Disinvestment in India, frozen for political reasons, may face further shocks with legal opinion that residual equity in public sector utilities (PSU) via a call option violated the rights of the shareholders under section 111 A of the Companies Act. While Attorney General Milon Banerjee
provided the advice while studying disinvestment option was limited to
BALCO, finance ministry officials fear that the same legal interpretation could hold true for at least four other companies, where the new owners have the right to exercise a call option under the shareholders agreement signed at the time of disinvestment.
In line with Banerjee’s opinion, the Government jas apparently decided to return a check for Rs. 1,100 (USD 293 million) sent by the initial acquirers of BALCO to acquire the remaining 44% stake. Strangely, Banerjee has also questioned the valuation of the BALCO and a legal battle between the acquirers Stelite Industries and the Government seems to be on the cards.
This opinion may jeopardize the sale of remaining shares in Hindustan Zinc, VSNL, Paradip Phosphates, and Jessop & Co.