NATIONAL CONFEDERATION OF OFFICERS ASSOCIATION OF CENTRAL PUBLIC SECTOR ENTERPRISES AND ORS. versus UNION OF INDIA AND ORS. on 18 November 2021

NATIONAL CONFEDERATION OF OFFICERS ASSOCIATIONOF CENTRAL PUBLIC SECTOR ENTERPRISES AND ORS.

v.

UNION OF INDIA AND ORS.

(Writ Petition (C) No. 229 of 2014)

NOVEMBER 18, 2021

[DR. DHANANJAYA Y CHANDRACHUD

AND B. V. NAGARATHNA, JJ.]

Disinvestment: Policy of disinvestment – Union Government’sdivestment of its residual shareholding of 29.54 % in HZL company– Public interest litigation u/Art. 32, seeking mandamus directingthe Union Government to refrain from disinvestment withoutamending the Nationalisation Act, 1976 – Held: Decision in Centrefor Public Interest Litigation’s case, does not apply to the presentfacts because HZL had ceased to be a government company, at thestage of the disinvestment – Thus, the Union Government’s decisionto disinvest 29.54 per cent of its residual shareholding in HZL isnot interdicted by the principles laid down by this Court in Centrefor Public Interest Litigation’s case that when the acquisition takesplace under an Act of Parliament, any disinvestment by the UnionGovernment can be undertaken only with the approval of Parliamentor through its intervention –There is no challenge to thedisinvestment which took place in 1991-92 or in 2002, the latterhaving resulted in HZL ceasing to retain its status as a governmentcompany within the meaning of s. 617 of the Companies Act 1956 –It would be inconsistent to read an implied limitation on the transferby the Union Government of its residual shareholding in HZLrepresenting 29.54 per cent of the equity capital – Thus, when adecision is taken by the government as shareholder of a companyto sell its shares, it acts as any other shareholder in a company whomakes the decision on the basis of the financial and economicexigencies – Furthermore, SOVL company does not seek to exercisethe second call option, in terms of the Share Purchase Agreement,as such the Union Government took decision to sell its residuaryshareholding in the open market – Union Government beingamenable to Part III of the Constitution, would not impose a restrainton its capacity to decide, as a shareholder, to disinvest its

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Ashareholding, the process of disinvestment being transparentand which comports with law and results in the best pricebeing a shareholding – Metal Corporation (Nationalisationand Miscellaneous) Provisions Act 1976 – Constitution of India –Art. 32.

BConstitution of India: Art. 32 – Writ petition under –Disinvestment of the residual 29.54 per cent shareholding of theUnion Government challenged on the ground that the residualdisinvestment can occur only after the amendment of theNationalisation Act 1976 – Said prayer substantially similar to thereliefs sought in Maton Mines Mazdoor Sangh’s case, wherein theyCchallenged the disinvestment of 2002 and 2014, on the basis of thedecision in Centre for Public Interest Litigation – Petition, if barredby the principles of res judicata, following the dismissal of the earlierwrit petition on the same issue – Held: The summary dismissal of anearlier petition u/Art. 32 does not bar the instant writ petition onDgrounds of res judicata as there has been no substantive decisionon the merits of the issues, thus, the instant writ petition not barredby res judicata – Metal Corporation (Nationalisation andMiscellaneous) Provisions Act 1976.

Code of Civil Procedure 1908: s. 11 – Principle of res

Conclusion

Code of Civil Procedure 1908: s. 11 – Principle of res Ejudicata – Determination of its applicability - Held: While determiningthe applicability of the principle of res judicata u/s. 11, the graveissues of public interest are not to be ignored merely because apetition was initially filed and dismissed, without a substantialadjudication on merits – There is a trend of poorly pleaded publicinterest litigations being filed instantly following a disclosure in theFmedia, with a conscious intention to obtain a dismissal from theCourt and preclude genuine litigants from approaching the Courtin public interest – Court to be aware of the contemporary realityand interpret the principles of res judicata or constructive resjudicata in a manner which does not debar access to justice –GJurisdiction u/Art. 32 is a fundamental right in and of itself.

Investigation: CBI Crime Manual – Process of conductingCBI’s preliminary enquiries – Preliminary enquiry by CBI into thesuspected irregularities in the course of disinvestment of 26% equityholding of the Union Government to SOVL company in 2002 –HSubmission of status report by CBI – Held: There is no bar on the NATIONAL CONFED. OF OFFICERS ASSOC. OF CENTRAL PUBLICSECTOR ENT. v. UOI

constitutional power of this Court to direct the CBI to register aregular case, in spite of its decision to close a preliminary enquiry– On facts, a prima facie case for a cognizable offence, as mandatedin para 9.1 of the CBI Manual, made out – Sufficient material forregistration of a regular case in relation to the 26 per centdisinvestment of HZL by the Union Government in 2002 – Thus,registration of a regular case, followed by a full-fledgedinvestigation must be conducted – Issuance of direction to CBI toregister a regular case and periodically submit status reports of itsinvestigation 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 1908embodies the principles of res judicata and bars the court fromdeciding issues which have been directly or substantially in issuein an earlier proceeding between the same parties or partiesclaiming 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 resjudicata, which Section 11 of the Code of Civil Procedure 1908embodies, have been applied to the exercise of the writjurisdiction, including public interest litigation. Yet courts havebeen circumspect in denying relief in matters of gravepublic importance, on a strict application of procedural rules.[Para 31][926-B]

1.3 While determining the applicability of the principle ofres judicata under Section 11 of the Code of Civil Procedure 1908,the Court must be conscious that grave issues of public interestare not to be ignored merely because a petition was initially filedand dismissed, without a substantial adjudication on merits. Thereis a trend of poorly pleaded public interest litigations being filedinstantly following a disclosure in the media, with a consciousintention to obtain a dismissal from the Court and precludegenuine litigants from approaching the Court in public interest.This Court must be alive to the contemporary reality of “ambushPublic Interest Litigations” and interpret the principles of resjudicata or constructive res judicata in a manner which does not AB

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Adebar access to justice. The jurisdiction under Article 32 is afundamental right in and of itself. [Para 34][928-G-H; 929-A-B]

1.4 In Maton Mines Mazdoor Singh’s case, since the threejudge Bench of this Court rejected the petition filed by MatonMines Mazdoor Singh in limine, without a substantive adjudicationBon the merits of their claim, the present writ petition is not barredby 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; KantaruRajeevaru (Sabrimala Temple Review- 5J) v. IndianCYoung Lawyers Association (2020) 2 SCC 1 : [2019]17 SCR 599; State of U.P. v. Nawab Hussain (1977) 2SCC 806 : [1977] 3 SCR 428; Sarguja TransportService v. State Transport Appellate Tribunal, M.P.,Gwalior (1987) 1 SCC 5 : [1987] 1 SCR 200; ForwardConstruction Co. v. Prabhat Mandal (Regd.) (1986) 1DSCC 100 : [1985] 3 Suppl. SCR 766; Rural Litigationand 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 SCCE683 : [2006] 1 Suppl. SCR 86 – referred to.

2.1 The challenge in the petition under Article 32 is to theproposal of the Union Government to sell its residual stake inHZL, by the sale of the remaining 29.54 per cent equity. Neitheris the validity of the initial disinvestment of 24.08 per cent equityFwhich took place in 1991-92, nor is the subsequent disinvestmentof 26 per cent in terms of the Share Purchase Agreement,challenged in these proceedings. As a matter of fact, if it were tobe challenged, the first objection would be to the delay of wellover two decades in challenging the disinvestment of 1991-92and of nearly 12 years in challenging the sale of 2002 in pursuanceGof the Share Purchase Agreement. Since the disinvestment of1991-92 and of 2002 has attained finality. It becomes necessaryto assess the effect of the earlier disinvestment, in terms of thestatus of HZL. As a consequence of the disinvestment on 27

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March 2002, HZL ceased to be a government company withinthe meaning of Section 617 of the Companies Act 1956 since itsshareholding fell below 51 per cent. Then, the issue which arisesis whether Metal Corporation (Nationalisation and Miscellaneous)Provisions Act 1976 interposes any bar on the sale of theresidual shareholding of the Union Government in HZL.[Para 38][930-D-H]

2.2 The submission of the petitioners emphasises that thepurpose underlying the acquisition was that zinc and lead wereconsidered to be essential raw-materials for the economy of thecountry and of considerable strategic importance, such that itwas necessary in public interest that the project which wasundertaken by Metal Corporation of India should be completedexpeditiously. The Statement of Objects and Reasons alsoindicates that the erstwhile undertaking had a mining lease inrespect of zinc and lead deposits in the Zawar area and owned alead smelter in Bihar, besides which it had undertaken to expandproduction from the mines and construct a smelter for producingzinc and by-products near Udaipur. For various reasons, MetalCorporation of India was not able to complete its projects;construction had come to a standstill and the undertaking hadfailed to meet its obligations to repay suppliers of machinery.The Statement of Objects and Reasons emphasises theimportance of zinc and lead to the economy, which was undoubtedlyan important facet of the purpose of acquisition. Moreover, MetalCorporation of India, the pre-nationalized entity, was unable tocomplete its projects and its acquisition by an Act of Parliamentwas envisaged for the expeditious completion of the projects.The long title to the Nationalisation Act 1976 indicates that theAct was enacted to enable the Central Government, in publicinterest, to exploit to the fullest extent, the zinc and lead depositsin and around the Zawar area of Rajasthan and “to utilize thoseminerals in such manner as to sub-serve the common good”.Section 4(1) of the Nationalisation Act 1976 provided for thetaking over of the management of the undertaking of MetalCorporation. As a consequence of the acquisition, Section 6(1)envisages that so long as the management of the undertaking ofMetal Corporation remains vested in the Central Government, AB

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A(i) it is not lawful for the shareholders to nominate or appoint adirector; (ii) no resolution by the shareholders would be giveneffect to, unless approved by the Central government; and (iii)no proceedings for winding up the acquired entity would lie inany court, except with the consent of the Central government.Section 7 provides for the vesting of the undertaking of the MetalBCorporation 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 ofMetal Corporation stood transferred to, and vested absolutelyin the Central Government. Section 9 further empowers theCCentral Government to vest the undertaking in a governmentcompany. Once the Metal Corporation stood vested in agovernment company, the provisions of the then Companies Act1956 and present Companies Act 2013 become applicable.Thereupon, the government company would be entitled toDexercise all such powers and to do all such things as MetalCorporation was authorized to effect, in relation to itsundertaking. [Para 43][935-G-H; 936-A-B]

2.4 The Nationalisation Act, 1976 contains no expressprovision restraining the exercise of rights by the UnionEGovernment upon the undertaking of Metal Corporation vestingin it and thereupon, pursuant to a direction under Section 9(1),being transferred to a government company. The shareholdingof the Union Government was divested initially in 1991-92 andsubsequently in 2002. After the disinvestment of 26 per cent ofthe equity stake of the Union Government to SOVL, HZL ceasedFto be a government company within the meaning of Section 617of the Companies Act 1956. As a result of the divestment on 27March 2002, HZL ceased to be a government company, with theUnion Government’s shareholding falling to 49.92 per cent, belowthe threshold of 51 per cent. [Para 44][936-B-D, E-F]

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2.5 The petitioners seek to read an implicit limitation onthe transfer of the residual shareholding of 29 per cent held bythe Union Government in HZL, from the provisions of theNationalisation Act 1976. This submission is prefaced on theobject of the enactment which is to acquire control over the H

strategic mineral deposits of lead and zinc. This submission hasbeen met by the respondents by urging that after 16 March 1999,the mining of zinc has ceased to retain a strategic character, giventhe changes in industrial policy. The aspect which is of significanceis that there is no challenge to the disinvestment which tookplace in 1991-92 or in 2002, the latter having resulted in HZLceasing to retain its status as a government company within themeaning of Section 617 of the Companies Act 1956. That beingthe position, it would be inconsistent to read an implied limitationon the transfer by the Union Government of its residualshareholding in HZL representing 29.54 per cent of the equitycapital. Hence, when a decision has been taken by the governmentas shareholder of a company to sell its shares, it acts as any othershareholder in a company who makes the decision on the basisof the financial and economic exigencies. [Para 45][936-F-H;937-A-B]

