Disinvestment: Policy of disinvestment – Union Government’s divestment of its residual shareholding of 29.54 % in HZL company – Public interest litigation u/Art. 32, seeking mandamus directing the Union Government to refrain from disinvestment without amending the Nationalisation Act, 1976 – Held: Decision in Centre for Public Interest Litigation’s case, does not apply to the present facts because HZL had ceased to be a government company, at the stage of the disinvestment – Thus, the Union Government’s decision to disinvest 29.54 per cent of its residual shareholding in HZL is not interdicted by the principles laid down by this Court in Centre for Public Interest Litigation’s case that when the acquisition takes place under an Act of Parliament, any disinvestment by the Union Government can be undertaken only with the approval of Parliament or through its intervention –There is no challenge to the disinvestment which took place in 1991-92 or in 2002, the latter having resulted in HZL ceasing to retain its status as a government company within the meaning of s. 617 of the Companies Act 1956 – It would be inconsistent to read an implied limitation on the transfer by the Union Government of its residual shareholding in HZL representing 29.54 per cent of the equity capital – Thus, when a decision is taken by the government as shareholder of a company to sell its shares, it acts as any other shareholder in a company who makes the decision on the basis of the financial and economic exigencies – Furthermore, SOVL company does not seek to exercise the second call option, in terms of the Share Purchase Agreement, as such the Union Government took decision to sell its residuary shareholding in the open market – Union Government being amenable to Part III of the Constitution, would not impose a restraint on its capacity to decide, as a shareholder, to disinvest its shareholding, the process of disinvestment being transparent and which comports with law and results in the best price being a shareholding – Metal Corporation (Nationalisation and Miscellaneous) Provisions Act 1976 – Constitution of India – Art. 32.
Constitution of India: Art. 32 – Writ petition under – Disinvestment of the residual 29.54 per cent shareholding of the Union Government challenged on the ground that the residual disinvestment can occur only after the amendment of the Nationalisation Act 1976 – Said prayer substantially similar to the reliefs sought in Maton Mines Mazdoor Sangh’s case, wherein they challenged the disinvestment of 2002 and 2014, on the basis of the decision in Centre for Public Interest Litigation – Petition, if barred by the principles of res judicata, following the dismissal of the earlier writ petition on the same issue – Held: The summary dismissal of an earlier petition u/Art. 32 does not bar the instant writ petition on grounds of res judicata as there has been no substantive decision on the merits of the issues, thus, the instant writ petition not barred by res judicata – Metal Corporation (Nationalisation and Miscellaneous) Provisions Act 1976.
Code of Civil Procedure 1908: s. 11 – Principle of res judicata – Determination of its applicability - Held: While determining the applicability of the principle of res judicata u/s. 11, the grave issues of public interest are not to be ignored merely because a petition was initially filed and dismissed, without a substantial adjudication on merits – There is a trend of poorly pleaded public interest litigations being filed instantly following a disclosure in the media, with a conscious intention to obtain a dismissal from the Court and preclude genuine litigants from approaching the Court in public interest – Court to be aware of the contemporary reality and interpret the principles of res judicata or constructive res judicata in a manner which does not debar access to justice – Jurisdiction u/Art. 32 is a fundamental right in and of itself.
Investigation: CBI Crime Manual – Process of conducting CBI’s preliminary enquiries – Preliminary enquiry by CBI into the suspected irregularities in the course of disinvestment of 26% equity holding of the Union Government to SOVL company in 2002 – Submission of status report by CBI – Held: There is no bar on the constitutional power of this Court to direct the CBI to register a regular case, in spite of its decision to close a preliminary enquiry – On facts, a prima facie case for a cognizable offence, as mandated in para 9.1 of the CBI Manual, made out – Sufficient material for registration of a regular case in relation to the 26 per cent disinvestment of HZL by the Union Government in 2002 – Thus, registration of a regular case, followed by a full-fledged investigation must be conducted – Issuance of direction to CBI to register a regular case and periodically submit status reports of its investigation to this Court – Constitution of India – Art. 32.
