employees]
100
SOVL gave a call
option as
stipulated is SHA
and acquired
shares to the
extent of 18.92%
29.53
[GoI
transferred
18.92% to
SP as result
of call
option]
64.92
[acquired from GoI
18.92% as result of
Call Option]
5.55 100
On and from March, 2002 Hindustan Zinc Ltd. Ceased to be a Government Company u/sc. 2(45) of
Companies Act.
PART D
30
37 As the above statement indicates, prior to 27 March 2002, 75.92 per cent of
the shareholding of HZL was with the Union Government, the public shareholding
being the balance 24.08 per cent. Pursuant to the S hare Purchase Agreement, 26
per cent of the shareholding was sold to SOVL as a strategic partner on 27 March
2002, which brought down the Union Government’s shareholding to 49.92 per cent.
SOVL’s shareholding stood at 26 per cent. In addition, SOVL acquired 20 per cent
from the public, after furnishing an open offer in terms of SEBI’s regulations which
raised its equity shareholding to 46 per cent. In November 2002, the Union
Government sold 1.47 per cent of its shareholding to the employees of HZL which
further brought down its holding to 48.45 per cent. As a result of the exercise of the
first call option for SOVL in terms of the Shareholders’ Agreement, SOVL acquired
another 18.92 per cent of the equity holding of the Union G overnment in November
2003. As a consequence, the shareholding of the Union Government stood reduced
to 29.53 per cent while SOVL’s holding increased to 64.92 per cent.
38 While considering the ambit of the present controversy, it is necessary to note
that the challenge in the petition under Article 32 is to the proposal of the Union
Government to sell its residual stake in HZL, by the sale of the remaining 29.54 per
cent equity. Neither is the validity of the initial disinvestment of 24.08 per cent equity
which took place in 1991- 92, nor is the subsequent disinvestment of 26 per cent in
terms of the S hare Purchase Agreement, challenged in these proceedings. As a
matter of fact, if it were to be challenged, the first objection would be to the delay of
well over two decades in challenging the disinvestment of 1991- 92 and of nearly 12
PART D
31
years in challenging the sale of 2002 in pursuance of the Share Purchase
Agreement. Since the disinvestment of 1991- 92 and of 2002 has attained finality, it
becomes necessary to assess the effect of the earlier disinvestment, in terms of the
status of HZL. As a consequence of the disinvestment on 27 March 2002, HZL
ceased to be a government company within the meaning of Section 617 of the
Companies Act 1956 since its shareholding fell below 51 per cent . As a matter of
fact, Mr Prashant Bhushan, learned Counsel appearing on behalf of the petitioners
does not dispute this factual position. Then, the issue which arises is whether the
Nationalisation Act 1976 interposes any bar on the sale of the residual shareholding
of the Union G overnment in HZL.
39 When the Nationalisation Act was enacted in 1976, the object and purpose of
the enactment was spelt out in the Statement of Objects and Reasons
accompanying the introduction of the Bill in Parliament. Insofar as is material, the
objects are spelt out in the following extract:
“The Metal Corporation of India Limited a company had a
mining lease in respect of zinc-lead deposits in Zawar area in
Rajasthan and owned a lead smelter at Tundoo in Bihar. It
had undertaken to expand production from the Zawar mines
and to construct a Zinc Smelter near Udaipur for producing
electrolytic grade zinc and bye -products. However, for various
reasons, the Corporation was not able to complete the
projects it had undertaken. The construction work came to a
standstill and the corporation failed to meet its repayment
obligations to the suppliers of machinery and others.
2. As zinc and lead are essential raw materials for the
economy of the country and are of considerable strategic
importance to the country, it was necessary to the public
interest that the project undertaken by the Corporation should
PART D
32
be completed as soon as possible. In the circumstances, for
the speedy development and expansion of the zinc lead
deposits, the undertaking of the Metal Corporation of India
was acquired by the Central Government with effect from 22
nd
October, 1965 by a Parliamentary legislation, enacted in
1965. The said act, having been struck down was replaced by
the Metal Corporation of India (Acquisition of Undertaking)
Act, 1966 (36 of 1966). The undertaking of the Corporation
was later vested in the Hindus tan Zinc Ltd., Udaipur, a
Government company with effect from 10
th
January, 1966.”
40 The submission of the petitioners emphasises that the purpose underlying the
acquisition was that zinc and lead were considered to be essential raw-materials for
the economy of the country and of considerable strategic importance, such that it
was necessary in public interest that the project which was undertaken by Metal
Corporation of India should be completed expeditiously. The Statement of Objects
and Reasons also indicates that the erstwhile undertaking had a mining lease in
respect of zinc and lead deposits in the Zawar area and owned a lead smelter in
Bihar, besides which it had undertaken to expand production from the mines and
construct a smelter for producing zinc and by-products near Udaipur. For various
reasons, Metal Corporation of India was not able to complete its projects;
construction had come to a standstill and the undertaking had failed to meet its
obligations to repay suppliers of machinery. The Statement of Objects and Reasons
emphasises the importance of zinc and lead to the economy, which was
undoubtedly an important facet of the purpose of acquisition. Moreover, Metal
Corporation of India, the pre- nationalized entity, was unable to complete its projects
and its acquisition by an Act of Parliament was envisaged for the expeditious
PART D
33
completion of the projects. The long title to the Nationali sation Act 1976 indicates
that the Act was enacted to enable the Central Government, in public interest, to
exploit to the fullest extent, the zinc and lead deposits in and around the Zawar area
of Rajasthan and “to utilize those minerals in such manner as to sub- serve the
common good”. Section 4(1)
25
of the N ationalisation Act 1976 provided for the taking
over of the management of the undertaking of Metal Corporation. As a consequence
of the acquisition, Section 6(1)
26
envisages that so long as the management of the
undertaking of Metal Corporation remains vested in the Central Government, (i) it is
not lawful for the shareholders to nominate or appoint a director; (ii) no resolution by
the shareholders would be given effect to, unless approved by the Central
government; and (iii) no proceedings for winding up the acquired entity would lie in
any court, except with the consent of the Central government. Section 7 provides for
25
“4. Taking over of management of the undertaking of the Metal Corporation.—(1) On the commencement of this
Act, the Metal Corporation of India (Acquisition of Undertaking) Act, 1966 (36 of 1966), shall stand repealed, and on
such repeal, the undertaking of the Metal Corporation, which had been transferred to, and vested in, the Central
Government by virtue of the provisions of Section 3 of the Act so repealed, and the undertaking of the Metal
Corporation together with all its properties, assets, liabilities and obligations specified in sub-section (1) of Section 4
of that Act and such other properties, assets, liabilities and obligations, acquired or incurred, for the purposes of its
undertaking, after the 22nd day of October, 1965, which stood, by virtue of the provisions of Section 12 of the said
Act, transferred to, and vested in, the Government company formed in pursuance of the provisions of Section 12 of
the Act aforesaid shall, by virtue of the provisions of this Act, be deemed to have been retransferred to, and re-vested
in, the Metal Corporation, and, immediately thereafter, the management of the undertaking of the Metal Corporation
shall be deemed to have been transferred to, and vested in, the Central Government.”