2.6 The issue which needs to be considered is whether thedecision of this Court in Centre for Public Interest Litigation wouldresult in a bar on the disinvestment of the residual shareholding.This decision of a two-judge Bench was that ‘the divestment ofthe shareholding of the Union Government in HPCL and BPCL,as a result of which the companies would cease to be governmentcompanies could not be undertaken without amending the statutesunder 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 consequenceof which HZL ceased to be a government company took place inMarch 2002. What is in question on the first relief sought is the29.54 per cent residuary shareholding in HZL, after it hasadmittedly ceased to be a government company within themeaning of Section 617 of the Companies Act 1956 and thecorresponding provisions of the Section 2(45) of the CompaniesAct 2013. In the Companies Act 2013, the expression‘government company’ is defined in Section 2(45). [Para 47][940-F-H]

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A2.8 The Union Government is a shareholder of HZL. Thecontrol and management of HZL does not vest with the UnionGovernment which has a residual stake of 29.54 per cent. Theshareholding of SOVL stood increased to 64.92 per cent afterthe exercise of the first call option in 2002. During the course ofhearing, this Court has been apprised by SOVL that it does notBseek to exercise the second call option, in terms of the SharePurchase Agreement. It is in this backdrop that a decision hasbeen taken by the Union Government to sell its residuaryshareholding in the open market. The Union Government, in itscapacity as a shareholder of HZL, is entitled to take such a decision.CThe fact that the Union Government is amenable to the normsset out in Part III of the Constitution would not impose a restrainton its capacity to decide, as a shareholder, to disinvest itsshareholding, so long as the process of disinvestment istransparent and the Union Government is following a processwhich comports with law and results in the best price being aDshareholding. [Para 48][941-B-E]

Centre for Public Interest Litigation v. Union of India(2003) 7 SCC 532 : [2003] 3 Suppl. SCR 746; BalcoEmployees’ Union (Regd.) v. Union of India (2002) 2SCC 333 : [2001] 5 Suppl. SCR 511; Life InsuranceECorporation of India v. Escorts Ltd. (1986) 1 SCC264 : [1985] 3 Suppl. SCR 909; ABL International Ltd.v. Export Credit Guarantee Corporation of India (2004)3 SCC 553;Central Inland Water TransportCorporation Limited v. Brojo Nath Ganguly (1986) 3FSCC 156 : [1986] 2 SCR 278 – referred to.

2.9 In the instant case, the Union Government is exercisingits rights as a shareholder and has taken a decision to disinvestits residual shareholding of 29.54 per cent in HZL. HZL is nolonger a government company. In any event, the decision of theGUnion Government, as an incident of its policy of disinvestment,to sell its shares in the open market, cannot be questioned byreading a bar on its powers to do so, from the provisions of theNationalisation Act 1976. No such express or implied bar exists,failing the applicability of this Court’s decision in Centre for PublicInterest Litigation. [Para 48]942-C-E]H

3.1 Chapter 9 of the CBI Crime Manual details the processof conducting preliminary enquiries. Para 9.1 states that “aPreliminary Enquiry may be converted into Regular Case as soonas sufficient material becomes available to show that prima faciethere has been commission of a cognizable offence”. TheConstitution Bench of this Court had underscored the duty ofthe police to register an FIR when the information received primafacie discloses the commission of a cognizable offence. However,the decision recognizes that in certain cases, a preliminary enquirymay be held. [Para 53][943-E-G]

3.2 There is no bar on the constitutional power of this Courtto direct the CBI to register a regular case, in spite of its decisionto close a preliminary enquiry. Analogously, this Court hasdirected the police to register an FIR, once a cognizable offencehas been disclosed to it. [Para 56][947-E-F]

3.3 Upon perusal of the reports and recommendations, it isthe considered opinion that the disinvestment in 2002 evinces aprime facie case for registration of a regular case. This Court isdesisting from commenting on some crucial facts and names ofindividuals involved, so as to not cause prejudice to theinvestigation of the matter. Some details in the CBI officials’recommendations to register a regular case, which have not beenadequately addressed by the self- contained note closing thepreliminary enquiry, as regards irregularities in the decision todisinvest 26 per cent, instead of 25 per cent, irregularities in thebidding process, and irregularities in the valuation of 26 per centequity for disinvestment. [Para 57][948-G-H; 949-A, G; 951-C]

3.4 The said observations of the officials of the CBI, whorecommended the conversion of the preliminary enquiry into aregular case, satisfy this Court’s conscience for exercising itsexceptional powers to direct the CBI to conduct an investigationinto the matter. A prima facie case for a cognizable offence, asmandated in para 9.1 of the CBI Manual, has been made out inthis case and warrants the registration of a regular case. Theregistration of a regular case, followed by a full-fledgedinvestigation must be conducted. This Court shall be dulyapprised of the status of the investigation. [Para 58][953-C-D]

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ACentral Bureau of Investigation (CBI) v. ThommandruHannah Vijaylakshmi @ T.H. Vijaylakshmi and another2021 SCC OnLine SC 923; Manohar Lal Sharma v.Principal Secretary (2014) 2 SCC 532 : [2013] 17 SCR1099; Shashikant v. Central Bureau of Investigation(2007) 1 SCC 630 : [2006] 8 Suppl. SCR 474; LalitaBKumari v. Government of Uttar Pradesh (2014) 2 SCC1 : [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 copyof the report of the CBI closing the preliminary enquiry, in termsCof Para 120 (iii) of Lalita Kumari’s case. However, the relief isdenied because the finding of the Constitution Bench of this Courtwas with respect to the informant alone, and the originalcomplainant is not before this Court; and CBI has stated that thepreliminary enquiry was registered at the behest of sourceDinformation, 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 Article32 of the Constitution does not bar the present writ petition ongrounds of res judicata as there has been no substantive decisionEon the merits of the issues;

(ii) The decision in Centre for Public Interest Litigation’scase does not apply to the instant facts because HZL had ceasedto be a government company, at the stage of the disinvestmentwhich is in challenge. Hence, the Union Government’s decisionFto disinvest 29.54 per cent of its residual shareholding in HZL isnot interdicted by the principles laid down by this Court in Centrefor Public Interest Litigation’s case;

(iii) SOVL has stated before the Court that it is notexercising its second call option under the Share PurchaseGAgreement;

(iv) The Union Government has stated through the SolicitorGeneral that the residual shareholding shall be divested in theopen market and shall take place in accordance with the rules H

and regulations of SEBI to ensure that the best price is realizedfor the sale of the shareholding; and A

(v) There is sufficient material for registration of a regularcase in relation to the 26 per cent disinvestment of HZL by theUnion Government in 2002. The CBI is directed to register aregular case and periodically submit status reports of itsinvestigation to this Court. [Paras 60, 61][953-F-G; 954-A-E]

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Union of India v. Metal Corporation of India Ltd (1967)1 SCR 255 – referred to.

CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 229of 2014.

(Under Article 32 of The Constitution of India)

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APrashant Bhushan, Pranav Sachdeva, Jatin Bhardwaj, Ms. NehaRathi, Lakshmi Raman Singh, Advs. for the Petitioners.

Tushar Mehta, SG, K. M. Nataraj, ASG, Harish Salve, PrashantoChandra Sen, Sr. Advs., Gurmeet Singh Makker, Rajat Nair, KanuAgrawal, Sridhar Potaraju, Arvind Kumar Sharma, P. S. Sudheer, BharatBSood, Ms. Shruti Jose, Ms. Anuradha Dutt, Anish Kapur, Ms. Ekta Kapil,Ms. Nikhita Suri, Ms. Priyanka M. P., Ms. B. Vijayalakshmi Menon,Manu Mridul, Surya Kant, Advs. for the Respondents.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.C

AIntroduction................................................................3

BSubmissions of Counsel..............................................9

CRes Judicata and PILs..............................................22

DThe decision in Centre for Public Litigation................29

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ECBI’s preliminary enquiry..........................................45

FConclusion...............................................................61

A Introduction

E1. An organization called the National Confederation of OfficersAssociation[1] has invoked the jurisdiction of this Court under Article 32of the Constitution. The Confederation, which is a trade union registeredunder the Trade Unions Act 1926, is joined in these proceedings by threeother petitioners, including a former employee of Hindustan Zinc Limited[2].The members of the Confederation are,or have been, employees of publicFsector undertakings. Their grievance in these proceedings arises fromthe Union Government’s disinvestment of its shareholding in HZL, thefourth respondent. According to the petitioners, HZL is not a loss incurringunit and the disinvestment does not sub-servepublic interest. Parliamentacquired the undertaking by the Metal Corporation (Nationalisation andGMiscellaneous) Provisions Act 1976[3]. In pursuance of its acquisition,the undertaking came to be vested in a government company. HZL isstated to be a ‘mini-navratna’company with a cash liquidity resource ofover Rs 20,000 crores. According to the petitioners, the Union 1 “Confederation”

2 “HZL”H3 “Nationalisation Act 1976”

Government’s divestment of its shareholding in HZL is in violation of thejudgment of a two-judge Bench of this Court in Centre for PublicInterest Litigation v. Union of India[4]. In the proceedings as theystand, the challenge is to the proposed disinvestment of the residualshareholding of the Union Government in HZL, representing 29.54 percent (approx.) of the equity capital.

2. Metal Corporation of India Limited was incorporated in 1944as a public limited company under the Companies Act 1913. It was thesole producer of zinc and lead from its mines situated at Zawar inRajasthan. The company had established a lead smelter plant at Tundoo,near Dhanbad, in the then State of Bihar for producing lead, silver andother by-products. Subsequently it installed a zinc smelter at Debari,near Udaipur. Given the strategic importance of zinc and lead, the UnionGovernment took a decision to acquire the company by a legislation.

3. On 22 October 1965, the President promulgated the MetalCorporation of India (Acquisition of Undertaking) Ordinance foracquisition of the undertaking by the Union Government. Possession,control and administration was taken over by the Union Government on23 October 1965. A petition under Article 226 of the Constitution wasinstituted in 1965[5] by the corporation and its managing director beforethe Circuit Bench in New Delhi of the then Punjab High Court, forchallenging the constitutional validity of the Ordinance. During thependency of the proceedings, the Ordinance was replaced by Act 44 of1965 which led to the institution of another writ petition[6] challenging itsvalidity. On 10 January 1966, HZL was incorporated as a public sectorcompany to develop the mining and smelting capacities, so as tosubstantially fulfil the domestic demand for zinc and lead.

4. On 14 March 1966, the Punjab High Court held that theOrdinance and the enactment that replaced it, violated Article 31 of theConstitution and were void. The appeal by the Union of India wasdismissed by this Court on 5 September 1966, in Union of India v.Metal Corporation of India Ltd[7]. On 13 September 1966 anotherOrdinance, Ordinance No 10 of 1966, was promulgated by the Presidentfor the acquisition of the undertaking of Metal Corporation of India 4 [“Centre for Public Interest Litigation”] (2003) 7 SCC 532

5 WP 631-D of 1965

6 WP 832-D of 1965

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ALimited. The Ordinance was replaced by an Act of Parliament (Act 36of 1966) which came into forceon 3 December 1966. This led to anotherround of proceedings under Article 226 of the Constitution[8] before theCalcutta High Court. The petition was dismissed by a Single Judge ofthe Calcutta High Courton 1 April 1969[9 ]on the ground of res judicata.

B5.On 2 August 1976, the President promulgated the MetalCorporation (Nationalisation and Miscellaneous Provisions) Ordinance.This Ordinance was replaced by Act No. 100 of 1976, on 7 September1976.

6. The Union Government took steps for the disinvestment of itsCshareholding in HZL. In 1991-92, in the first tranche, the UnionGovernment disinvested 24.08 per cent of its shareholding in the domesticmarket. Of this, 12.54 per cent was acquired by financial institutions,7.58 per cent by corporate bodies and non-resident Indians and 3.96 percent by Indian nationals. HZL was listed on stock exchanges. As a resultof the disinvestment, the Union Government was left with a 75.92 perDcent stake in HZL.

7. The second tranche of disinvestment of the Union Government’sshareholding in HZL took place in pursuance of the Union Government’sdecisionto disinvest 26 per cent of its shareholding in HZL to a ‘strategicpartner’, by selling 10,98,58,294 fully paid-up equity shares of Rs 10Eeach, at Rs 40.51 per share, aggregating to Rs 445 crores (approx.). AShareholders’Agreement and a Share Purchase Agreement wereexecuted on 4 April 2002 with Sterlite Opportunities & Ventures Ltd.[10],the third respondent, who was chosen as the strategic partner. In termsof these agreements, the Union Government disinvested 26 per cent ofFits equity in HZL in favour of SOVL. Consequent to the sale of theequity stake, the Union Government was left with an equity holding of49.92 per cent.

