The government is likely to offer a mid-way solution to the long pending issue of selling the residual 49 per cent stake in Bharat Aluminium Company (Balco) to Sterlite Industries by way of a fresh valuation by an independent valuer.
The issue is under arbitration and a bench of three retired Supreme Court judges will hear arguments from both the government and the company for three days starting December 23. The three-judge arbitration bench sat on Thursday, with former law minister Shanti Bhushan representing Sterlite Industries and senior counsel A K Ganguli having replaced Solicitor General Gopal Subramanium for representing the government’s case.
“In case the government loses the arbitration, it would have to sell the residual stake at a 25 per cent discount to the original price mentioned in the shareholders’ agreement,” a personal familiar with the development said. “That will result in a financial loss to the government. So, it is looking for a mid-way solution where it can get a fresh valuation of the residual stake by an independent valuer,” he added.
Sources say Subramanium has advised the government to go for an out-of-court settlement as the arbitration panel was likely to rule against it. The government may make the offer for a fresh valuation during the hearing of the arbitration panel.
Sterlite, a subsidiary of the London-listed Vedanta, bought a 51 per cent stake in Balco in March 2001 for Rs 552 crore, when the then National Democratic Alliance government decided to divest the government’s stake in the public sector company. Sterlite owned the right to buy the remaining stake in the aluminium producer after a three-year period, but ran into differences with the government over valuation.
After the embargo expired in March 2004, Sterlite sent the government a call notice and a cheque of Rs 1,099 crore for Balco’s residual stake, in accordance with the shareholders’ agreement.
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Differences in the value of the government’s residual stake cropped up after the United Progressive Alliance government came to power in May 2004 and the issue was referred to the Attorney General, who termed the call option invalid under Section 111A of the Companies Act. He, however, said the residual stake could be sold at the market price.
“Since a call option given under the Companies Act can not be termed invalid, the bench is likely to rule against the government,” the source pointed out.
In 2006, Sterlite moved the Delhi High Court for interim relief, to ensure the government did not sell the stake to anyone else. The high court suggested reconciliation and arbitration. The government then directed a committee of secretaries (CoS) to explore ways to reconcile the issue.
In May last year, the CoS recommended that, to discover the correct price of the stake in the unlisted company, the government should sell 10 per cent through an initial public offer (IPO). In July, the Cabinet Committee on Economic Affairs approved the IPO after the UPA parted ways with the Left parties, which had supported it in the Lok Sabha.