26
“6. Application of Act 1 of 1956.—(1) Notwithstanding anything contained in the Companies Act, 1956, or in the
memorandum or articles of association of the Metal Corporation, so long as the management of the undertaking of
the Metal Corporation remains vested in the Cent ral Government,—
(a) it shall not be lawful for the shareholders of the Metal Corporation or any other person to nominate or appoint any
person to be a director of the Metal Corporation:
(b) no resolution passed at any meeting of the shareholders of the Metal Corporation on or after the commencement
of this Act shall be given effect to unless approved by the Central Government;
(c) no proceeding for the winding up of the Metal Corporation or for the appointment of liquidator or receiver in
respect of the undertaking thereof shall lie in any court except with the consent of the Central Government.”
PART D
34
the vesting of the undertaking of the Metal Corporation in the Central government, in
the following terms:
“7. Vesting of the undertaking of the Metal Corporation in the
Central Government.—
(1) On the appointed day, the undertaking of the Metal
Corporation, and the right, title and interest of the Metal
Corporation in relation to its undertaking, shall stand
transferred to, and shall vest absolutely in, the Central
Government.
(2) Subject to the other provisions contained in this Act, all
property included in the undertaking of the Metal Corporation
which has vested in the Central Government under sub-
section (1) shall, by force of such vesting, be freed and
discharged from any trusts, obligations, mortgages, charges,
liens and other incumbrances affecting it, and any
attachment, injunction or any decree or order of a court,
tribunal or other authority restricting the use of such property
in any manner shall be deemed to have been withdrawn.
Explanation.—For the removal of doubts, it is hereby declared
that the mortgagee of any property included in the
undertaking of the Metal Corporation, or any other person
holding any charge, lien or other interest in, or in relation to,
any such property, shall be entitled to claim, in accordance
with his rights and interests, payment of the mortgage money
or other dues, in whole or in part, from the Central
Government but no such mortgage, charge, lien or other
interest shall be enforceable against any property which has
vested in the Central Government.
(3) Subject to the other provisions contained in this Act, all
contracts and working arrangements which are subsisting
immediately before the appointed day and affecting the Metal
Corporation shall, in so far as they relate to the undertaking of
the Metal Corporation, cease to have effect or be enforceable
against the Metal Corporation or any person who was surety
or had guaranteed the performance thereof and shall be of as
full force and effect against or in favour of the Central
Government and enforceable as fully and effectually as if,
PART D
35
instead of the Metal Corporation, the Central Government had
been named therein or had been a party thereto.
(4) Subject to the other provisions contained in this Act, any
proceeding or cause of action pending or existing immediately
before the appointed day by or against the Metal Corporation
or the Central Government or the Government company
referred to in Section 12 of the Metal Corporation of India
(Acquisition of Undertaking) Act, 1966 (36 of 1966), in relation
to the undertaking of the Metal Corporation may, as from that
day, be continued and enforced by or against the Central
Government or the Government company referred to in
Section 9, as it might have been enforced by or against the
Metal Corporation, the Central Government or the
Government company, as the case may be, if this Act had not
been enacted, and shall cease to be enforceable by or
against the Metal Corporation, its surety or guarantor.”
41 Section 9 empowers the Central government to direct the vesting of the
undertaking of Metal Corporation in a government company:
“9. Power of Central Government to direct vesting of the
undertaking of the Metal Corporation in a Government
company. —
(1) Notwithstanding anything contained in Section 7, the
Central Government may, if it is satisfied that a Government
company is willing to comply, or has complied, with such
terms and conditions as that Government may think fit to
impose, direct, by an order in writing, that the undertaking of
the Metal Corporation and the right, title and interest of the
Metal Corporation in relation to such undertaking shall,
instead of continuing to vest in the Central Government, vest
in the Government company either on the date of publication
of the direction or on such earlier or later date (not being a
date earlier than the appointed day), as may be specified in
the direction.
(2) Where the right, title and interest of the Metal Corporation
in relation to its undertaking vest in a Government company
under sub- section (1), the Government company shall, on
and from the date of such vesting, be deemed to have
PART D
36
become the lessee in relation to the mines of which the Metal
Corporation was the lessee as if a mining lease in respect of
such mines had been granted to the Government company,
and the period of such lease shall be the entire period for
which such lease could have been granted under the Mineral
Concession Rules; and all the rights and liabilities of the
Central Government in relation to such mines shall, on and
from the date of such vesting, be deemed to have become
the rights and liabilities, respectively of the Government
company.
(3) The provisions of sub-section (2) of Section 8 shall apply
to a lease which vests in a Government company as they
apply to a lease which has vested in the Central Government
and any reference therein to the Central Government shall be
construed as a reference to the Government company.
(4) Any reference hereafter in this Act to the Government
company shall be construed as a referenc e to the
Government company which is appointed as the
Administrator under sub- section (1) of Section 5, or, as the
case may be, the Government company referred to in the
direction made under sub- section (1).”