8. On 5 November 2003, a public interest litigation, invoking thejurisdiction under Article 226 of the Constitution, was instituted beforeGthe Jodhpur Bench of the Rajasthan High Court[11 ]by a person namedRajendra Kumar Razdan, to challenge the second tranche ofdisinvestment - of the 26 per cent equity holding of the Union Government 8 WP 551 of 19669 AIR 1970 Calcutta 1510 “SOVL”H11 DB (C) Writ Petition No 6340 of 2003

in HZL. After the petition was entertained by the High Court, the UnionGovernment moved a transfer petition[12] before this Court under Article139A(1) in which further proceedings were stayed on 9 February 2004by a three-judge Bench of this Court. On 11 October 2004, this Courtallowed the transfer petition, together with other similar petitions seekinga transfer of proceedings, also challenging the disinvestment by the UnionGovernment in other government companies. On 23 August 2006, a three-judge Bench of this Court dismissed writ petitions challenging thedisinvestment of the shareholding of the Union Government in othergovernment companies – namely, Engineers India Limited, NationalFertilizers Limited and Burn Standard Company Limited[13].The dismissalof these petitions followed upon affidavits filed on 14 December 2005,27 July 2005 and 18 August 2005 stating that the Union Governmentwas reconsidering the sale of these companies, rendering the writsinfructuous.

9. While the challenge to the disinvestment of the 26 per centshareholding was pending before this Court, on 10 April 2002, SOVLacquired 20 per cent of the equity in HZL from the open market by amandatory open offer, in compliance with the Securities and ExchangeBoard of India’s[14] norms. As a consequence of the acquisition, the holdingof SOVL in HZL rose to 46 per cent. The Board of Directors of HZLwas reconstituted. Following this acquisition, the shareholding pattern inHZL was as follows:

•SOVL – 46 per cent (comprising 26 per cent sharespurchased from the Union Government and 20 per centacquired from the open market); •Union Government – 48.45 per cent; and •Public – 5.55 per cent.

10. On 13 May 2009, Rajendra Kumar Razdan’s writ petitionchallenging the disinvestment of the Union Government’s 26 per centequity holding in HZL, was dismissed as withdrawn, following anapplication for withdrawal by the petitioner.

11. The Shareholders’Agreement between the Union Governmentand SOVL envisaged two call options. SOVL exercised its first call 12 Transfer Petition (C) No 830 of 200313 WP (C) Nos. 487, 569, 586 and 587 of 200314 “SEBI”

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Aoption for 18.92 per cent of the equity holding in August 2003, whichwas transferred in its favour in November 2003. Following this acquisition,SOVL became a majority shareholder with a 64.92 per cent equity stakein HZL.

12. In 2012, the Union Government announced its decision toBdisinvest its residuary shareholding of 29.54 per cent in HZL[15]. On 31October 2012, Maton Mines Mazdoor Sangh instituted a petition[16] underArticle 32 of the Constitution before this Court challenging the proposeddisinvestment of the residuary shareholding of the Union Government.This petition was summarily dismissed by a three-judge Bench of thisCourt on 10 December 2002.C-13. On 6 November 2013, the Central Bureau of Investigation[17]the fifth respondent - initiated a preliminary enquiry into suspectedirregularities in the course of the disinvestment of the 26 per cent ofequity holding of the Union Government to SOVL in 2002.

14. The present public interest litigation under Article 32, wasDinstituted on 14 February 2014. Two reliefs have been sought in theseproceedings: (i) A mandamus directing the Union Government and theDepartment of Disinvestment to refrain from disinvesting the residualshareholding of 29.54 per cent in HZL without amending theNationalisationAct 1976; and (ii) a direction to the CBI to periodicallyfile status reports before this Court in respect of the investigation beingEconducted by it, so that it can be monitored by this Court till the filing ofthe charge-sheet in the appropriate court.

15. On 6 March 2017, CBI filed a closure report with referenceto the preliminary enquiry stating that it did not disclose facts whichwould warrant the registration of a criminal case.F

16. The filing of pleadings has been completed.

B Submissions of Counsel

17. Mr Prashant Bhushan, learned senior counsel appearing onbehalf of the petitioners has stressed upon the importance of the residual29.54 per cent shareholding of the Union Government in HZL. LearnedGsenior counsel has clarified that the challenge is not to the policy ofdisinvestment, but the manner in which it has taken place. The submissionsare summarized below:

15 Interchangeably referred as “29 per cent”

16 "Maton Mines Mazdoor Sangh” WP (C) 513 of 2012

H17 “CBI”

(i) The decision to disinvest theresidualshareholding of theAUnion Government in HZL cannot be undertaken withoutamending the provisions of the Nationalisation Act 1976;

(ii) Besides yielding profits, the 29 per cent shareholding of theUnion Government ensures that no decision which requiresthe passage of a special resolution under the CompaniesBAct 2013 can be adopted without its support, whicheffectively gives it a veto over key decisions concerningHZL. The control of the Union Government is wieldedunderthe provisions of Section 134(2) and Section 47 of theCompanies Act 2013. Under the Companies Act 2013,Cseveral matters requiring the passing of a SpecialResolution,are tabulated below:

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ABCDEFG(iii)The Nationalisation Act was enacted in 1976, in pursuanceHof the policy of the Union Government to acquire control

over the deposits of lead and zinc, as a matter of strategicnational interest;

(iv) The strategic importance of the deposits of lead and zinc isunderscored in the Statement of Objects and Reasonsaccompanying the introduction of Bill in the Parliament, andby the provisions of Sections 4, 7 and 9 of the NationalisationAct 1976, under which the acquired undertaking was vestedin a government company within the meaning of Section617 of the Companies Act 1956;

(v) In 2002, the Union Government acted in a manner contraryto the express mandate of the statutewhen it disinvested its26 per cent shareholding, in favour of a strategic partner.The decision to offload 29 per cent of the residualshareholding will compound the illegal act which wascommitted in 2002;

(vi) The Nationalisation Act 1976 prohibits the government fromtaking any step by which the acquired undertaking ceasesto be a government company. Though HZL ceased to be agovernment company in 2002 following the disinvestmentof 26 per cent of the equity shareholding of the UnionGovernment, yet the residual shareholding enables thegovernment to ensure that the strategic mineral deposits oflead and zinc would be used for the common good. Thesestrategic considerations have been emphasized by the onehundred and fifth Parliamentary Committee Report, 2002;and

(vii) The law on the subject has been enunciated in the judgmentof this Court in Centre for Public Interest Litigation(supra). In view of this elucidation of legal principle, whenthe acquisition has taken place under an Act of Parliament,any disinvestment by the Union Government can beundertaken only with the approval of Parliament or throughits intervention.

18. On the basis of the above propositions, the petitioners questionthe decision of the Union Government to disinvest its residual shareholdingof 29.54 per cent. Besides the first limb of submissions noted above, thesecond limb of submissions, seeks to question the decision of the CBI toclose the preliminary enquiry. In this context, it has been urged that:

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A(i)The decision of the Constitution Bench in Lalita Kumariv. Government of Uttar Pradesh[18 ]stipulates that if anFIR is not registered following a preliminary enquiry (a classof cases was carved out where a preliminary enquiry maybe held before the registration of an FIR involvingacognizable offence), the complainant must be furnishedBwith a copy of the reasons for closing the enquiry;

(ii) Normally, the informant at whose behest an FIR is registeredcan challenge the final report under Section 173 of the CrPC,but this avenue is not available in a case where the CBIdecides not to register a regular case after a preliminaryCenquiry;(iii)CBI’s submission to the effect that the preliminary enquirywas conducted not on the basis of the complaint which waslodged by the brother of one of the petitioners, but on thebasis of source information is an attempt to obviateDcompliance with the mandate of the decision in LalitaKumari (supra);

(iv) The decision to close the preliminary enquiry disregardedthe advice tendered to the CBI by several of its officersthat a regular case should be registered; andE(v)A disclosure of the circumstances which have led to theclosure of the preliminary enquiry should be made to thepetitioner, particularly in the context of the allegations whichhave been levelled against the then Attorney General inrespect of an opinion tendered by him.F19. Opposing the above submissions, Mr Tushar Mehta, learnedSolicitor General appearing on behalf of the Union Government submittedthat:

(i) The petition is barred by the principles of res judicata sincethis Court had dismissed Maton Mines Mazdoor Sangh’sGwrit petition on 10 December 2012 on the very issue whichhas been pressed in the present proceedings;

(ii) The disinvestment of the equity shareholding of the UnionGovernment in public sector corporations commenced afterH18 [“Lalita Kumari”] (2014) 2 SCC 1

the Industrial Policy Statement of 24 July 1991. In 1991-92,the minority shareholding of the Union Government in thirtycentral public sector enterprises was sold to selectedfinancial institutions – the Life Insurance Corporation,General Insurance Corporation and Union Trust of India.The Union Government sold 24.08 per cent of itsshareholding in HZL in 1991-92 to these financial institutions;

(iii) According to the White Paper on Disinvestment of PublicSector Enterprises dated 31 July 2007, the policy ofdisinvestment has evolved through the Budget Speeches ofUnion Finance Ministers;

(iv) Inspite of the policy of disinvestment, the following industrieswere proposed to be reserved for the public sector in termsof the industrial policy statement dated 24 July 1991:

“(i) Arms and Ammunitions and Allied items of defenceequipment, defenceaircraft and warships.

(ii) Atomic Energy

(iii) Coal and Lignite

(iv) Mineral Oils

(v) Mining of iron ore, manganese ore, chrome ore, gypsum,sulphur, gold and diamond.

(vi) Mining of copper, lead, zinc, tin, molybdenum andwolfram.

(vii) Minerals specified in the Schedule to the Atomic Energy(Control of Production arid Use) Order, 1953.

(viii) Railway transport.”

(v) After the establishment of the Public Sector DisinvestmentCommission on 23 August 1996, the Union Government on16 March 1999 classified public sector enterprises into‘strategic’ and ‘non-strategic areas’ for the purpose ofdisinvestment. Strategic industrial public sector enterpriseswere those functioning in the areas of “(i) Arms and Ammunition and the allied items of defenceequipment, defence aircrafts and warships; A

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920SUPREME COURT REPORTS

(ii) Atomic Energy (except in the area related to thegeneration of nuclear power and applications of radiationand radio-isotopes to agriculture medicine and non-strategicIndustries); A

(iii) Railway Transport.”B

(vi) The Union Government disinvested 26 per cent of itsshareholding through a strategic sale to SOVL, through aShare Purchase Agreement on 27 March 2002. It alsoexecuted a Shareholders’Agreement dated 4 April 2002 withSOVL. The Union Government also sold 1.47 per cent ofCits shareholding to employees of HZL in November 2002.In November 2003, SOVL exercised its first call optionunder Article 5.8 of the Shareholders’ Agreement andacquired 18.92 per cent of the shareholding. Prior to this,SOVL acquired 20 per cent of the share capital of HZLfrom the public in an open offer. As a cumulativeDconsequence, the shareholding of SOVL had risen to 64.92per cent in 2003. HZL ceased to be a government companyfrom March 2002;

(vii) Significantly, the executive decisions to disinvest theshareholding of the Union Government until 2002 have notEbeen challenged by the petitioners and only the proposedsale of the residual shareholding of 29.54 per cent is raisedin these proceedings;

(viii) The decision in Centre for Public Interest Litigation(supra) would have no application for the reason that HZLFhad ceased to be a government company following theprocess of disinvestment which took place in 1991-92 and2002;

(ix) The Union Government cannot be restrained fromdisinvesting its shareholding in a company which is listed asGa limited company, especially since the process ofdisinvestment by which the company ceased to be agovernment company within the meaning of Section 617 ofthe Companies Act 1956 has not been challenged;

(x) The Union Government has stated on affidavit that theHresidual shareholding of 29.54 per cent will be sold in the

open market, strictly in accordance with SEBI rules andregulations; and A

(xi) The assumption that zinc is a strategic asset whose controlmust continue to remain with the Union Government is nolonger valid.