Partly allowing the writ petition, the Court HELD: 1.1 Section 11 of the Code of Civil Procedure 1908 embodies the principles of res judicata and bars the court from deciding issues which have been directly or substantially in issue in an earlier proceeding between the same parties or parties claiming under the same title and have been finally decided. [Para 30][925-E-F; 926-A]
1.2 The principles of res judicata and constructive res judicata, which Section 11 of the Code of Civil Procedure 1908 embodies, have been applied to the exercise of the writ jurisdiction, including public interest litigation. Yet courts have been circumspect in denying relief in matters of grave public importance, on a strict application of procedural rules. [Para 31][926-B]
1.3 While determining the applicability of the principle of res judicata under Section 11 of the Code of Civil Procedure 1908, the Court must be conscious that grave issues of public interest are not to be ignored merely because a petition was initially filed and dismissed, without a substantial adjudication on merits. There is a trend of poorly pleaded public interest litigations being filed instantly following a disclosure in the media, with a conscious intention to obtain a dismissal from the Court and preclude genuine litigants from approaching the Court in public interest. This Court must be alive to the contemporary reality of “ambush Public Interest Litigations” and interpret the principles of res judicata or constructive res judicata in a manner which does not debar access to justice. The jurisdiction under Article 32 is a fundamental right in and of itself. [Para 34][928-G-H; 929-A-B]
1.4 In Maton Mines Mazdoor Singh’s case, since the three judge Bench of this Court rejected the petition filed by Maton Mines Mazdoor Singh in limine, without a substantive adjudication on the merits of their claim, the present writ petition is not barred by res judicata. [Para 35][929-B-C]
Centre for Public Interest Litigation v. Union of India (2003) 7 SCC 532 : [2003] 3 Suppl. SCR 746; Kantaru Rajeevaru (Sabrimala Temple Review- 5J) v. Indian Young Lawyers Association (2020) 2 SCC 1 : [2019]
17 SCR 599; State of U.P. v. Nawab Hussain (1977) 2 SCC 806 : [1977] 3 SCR 428; Sarguja Transport Service v. State Transport Appellate Tribunal, M.P., Gwalior (1987) 1 SCC 5 : [1987] 1 SCR 200; Forward Construction Co. v. Prabhat Mandal (Regd.) (1986) 1 SCC 100 : [1985] 3 Suppl. SCR 766; Rural Litigation and Entertainment Kendra v. State of U.P. 1989 Supp
(1) SCC 504 : [1988] 2 Suppl. SCR 690; Daryao v. State of U.P. (1962) 1 SCR 574; State of Karnataka v. All India Manufacturers Organization (2006) 4 SCC
683 : [2006] 1 Suppl. SCR 86 – referred to.
2.1 The challenge in the petition under Article 32 is to the proposal of the Union Government to sell its residual stake in HZL, by the sale of the remaining 29.54 per cent equity. Neither is the validity of the initial disinvestment of 24.08 per cent equity which took place in 1991-92, nor is the subsequent disinvestment of 26 per cent in terms of the Share Purchase Agreement, challenged in these proceedings. As a matter of fact, if it were to be challenged, the first objection would be to the delay of well over two decades in challenging the disinvestment of 1991-92 and of nearly 12 years in challenging the sale of 2002 in pursuance of the Share Purchase Agreement. Since the disinvestment of 1991-92 and of 2002 has attained finality. It becomes necessary to assess the effect of the earlier disinvestment, in terms of the status of HZL. As a consequence of the disinvestment on 27 March 2002, HZL ceased to be a government company within the meaning of Section 617 of the Companies Act 1956 since its shareholding fell below 51 per cent. Then, the issue which arises is whether Metal Corporation (Nationalisation and Miscellaneous) Provisions Act 1976 interposes any bar on the sale of the residual shareholding of the Union Government in HZL. [Para 38][930-D-H]
2.2 The submission of the petitioners emphasises that the purpose underlying the acquisition was that zinc and lead were considered to be essential raw-materials for the economy of the country and of considerable strategic importance, such that it was necessary in public interest that the project which was undertaken by Metal Corporation of India should be completed expeditiously. The Statement of Objects and Reasons also indicates that the erstwhile undertaking had a mining lease in respect of zinc and lead deposits in the Zawar area and owned a lead smelter in Bihar, besides which it had undertaken to expand production from the mines and construct a smelter for producing zinc and by-products near Udaipur. For various reasons, Metal Corporation of India was not able to complete its projects; construction had come to a standstill and the undertaking had failed to meet its obligations to repay suppliers of machinery. The Statement of Objects and Reasons emphasises the importance of zinc and lead to the economy, which was undoubtedly an important facet of the purpose of acquisition. Moreover, Metal Corporation of India, the pre-nationalized entity, was unable to complete its projects and its acquisition by an Act of Parliament was envisaged for the expeditious completion of the projects. The long title to the Nationalisation Act 1976 indicates that the Act was enacted to enable the Central Government, in public interest, to exploit to the fullest extent, the zinc and lead deposits in and around the Zawar area of Rajasthan and “to utilize those minerals in such manner as to sub-serve the common good”. Section 4(1) of the Nationalisation Act 1976 provided for the taking over of the management of the undertaking of Metal Corporation. As a consequence of the acquisition, Section 6(1) envisages that so long as the management of the undertaking of Metal Corporation remains vested in the Central Government,