42 Section 4 of the Nationalisation Act 1976 provides for the vesting of all assets,
liabilities and the management of the undertaking in the Central Government.
Section 5 provides for the appointment of an administrator to take over the
management of the undertaking, for and on behalf of the Central Government.
Section 7 clarifies that on the appointed day, the undertaking of the Metal
Corporation, and the right, title, and interest of the said Corporation in relation to its
undertaking, stood transferred to and vested absolutely in the Central Government.
In pursuance of Section 9, the undertaking of Metal Corporation came to be vested
in HZL, as a government company, within the meaning of Section 617 of the
Companies Act 1956. Section 13 provides that the general superintendence,
PART D
37
direction control and management of the affairs and business of the undertaking of
Metal Corporation of which the right, title and interest is vested in the Central
government under Section 7, shall vest in the government company specified in the
direction made under Section 9(1).
43 Sections 4, 7 and 9 indicate that the undertaking of Metal Corporation stood
transferred to, and vested absolutely in the Central Government. Section 9 further
empowers the Central Government to vest the undertaking in a government
company. Once the Metal Corporation stood vested in a government company, the
provisions of the then Companies Act 1956 and present Companies Act 2013
become applicable. Thereupon, the government company would be entitled to
exercise all such powers and to do all such things as Metal Corporation was
authorized to effect, in relation to its undertaking.
44 The Nationalisation Act 1976 contains no express provision restraining the
exercise of rights by the Union Government upon the undertaking of Metal
Corporation vesting in it and thereupon, pursuant to a direction under Section 9(1),
being transferred to a government company. As already noted earlier, the
shareholding of the Union G overnment was divested initially in 1991- 2 and
subsequently in 2002. After the disinvestment of 26 per cent of the equity stake of
the Union G overnment to SOVL, HZL ceased to be a government company within
the meaning of Section 617 of the Companies Act 1956. Section 617 defined the
expression government company in the following terms:
PART D
38
“617. Definition of “Government Company” .—For the
purposes of this Act, Government company means any
company in which not less than fifty-one per cent of the paid-
up share capital is held by the Central Government, or by any
State Government or Governments, or partly by the Central
Government and partly by one or more State Governments
and includes a company which is a subsidiary of a
Government company as thus defined.”
As a result of the disinvestment on 27 March 2002, HZL ceased to be a government
company, with the Union Government’s shareholding falling to 49.92 per cent, below
the threshold of 51 per cent.
45 The petitioners seek to read an implicit limitation on the transfer of the
residual shareholding of 29 per cent held by the Union G overnment in HZL, from the
provisions of the Nationalisation Act 1976. This submission is prefaced on the object
of the enactment which is to acquire control over the strategic mineral deposits of
lead and zinc. This submission has been met by the respondents by urging that after
16 March 1999, the mining of zinc has ceased to retain a strategic character, given
the changes in industrial policy. The aspect which is of significance is that there is
no challenge to the disinvestment which took place in 1991- 92 or in 2002, the latter
having resulted in HZL ceasing to retain its status as a government company within
the meaning of Section 617 of the Companies Act 1956. That being the position, it
would be inconsistent to read an implied limitation on the transfer by the Union
Government of its residual shareholding in HZL representing 29.54 per cent of the
equity capital. Hence, when a decision has been taken by the government as a
shareholder of a company to sell its shares, it acts as any other shareholder in a
PART D
39
company who makes the decision on the basis of financial and economic
exigencies.
46 The issue which needs to be considered is whether the decision of this Court
in Centre for Public Interest Litigation (supra) would result in a bar on the
disinvestment of the residual shareholding. This decision of a two- judge Bench is
dated 16 September 2003. In that case, petitions were filed in the public interest
invoking the jurisdiction of this Court under Article 32, to challenge the decision of
the Union G overnment to sell a majority of its shares in Hindustan Petroleum
Corporation Limited
27
and Bharat Petroleum Corporation Limited
28
to private parties
without parliamentary approval or sanction, as being contrary to and violative of the
provisions of the ESSO (Acquisition of Undertakings in India) Act 1974; the Burmah
Shell (Acquisition of Undertakings in India) Act 1976; and Caltex [Acquisition of
Shares of Caltex Oil Refining (India) Limited a nd of t he Undertakings in India of
Caltex (India) Limited] Act 1977. The erstwhile companies were nationalized as a
result of these enactments. The Union G overnment had proposed a disinvestment of
the shares of the companies comprised in the public sector, after the policy of
disinvestment had been upheld by this Court in Balco Employees’ Union (Regd.)
v. Union of India
29
. After considering the provisions of the legislation under which
the undertakings were nationalized, Justice Rajendra Babu speaking for the two
judge Bench held:
27
“HPCL”
28
“BPCL”
29
(2002) 2 SCC 333
PART D
40
“12. In order to interpret the enactments in question it is
necessary to look at the preamble to the Act. The preamble to
the Act clearly stated that acquisition is done “in order to ensure that the ownership and control of
the petroleum products distributed and marketed in
India by the said company are vested in the State and thereby so distributed as best to subserve the
common good”.