B

20. As regards the second limb of submissions, relating to thepreliminary enquiry by CBI, an affidavit dated 4 March 2020 has beenfiled in these proceedings stating that (i) the former Attorney Generalhad not advised SOVL at any stage in regard to the process ofdisinvestment in HZL; and (ii) CBI had, after considering the entirematerial which has been obtained during the course of the preliminaryenquiry, decided to close the preliminary enquiry. In any event, the saleof the residual 29.54 per cent shareholding cannot be interdicted on thebasis of a CBI enquiry into what transpired nearly two decades ago in2002, in respect of an earlier disinvestment.

C

21. The Solicitor General submitted that it is estimated that the29.54 per cent residual shareholding has a value of about Rs 40,000crores and a considered decision has been taken by the UnionGovernment to offload it in the open market so as to strengthen revenuesfor public purposes.

D

22. Mr Harish Salve, learned Senior Counsel appearing on behalfof SOVL, has urged the following submissions:

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(i) The first prayer which seeks to challenge the disinvestmentof the residual 29.54 per cent shareholding of the UnionGovernment is barred by the principles of res judicata,following the dismissal on 10 December 2012, of the earlierwrit petition instituted by Maton Mines Mazdoor Sangh; F

(ii) At the time of privatization in 2002, a contract was enteredinto in the form of a Shareholders’Agreement whichconferred SOVL with a call option to acquire shares in HZL,upon fulfilling certain parameters, including the residualG29.54 per cent shares;

(iii) Since the disinvestment of 70.5 per cent shares in the firstinstance is not under challenge, HZL has ceased to be agovernment company governed by the Nationalisation Act1976. Effective management and control stand transferred H

[2021] 10 S.C.R.

Ato SOVL. The transfer of 29.54 per cent of the residualequity shareholding by the Union Government of a companyin which it has no surviving control would only raise financesfor the government and does not impact management orcontrol; B(iv)Following the disinvestment in HZL in 1991-92, 24.08 percent of its equity shareholding was sold by the UnionGovernment in the domestic market, reducing its stake to75.92 per cent. In April 2002, when the governmenttransferred another 26 per cent in favour of SOVL, itsshareholding was reduced to 49.92 per cent. SOVL furtherCacquired 20 per cent of equity from the open market, by anopen offer, which raised its holding in HZL to 46 per cent;

(v) In August 2003, SOVL exercised its first call option toacquire 18.92 per cent equity shares from the government,increasing its shareholding in HZL to 64.92 per cent; andD

(vi) HZL is a listed public company whose shares are traded onthe Bombay Stock Exchange and National Stock Exchange.There is no prohibition in the judgment of this Court inCentre for Public Interest Litigation (supra) on the saleof shares held by the government in such a company. TheEearlier disinvestment in 2002 took place as a result ofcompetitive bidding and there is not a tittle of evidence beforethe Court to show that the valuation was incorrect.

23. In compliance with an interim direction, CBI has submitted anaffidavit dated 4 March 2020, detailing its submissions with respect toFthe allegations regarding the irregularity in the disinvestment of the 26per cent shareholding of the Union Government in HZL, in 2002. It hasstated:

(i) A preliminary enquiry was registered on 6 November 2013,on the basis of “source information” received. C P Babel,Gthe brother of the third petitioner, is not the originalcomplainant. The memo of parties (sic) does not mentionhis name;

(ii) The CBI Manual details a decision-making process whereopinions of various authorities in the administrative hierarchyH

are recorded and a final decision is taken by the competentauthority;

(iii) The subjectwas never placed before the Attorney General,and he has had no occasion to opine on the matter; and

(iv) Based on the preliminary enquiry conducted in accordancewith the CBI Manual, a self-contained note dated 6 March2017 was submitted, closing the preliminary enquiry, withoutregistering a regular case.

24. In rejoinder, Mr Prashant Bhushan, submitted that:

(i) HLZ holds 80 per cent of the national deposits of zinc;

(ii) HZL is the largest producer of zinc, which is used in thedefence sector;

(iii) Parliamentary legislation, the Nationalisation Act 1976 inthe present case, cannot be overridden by the executivearm of the government; (iv)26 per cent of the equity holding of the government wassold in 2002 for a paltry consideration of Rs 400 crores;and

(v) There is no document or material before this Court to indicatethat the value of the residual shareholding of the UnionGovernment stands at Rs 40,000 crores.

25. The rival submissions come up for analysis.

C Res Judicata and PILs

26. The Union Government and SOVL have objected to themaintainability of the present writ petition, and sought its dismissal at thethreshold on the ground of res judicata. It has been contended that thereliefs sought in the petition overlap with the reliefs sought by thepetitioners in the earlier petition instituted by Maton Mines MazdoorSangh, which was dismissed by a three-judge Bench of this Court on 10December 2012. The reliefs sought in the earlier petition were in thefollowing terms:

“(i) To appoint a High Powered Committee comprising of suchindividuals of technical / financial expertise whom this Hon’bleCourt deems fit to assess the net worth of Hindustan Zinc Ltd. atthe time of initial disinvestment in the year 2002 and therefore, A

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Adeclare the initial disinvestment of 2002 to be void ab initio andagainst the law of land laid down by this Hon’ble Court in thecase of ‘Centre of Public Interest Litigation Vs. Union of India’reported in (2003) 7 SCC 532 as per the Judgment dated 16.09.2003and issue consequential directions in that regard; B(ii) Direct the Respondent No. l to refrain from further sale of theremaining equity of 29.54% to SOVL or any other party andthereby swindling of properties, Plant & Machineries and othervaluable assets for all times to come, as reported in the Newspapersand quoted in the preceding paragraphs:

(iii) Direct the Respondent No.1 to retake the 18.92% equity soldCto SOVL and manage 3% more equity either from open marketor from SOVL so as to make it a total of more than 51% in thelight of Apex Court Judgment dated 16.09.2003 to retain the:structure of the Company as a Government Company therebyrestoring the Government control over the Company;

D(iv) Direct the Respondents No.1 & 2 through Government oflndia - or otherwise to put a halt for further expansion of capacitiesof various Lead/ Zinc Plants including Silver I Zinc Refineriesinstalled in Uttaranchal so that perpetual revenue loss to CentralGovernment in Income Tax and Sales Tax loss to Government ofRajasthan can be stopped;E

(v) Direct the SOVL through Government of India or otherwiseto put a halt for further expansion of mining activities and producethese critical base metals to the extent of requirement for theexisting plants as the base metals are critical for the futurerequirement of the nation and defence requirement also; F

(vi) Recruit workmen in workmen cadre for regular nature ofjobs in all the units as per practices stood prior to disinvestment in2002 and give due preference as per law to ST/SC, physicallyhandicapped and other socially backwards classes as per law andrefrain the company from further violation of Contract LaborGAbolition & Regulation Act;

(vii) Direct the SOVL through Government of India to stop exportof the critical base metals like lead and Zinc etc. either in theform of concentrated or as finished products; and

(viii) Pass any such other order or order(s) which Your LordshipsHmay deem fit in the interest of justice.”

27. The petition was summarily dismissed by this Court on 10December 2002 in the following terms:

“[…]we are not inclined to entertain the writ petition, which isaccordingly dismissed.”

28. The present writ petition was filed seeking the following reliefs:

“(i) Issue a writ of mandamus directing the respondents 1 & 2herein from disinvesting the residual shareholding of the Govt. ofIndia to the extent of 29.5% in the respondent no. 4 withoutamending the Metal Corporation (Nationalisation andMiscellaneous Provisions) Act, 1976,

(ii) Direct the Central Bureau of Investigation to file status reportin this Hon’ble Court from time to time in respect of investigationbeing carried by it and this Hon’ble Court monitor the investigationtill filing of the charge-sheet in appropriate court; and

(iii) Pass any other order or orders which this Hon’ble Court maythink fit and proper in the facts and circumstances of the case aswell as in the interest of justice.”

29. The first relief which has been sought in the petition in thepresent case- that the residual disinvestment can occur only after theamendment of the Nationalisation Act 1976- is substantially similar tothe first and second reliefs sought by Maton Mines Mazdoor Sangh,when they challenged the disinvestment of 2002 and 2014,on the basisof the decision in Centre for Public Interest Litigation (supra).

30. Section 11[19] of the Code of Civil Procedure 1908 embodiesthe principles of res judicata and bars the court from deciding issueswhich have been directly or substantially in issue in an earlier proceeding

19 “11. Res judicata.—No Court shall try any suit or issue in which the matter directlyand substantially in issue has been directly and substantially in issue in a former suitbetween the same parties, or between parties under whom they or any of them claim,litigating under the same title, in a Court competent to try such subsequent suit or thesuit in which such issue has been subsequently raised, and has been heard and finallydecided by such Court.[…]Explanation IV.—Any matter which might and ought to have been made ground ofdefence or attack in such former suit shall be deemed to have been a matter directly andsubstantially in issue in such suit.Explanation V.—Any relief claimed in the plaint, which is not expressly granted by thedecree, shall, forthe purposes of this section, be deemed to have been refused.[…]”

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Abetween the same parties or parties claiming under the same title andhave been finally decided.

31. The principles of res judicata and constructive res judicata,which Section 11 of the Code of Civil Procedure 1908 embodies, havebeen applied to the exercise of the writ jurisdiction[20], including publicBinterest litigation[21].Yet courts have been circumspect in denying relief inmatters of grave public importance, on a strict application of proceduralrules. In Rural Litigation and Entertainment Kendra v. State ofU.P.[22], this Court observed:

“16. The writ petitions before us are not inter-partes disputes andChave been raised by way of public interest litigation and thecontroversy before the court is as to whether for social safetyand for creating a hazardless environment for the people to livein, mining in the area should be permitted or stopped. We maynot be taken to have said that for public interest litigations,procedural laws do not apply. At the same time it has to beDremembered that every technicality in the procedural lawis not available as a defence when a matter of grave publicimportance is for consideration before the court. Even if itis said that there was a final order, in a dispute of this typeit would be difficult to entertain the plea of res judicata. AsEwe have already pointed out when the order of 12-3-1985, wasmade, no reference to the Forest (Conservation) Act of 1980 hadbeen done. We are of the view that leaving the question open forexamination in future would lead to unnecessary multiplicity ofproceedings and would be against the interests of society. It ismeet and proper as also in the interest of the parties that theFentire question is taken into account at this stage.”

32. In Daryao v. State of U.P.[23], a Constitution Bench of thisCourt has held that orders dismissing writ petitions in limine will not G20Kantaru Rajeevaru (Sabrimala Temple Review- 5J) v. Indian Young LawyersAssociation, (2020) 2 SCC 1 (Constitution Bench); State of U.P. v. Nawab Hussain,(1977) 2 SCC 806 (three-judge Bench); Sarguja Transport Service v. State TransportAppellate Tribunal, M.P., Gwalior, (1987) 1 SCC 5 (two-judge Bench)21Forward Construction Co. v. Prabhat Mandal (Regd.), (1986) 1 SCC 100 (three-judge Bench)

22 1989 Supp (1) SCC 504H23 (1962) 1 SCR 574

constitute res judicata. The Court noted that while a summary dismissalmay be considered as a dismissal on merits, it would be difficult todetermine what weighed with the Court without a speaking order. JusticePB Gajendragadkar (as the learned Chief Justice then was), observed:

“26...If the petition is dismissed in limine without passing a speakingorder then such dismissal cannot be treated as creating a bar ofres judicata. It is true that, prima facie, dismissal in limine evenwithout passing a speaking order in that behalf may stronglysuggest that the Court took the view that there was no substancein the petition at all; but in the absence of a speaking order itwould not be easy to decide what factors weighed in the mind ofthe Court and that makes it difficult and unsafe to hold that sucha summary dismissal is a dismissal on merits and as such constitutesa bar of res judicata against a similar petition filed under Article32…”

33. In State of Karnataka v. All India ManufacturersOrganization[24], a three judge Bench has also held that res judicatawould be applicable to a public interest litigation if it was bona fide.Justice B N Srikrishna held:

“35. As a matter of fact, in a public interest litigation, the petitioneris not agitating his individual rights but represents the public atlarge. As long as the litigation is bona fide, a judgment in aprevious public interest litigation would be a judgment in rem. Itbinds the public at large and bars any member of the public fromcoming forward before the court and raising any connected issueor an issue, which had been raised or should have been raised onan earlier occasion by way of a public interest litigation. It cannotbe doubted that the petitioner in Somashekar Reddy [(1999)1 KLD 500 : (2000) 1 Kant LJ 224 (DB)] was acting bonafide. Further, we may note that, as a retired Chief Engineer,Somashekar Reddy had the special technical expertise toimpugn the Project on the grounds that he did and so, hecannot be dismissed as a busybody. Thus, we are satisfied inprinciple that Somashekar Reddy [(1999) 1 KLD 500 : (2000)1 Kant LJ 224 (DB)] , as a public interest litigation, couldbar the present litigation.[…]

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A47. All of these unequivocally show that the issue of excess land(and connected issues) was specifically raised by the petitionerin Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1 Kant LJ 224(DB)] and was also forcefully denied by the State. In fact, thedecision in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1 KantLJ 224 (DB)] , went further with the High Court according itsBimprimatur to the land requirements under the FWA amounting to20,193 acres, which in no small measure, resulted from the State’ssuccessful defence that it had provided the “bare minimum ofland” for the Project calculated by a “scientific method”. Thejudgment also contains copious references to the issue ofCland (including the acreage), the types of land to be acquired,the land requirement for different aspects of the Project,the scientific techniques involved in identifying the landand road alignment, etc. In these circumstances, it cannotbe doubted that Explanation III to Section 11 squarelyapplies. It is clear that the issue of excess land under theDFWA was “directly and substantially in issue”in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1 Kant LJ224 (DB)] and hence, the findings recorded therein havingreached finality, cannot be reopened in this case.

