Sterlite notice on Balco sale

Government charged with breach of contract.

Sterlite Industries has sent a legal notice to the government, accusing it of breach of contract with regard to the sale of its 49 per cent residual stake in Bharat Aluminium Company (Balco).

In response, the government has decided to seek legal opinion to deal with the situation.

The legal notice marks an escalation in the current differences between the government and the Anil Agarwal-promoted Sterlite, which holds 51 per cent in Balco, bought when the government disinvested in 2001.

A government official said a committee of secretaries, headed by the Cabinet secretary, discussed the issue at a meeting here today. The committee has decided to ask the ministry of mines, the parent ministry of Balco, to approach the law ministry and get its legal opinion on the Sterlite notice.

When contacted to confirm that a notice had been sent, Sterlite CFO Tarun Jain said, "We have no comments to make on the Balco issue."

The committee's meeting comes in the backdrop of Attorney-General Milon K Banerji recently advising the government to avoid selling its residual stake in Balco on account of the shares being undervalued.

The timing of Balco's valuation is the bone of contention between the two parties. Sterlite and the government signed an agreement in 2001, which gave Sterlite the option to buy the residual stake in Balco three years later. In 2004, when Sterlite exercised that right, the valuation process was delayed partly because of the government asked for extensions.

After some delay, SBI Caps carried out Balco's valuation using 2004 data and the valuation report was submitted earlier this year. SBI Caps valued the government's stake in Balco at Rs 842.52 crore. But, as international aluminium prices have shot up since then, Balco is a more valuable company today.

A Sterlite spokesperson had earlier told Business Standard, "The parties were contractually obligated to the do the transaction in 2004." Sterlite would have had to pay the 2004 valuation amount even if the international aluminium price had fallen, he had added.

Banerji advised the government that not only was its stake undervalued, but sections of the agreement between the parties that bound the government to sell its stake to Sterlite ran counter to the Companies Act, 1956.

Sterlite, meanwhile, sent the government a cheque of Rs 1,089 crore in March 2006 as payment towards the residual 49 per cent stake as well as interest on the 24-month delayed payment.