In a clear case of judicial overreach, the Supreme Court has stopped the Government from selling its residual shares in Hindustan Zinc Limited even though it had no problems when majority of the shares were sold years ago
In recent times, the judiciary has made deep inroads into policy making that lies strictly within the executive domain. The latest manifestation is an order by the Supreme Court to the Government of India, to stop selling the latter’s residual stake in Hindustan Zinc Limited. This order came in response to a public interest litigation filed by the National Confederation of Officers Associations of Central Public Sector Undertakings in 2014, which challenged the proposed sale of the Government’s 29.5 per cent stake in HZL. Already, 70.5 per cent of the Government’s shares has been sold since 2002 — 64.9 per cent being bought by Vedanta.
Until 2014, when the international price of zinc was high and investors willing to pay a good price (even Vedanta offered a hefty $2.57 billion in 2012), the then UPA Government dilly dallied and let the opportunity go. The Modi Government revived plans for HZL (29.5 per cent) and Bharat Aluminium Company Ltd (49 per cent) in the Budget Session of 2014-2015, to fetch an amount of Rs20,000 crore — a bulk of it coming from HZL. However, the pending court case came in the way.
Meanwhile, in the wake of global recession, triggered by economic slowdown in China, the price of zinc crashed. This resulted in a drastic lowering of the valuation. Accordingly, the Government has now shelved plans for these divestments (rightly so) during the current financial year. While the Government would like to have flexibility, to maximise gains from the sale as and when the price cycle reverses leading to improvement in valuation, the apex court’s order has put a spanner in the works. The judges have argued: “What is the hurry to handover valuable assets worth lakhs of crores?” This argument would have made sense at a time when majority ownership was with the Government. But, now, in view of its holding only residual stake, this is redundant.
It is fashionable to ride on the bandwagon of ‘family silver’ whenever there is a proposal to disinvest, but no one cares how to get the best value when the asset is with the Government. Prior to the ‘strategic’ share sale (2002), HZL’s mining capacity was languishing at 3.5 million tonnes, sales was around Rs 1,400 crore and profits at Rs 68 crore. After the ownership vested in private hands, capacity zoomed to over 10 million tonnes; turnover to more than Rs 14,500 crore and profits to over Rs 8,000 crore.
After this spectacular improvement, when the valuation zoomed, offering a good opportunity to make handsome gains from the sale of residual shares, the self-proclaimed guardians of public interest have emerged on the scene to play spoilsports. They are neither concerned with the efficient functioning of PSUs nor are they boosting the Government’s coffers through better financial management. And, the judiciary is helping them in this.
The NCOACPSU has alleged that the proposed divestment is “illegal, mala fide and arbitrary”. The apex court is prima facie also convinced of this, as it opined that “already, there are allegations of wrong having been committed and we would not allow a second transgression”. This is based on the premise that HZL was created by an Act of Parliament, and without legislative sanction, divestment cannot be undertaken. This is strange.
When the initial shares were sold, leading to the relinquishment of the majority stake, the apex court did not even take cognizance of the matter. In fact, twice, it rejected petitions challenging the stake sale (December 2012 and July 2014). If then the court found no illegality, how can it now, when the sale is only of residual shares and HZL no longer a PSU?
Notably, Maruti Udyog Limited and Coal India Limited were also created by Acts of Parliament. In MUL, the Government divested its holding at different points leading to complete divestiture in 2007. Likewise, in CIL, it divested 10 per cent in January 2015 without Parliament’s approval. The court did not object to any of this.
The court’s unwarranted interference in HZL has already done considerable damage. Also, the Government is unable to proceed with disinvestment of Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited due to a 2003 judgement of the apex court, disallowing sale of shares without Parliament’s sanction.
Imagine the consequences if the apex court were now to pronounce that HZL shares can’t be sold without Parliament’s approval. Then, all past share sales in MUL and CIL, besides all previous sales of HZL will have to be undone. Any future share sale in CIL wherein, the Government is hoping to receive more than Rs 20,000 crore, thereby, helping with fiscal consolidation, will be nipped in the bud.
If India is to stay on the high growth trajectory, its leaders need to take prompt policy decisions. The judiciary should stay away from this domain. Only if there is malafide intent, resulting in losses to the exchequer, such as in the 2G Spectrum or coal block allocation scams, should it intervene.
http://www.dailypioneer.com/columnists/oped/debunk-family-silver-argument.html