[…]

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50. As we have pointed out, the cause of action, the issues raised,the prayers made, the relief sought in Somashekar Reddy’s petitionand the findings in Somashekar Reddy [(1999) 1 KLD 500 : (2000)1 Kant LJ 224 (DB)] and the claims and arguments in the presentpetitions were substantially the same. Therefore, it is not possibleFto accept the contention of the appellants before us that thejudgment in Somashekar Reddy [(1999) 1 KLD 500 : (2000) 1Kant LJ 224 (DB)] does not operate as res judicata for thequestions raised in the present petitions.”

G34. While determining the applicability of the principle of resjudicata under Section 11 of the Code of Civil Procedure 1908, theCourt must be conscious that grave issues of public interest are not lostin the woods merely because a petition was initially filed and dismissed,without a substantial adjudication on merits.There is a trend of poorlypleaded public interest litigations being filed instantly following aHdisclosure in the media, with a conscious intention to obtain a dismissal from the Court and preclude genuine litigants from approaching the Courtin public interest. This Court must be alive to the contemporary reality of“ambush Public Interest Litigations” and interpret the principles of resjudicata or constructive res judicata in a manner which does not debaraccess to justice. The jurisdiction under Article 32 is a fundamental rightin and of itself.

35. In this case, since the three judge Bench of this Court rejectedthe petition filed by Maton Mines Mazdoor Singh in limine, without asubstantive adjudication on the merits of their claim, the present writpetition is not barred by res judicata.

D The decision in Centre for Public Litigation

36. In order to place the controversy in perspective, it would beworthwhile to reproduce a tabulated statement of the shareholding patternin HZL, as submitted by the Solicitor General. The statement isreproduced below:

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A37. As the above statement indicates, prior to 27 March 2002,75.92 per cent of the shareholding of HZL was with the UnionGovernment, the public shareholding being the balance 24.08 per cent.Pursuant to the Share Purchase Agreement, 26 per cent of theshareholding was sold to SOVL as a strategic partner on 27 March2002, which brought down the Union Government’s shareholding to 49.92Bper cent. SOVL’s shareholding stood at 26 per cent. In addition, SOVLacquired 20 per cent from the public, after furnishing an open offer interms of SEBI’s regulations which raised its equity shareholding to 46per cent. In November 2002, the Union Government sold 1.47 per centof its shareholding to the employees of HZL which further brought downCits holding to 48.45 per cent. As a result of the exercise of the first calloption for SOVL in terms of the Shareholders’Agreement, SOVLacquired another 18.92 per cent of the equity holding of the UnionGovernment in November 2003. As a consequence, the shareholding ofthe Union Government stood reduced to 29.53 per cent while SOVL’sholding increased to 64.92 per cent.D

38. While considering the ambit of the present controversy, it isnecessary to note that the challenge in the petition under Article 32 is tothe 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 validityof the initial disinvestment of 24.08 per cent equity which took place inE1991-92, nor is the subsequent disinvestment of 26 per cent in terms ofthe Share Purchase Agreement, challenged in these proceedings. As amatter of fact, if it were to be challenged, the first objection would be tothe delay of well over two decades in challenging the disinvestment of1991-92 and of nearly12 years in challenging the sale of 2002 in pursuance

Fof the Share Purchase Agreement. Since the disinvestment of 1991-92and of 2002 has attained finality, it becomes necessary to assess theeffect of the earlier disinvestment, in terms of the status of HZL. As aconsequence of the disinvestment on 27 March 2002, HZL ceased to bea government company within the meaning of Section 617 of theCompanies Act 1956 since its shareholding fell below 51 per cent. As aGmatter of fact, Mr Prashant Bhushan, learned Counsel appearing onbehalf of the petitioners does not dispute this factual position. Then, theissue which arises is whether the Nationalisation Act 1976 interposesany bar on the sale of the residual shareholding of the Union Governmentin HZL.H

39. When the Nationalisation Act was enacted in 1976, the objectand purpose of the enactment was spelt out in the Statement of Objectsand Reasons accompanying the introduction of the Bill in Parliament.Insofar as is material, the objects are spelt out in the following extract:

“The Metal Corporation of India Limited a company had a mininglease in respect of zinc-lead deposits in Zawar area in Rajasthanand owned a lead smelter at Tundoo in Bihar. It had undertakento expand production from the Zawar mines and to construct aZinc Smelter near Udaipur for producing electrolytic grade zincand bye-products. However, for various reasons, the Corporationwas not able to complete the projects it had undertaken.Theconstruction work came to a standstill and the corporation failedto meet its repayment obligations to the suppliers of machineryand others.

2. As zinc and lead are essential raw materials for the economyof the country and are of considerable strategic importance to thecountry, it was necessary to the public interest that the projectundertaken by the Corporation should becompleted as soon aspossible. In the circumstances, for the speedy development andexpansion of the zinc lead deposits, the undertaking of the MetalCorporation of India was acquired by the Central Governmentwith effect from 22[nd ]October, 1965 by a Parliamentary legislation,enacted in 1965. The said act, having been struck down wasreplaced by the Metal Corporation of India (Acquisition ofUndertaking) Act, 1966 (36 of 1966). The undertaking of theCorporation was later vested in the Hindustan Zinc Ltd., Udaipur,a Government company with effect from 10[th] January, 1966.”

40. The submission of the petitioners emphasises that the purposeunderlying the acquisition was that zinc and lead were considered to beessential raw-materials for the economy of the country and ofconsiderable strategic importance, such that it was necessary in publicinterest that the project which was undertaken by Metal Corporation ofIndia should be completed expeditiously. The Statement of Objects andReasons also indicates that the erstwhile undertaking had a mining leasein respect of zinc and lead deposits in the Zawar area and owned a leadsmelter in Bihar, besides which it had undertaken to expand productionfrom the mines and construct a smelter for producing zinc and by-productsnear Udaipur. For various reasons, Metal Corporation of India was not A

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Aable to complete its projects; construction had come to a standstill andthe undertaking had failed to meet its obligations to repay suppliers ofmachinery. The Statement of Objects and Reasons emphasises theimportance of zinc and lead to the economy, which was undoubtedly animportant facet of the purpose of acquisition. Moreover, MetalCorporation of India, the pre-nationalized entity, was unable to completeBits projects and its acquisition by an Act of Parliament was envisagedfor the expeditious completion of the projects. The long title to theNationalisation Act 1976 indicates that the Act was enacted to enablethe Central Government, in public interest, to exploit to the fullest extent,the zinc and lead deposits in and around the Zawar area of RajasthanCand “to utilize those minerals in such manner as to sub-serve thecommon good”. Section 4(1)[25] of the Nationalisation Act 1976 providedfor the taking over of the management of the undertaking of MetalCorporation. As a consequence of the acquisition, Section 6(1)[26]envisages that so long as the management of the undertaking of Metal D25"4. Taking over of management of the undertaking of the Metal Corporation.—(1) Onthe commencement of this Act, the Metal Corporation of India (Acquisition ofUndertaking) Act, 1966 (36 of 1966), shall stand repealed, and on such repeal, theundertaking of the Metal Corporation, which had been transferred to, and vested in, theCentral Government by virtue of the provisions of Section 3 of the Act so repealed, andthe undertaking of the Metal Corporation together with all its properties, assets,liabilities and obligations specified in sub-section (1) of Section 4 of that Act and suchEother properties, assets, liabilities and obligations, acquired or incurred, for the purposesof its undertaking, after the 22nd day of October, 1965, which stood, by virtue of theprovisions of Section 12 of the said Act, transferred to, and vested in, the Governmentcompany formed in pursuance of the provisions of Section 12 of the Act aforesaidshall, by virtue of the provisions of this Act, be deemed to have been retransferred to,and re-vested in, the Metal Corporation, and, immediately thereafter, the management Fof the undertaking of the Metal Corporation shall be deemed to have been transferredto, and vested in, the Central Government.”

26 “6. Application of Act 1 of 1956.—(1) Notwithstanding anything contained in theCompanies Act, 1956, or in the memorandum or articles of association of the MetalCorporation, so long as the management of the undertaking of the Metal Corporationremains vested in the Central Government,—

(a) it shall not be lawful for the shareholders of the Metal Corporation or any otherGperson to nominate or appoint any person to be a director of the Metal Corporation:(b) no resolution passed at any meeting of the shareholders of the Metal Corporationon or after the commencement of this Act shall be given effect to unless approved bythe Central Government;

(c) no proceeding for the winding up of the Metal Corporation or for the appointmentof liquidator or receiver in respect of the undertaking thereof shall lie in any courtexcept with the consent of the Central Government.”H

Corporation remains vested in the Central Government, (i) it is not lawfulfor the shareholders to nominate or appoint a director; (ii) no resolutionby the shareholders would be given effect to, unless approved by theCentral government; and (iii) no proceedings for winding up the acquiredentity would lie in any court, except with the consent of the Centralgovernment. Section 7 provides for the vesting of the undertaking of theMetal Corporation in the Central government, in the following terms:

“7. Vesting of the undertaking of the Metal Corporation in theCentral Government.—

(1) On the appointed day, the undertaking of the Metal Corporation,and the right, title and interest of the Metal Corporation in relationto its undertaking, shall stand transferred to, and shall vestabsolutely in, the Central Government.

(2) Subject to the other provisions contained in this Act, all propertyincluded in the undertaking of the Metal Corporation which hasvested in the Central Government under sub-section (1) shall, byforce of such vesting, be freed and discharged from any trusts,obligations, mortgages, charges, liens and other incumbrancesaffecting it, and any attachment, injunction or any decree or orderof a court, tribunal or other authority restricting the use of suchproperty in any manner shall be deemed to have been withdrawn.

Explanation.—For the removal of doubts, it is hereby declaredthat the mortgagee of any property included in the undertaking ofthe Metal Corporation, or any other person holding any charge,lien or other interest in, or in relation to, any such property, shallbe entitled to claim, in accordance with his rights and interests,payment of the mortgage money or other dues, in whole or inpart, from the Central Government but no such mortgage, charge,lien or other interest shall be enforceable against any propertywhich has vested in the Central Government.

(3) Subject to the other provisions contained in this Act, all contractsand working arrangements which are subsisting immediately beforethe appointed day and affecting the Metal Corporation shall, in sofar as they relate to the undertaking of the Metal Corporation,cease to have effect or be enforceable against the MetalCorporation or any person who was surety or had guaranteed theperformance thereof and shall be of as full force and effect against AB

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or in favour of the Central Government and enforceable as fullyand effectually as if, instead of the Metal Corporation, the CentralGovernment had been named therein or had been a party thereto.

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(4) Subject to the other provisions contained in this Act, anyproceeding or cause of action pending or existing immediatelyBbefore the appointed day by or against the Metal Corporation orthe Central Government or the Government company referred toin Section 12 of the Metal Corporation of India (Acquisition ofUndertaking) Act, 1966 (36 of 1966), in relation to the undertakingof the Metal Corporation may, as from that day, be continued andenforced by or against the Central Government or the GovernmentCcompany referred to in Section 9, as it might have been enforcedby or against the Metal Corporation, the Central Government orthe Government company, as the case may be, if this Act had notbeen enacted, and shall cease to be enforceable by or against theMetal Corporation, its surety or guarantor.”

