Thanks to a decade of mis-governance and policy inaction under the erstwhile UPA dispensation, the judiciary has made deep inroads in to the executive domain. The most recent manifestation of this interference is the order of the Supreme Court [SC] to the Government of India [GOI] not to sell its residual stake in Hindustan Zinc Limited [HZL].
In 2002, GOI had sold 26% shares in HZL to a Vedanta Group company Sterlite Opportunities & Ventures. In the following year, it parted with another 18.92% under a ‘call option’ available to latter. A further 25.5% was offloaded [but not before a long-drawn arbitration battle between then UPA-regime and Vedanta over legality of ‘call and put’ options] taking total divestment to 70.5%. In January, 2012, Vedanta offered US$ 2.57 billion for government’s residual stake of 29.5% which was raised by 25% in August, 2012.
In February, 2013, the government considered the ‘offer-for-sale’ [OFS] route and in December, 2013 it decided to go for OFS to divest residual stake. In 2014, National Confederation of Officers Association of Central Public Sector Undertakings [NCOACPSU] filed a public interest litigation [PIL] in SC challenging the proposed residual stake sale. The SC embargo has come while hearing this PIL. This will have far reaching implications.
Up to 2014, when international prices of strategic minerals such as zinc were high and investors were willing to pay a good price [even Vedanta Group offered a hefty sum in 2012], the then ruling dispensation dilly dallied and let the opportunity go. In the budget for 2014-15, Modi – government proposed to mobilize Rs 20,000 crores from offloading residual stake in HZL [29.5%] and BALCO [49%] bulk of it coming from former due to much higher valuation. But, the pending court case came in the way of divestment.
Now, in the wake of a virtual global recession precipitated by slowdown in China, the prices of almost all commodities including zinc have plummeted bringing down valuations. So, it makes no sense to sell at this juncture and the government has not included in its plans for current year. Yet, the order of SC putting a freeze on sale [until it hears the matter and delivers its verdict] has taken away the flexibility to maximize the gain from sale as and when the price cycle reverses leading to improvement in valuations.
Handing out their decision, the judges quipped “what is the hurry to handover valuable assets worth lakhs of crores?’ This does not hold water in the backdrop of government having already relinquished majority control. With current residual stake, the focus has to be on making financial gain and that is best achieved by way divestment of shares at an appropriate price. Clearly, the value of asset argument is redundant at this stage.
It is fashionable to ride on bandwagon of ‘family silver’ only when there is proposal to divest but no one cares how to get best value when the asset is with the government. Prior to ‘strategic’ share sale [2002], HZL had mining capacity of bare 3.5 million tons, sales of around Rs 1400 crores and profits Rs 68 crores. After the ownership vested in private hands, the mining capacity zoomed to over 10 million tons; turnover to more than Rs 14,500 crores [10 fold] and profits to over Rs 8000 crores [more than 100 times].
We are riddled with a mind-set whereby no efforts are made to secure good returns when government is in full command of PSUs. And, even when it has divested majority control, a host of stakeholders including the judiciary [NGOs too – the self-proclaimed guardians of public interest] come in to play to foil efforts to get good financial returns from whatever shareholding left.
In its petition, the NCOACPSU has alleged that the proposed disinvestment is “illegal, mala fide and arbitrary”. The apex court too is prima facie convinced when 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 the Parliament and without latter’s sanction, divestment cannot be undertaken. This is strange logic.
Almost one-and-a-half decade ago when the shares of HZL were sold [and subsequently a lot more leading to relinquishment of majority stake], the apex court did not even take cognizance; in fact, twice it rejected petitions challenging the stake sale [December, 2012 & July, 2014] . If then, when majority ownership of government was divested, the court found no illegality, how can stake sale now which is ‘residual’ and will have no material impact in terms of ownership and control be termed illegal?
Pertinently, Maruti Udyog Limited [MUL] and Coal India Limited [CIL] too were created by Act of Parliament. In MUL, the government divested its holding at different points leading to complete divestiture in 2007. Likewise, in CIL, it divested 10% of its equity in January, 2015 without Parliament’s approval. The court did not object to any of these divestments. Why then, SC is taking a different stance in case of HZL?
Perhaps, the judges have excavated from the archives a 2003 judgement when it had disallowed disinvestment of government’s shares in Hindustan Petroleum Corporation Limited [HPCL] and Bharat Petroleum Corporation Limited [BPCL] – also created by Act of Parliament. Then also, the government was denied the opportunity of maximizing financial returns that would have come about via ‘strategic’ sale of its holding in HPCL/BPCL.
To sum up, the apex court is not only interfering in the process of policy making which is entirely in the executive’s domain but also giving inconsistent signals. Already, this has done considerable damage and more could follow. Imagine the consequences if now it were to pronounce that shares of HZL cannot be sold without Parliament approval. Then, all the past share sales in MUL and CIL besides all previous sales of HZL will have to be undone. Further, any future share sale in CIL will be nipped in the bud.
In contemporary times when, compulsions of taking India on to a high growth trajectory require prompt policy decisions, judiciary would do well to keep away. It should not view mere lack of parliamentary sanction as a violation of the law. Only if there is a case of malafide intent and resultant loss caused to the exchequer [for instance, in 2G or Coalgate scam], it should intervene.
Even so, government’s actions including those related to divestment of its shareholding in PSUs are subject to Parliament’s scrutiny through various institutional mechanisms and it can be hauled up for wrongdoings, if any.
Is the Supreme Court listening?