(i) it is not lawful for the shareholders to nominate or appoint a director; (ii) no resolution by the shareholders would be given effect to, unless approved by the Central government; and (iii) no proceedings for winding up the acquired entity would lie in any court, except with the consent of the Central government. Section 7 provides for the vesting of the undertaking of the Metal Corporation in the Central government. [Para 40][931-F-H; 932-A-D; 933-A-B]
2.3 Sections 4, 7 and 9 indicate that the undertaking of Metal Corporation stood transferred to, and vested absolutely in the Central Government. Section 9 further empowers the Central Government to vest the undertaking in a government company. Once the Metal Corporation stood vested in a government company, the provisions of the then Companies Act 1956 and present Companies Act 2013 become applicable. Thereupon, the government company would be entitled to exercise all such powers and to do all such things as Metal Corporation was authorized to effect, in relation to its undertaking. [Para 43][935-G-H; 936-A-B]
2.4 The Nationalisation Act, 1976 contains no express provision restraining the exercise of rights by the Union Government upon the undertaking of Metal Corporation vesting in it and thereupon, pursuant to a direction under Section 9(1), being transferred to a government company. The shareholding of the Union Government was divested initially in 1991-92 and subsequently in 2002. After the disinvestment of 26 per cent of the equity stake of the Union Government to SOVL, HZL ceased to be a government company within the meaning of Section 617 of the Companies Act 1956. As a result of the divestment on 27 March 2002, HZL ceased to be a government company, with the Union Government’s shareholding falling to 49.92 per cent, below the threshold of 51 per cent. [Para 44][936-B-D, E-F]
2.5 The petitioners seek to read an implicit limitation on the transfer of the residual shareholding of 29 per cent held by the Union Government in HZL, from the provisions of the Nationalisation Act 1976. This submission is prefaced on the object of the enactment which is to acquire control over the strategic mineral deposits of lead and zinc. This submission has been met by the respondents by urging that after 16 March 1999, the mining of zinc has ceased to retain a strategic character, given the changes in industrial policy. The aspect which is of significance is that there is no challenge to the disinvestment which took place in 1991-92 or in 2002, the latter having resulted in HZL ceasing to retain its status as a government company within the meaning of Section 617 of the Companies Act 1956. That being the position, it would be inconsistent to read an implied limitation on the transfer by the Union Government of its residual shareholding in HZL representing 29.54 per cent of the equity capital. Hence, when a decision has been taken by the government as shareholder of a company to sell its shares, it acts as any other shareholder in a company who makes the decision on the basis of the financial and economic exigencies. [Para 45][936-F-H; 937-A-B]
2.6 The issue which needs to be considered is whether the decision of this Court in Centre for Public Interest Litigation would result in a bar on the disinvestment of the residual shareholding. This decision of a two-judge Bench was that ‘the divestment of the shareholding of the Union Government in HPCL and BPCL, as a result of which the companies would cease to be government companies could not be undertaken without amending the statutes under which they were nationalized.’ [Para 46][937-B-C; 940-B]
Centre for Public Interest Litigation v. Union of India (2003) 7 SCC 532:[2003] 3 Suppl. SCR 746
– distinguished.
2.7 In the instant case, the disinvestment as a consequence of which HZL ceased to be a government company took place in March 2002. What is in question on the first relief sought is the
29.54 per cent residuary shareholding in HZL, after it has admittedly ceased to be a government company within the meaning of Section 617 of the Companies Act 1956 and the corresponding provisions of the Section 2(45) of the Companies Act 2013. In the Companies Act 2013, the expression ‘government company’ is defined in Section 2(45). [Para 47] [940-F-H]
2.8 The Union Government is a shareholder of HZL. The control and management of HZL does not vest with the Union Government which has a residual stake of 29.54 per cent. The shareholding of SOVL stood increased to 64.92 per cent after the exercise of the first call option in 2002. During the course of hearing, this Court has been apprised by SOVL that it does not seek to exercise the second call option, in terms of the Share Purchase Agreement. It is in this backdrop that a decision has been taken by the Union Government to sell its residuary shareholding in the open market. The Union Government, in its capacity as a shareholder of HZL, is entitled to take such a decision. The fact that the Union Government is amenable to the norms set out in Part III of the Constitution would not impose a restraint on its capacity to decide, as a shareholder, to disinvest its shareholding, so long as the process of disinvestment is transparent and the Union Government is following a process which comports with law and results in the best price being a shareholding. [Para 48][941-B-E]
Centre for Public Interest Litigation v. Union of India (2003) 7 SCC 532 : [2003] 3 Suppl. SCR 746; Balco Employees’ Union (Regd.) v. Union of India (2002) 2 SCC 333 : [2001] 5 Suppl. SCR 511; Life Insurance Corporation of India v. Escorts Ltd. (1986) 1 SCC
264 : [1985] 3 Suppl. SCR 909; ABL International Ltd. v. Export Credit Guarantee Corporation of India (2004)
3 SCC 553; Central Inland Water Transport
Corporation Limited v. Brojo Nath Ganguly (1986) 3 SCC 156 : [1986] 2 SCR 278 – referred to.