(emphasis supplied)
Preamble, though does not control the statute, is an admissible aid to construction thereof. The Act sets out
that the assets of the undertaking shall vest in the Government as provided under Section 3 of the Act. However, Section 7 of the Act enables the Government to transfer the undertaking to a government company as defined
under Section 617 of the Companies Act, 1956. If the Act
intended that the undertaking so vested in the
government company can be transferred, wholly or
partly, to any company other than a government
company, there certainly would have been an indication
to that effect in the Act itself. The question, therefore, is
whether absence of specific provision as contained in the
Banking Companies (Acquisition and Transfer of
Undertakings) Act or in the Coal Mines Nationalisation Act,
1973 that the shareholding shall always be held by the
Government, will give a different complexion to these
provisions. When the provisions of the Act provide for
vesting of the property of the undertaking in the
Government or a government company, it cannot mean
that it enables the same being held by any other person,
particularly in the context that the object of the Act is that
the ownership and control of the petroleum products is
distributed and marketed in India by the State or a
government company and that products thereby so
distributed as best to subserve the common good. The
argument that there is no specific provision in the Act as
contained in the Banking Companies (Acquisition and
Transfer of Undertakings) Act or in the Coal Mines
Nationalisation Act, 1973 does not carry the matter any
further because the idea embedded in those provisions
are implicit in the provisions of this enactment, as
explained earlier. If disinvestment takes place and the
company ceases to be a government company as defined
PART D
41
under Section 617 of the Companies Act, to say that it is
still a government company as contemplated under
Section 7 of the Act will be a fallacy. What is
contemplated under Section 7 of the Act is only a
government company and no other. In relation to a
government company Sections 224 to 233 are substituted
and the audit of the company takes place under the
supervision and control of the Comptroller and Auditor
General of India who shall give effect to Section 224(1- B) and
(1-C). The Auditors shall submit a report to the Comptroller
and Auditor General of India and even when audit takes
place, subject to his instructions, the Comptroller and Auditor
General of India may also conduct supplementary audit and a
test audit. Under Section 19(1) of the Comptroller and Auditor
General’s (Duties, Powers and Conditions of Service) Act,
1971 audit of companies is to be conducted by him in terms
of the Companies Act. Annual reports on the working of
affairs of the company are laid before Parliament under
Section 619- A(1)(b) of the Companies Act. Such control will
be lost if a company ceases to be a government
company.
13. Argument of Shri Harish Salve that a simple amendment
of Section 617 of the Companies Act unrelated to the
acquisition can alter the position in law is only perceived but
not attained and hence does not require any examination. He
contended that to facilitate disinvestment of the shares the
public sector enterprises are allowed to list the shares on
stock exchanges, irrespective of the percentage of shares
disinvested by the Government and, therefore, submitted that
there is no need for the Government to obtain parliamentary
approval. Sales of shares of these companies, though
uninhibited, cannot be to such an extent so that the
substratum of the character of the government
companies is allowed to be lost and converted into an
ordinary company without being approved by the general
body of shareholders and, in this case, the Government.
The Government, in turn, is subject to the statutory
limitations, to which we have adverted to now. Hence, the
argument begs the question which is put in issue before us.
14. Again accretions to the government company’s assets
subsequent to acquisition of the undertaking is an irrelevant
PART D
42
factor in the context of the question we are considering. Here
what is required to be seen is, not which asset can be
transferred or not, but whether the undertaking can
change its character from a government company to
ordinary company without parliamentary clearance in the
light of the statute of acquisition.”
(emphasis supplied)
The view of this Court was that the divestment of the shareholding of the Union
Government in HPCL and BPCL, as a result of which the companies would cease to
be government companies, could not be undertaken without amending the statutes
under which they were nationalized. This Court noted the following:
“20. There is no challenge before this Court as to the policy of
disinvestment. The only question raised before us is whether
the method adopted by the Government in exercising its
executive powers to disinvest HPCL and BPCL without
repealing or amending the law is permissible or not. We find
that on the language of the Act such a course is not
permissible at all.”
The Court distinguished the previous precedents of this Court on challenges to
disinvestment, in the following terms:
19. In the case of BALCO, executive action to disinvest was
not challenged probably due to the fact that there was no
statutory backing of the nature with which we are concerned
in the present case. In the case of Maruti Udyog Limited
though acquired under an enactment, there was no challenge
to the same to disinvest merely by executive action. Thus,
these cases stand on a different footing.
47 The decision in Centre for Public Interest Litigation (supra) is
distinguishable for the reason that HPCL and BPCL were government companies
when the disinvestment action was challenged before this Court. In the present
case, the disinvestment as a consequence of which HZL ceased to be a government
PART D
43
company took place in March 2002. What is in question on the first relief sought is
the 29.54 per cent residuary shareholding in HZL, after it has admittedly ceased to
be a government company within the meaning of Section 617 of the Companies Act
1956 and the corresponding provisions of the Section 2(45) of the Companies Act
2013. In the Companies Act 2013, the expression ‘government company’ is defined
in Section 2(45) in similar terms:
“2….(45) “Government company” means any company in
which not less than fifty-one per cent of the paid-up share
capital is held by the Central Government, or by any State
Government or Governments, or partly by the Central
Government and partly by one or more State Governments,
and includes a company which is a subsidiary company of
such a Government company;”
48 The Union G overnment is a shareholder of HZL. The control and
management of HZL does not vest with the Union G overnment which has a residual
stake of 29.54 per cent. T he shareholding of SOVL stood increased to 64.92 per
cent after the exercise of the first call option in 2002. During the course of hearing,
this Court has been apprised by SOVL that it does not seek to exercise the second
call option, in terms of the Share Purchase Agreement. It is in this backdrop that a
decision has been taken by the Union Government to sell its residuary shareholding
in the open market. The Union Government, in its capacity as a shareholder of HZL,
is entitled to take such a decision. The fact that the Union G overnment is amenable
to the norms set out in Part III of the Constitution would not impose a restraint on its
capacity to decide, as a shareholder, to disinvest its shareholding, so long as the
process of disinvestment is transparent and the Union Government is following a
PART D
44
process which comports with law and results in the best price being realized for its
shareholding. In Life Insurance Corporation of India v. Escorts Ltd.
30
, a
Constitution Bench of this Court inter alia considered whether the action of an
instrumentality of the State (the Life Insurance Corporation) in asserting its rights as
a shareholder to bring about a change in the management of a public limited
company, was amenable to public law standards. Answering the question, Justice O
Chinnappa Reddy, speaking for the Constitution Bench held:
“102. […] Broadly speaking, the court will examine actions of
State if they pertain to the public law domain and refrain from
examining them if they pertain to the private law field. The
difficulty will lie in demarcating the frontier between the public
law domain and the private law field. It is impossible to draw
the line with precision and we do not want to attempt it. The
question must be decided in each case with reference to the
particular action, the activity in which the State or the
instrumentality of the State is engaged when performing the
action, the public law or private law character of the action
and a host of other relevant circumstances. When the State
or an instrumentality of the State ventures into the corporate
world and purchases the shares of a company, it assumes to
itself the ordinary role of a shareholder, and dons the robes of
a shareholder, with all the rights available to such a
shareholder. There is no reason why the State as a
shareholder should be expected to state its reasons when it
seeks to change the management, by a resolution of the
company, like any other shareholder.”
