Can the Union Government Disinvest Its Residual Stake in Hindustan Zinc? Supreme Court Clarifies

Introduction

The Supreme Court of India recently addressed a significant legal question regarding the Union Government's ability to disinvest its residual stake in Hindustan Zinc Limited (HZL). This case arose from a writ petition filed by the National Confederation of Officers Association of Central Public Sector Enterprises, challenging the government's decision to divest its remaining 29.54% shareholding in HZL. The petitioners argued that such disinvestment was contrary to the provisions of the Metal Corporation (Nationalisation and Miscellaneous Provisions) Act, 1976, and sought a mandamus to prevent the government from proceeding without amending the Act. The Court's ruling not only clarified the legal standing of the disinvestment but also addressed the procedural aspects surrounding the closure of a preliminary enquiry by the Central Bureau of Investigation (CBI).

Case Background

The National Confederation of Officers Association, representing employees of public sector undertakings, filed a writ petition under Article 32 of the Constitution, contesting the Union Government's decision to disinvest its residual shareholding in HZL. The petitioners contended that HZL, a 'mini-navratna' company, was not incurring losses and that the disinvestment would not serve the public interest. They argued that the government’s divestment of its shares violated the principles established in the landmark case of Centre for Public Interest Litigation v. Union of India, which emphasized the need for parliamentary approval for disinvestment of government companies.

The history of HZL's ownership is complex, involving multiple rounds of disinvestment since the 1990s. The Union Government initially held a 75.92% stake, which was reduced through various disinvestment phases, including a significant sale to Sterlite Opportunities & Ventures Ltd. (SOVL) in 2002. The petitioners argued that the government's decision to further divest its remaining stake without amending the Nationalisation Act was illegal and detrimental to public interest.

What The Lower Authorities Held

The Union Government and SOVL contended that the petition was barred by res judicata, citing a previous dismissal of a similar petition by the Maton Mines Mazdoor Sangh in 2012. They argued that the disinvestment policy had evolved since the 1990s and that the government was entitled to sell its shares in a listed company without further legislative approval. The Solicitor General emphasized that the residual shareholding would be sold in compliance with SEBI regulations, ensuring transparency and best pricing.

The Court's Reasoning

The Supreme Court, led by Justice Dhananjaya Y Chandrachud, examined the legal framework surrounding the disinvestment of HZL. The Court noted that the principles of res judicata did not apply in this case, as the earlier petition had been dismissed summarily without a substantive decision on the merits. The Court emphasized that the Nationalisation Act 1976 did not impose an express restriction on the government's ability to disinvest its shares in HZL, particularly after the company ceased to be classified as a government company following previous disinvestments.

The Court further clarified that the Union Government, as a shareholder, had the right to make decisions regarding its shareholding, including disinvestment, as long as it complied with the relevant laws and regulations. The Court distinguished the current case from the Centre for Public Interest Litigation ruling, noting that HZL had already lost its status as a government company, thus removing the need for parliamentary approval for further disinvestment.

Statutory Interpretation

The Court's interpretation of the Nationalisation Act 1976 was pivotal in its ruling. The Act's provisions were examined to determine whether they imposed any limitations on the government's ability to divest its shares. The Court found that the Act did not contain any express provisions preventing the government from selling its residual stake in HZL. Instead, the Court highlighted that the government, as a shareholder, was entitled to act in accordance with the Companies Act and SEBI regulations, which govern the sale of shares in publicly traded companies.

The Court also addressed the procedural aspects of the CBI's preliminary enquiry into the disinvestment process. It noted that the CBI had closed the enquiry without registering a regular case, despite recommendations from its officials to do so. The Court directed the CBI to register a regular case based on the prima facie evidence of irregularities in the earlier disinvestment process.

Why This Judgment Matters

This ruling has significant implications for the Union Government's disinvestment policy and the legal framework governing public sector enterprises. By clarifying that the government can disinvest its shares in a company that has ceased to be a government company, the Court has reinforced the principle that the government must operate within the bounds of the law while exercising its rights as a shareholder. This decision also underscores the importance of transparency and accountability in the disinvestment process, particularly in light of the CBI's findings regarding potential irregularities in past disinvestment actions.

Final Outcome

The Supreme Court partially allowed the writ petition, affirming the Union Government's right to disinvest its residual shareholding in HZL while directing the CBI to register a regular case regarding the earlier disinvestment. The Court mandated that the CBI submit periodic status reports on its investigation, ensuring ongoing oversight of the matter.

Case Details

• Case Title: National Confederation of Officers Association of Central Public Sector Enterprises and Ors. vs. Union of India & Ors.
• Citation: 2021 INSC 758
• Court: IN THE SUPREME COURT OF INDIA
• Bench: Justice Dhananjaya Y Chandrachud, Justice B V Nagarathna
• Date of Judgment: 2021-11-18