2.9 In the instant case, the Union Government is exercising its rights as a shareholder and has taken a decision to disinvest its residual shareholding of 29.54 per cent in HZL. HZL is no longer a government company. In any event, the decision of the Union Government, as an incident of its policy of disinvestment, to sell its shares in the open market, cannot be questioned by reading a bar on its powers to do so, from the provisions of the Nationalisation Act 1976. No such express or implied bar exists, failing the applicability of this Court’s decision in Centre for Public Interest Litigation. [Para 48]942-C-E]
3.1 Chapter 9 of the CBI Crime Manual details the process of conducting preliminary enquiries. Para 9.1 states that “a Preliminary Enquiry may be converted into Regular Case as soon as sufficient material becomes available to show that prima facie there has been commission of a cognizable offence”. The Constitution Bench of this Court had underscored the duty of the police to register an FIR when the information received prima facie discloses the commission of a cognizable offence. However, the decision recognizes that in certain cases, a preliminary enquiry may be held. [Para 53][943-E-G]
3.2 There is no bar on the constitutional power of this Court to direct the CBI to register a regular case, in spite of its decision to close a preliminary enquiry. Analogously, this Court has directed the police to register an FIR, once a cognizable offence has been disclosed to it. [Para 56][947-E-F]
3.3 Upon perusal of the reports and recommendations, it is the considered opinion that the disinvestment in 2002 evinces a prime facie case for registration of a regular case. This Court is desisting from commenting on some crucial facts and names of individuals involved, so as to not cause prejudice to the investigation of the matter. Some details in the CBI officials’ recommendations to register a regular case, which have not been adequately addressed by the self- contained note closing the preliminary enquiry, as regards irregularities in the decision to disinvest 26 per cent, instead of 25 per cent, irregularities in the bidding process, and irregularities in the valuation of 26 per cent equity for disinvestment. [Para 57][948-G-H; 949-A, G; 951-C]
3.4 The said observations of the officials of the CBI, who recommended the conversion of the preliminary enquiry into a regular case, satisfy this Court’s conscience for exercising its exceptional powers to direct the CBI to conduct an investigation into the matter. A prima facie case for a cognizable offence, as mandated in para 9.1 of the CBI Manual, has been made out in this case and warrants the registration of a regular case. The registration of a regular case, followed by a full-fledged investigation must be conducted. This Court shall be duly apprised of the status of the investigation. [Para 58][953-C-D] Central Bureau of Investigation (CBI) v. Thommandru Hannah Vijaylakshmi @ T.H. Vijaylakshmi and another 2021 SCC OnLine SC 923; Manohar Lal Sharma v. Principal Secretary (2014) 2 SCC 532 : [2013] 17 SCR 1099; Shashikant v. Central Bureau of Investigation (2007) 1 SCC 630 : [2006] 8 Suppl. SCR 474; Lalita Kumari v. Government of Uttar Pradesh (2014) 2 SCC
1 : [2013] 14 SCR 713 – referred to.
3.5 The petitioner has alleged that the complainant, C P, was the brother of petitioner No 3 which entitles them to a copy of the report of the CBI closing the preliminary enquiry, in terms of Para 120 (iii) of Lalita Kumari’s case. However, the relief is denied because the finding of the Constitution Bench of this Court was with respect to the informant alone, and the original complainant is not before this Court; and CBI has stated that the preliminary enquiry was registered at the behest of source information, much before C P’s complaint. [Para 59][953-D-F]
4. It is held that
(i) The summary dismissal of an earlier petition under Article
32 of the Constitution does not bar the present writ petition on grounds of res judicata as there has been no substantive decision on the merits of the issues;
(ii) The decision in Centre for Public Interest Litigation’s case does not apply to the instant facts because HZL had ceased to be a government company, at the stage of the disinvestment which is in challenge. Hence, the Union Government’s decision to disinvest 29.54 per cent of its residual shareholding in HZL is not interdicted by the principles laid down by this Court in Centre for Public Interest Litigation’s case;
(iii) SOVL has stated before the Court that it is not exercising its second call option under the Share Purchase Agreement;
(iv) The Union Government has stated through the Solicitor General that the residual shareholding shall be divested in the open market and shall take place in accordance with the rules and regulations of SEBI to ensure that the best price is realized for the sale of the shareholding; and
(v) There is sufficient material for registration of a regular case in relation to the 26 per cent disinvestment of HZL by the Union Government in 2002. The CBI is directed to register a regular case and periodically submit status reports of its investigation to this Court. [Paras 60, 61][953-F-G; 954-A-E]
Union of India v. Metal Corporation of India Ltd (1967)
1 SCR 255 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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