The Constitution Bench held that the notice by the Life Insurance Corporation requisitioning a meeting of the company was not liable to be questioned on any of
30
(1986) 1 SCC 264
PART E
45
the grounds set out in the writ petition. This principle has been followed as a
precedent by various decisions of this Court
31
.
The Union G overnment, in the present case, is exercising its rights as a shareholder
and has taken a decision to disinvest its residual shareholding of 29.54 per cent in
HZL. HZL is no longer a government company. In any event, the decision of the
Union Government, as an incident of its policy of disinvestment, to sell its shares in
the open market, cannot be questioned by reading a bar on its powers to do so, from
the provisions of the Nationalisation Act 1976. No such express or implied bar
exists, failing the applicability of this Court’s decision in Centre for Public Interest
Litigation (supra).
E CBI’s preliminary enquiry
49 A preliminary enquiry on the basis of ‘confidential source information’ in
relation to the HZL disinvestment during 1997- 2003, was registered by the CBI on 6
November 2013. In compliance of this Court’s order dated 3 November 2014, a
status report was submitted by CBI. Furthermore, on 19 January 2016, this Court
had directed CBI to submit another status report in a sealed cover. By an affidavit
dated 14 July 2020, the Head of Branch, Anti-Corruption Branch
32
, Jodhpur has
annexed a ‘self-contained note’ dated 6 March 2017, detailing the closure of the
31
ABL International Ltd. v. Export Credit Guarantee Corporation of India, (2004) 3 SCC 553 (two-judge Bench);
Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly, (1986) 3 SCC 156 (two-judge
Bench)
32
“ACB”
PART E
46
preliminary enquiry, after compliance with the process detailed in the CBI Crime
Manual, 2005
33
.
50 The above affidavit, the self-contained note closing the preliminary enquiry
and additional documents detailing the steps taken by the CBI during the preliminary
enquiry were shared for the perusal of this Court. The Special Prosecutor, CBI Head
Office, New Delhi on 31 July 2014, the D irector of Prosecution on 16 October 2014,
and the Special Director on 21 March 2016 have stated their reasons for
recommending the closure of the preliminary enquiry without registering a regular
case.
51 However, the Additional Director, CBI on 22 August 2014, recommended the
conversion of the preliminary enquiry into a regular case, against certain named
officials and persons under Section 120B read with Section 420 of the Indian Penal
Code 1860 and Sections 13(2) and 13(1)(d) of the Prevention of Corruption Act
1988. A similar conclusion was reached by the Enquiry Officer (Head of Branch,
ACB, Jodhpur) on 4 April 2014, Senior Public Prosecutor, Jodhpur on 21 April 2014,
the Head of Branch, Jodhpur, on 25 April 2014, the Head of the Zone, DLI on 13
August 2014, the Deputy Legal Advisor, ACB, Jodhpur on 26 May 2014, the Deputy
Superintendent of Police, Jaipur on 12 February 2015 and the Head of Branch,
Jodhpur on 13 February 2015.
33
“CBI Crime Manual”
PART E
47
52 In view of the difference of opinion between the Director of CBI and the
Director of Prosecution, CBI, the matter was to be referred to the Attorney General
on 17 October 2014, in accordance with Para 23.21 of the CBI Crime Manual.
However, the status of this referral has not been alluded to before us, for
determination of the closure of the preliminary enquiry.
53 Chapter 9 of the CBI Crime Manual details the process of conducting
preliminary enquiries. Para 9.1 states that “a P[reliminary] E[nquiry] may be
converted into R[egular] C[ase] as soon as sufficient material becomes available to
show that prima facie there has been commission of a cognizable offence”. In Lalita
Kumari (supra), a Constitution Bench of this Court had underscored the duty of the
police to register an FIR when the information received prima facie discloses the
commission of a cognizable offence. However, the decision recognizes that in
certain cases, a preliminary enquiry may be held. With specific reference to the CBI
Manual, this Court noted that the “the police can conduct a sort of preliminary
verification or inquiry for the limited purpose of ascertaining as to whether a
cognizable offence has been committed.
34
” This Court issued inter alia , the following
directions:
“120. In view of the aforesaid discussion, we hold:
[….]
(120.3) If the inquiry disc loses the commission of a
cognizable offence, the FIR must be registered. In cases
34
Para 119
PART E
48
where preliminary inquiry ends in closing the complaint, a
copy of the entry of such closure must be supplied to the first
informant forthwith and not later than one week. It must
disclose reasons in brief for closing the complaint and not
proceeding further.
(120.4) The police officer cannot avoid his duty of
registering offence if cognizable offence is disclosed.
Action must be taken against erring officers who do not
register the FIR if information received by him discloses a
cognizable offence.
(120.5) The scope of preliminary inquiry is not to verify
the veracity or otherwise of the information received but
only to ascertain whether the information reveals any
cognizable offence……”
(emphasis supplied)
54 In Central Bureau of Investigation (CBI) v. Thommandru Hannah
Vijaylakshmi @ T.H. Vijaylakshmi and another,
35
a three- judge Bench of this
Court held that it is not mandatory to hold a preliminary enquiry in all cases before
registering an FIR against a public official, in a matter involving the possession of
disproportionate assets. Speaking for the three- judge Bench, one of us (Justice D Y
Chandrachud) , noted the stage at which a preliminary enquiry is converted into a
regular case:
“
24. Hence, all these decisions do not mandate that a
Preliminary Enquiry must be conducted before the registration of an FIR in corruption cases. An FIR will not stand vitiated because a Preliminary Enquiry has not been conducted. The
decision in Managipet (supra) dealt specifically with a case of
Disproportionate Assets. In that context, the judgment holds
that where relevant information regarding prima
facie allegations disclosing a cognizable offence is
available, the officer recording the FIR can proceed
35
2021 SCC OnLine SC 923
PART E
49
against the accused on the basis of the information
without conducting a Preliminary Enquiry.
