Friday, January 22, 2016

SC stays disinvestment in Hindustan Zinc

The Supreme Court has stayed the government's decision to disinvest its residual stake in Hindustan Zinc Limited by selling it to Vedanta which runs the company now. Vedanta had acquired control of HZL through the disinvestment that happened in 2002-03. The reason given by the SC should make people, especially in government, sit up- it raises serious questions as to whether disinvestment in several PSUs, especially profit-making ones, can happen at all.

Going by this news report in the TOI, the National Confederation of Officers' Associations of Central Public Sector Undertakings had challenged the residual stake sale.The reason given by the SC is interesting. I have not seen the judgement but, going by news reports, the SC had earlier given an order that, in selling stakes in PSUs, the government needs to amend the Act of parliament by which ownership in these PSUs came to be vested in government.

This was not done in the original disinvestment. The Attorney General argued that the company has ceased to be in the public sector, so the SC order, which came after the first disinvestment, was not applicable. As reported in Mint, the SC refused to buy this:
Referring to the earlier sale of 26% stake in the firm to Sterlite Ltd (now Vedanta Ltd) in 2002, the court told the government that the sale was a circumvention of the law.
“You’ve done it once and we can’t allow you to do it again,” it said.
The remark was in the context of the apex court-mandated probe by the Central Bureau of Investigation into the alleged irregularities in the 2002 sale.
“No divestment can happen in a public sector undertaking without Parliament amending the concerned statute,” the court said.

The SC has also raised the question of whether the government is at all justified in selling stakes in profit-making PSUs:
“If the company is making profits, then let the government also make some profit from the remaining stake. Why disinvest in that case,” the court remarked. 
Since the government can reasonably hope to make money only out of disinvestment in profit- making PSUs, one wonders whether taking credit for disinvestment proceeds in the budget document makes any sense at all until this issue is sorted out. 


Jugal Dhrangadharia said...

Rightly said by the SC, this sort of divestment should be applied stricter norms. Solely for the purpose of fiscal deficit, government should not be allowed to sell national assets.

Amit Kumar said...

I also think that parliament approval should be taken into account. This will help in insuring sound fiscal management/consolidation practices. Though modicum of fiscal deficit may rightly be justified considering the infrastructural needs of developing country like ours but taking the route of disinvestments and borrowings without rightful restrain may not be in the best interest of our economy.