D41. Section 9 empowers the Central government to direct thevesting of the undertaking of Metal Corporation in a governmentcompany:

“9. Power of Central Government to direct vesting of theundertaking of the Metal Corporation in a Government company.—

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(1) Notwithstanding anything contained in Section 7, the CentralGovernment may, if it is satisfied that a Government company iswilling to comply, or has complied, with such terms and conditionsas that Government may think fit to impose, direct, by an order inwriting, that the undertaking of the Metal Corporation and theright, title and interest of the Metal Corporation in relation to suchundertaking shall, instead of continuing to vest in the CentralGovernment, vest in the Government company either on the dateof publication of the direction or on such earlier or later date (notbeing a date earlier than the appointed day), as may be specifiedin the direction.

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(2) Where the right, title and interest of the Metal Corporation inrelation to its undertaking vest in a Government company undersub-section (1), the Government company shall, on and from thedate of such vesting, be deemed to have become the lessee inrelation to the mines of which the Metal Corporation was the H

lessee as if a mining lease in respect of such mines had beengranted to the Government company, and the period of such leaseshall be the entire period for which such lease could have beengranted under the Mineral Concession Rules; and all the rightsand liabilities of the Central Government in relation to such minesshall, on and from the date of such vesting, be deemed to havebecome the rights and liabilities, respectively of the Governmentcompany.

(3) The provisions of sub-section (2) of Section 8 shall apply to alease which vests in a Government company as they apply to alease which has vested in the Central Government and anyreference therein to the Central Government shall be construedas a reference to the Government company.

(4) Any reference hereafter in this Act to the Governmentcompany shall be construed as a reference to the Governmentcompany which is appointed as the Administrator under sub-section(1) of Section 5, or, as the case may be, the Government companyreferred to in the direction made under sub-section (1).”

42. Section 4 of the Nationalisation Act 1976 provides for thevesting of all assets, liabilities and the management of the undertaking inthe Central Government. Section 5 provides for the appointment of anadministrator to take over the management of the undertaking, for andon behalf of the Central Government. Section 7 clarifies that on theappointed day, the undertaking of the Metal Corporation, and the right,title, and interest of the said Corporation in relation to its undertaking,stood transferred to and vested absolutely in the Central Government.In pursuance of Section 9, the undertaking of Metal Corporation cameto be vested in HZL, as a government company, within the meaning ofSection 617 of the Companies Act 1956. Section 13 provides that thegeneral superintendence, direction control and management of the affairsand business of the undertaking of Metal Corporation of which the right,title and interest is vested in the Central government under Section 7,shall vest in the government company specified in the direction madeunder Section 9(1).

43. Sections 4, 7 and 9 indicate that the undertaking of MetalCorporation stood transferred to, and vested absolutely in the CentralGovernment. Section 9 further empowers the Central Government to ABC

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Avest the undertaking in a government company. Once the MetalCorporation stood vested in a government company, the provisions ofthe then Companies Act 1956 and present Companies Act 2013 becomeapplicable. Thereupon, the government company would be entitled toexercise all such powers and to do all such thingsas Metal Corporationwas authorized to effect, in relation to its undertaking.B

44. The Nationalisation Act 1976 contains no express provisionrestraining the exercise of rights by the Union Government upon theundertaking of Metal Corporation vesting in it and thereupon, pursuantto a direction under Section 9(1), being transferred to a governmentcompany. As already noted earlier, the shareholding of the UnionCGovernment was divested initially in 1991-2 and subsequently in 2002.After the disinvestment of 26 per cent of the equity stake of the UnionGovernment to SOVL, HZL ceased to be a government company withinthe meaning of Section 617 of the Companies Act 1956. Section 617defined the expression government company in the following terms:

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““”617. Definition of Government Company.—For the purposesof this Act, Government company means any company in whichnot less than fifty-one per cent of the paid-up share capital is heldby the Central Government, or by any State Government orGovernments, or partly by the Central Government and partly byEone or more State Governments and includes a company which isa subsidiary of a Government company as thus defined.”

As a result of the disinvestment on 27 March 2002, HZL ceasedto be a government company, with the Union Government’sshareholding falling to 49.92 per cent, below the threshold of 51Fper cent.

45. The petitioners seek to read an implicit limitation on the transferof the residual shareholding of 29 per cent held by the Union Governmentin HZL, from the provisions of the Nationalisation Act 1976. Thissubmission is prefaced on the object of the enactment which is to acquireGcontrol over the strategic mineral deposits of lead and zinc. Thissubmission has been met by the respondents by urging that after 16March 1999, the mining of zinc has ceased to retain a strategic character,given the changes in industrial policy. The aspect which is of significanceis that there is no challenge to the disinvestment which took place in1991-92 or in 2002, the latter having resulted in HZL ceasing to retain itsH

status as a government company within the meaning of Section 617 ofthe Companies Act 1956. That being the position, it would be inconsistentto read an implied limitation on the transfer by the Union Government ofits residual shareholding in HZL representing 29.54 per cent of the equitycapital. Hence, when a decision has been taken by the government as ashareholder of a company to sell its shares, it acts as any othershareholder in a company who makes the decision on the basis of financialand economic exigencies.

46. The issue which needs to be considered is whether the decisionof this Court in Centre for Public Interest Litigation (supra) wouldresult in a bar on the disinvestment of the residual shareholding. Thisdecision of a two-judge Bench is dated 16 September 2003. In that case,petitions were filed in the public interest invoking the jurisdiction of thisCourt under Article 32, to challenge the decision of the Union Governmentto sell a majority of its shares in Hindustan Petroleum CorporationLimited[27] and Bharat Petroleum Corporation Limited[28] to private partieswithout parliamentary approval or sanction, as being contrary to andviolative of the provisions of the ESSO (Acquisition of Undertakings inIndia) Act 1974; the Burmah Shell (Acquisition of Undertakings in India)Act 1976; and Caltex [Acquisition of Shares of Caltex Oil Refining (India)Limited and of the Undertakings in India of Caltex (India) Limited] Act1977. The erstwhile companies were nationalized as a result of theseenactments. The Union Government had proposed a disinvestment ofthe shares of the companies comprised in the public sector, after thepolicy of disinvestment had been upheld by this Court in BalcoEmployees’ Union (Regd.) v. Union of India[29]. After consideringthe provisions of the legislation under which the undertakings werenationalized, Justice Rajendra Babu speaking for the two judge Benchheld:

“12. In order to interpret the enactments in question it is necessaryto look at the preamble to the Act. The preamble to the Act clearlystated that acquisition is done “in order to ensure that the ownership and control of thepetroleum products distributed and marketed in India by 27 “HPCL”28 “BPCL”29 (2002) 2 SCC 333

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the said company are vested in the State and thereby sodistributed as best to subserve the common good”.

Preamble, though does not control the statute, is anadmissible aid to construction thereof. The Act sets out thatthe assets of the undertaking shall vest in the Government asprovided under Section 3 of the Act. However, Section 7 of theAct enables the Government to transfer the undertaking to agovernment company as defined under Section 617 of theCompanies Act, 1956. If the Act intended that the undertakingso vested in the government company can be transferred,wholly or partly, to any company other than a governmentcompany, there certainly would have been an indication tothat effect in the Act itself. The question, therefore, is whetherabsence of specific provision as contained in the BankingCompanies (Acquisition and Transfer of Undertakings) Act or inthe Coal Mines Nationalisation Act, 1973 that the shareholdingshall always be held by the Government, will give a differentcomplexion to these provisions. When the provisions of theAct provide for vesting of the property of the undertakingin the Government or a government company, it cannotmean that it enables the same being held by any otherperson, particularly in the context that the object of theAct is that the ownership and control of the petroleumproducts is distributed and marketed in India by the Stateor a government company and that products thereby sodistributed as best to subserve the common good. Theargument that there is no specific provision in the Act ascontained in the Banking Companies (Acquisition andTransfer of Undertakings) Act or in the Coal MinesNationalisation Act, 1973 does not carry the matter anyfurther because the idea embedded in those provisions areimplicit in the provisions of this enactment, as explainedearlier. If disinvestment takes place and the company ceasesto be a government company as defined under Section 617of the Companies Act, to say that it is still a governmentcompany as contemplated under Section 7 of the Act willbe a fallacy.What is contemplated under Section 7 of the Act is only a government company and no other. In relationto a government company Sections 224 to 233 are substituted andthe audit of the company takes place under the supervision andcontrol of the Comptroller and Auditor General of India who shallgive effect to Section 224(1-B) and (1-C). The Auditors shallsubmit a report to the Comptroller and Auditor General of Indiaand even when audit takes place, subject to his instructions, theComptroller and Auditor General of India may also conductsupplementary audit and a test audit. Under Section 19(1) of theComptroller and Auditor General’s (Duties, Powers and Conditionsof Service) Act, 1971 audit of companies is to be conducted byhim in terms of the Companies Act. Annual reports on the workingof affairs of the company are laid before Parliament under Section619-A(1)(b) of the Companies Act. Such control will be lost ifa company ceases to be a government company.

13. Argument of Shri Harish Salve that a simple amendment ofSection 617 of the Companies Act unrelated to the acquisitioncan alter the position in law is only perceived but not attained andhence does not require any examination. He contended that tofacilitate disinvestment of the shares the public sector enterprisesare allowed to list the shares on stock exchanges, irrespective ofthe percentage of shares disinvested by the Government and,therefore, submitted that there is no need for the Government toobtain parliamentary approval. Sales of shares of thesecompanies, though uninhibited, cannot be to such an extentso that the substratum of the character of the governmentcompanies is allowed to be lost and converted into anordinary company without being approved by the generalbody of shareholders and, in this case, the Government.The Government, in turn, is subject to the statutorylimitations, to which we have adverted to now. Hence, theargument begs the question which is put in issue before us.

14. Again accretions to the government company’s assetssubsequent to acquisition of the undertaking is an irrelevant factorin the context of the question we are considering. Here what isrequired to be seen is, not which asset can be transferredor not, but whether the undertaking can change its characterfrom a government company to ordinary company without AB

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Aparliamentary clearance in the light of the statute ofacquisition.”

The view of this Court was that the divestment of the shareholdingof the Union Government in HPCL and BPCL, as a result of which theBcompanies would cease to be government companies, could not beundertaken without amending the statutes under which they werenationalized. This Court noted the following:

“20. There is no challenge before this Court as to the policy ofdisinvestment. The only question raised before us is whether theCmethod adopted by the Government in exercising its executivepowers to disinvest HPCL and BPCL without repealing oramending the law is permissible or not. We find that on thelanguage of the Act such a course is not permissible at all.”

The Court distinguished the previous precedents of this Court onDchallenges to disinvestment, in the following terms:

19. In the case of BALCO, executive action to disinvest was notchallenged probably due to the fact that there was no statutorybacking of the nature with which we are concerned in the presentcase. In the case of Maruti Udyog Limited though acquired underEan enactment, there was no challenge to the same to disinvestmerely by executive action. Thus, these cases stand on a differentfooting.