[…]
35. Hence, two distinct principles emerge from the above :
(i) a Preliminary Enquiry is registered when information
(received from a complaint or “source information”) after verification indicates serious misconduct on part of a public servant but is not enough to justify the registration of a
Regular Case; and (ii) when the information available or after
its secret verification reveals the commission of a cognizable offence, a Regular Case has to be registered instead of a Preliminary Enquiry being resorted to necessarily.
[….]
37. The precedents of this Court and the provisions of the CBI
Manual make it abundantly clear that a Preliminary Enquiry is not mandatory in all cases which involve allegations of corruption. The decision of the Constitution Bench in Lalita
Kumari (supra) holds that if the information received discloses
the commission of a cognizable offence at the outset, no
Preliminary Enquiry would be required. It also clarified that
the scope of a Preliminary Enquiry is not to check the
veracity of the information received, but only to
scrutinize whether it discloses the commission of a
cognizable offence. Similarly, para 9.1 of the CBI Manual
notes that a Preliminary Enquiry is required only if the
information (whether verified or unverified) does not disclose
the commission of a cognizable offence. Even when a
Preliminary Enquiry is initiated, it has to stop as soon as
the officer ascertains that enough material has been
collected which discloses the commission of a
cognizable offence. A similar conclusion has been reached
by a two Judge Bench in Managipet (supra) as well. Hence,
the proposition that a Preliminary Enquiry is mandatory is
plainly contrary to law, for it is not only contrary to the
decision of the Constitution Bench in Lalita Kumari (supra) but
would also tear apart the framework created by the CBI
Manual.”
(emphasis supplied)
PART E
50
55 In Manohar Lal Sharma v. Principal Secretary,
36
a three- judge Bench of
this Court, while monitoring an investigation in a matter of national importance, had
elaborated on the duty of the CBI to convert a preliminary enquiry into a regular
case, once a prima facie case involving the commission of a cognizable offence is
evinced. Justice R M Lodha, speaking on behalf of the Court, had also remarked on
the nature of the powers of the constitutional court, while monitoring an investigation
in exceptional matters. This power could be operationalized to do complete justice:
“29 …Once jurisdiction is conferred on CBI to investigate the
offence by virtue of notification under Section 3 of the DSPE
Act or CBI takes up investigation in relation to the crime which
is otherwise within the jurisdiction of the State police on the
direction of the constitutional court, the exercise of the power
of investigation by CBI is regulated by the Code and the
guidelines are provided in the CBI (Crime) Manual. Para 9.1
of the Manual says that when, a complaint is received or
information is available which may, after verification, as
enjoined in the Manual, indicate serious misconduct on the
part of a public servant but is not adequate to justify
registration of a regular case under the provisions of Section
154 of the Code, a preliminary enquiry (PE) may be
registered after obtaining approval of the competent authority.
It also says that where the High Courts and the Supreme
Court entrust matters to CBI for inquiry and submission of
report, a PE may be registered after obtaining orders from the
head office. When the complaint and source information
reveal commission of a prima facie cognizable offence, a
regular case (RC) is to be registered as enjoined by law. A
PE may be converted into RC as soon as sufficient
material becomes available to show that prima facie there
has been commission of a cognizable offence. When
information available is adequate to indicate commission
of cognizable offence or its discreet verification leads to
36
(2014) 2 SCC 532
PART E
51
similar conclusion, a regular case must be registered
instead of a PE. […]
38. The monitoring of investigations/inquiries by the Court is
intended to ensure that proper progress takes place without
directing or channelling the mode or manner of investigation.
The whole idea is to retain public confidence in the impartial
inquiry/investigation into the alleged crime; that
inquiry/investigation into every accusation is made on a
reasonable basis irrespective of the position and status of that
person and the inquiry/investigation is taken to the logical
conclusion in accordance with law. The monitoring by the
Court aims to lend credence to the inquiry/investigation being
conducted by CBI as premier investigating agency and to
eliminate any impression of bias, lack of fairness and
objectivity therein.
[….]
50. When the Court monitors the investigation, there is
already departure inasmuch as the investigating agency
informs the Court about the progress of the investigation.
Once the constitutiona l court monitors the
inquiry/investigation which is only done in extraordinary
circumstances and in exceptional situations having
regard to the larger public interest, the
inquiry/investigation into the crime under the PC Act
against public servants by CBI must be allowed to have
its course unhindered and uninfluenced and the
procedure contemplated by Section 6-A cannot be put at
the level which impedes exercise of constitutional power
by the Supreme Court under Articles 32, 136 and 142 of
the Constitution. Any other view in this regard will be directly
inconsistent with the power conferred on the highest
constitutional court.”
(emphasis supplied)
PART E
52
56 There is no bar on the constitutional power of this Court to direct the CBI to
register a regular case, in spite of its decision to close a preliminary enquiry.
Analogously, this Court has directed the police to register an FIR, once a cognizable
offence has been disclosed to it. In Shashikant v. Central Bureau of
Investigation
37
a two-judge Bench of this Court, has held that this Court has the
power to direct the CBI to conduct an investigation in exceptional cases, despite the
CBI’s decision to close the preliminary enquiry, even in the exercise of its writ
jurisdiction:
“3. The appellant claims himself to be a vigilant employee. He
made an anonymous complaint to the Central Bureau of
Investigation alleging corrupt practices and financial
irregularities on the part of some officers of his department.
Respondent 1 stated that on the basis of a source
information, a preliminary inquiry was conducted in which the
statements of various officers were recorded. However, the
investigating officer was of the opinion that it was not
necessary to register a first information report. It
recommended for holding of departmental proceedings
against the officers concerned. The said recommendation
found favour with the higher officers. The opinion of the
Central Vigilance Commission was also obtained.