47. The decision in Centre for Public Interest Litigation(supra) is distinguishable for the reason that HPCL and BPCL wereFgovernment companieswhen the disinvestment action was challengedbefore this Court. In the present case, the disinvestment as a consequenceof which HZL ceased to be a government company took place in March2002. What is in question on the first relief sought is the 29.54 per centresiduary shareholding in HZL, after it has admittedly ceased to be agovernment company within the meaning of Section 617 of the CompaniesGAct 1956 and the corresponding provisions of the Section 2(45) of theCompanies Act 2013. In the Companies Act 2013, the expression‘government company’ is defined in Section 2(45) in similar terms:

“2….(45) “Government company” means any company in whichnot less than fifty-one per cent of the paid-up share capital is heldH

by the Central Government, or by any State Government orGovernments, or partly by the Central Government and partly byone or more State Governments, and includes a company whichis a subsidiary company of such a Government company;”

48. The Union Government is a shareholder of HZL. The controland management of HZL does not vest with the Union Governmentwhich has a residual stake of 29.54 per cent. The shareholding of SOVLstood increased to 64.92 per cent after the exercise of the first calloption in 2002. During the course of hearing, this Court has been apprisedby SOVL that it does not seek to exercise the second call option, interms of the Share Purchase Agreement. It is in this backdrop that adecision has been taken by the Union Government to sell its residuaryshareholding in the open market. The Union Government, in its capacityas a shareholder of HZL, is entitled to take such a decision. The factthat the Union Government is amenable to the norms set out in Part IIIof the Constitution would not impose a restraint on its capacity to decide,as a shareholder, to disinvest its shareholding, so long as the process ofdisinvestment is transparent and the Union Government is following aprocess which comports with law and results in the best price beingrealized for its shareholding. In Life Insurance Corporation of Indiav. Escorts Ltd.[30], a Constitution Bench of this Court inter aliaconsidered whether the action of an instrumentality of the State (theLife Insurance Corporation) in asserting its rights as a shareholder tobring about a change in the management of a public limited company,was amenable to public law standards. Answering the question, JusticeO Chinnappa Reddy, speaking for the Constitution Bench held:

“102. […] Broadly speaking, the court will examine actions ofState if they pertain to the public law domain and refrain fromexamining them if they pertain to the private law field. Thedifficulty will lie in demarcating the frontier between the publiclaw domain and the private law field. It is impossible to draw theline with precision and we do not want to attempt it. The questionmust be decided in each case with reference to the particularaction, the activity in which the State or the instrumentality of theState is engaged when performing the action, the public law orprivate law character of the action and a host of other relevantcircumstances. When the State or an instrumentality of the State A

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Aventures into the corporate world and purchases the shares of acompany, it assumes to itself the ordinary role of a shareholder,and dons the robes of a shareholder, with all the rights available tosuch a shareholder. There is no reason why the State as ashareholder should be expected to state its reasons when it seeksto change the management, by a resolution of the company, likeBany other shareholder.”

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The Constitution Bench held that the notice by the Life InsuranceCorporation requisitioning a meeting of the company was not liable to bequestioned on any of the grounds set out in the writ petition. This principlehas been followed as a precedent by various decisions of this Court[31].C

The Union Government, in the present case, is exercising its rightsas a shareholder and has taken a decision to disinvest its residualshareholding of 29.54 per cent in HZL. HZL is no longer a governmentcompany. In any event, the decision of the Union Government, as anincident of its policy of disinvestment, to sell its shares in the open market,Dcannot be questioned by reading a bar on its powers to do so, from theprovisions of the Nationalisation Act 1976. No such express or impliedbar exists, failing the applicability of this Court’s decision in Centre forPublic Interest Litigation (supra).

E CBI’s preliminary enquiryE

E CBI’s preliminary enquiryE

49. A preliminary enquiry on the basis of ‘confidential sourceinformation’ in relation to the HZL disinvestment during 1997-2003, wasregistered by the CBI on 6 November 2013. In compliance of this Court’sorder dated 3 November 2014, a status report was submitted by CBI.Furthermore, on 19 January 2016, this Court had directed CBI to submitFanother status report in a sealed cover. By an affidavit dated 14 July2020, the Head of Branch, Anti-Corruption Branch[32], Jodhpur hasannexed a ‘self-contained note’dated 6 March 2017, detailing the closureof the preliminary enquiry, after compliance with the process detailed inthe CBI Crime Manual, 2005[33].

G50. The above affidavit, theself-contained note closing thepreliminary enquiry and additional documents detailing the steps taken31ABL International Ltd. v. Export Credit Guarantee Corporation of India, (2004)3 SCC 553 (two-judge Bench); Central Inland Water Transport Corporation Limitedv. Brojo Nath Ganguly, (1986) 3 SCC 156 (two-judge Bench)

32 “ACB”

H33 “CBI Crime Manual”

by the CBI during the preliminary enquiry were shared for the perusalofthis Court. The Special Prosecutor, CBI Head Office, New Delhi on31 July 2014, the Director of Prosecutionon 16 October 2014, and theSpecial Directoron 21 March 2016 have stated their reasons forrecommending the closure of the preliminary enquiry without registeringa regular case.

51. However, the Additional Director, CBI on 22 August 2014,recommended the conversion of the preliminary enquiry into a regularcase, against certain named officials and persons under Section 120Bread with Section 420 of the Indian Penal Code 1860 and Sections 13(2)and 13(1)(d) of the Prevention of Corruption Act 1988. A similarconclusion was reached by the Enquiry Officer (Head of Branch, ACB,Jodhpur) on 4 April 2014, Senior Public Prosecutor, Jodhpur on 21 April2014, the Head of Branch, Jodhpur, on 25 April 2014, the Head of theZone, DLI on 13 August 2014, the Deputy Legal Advisor, ACB, Jodhpuron 26 May 2014, the Deputy Superintendent of Police, Jaipur on 12February 2015 and the Head of Branch, Jodhpur on 13 February 2015.

52. In view of the difference of opinion between the Director ofCBI and the Director of Prosecution, CBI, the matter was to be referredto the Attorney General on 17 October 2014, in accordance with Para23.21 of the CBI Crime Manual.However, the status of this referral hasnot been alluded to before us, for determination of the closure of thepreliminary enquiry.

53. Chapter 9 of the CBI Crime Manual details the process ofconducting preliminary enquiries. Para 9.1 states that “a P[reliminary]E[nquiry] may be converted into R[egular] C[ase] as soon assufficient material becomes available to show that prima facie therehas been commission of a cognizable offence”. In Lalita Kumari(supra), a Constitution Bench of this Court had underscored the duty ofthe police to register an FIR when the information received prima faciediscloses the commission of a cognizable offence. However, the decisionrecognizes that in certain cases, a preliminary enquiry may be held. Withspecific reference to the CBI Manual, this Court noted that the “thepolice can conduct a sort of preliminary verification or inquiry forthe limited purpose of ascertaining as to whether a cognizableoffence has been committed.[34]” This Court issued inter alia, thefollowing directions:

34 Para 119

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A“120. In view of the aforesaid discussion, we hold:

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(120.3) If the inquiry discloses the commission of a cognizableoffence, the FIR must be registered. In cases where preliminaryinquiry ends in closing the complaint, a copy of the entry of suchBclosure must be supplied to the first informant forthwith and notlater than one week. It must disclose reasons in brief for closingthe complaint and not proceeding further.

(120.4) The police officer cannot avoid his duty of registeringoffence if cognizable offence is disclosed. Action must beCtaken against erring officers who do not register the FIR ifinformation received by him discloses a cognizable offence.

(120.5) The scope of preliminary inquiry is not to verify theveracity or otherwise of the information received but onlyto ascertain whether the information reveals any cognizableDoffence……”

54. In Central Bureau of Investigation (CBI) v. ThommandruHannah Vijaylakshmi @ T.H. Vijaylakshmi and another,[35]a three-judge Bench of this Court held that it is not mandatory to hold a preliminaryEenquiry in all cases before registering an FIR against a public official, ina matter involving the possession of disproportionate assets. Speakingfor the three-judge Bench, one of us (Justice DY Chandrachud), notedthe stage at which a preliminary enquiry is converted into a regular case:

“24. Hence, all these decisions do not mandate that a PreliminaryFEnquiry must be conducted before the registration of an FIR incorruption cases. An FIR will not stand vitiated because aPreliminary Enquiry has not been conducted. The decisionin Managipet (supra) dealt specifically with a case ofDisproportionate Assets. In that context, the judgment holds thatGwhere relevant information regarding prima facieallegations disclosing a cognizable offence is available, theofficer recording the FIR can proceed against the accusedon the basis of the information without conducting aPreliminary Enquiry.

[…]

35. Hence, two distinct principles emerge from the above : (i) aPreliminary Enquiry is registered when information (received froma complaint or “source information”) after verification indicatesserious misconduct on part of a public servant but is notenoughto justify the registration of a Regular Case; and (ii) when theinformation available orafter its secret verification reveals thecommission of a cognizable offence, a Regular Case has to beregistered instead of a Preliminary Enquiry being resorted tonecessarily.

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37. The precedents of this Court and the provisions of the CBIManual make it abundantly clear that a Preliminary Enquiry is notmandatory in all cases which involve allegations of corruption.The decision of the Constitution Bench in Lalita Kumari (supra)holds that if the information received discloses the commission ofa cognizable offence at the outset, no Preliminary Enquiry wouldbe required. It also clarified that the scope of a PreliminaryEnquiry is not to check the veracity of the informationreceived, but only to scrutinize whether it discloses thecommission of a cognizable offence. Similarly, para 9.1 of theCBI Manual notes that a Preliminary Enquiry is required only ifthe information (whether verified or unverified) does not disclosethe commission of a cognizable offence. Even when aPreliminary Enquiry is initiated, it has to stop as soon asthe officer ascertains that enough material has beencollected which discloses the commission of a cognizableoffence. A similar conclusion has been reached by a two JudgeBench in Managipet (supra) as well. Hence, the proposition thata Preliminary Enquiry is mandatory is plainly contrary to law, forit is not only contrary to the decision of the Constitution Benchin Lalita Kumari (supra) but would also tear apart the frameworkcreated by the CBI Manual.”

55. In Manohar Lal Sharma v. Principal Secretary,[36 ]a three-judge Bench of this Court, while monitoring an investigation in a matter A

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Aof national importance, had elaborated on the duty of the CBI to converta preliminary enquiry into a regular case, once a prima facie caseinvolving the commission of a cognizable offence is evinced. Justice RM Lodha, speaking on behalf of the Court, had also remarked on thenature of the powers of the constitutional court, while monitoring aninvestigation in exceptional matters. This power could be operationalizedBto do complete justice:

“29…Once jurisdiction is conferred on CBI to investigate theoffence by virtue of notification under Section 3 of the DSPE Actor CBI takes up investigation in relation to the crime which isotherwise within the jurisdiction of the State police on the directionCof the constitutional court, the exercise of the power of investigationby CBI is regulated by the Code and the guidelines are providedin the CBI (Crime) Manual. Para 9.1 of the Manual says thatwhen, a complaint is received or information is available whichmay, after verification, as enjoined in the Manual, indicate seriousDmisconduct on the part of a public servant but is not adequate tojustify registration of a regular case under the provisions of Section154 of the Code, a preliminary enquiry (PE) may be registeredafter obtaining approval of the competent authority. It also saysthat where the High Courts and the Supreme Court entrust mattersto CBI for inquiry and submission of report, a PE may be registeredEafter obtaining orders from the head office. When the complaintand source information reveal commission of a prima faciecognizable offence, a regular case (RC) is to be registered asenjoined by law. A PE may be converted into RC as soon assufficient material becomes available to show that prima D

Ffacie there has been commission of a cognizable offence.When information available is adequate to indicatecommission of cognizable offence or its discreet verificationleads to similar conclusion, a regular case must be registeredinstead of a PE. […]

38. The monitoring of investigations/inquiries by the Court isintended to ensure that proper progress takes place without directingor channelling the mode or manner of investigation. The wholeidea is to retain public confidence in the impartial inquiry/investigation into the alleged crime; that inquiry/investigation intoevery accusation is made on a reasonable basis irrespective of G

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the position and status of that person and the inquiry/investigationis taken to the logical conclusion in accordance with law. Themonitoring by the Court aims to lend credence to the inquiry/investigation being conducted by CBI as premier investigatingagency and to eliminate any impression of bias, lack of fairnessand objectivity therein.

[….]

50. When the Court monitors the investigation, there is alreadydeparture inasmuch as the investigating agency informs the Courtabout the progress of the investigation. Once the constitutionalcourt monitors the inquiry/investigation which is only donein extraordinary circumstances and in exceptional situationshaving regard to the larger public interest, the inquiry/investigation into the crime under the PC Act against publicservants by CBI must be allowed to have its courseunhindered and uninfluenced and the procedurecontemplated by Section 6-A cannot be put at the levelwhich impedes exercise of constitutional power by theSupreme Court under Articles 32, 136 and 142 of theConstitution. Any other view in this regard will be directlyinconsistent with the power conferred on the highest constitutionalcourt.”

56. There is no bar on the constitutional power of this Court todirect the CBI to register a regular case, inspite of its decision to close apreliminary enquiry. Analogously, this Court has directed the police toregister an FIR, once a cognizable offence has been disclosed to it. InShashikant v. Central Bureau of Investigation[37 ]a two-judge Benchof this Court, has held that this Court has the power to direct the CBI toconduct an investigation in exceptional cases, despite the CBI’s decisionto close the preliminary enquiry,even in the exercise of its writ jurisdiction:

“3. The appellant claims himself to be a vigilant employee. Hemade an anonymous complaint to the Central Bureau ofInvestigation alleging corrupt practices and financial irregularitieson the part of some officers of his department. Respondent 1stated that on the basis of a source information, a preliminary A

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inquiry was conducted in which the statements of various officerswere recorded. However, the investigating officer was of theopinion that it was not necessary to register a first informationreport. It recommended for holding of departmental proceedingsagainst the officers concerned. The said recommendation foundfavour with the higher officers. The opinion of the CentralVigilance Commission was also obtained.

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[…]

17. The appellant does not deny or dispute that the first respondentinitiated a preliminary inquiry upon receipt of the complaint. Thequestion which arises for consideration is as to whether it wasobligatory on the part of the first respondent to lodge a firstinformation report and carry out a full-fledged investigation aboutthe truthfulness or otherwise of the allegations made in the saidanonymous complaint.

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30. The first respondent [CBI] is a statutory authority. Ithas a statutory duty to carry out investigation in accordancewith law. Ordinarily, it is not within the province of the courtto direct the investigative agency to carry out investigationEin a particular manner. A writ court ordinarily again wouldnot interfere with the functioning of an investigative agency.Only in exceptional cases, it may do so. No such case hasbeen made out by the appellant herein. The nature of reliefprayed for in the writ petition also is beyond the domain ofa writ court save and except, as indicated hereinbefore, anFexceptional case is made out.”

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57. Upon perusal of the aforementioned reports andrecommendations, it is our considered opinion that the disinvestment in2002 evinces a prime facie case for registration of a regular case. Weare desisting from commenting on some crucial facts and names ofindividuals involved, so as to not cause prejudice to the investigation ofthe matter. Some details in the CBI officials’ recommendations to registera regular case, which have not been adequately addressed by the self-contained note closing the preliminary enquiry, are as follows:

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A. Irregularities in the decision to disinvest 26 per cent, insteadof 25 per cent:

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(i) The Disinvestment Commission in its sixth report ofDecember 1997 had categorized HZL as a “non-core PSU”and had recommended its disinvestment, but not beyond 25per cent of the equity, in order to retain control. TheBGovernment’s share at the time was 75.92 per cent;

(ii) The Cabinet Committee on Disinvestment was to be thefinal authority, with a Core Group of Secretaries onDisinvestment as the recommending body. An Inter-Ministerial Group of Secretaries was to implement theCdecisions of disinvestment. On 6 July 1999, the CabinetCommittee on Disinvestment had allegedly taken note ofthe recommendations of the Disinvestment Commissionregarding disinvestment of 25 per cent and accepted thesame. However, the Core Group of Secretaries onDDisinvestment,on 17 February 2000, had allegedlydisregarded this recommendation and proposed a sale of26 per cent, without any justification. During the seventhmeeting of the Core Group of Secretaries on Disinvestmenton 16 June 2000, the body was informed of the Ministry ofMines’ objection to seeking the approval of the CabinetECommittee of Disinvestment for transfer of managementcontrol to a strategic partner.Yet, the Cabinet Committeeof Disinvestment approved the Core Group of Secretarieson Disinvestment’s proposal of disinvestment of 26 per centequity to a strategic partner with management control andFappointment of an advisor, instead of a 25 per cent sale.This was allegedly done on the basis of a senior governmentofficial’s note dated 27 August 2000, without further detailsor reasoning. This decision of disinvesting 26 per cent equityreduced the Union Government’s share in HZL to 49.92per cent;G

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B.Irregularities in the bidding process:

(iii) The advertisement dated 4 December 2000, soliciting‘Expressions of Interest’, was allegedly confined to the saleof 26 per cent equity. It allegedly did not mention that a H

950SUPREME COURT REPORTS

Aroad-map for a complete sale of the company had beendecided and the remaining shares would also be eventuallysold to the strategic partner;

(iv) During the first bidding in 2001, the Evaluation Committeehad fixed the reserve price at Rs. 35.90 per share. NineBparties had submitted an expression of interest for theprocess of disinvestment, of which six were considered asqualified bidders. However, only one bid of SOVL wasreceived for Rs 29.22 per share on 8 November 2001, muchbelow the reserve price of Rs 35.90 per share. In view ofthe unsuccessful bid, the Evaluation Committee hadCrecommendedthe delaying of the tender process until theglobal markets stabilized. However, this recommendationwas initially accepted, but rejected the very next day- on10 November 2001, without furnishing any reasons. Secondbids were invited soon after, in March 2002; D(v)In March 2002,bids were invited, with the reserve pricebeing reduced from Rs 35.90 per share to Rs 32.15 pershare.The rationale justifying the reduction of the reserveprice has not been mentioned in the self-contained note.Final price bids were invited only from the earlier six qualifiedEinterested parties, instead of a competitive open biddingprocess, in view of the reduced share price. Only twoqualified interested parties- SOVL and M/s Indo GulfCorporation submitted their bids. The sale was made toSOVL at Rs 40.51 per share, totalling to Rs 445 crores(approx.). Allegedly, at least three bidders were required toFprocess the matter. No justification has been furnished torebut this;

(vi) During the second bidding process, SOVL’s bid wasaccepted, inspite of an alleged adverse SEBI order whichdisqualified SOVL from participation;G

(vii) The Ministry of Law had recommended the removal of themandatory obligations in the Shareholders’ Agreement andthe Share Purchase Agreement with SOVL. Theserecommendations had been allegedly disregarded withoutany justifications; H

(viii) The Comptroller and Auditor General’s Report 17 of 2006Aindicated that the Asset Valuer and Global Advisor had notvalued the assets of the company properly. Further, theComptroller and Auditor General’s Report stated that thesubsequent sale of 18.92 per cent equity to SOVL in 2002at the old rate of Rs 40.51 per share, was not in line withBthe Share Purchase Agreement, as the prevailing rate thenwas Rs 119.10 per share, resulting in a loss of about Rs 650crores;

C.Irregularities in the valuation of 26 per cent equity fordisinvestment C

(ix) M/s BNP Paribas was appointed as the ‘Global Advisor’on 9 January 2002. However, during the preliminary enquiry,the CBI was allegedly unable to trace these officialsrepresenting the Global Advisor. It was found that M/s BNPParibas was a bank based in France, but the erstwhileDcompany M/s BNP Paribas Equities India Pvt. Ltd. (alsoknown as M/s BNP Prime Peregrine India Pvt. Ltd.) hadundergone voluntary liquidationon 5 September 2001. Theadvisors had allegedly used the name of ‘M/s BNP Paribas’during most of their correspondence and the bank wasdenying the details of the company and its existence;E

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(x) The untraceable officials of ‘M/s BNP Paribas’ had reliedon three methodologies for valuation- (i) discounted cashflow method[38]; (ii) comparable companies methodology(relative valuation methodology); and (iii) balance sheetmethodology. The DCF method was allegedly chosen on22 March 2002 without any justification, in spite of the firstreport of the Disinvestment Commission recommending the‘asset valuation method’, in case of a strategic sale; F

(xi) ‘M/s R B Shah Associates’ was appointed as an ‘AssetValuer’ for the valuation of the fixed assets, without issuinga competitive/ limited biddingadvertisement, which wasallegedly against the Union Government’s policy. Anunknown public servant had allegedly appointed theseprivate valuers who did not possess the requisite expertise.

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952SUPREME COURT REPORTS

AThe valuers allegedly failed to consider goodwill, technicalknow-how and various assets of HZL, including 150 milliontonnes of ore reserves in various mines, to the tune ofRs 80,000 crores; Union Government’s earlier investmentof Rs 83 crores (approx.) in Andhra Pradesh Gas PowerLtd.; Rs 175 crores in advance income tax; variousBproperties to the tune of Rs 20,000 crores (approx.); andscrap valued at Rs 600 crores (approx.);

(xii) The value of Kayad Mines, Ajmer; Sindeshar Khurd,Rajsamand; and Bamania Kalan Mines, Rajsamand wasnot included in the valuation of assets, in spite of theirCmention in the Share Purchase Agreement;

(xiii) The valuation of ore reserves was done only for AguchaMines,and for ten years, by a discounting method of six percent. The life of the mine was allegedly much longer;

(xiv) Discounts were given on certain leasehold properties,Dwithout any basis. The life of Zawar and Rajpura DaribaMines was allegedly taken as eighteen years and fifteenyears respectively, without valuing the ore reserves. Valueof ore reserves was also not included for Agnigundala leadmines, Sargipalli Lead Zinc Mines, Matun Rock PhosphateMines and Sindeshar Kurd Mines.E

(xv) The value of lead and zinc mineral at the time was Rs 66,292crores (approx.). Even if 40 per cent cost of extractionprocess is excluded, the value would have allegedly beenaround Rs 39,000 crores. Yet, the valuer had valued the orereserves at a paltry Rs 748.88 crores;F

(xvi) Control premium was not added in the valuation, irrespectiveof certain officials recommending its inclusion. The rationalefor its exclusion has not been explained in the self-containednote;

(xvii) In October 2001, the Voluntary Retirement Scheme[39] wasGintroduced and 1993 employees were given VRS. In January2003, 1856 employees were given VRS. However, anamount of Rs 776 crores has been taken as VRSexpenditure, which allegedly incorrectly assumes that all

7222 employees and 1058 officers of HZL have been givenVRS; and A

(xviii) During the enquiry, the CBI had sought opinions from certainexperts who were Chartered Engineers. These experts hadopined that the valuation was on the lower side, withoutincluding relevant mining properties. Allegedly, the absenceBof any mining engineer or geologist in the team of the assetvaluers was also not understandable. Allegedly, if thevaluation had been conducted properly, on the basis of DCFmethod, the value would have been over Rs 1000, per share.

58. Some of the aforesaid observations of the officials of the CBI,who recommended the conversion of the preliminary enquiry into aregular case, satisfy this Court’s conscience for exercising its exceptionalpowers to direct the CBI to conduct an investigation into the matter. Aprima facie case for a cognizable offence, as mandated in para 9.1 ofthe CBI Manual, has been made out in this case and warrants theregistration of a regular case. The registration of a regular case, followedby a full-fledged investigation must be conducted. This Court shall beduly apprised of the status of the investigation.

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59. The petitioner has alleged that the complainant, C P Babel,was the brother of Petitioner No 3 which entitles them to a copy of thereport of the CBI closing the preliminary enquiry, in terms of Para 120(iii) of Lalita Kumari (supra)[40]. However, we are denying this relief ontwo counts- (i) the finding of the Constitution Bench of this Court waswith respect to the informant alone, and the original complainant is notbefore us; and (ii) CBI has stated that the preliminary enquiry wasregistered at the behest of source information, much before C P Babel’scomplaint.

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FConclusion

60. Accordingly, we hold that:

(i) The summary dismissal of an earlier petition under Article32 of the Constitution does not bar the present writ petitionon grounds of res judicata as there has been no substantivedecision on the merits of the issues; G

40 “…120.3 If the inquiry discloses the commission of a cognizable offence, the FIRmust be registered. In cases where preliminary inquiry ends in closing the complaint, acopy of the entry of such closure must be supplied to the first informant forthwith andnot later than one week. It must disclose reasons in brief for closing the complaint andnot proceeding further…”

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A(ii)The decision in Centre for Public Interest Litigation(supra) does not apply to the present facts because HZLhad ceased to be a government company, at the stage ofthe disinvestment which is in challenge. Hence, the UnionGovernment’s decision to disinvest 29.54 per cent of itsresidual shareholding in HZL is not interdicted by theBprinciples laid down by this Court in Centre for PublicInterest Litigation (supra);

(iii) SOVL has stated before the Court that it is not exercisingits second call option under the Share Purchase Agreement; C(iv)The Union Government has stated through the SolicitorGeneral that the residual shareholding shall be divested inthe open market and shall take place in accordance withthe rules and regulations of SEBI to ensure that the bestprice is realized for the sale of the shareholding; and

D(v)There is sufficient material for registration of a regular casein relation to the 26 per cent disinvestment of HZL by theUnion Government in 2002. The CBI is directed to registera regular case and proceed in accordance with law.

61. Accordingly, the petition under Article 32 is partially allowed.EThe CBI is directed to register a regular case and periodically submitstatus reports of its investigation to this Court. The aforesaid reportsshall be submitted every quarter, or as otherwise directed by this Court.

62. Pending application(s), if any, shall stand disposed of.

FNidhi Jain

Petition partly allowed.

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