[…]
17. The appellant does not deny or dispute that the first
respondent initiated a preliminary inquiry upon receipt of the
complaint. The question which arises for consideration is as
to whether it was obligatory on the part of the first respondent
to lodge a first information report and carry out a full-fledged
investigation about the truthfulness or otherwise of the
allegations made in the said anonymous complaint.
37
(2007) 1 SCC 630
PART E
53
[…]
30. The first respondent [CBI] is a statutory authority. It
has a statutory duty to carry out investigation in
accordance with law. Ordinarily, it is not within the
province of the court to direct the investigative agency to
carry out investigation in a particular manner. A writ
court ordinarily again would not interfere with the
functioning of an investigative agency. Only in
exceptional cases, it may do so. No such case has been
made out by the appellant herein. The nature of relief
prayed for in the writ petition also is beyond the domain
of a writ court save and except, as indicated
hereinbefore, an exceptional case is made out.”
(emphasis supplied)
57 Upon perusal of the aforementioned reports and recommendations, it is our
considered opinion that the disinvestment in 2002 evinces a prime facie case for
registration of a regular case. We are desisting from commenting on some crucial
facts and names of individuals involved, so as to not cause prejudice to the
investigation of the matter. Some details in the CBI officials’ recommendations to
register a regular case, which have not been adequately addressed by the self -
contained note closing the preliminary enquiry, are as follows:
PART E
54
A. Irregularities in the decision to disinvest 26 per cent, instead of 25 per cent:
(i) The Disinvestment Commission in its sixth report of December 1997 had
categorized HZL as a “non-core PSU” and had recommended its
disinvestment, but not beyond 25 per cent of the equity, in order to retain
control. The Government’s share at the time was 75.92 per cent;
(ii) The Cabinet Committee on Disinvestment was to be the final authority,
with a Core Group of Secretaries on Disinvestment as the recommending
body. An Inter-Ministerial Group of Secretaries was to implement the
decisions of disinvestment. On 6 July 1999, the Cabinet Committee on
Disinvestment had allegedly taken note of the recommendations of the
Disinvestment Commission regarding disinvestment of 25 per cent and
accepted the same. However, the Core Group of Secretaries on
Disinvestment, on 17 February 2000, had allegedly disregarded this
recommendation and proposed a sale of 26 per cent, without any
justification. During the seventh meeting of the Core Group of Secretaries
on Disinvestment on 16 June 200 0, the body was informed of the Ministry
of Mines’ objection to seeking the approval of the Cabinet Committee of
Disinvestment for transfer of management control to a strategic partner.
Yet, the Cabinet Committee of Disinvestment approved the Core Group of
Secretaries on Disinvestment’s proposal of disinvestment of 26 per cent
equity to a strategic partner with management control and appointment of
an advisor, instead of a 25 per cent sale. This was allegedly done on the
basis of a senior government official’s note dated 27 August 2000, without
PART E
55
further details or reasoning. This decision of disinvesti ng 26 per cent
equity reduced the Union Government’s share in HZL to 49.92 per cent;
B. Irregularities in the bidding process:
(iii) The advertisement dated 4 December 2000, soliciting ‘ Expressions of
Interest’, was allegedly confined to the sale of 26 per cent equity. It
allegedly did not mention that a road-map for a complete sale of the
company had been decided and the remaining shares would also be
eventually sold to the strategic partner;
(iv) During the first bidding in 2001, the Evaluation Committee had fixed the
reserve price at Rs. 35.90 per share. Nine parties had submitted an
expression of interest for the process of disinvestment, of which six were
considered as qualified bidders. However, only one bid of SOVL was
received for Rs 29.22 per share on 8 November 200 1, much below the
reserve price of Rs 35.90 per share. In view of the unsuccessful bid, the
Evaluation Committee had recommended the delaying of the tender
process until the global markets stabilized . However, this recommendation
was initially accepted, but rejected the very next day- on 10 November
2001, without furnishing any reasons. Second bids were invited soon after,
in March 2002;
(v) In March 2002, bids were invited, with the reserve price being reduced
from Rs 35.90 per share to Rs 32.15 per share. The rationale justifying the
reduction of the reserve price has not been mentioned in the self-
PART E
56
contained note. F inal price bids were invited only from the earlier six
qualified interested parties, instead of a competitive open bidding process,
in view of the reduced share price. Only two qualified interested parties-
SOVL and M/s Indo Gulf Corporation submitted their bids. The sale was
made to SOVL at Rs 40.51 per share, totalling to Rs 445 crores (approx.).
Allegedly, at least three bidders were required to process the matter. No
justification has been furnished to rebut this;
(vi) During the second bidding process, SOVL’s bid was accepted, in spite of
an alleged adverse SEBI order which disqualified SOVL from participation;
(vii) The Ministry of Law had recommended the removal of the mandatory
obligations in the Shareholders’ Agreement and the Share Purchase
Agreement with SOVL. These recommendations had been allegedly
disregarded without any justifications;
(viii) The Comptroller and Auditor General’s Report 17 of 2006 indicated that
the Asset Valuer and Global Advisor had not valued the assets of the
company properly. Further, the Comptroller and Auditor General’s Report
stated that the subsequent sale of 18.92 per cent equity to SOVL in 2002
at the old rate of Rs 40.51 per share, was not in line with the Share
Purchase Agreement, as the prevailing rate then was Rs 119.10 per
share, resulting in a loss of about Rs 650 crores;
PART E
57
C. Irregularities in the valuation of 26 per cent equity for disinvestment
(ix) M/s BNP Paribas was appointed as the ‘ Global Advisor’ on 9 January
2002. However, during the preliminary enquiry, the CBI was allegedly
unable to trace these officials representing the Global Advisor. It was
found that M/s BNP Paribas was a bank based in France, but the erstwhile
company M/s BNP Paribas Equities India Pvt. Ltd. (also known as M/s
BNP Prime Peregrine India Pvt. Ltd.) had undergone voluntary liquidation
on 5 September 200 1. The advisors had allegedly used the name of ‘M/s
BNP Paribas’ during most of their correspondence and the bank was
denying the details of the company and its existence;
(x) The untraceable officials of ‘M/s BNP Paribas’ had relied on three
methodologies for valuation- (i) discounted cash flow method
38
; (ii)
comparable companies methodology (relative valuation methodology); and
(iii) balance sheet methodology. The DCF method was allegedly chosen
on 22 March 2002 without any justification, in spite of the first report of the
Disinvestment Commission recommending the ‘ asset valuation method’, in
case of a strategic sale;
(xi) ‘M/s R B Shah Associates’ was appointed as an ‘Asset Valuer’ for the
valuation of the fixed assets, without issuing a competitive/ limited bidding
advertisement , which was allegedly against the Union Government’s
policy. An unknown public servant had allegedly appointed these private
38
“DCF”
PART E
58
valuers who did not possess the requisite expertise. The valuers allegedly
failed to consider goodwill, technical know -how and var ious assets of HZL,
including 150 million tonnes of ore reserves in various mines, to the tune
of Rs 80,000 crores; Union Government’s earlier investment of Rs 83
crores (approx.) in Andhra Pradesh Gas Power Ltd.; Rs 175 crores in
advance income tax; various properties to the tune of Rs 20,000 crores
(approx.); and scrap valued at Rs 600 crores (approx.);
(xii) The value of Kayad Mines, Ajmer; Sindeshar Khurd, Rajsamand; and
Bamania Kalan Mines, Rajsamand was not included in the valuation of
assets, in spite of t heir mention in the Share Purchase Agreement;
(xiii) The valuation of ore reserves was done only for Agucha Mines, and for ten
years, by a discounting method of six per cent. The life of the mine was
allegedly much longer;
(xiv) Discounts were given on certain leasehold properties, without any basis.
The life of Zawar and Rajpura Dariba Mines was allegedly taken as
eighteen years and fifteen years respectively, without valuing the ore
reserves. Value of ore reserves was also not included for Agnigundala
lead mines, Sargipalli Lead Zinc Mines, Matun Rock Phosphate Mines and
Sindeshar Kurd Mines.
(xv) The value of lead and zinc mineral at the time was Rs 66,292 crores
(approx.). Even if 40 per cent cost of extraction process is excluded, the
value would have allegedly been around Rs 39,000 crores. Yet, the valuer
had valued the ore reserves at a paltry Rs 748.88 crores;
PART E
59
(xvi) Control premium was not added in the valuation, irrespective of certain
officials recommending its inclusion. The rationale for its exclusion has not
been explained in the self-contained note;
(xvii) In October 2001, the Voluntary Retirement Scheme
39
was introduced and
1993 employees were given VRS. In January 2003, 1856 employees were
given VRS. However, an amount of Rs 776 crores has been taken as VRS
expenditure, which allegedly incorrectly assumes that all 7222 employees
and 1058 officers of HZL have been given VRS; and
(xviii) During the enquiry, the CBI had sought opinions from certain experts who
were Chartered Engineers. These experts had opined that the valuation
was on the lower side, without including relevant mining properties.
Allegedly, the absence of any mining engineer or geologist in the team of
the asset valuers was also not understandable. Allegedly, if the valuation
had been conducted properly, on the basis of DCF method, the value
would have been over Rs 1000, per share.
39
“VRS”
PART E
60
58 Some of the aforesaid observations of the officials of the CBI, who
recommended the conversion of the preliminary enquiry into a regular case, satisfy
this Court’s conscience for exercising its exceptional powers to direct the CBI to
conduct an investigation into the matter. A prima facie case for a cognizable offence,
as mandated in para 9.1 of the CBI Manual, has been made out in this case and
warrants the registration of a regular case. The registration of a regular case,
followed by a full- fledged investigation must be conducted. This Court shall be duly
apprised of the status of the investigation.
59 The petitioner has alleged that the complainant, C P Babel, was the brother of
Petitioner No 3 which entitles them to a copy of the report of the CBI closing the
preliminary enquiry, in terms of Para 120 (iii) of Lalita Kumari (supra)
40
. However,
we are denying this relief on two counts- (i) the finding of the Constitution Bench of
this Court was with respect to the informant alone, and the original complainant is
not before us; and (ii) CBI has stated that the preliminary enquiry was registered at
the behest of source information, much before C P Babel’s complaint.
40
“…120.3 If the inquiry discloses the commission of a cognizable offence, the FIR must be registered. In cases
where preliminary inquiry ends in closing the complaint, a copy of the entry of such closure must be supplied to the
first informant forthwith and not later than one week. It must disclose reasons in brief for closing the complaint and not
proceeding further…”
PART F
61
F Conclusion
60 Accordingly, we hold that:
(i) The summary dismissal of an earlier petition under Article 32 of the
Constitution does not bar the present writ petition on grounds of res
judicata as there has been no substantive decision on the merits of the
issues;
(ii) The decision in Centre for Public Interest Litigation (supra) does not
apply to the present facts because HZL had ceased to be a government
company , at the stage of the disinvestment which is in challenge. Hence,
the Union Government’s decision to disinvest 29.54 per cent of its residual
shareholding in HZL is not interdicted by the principles laid down by this
Court in Centre for Public Inter est Litigation (supra);
(iii) SOVL has stated before the C ourt that it is not exercising its second call
option under the Share Purchase Agreement;
(iv) The Union Government has stated through the Solicitor General that the
residual shareholding shall be divested in the open market and shall take
place in accordance with the rules and regulations of SEBI to ensure that
the best price is realized for the sale of the shareholding; and
(v) There is sufficient material for registration of a regular case in relation to
the 26 per cent disinvestment of HZL by the Union Government in 2002.
The CBI is directed to register a regular case and proceed in accordance
with law.
PART F
62
61 Accordingly, the petition under Article 32 is partially allowed. The CBI is
directed to register a regular case and periodicall y submit status reports of its
investigation to this Court. The aforesaid reports shall be submitted every quarter, or
as otherwise directed by this Court.
62 Pending application(s), if any, shall stand disposed of.
……….…………………………...............................J.
[Dr Dhananjaya Y Chandrachud]
….…….…………………………...............................J.
[B V Nagarathna]
New Delhi;
November 18, 2021
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