Balco arbitrator says Sterlite cannot buy balance 49% stake

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Balco arbitrator says Sterlite cannot buy balance 49% stake

Sterlite has been dealt a serious blow in the Balco arbitration matter. The arbitrator says Sterlite cannot buy the balance 49% stake in Balco. This arbitrator award would impact residual stake sale in Hindustan Zinc as well.

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Sterlite has been dealt a serious blow in the Balco arbitration matter. The arbitrator says Sterlite cannot buy the balance 49% stake in Balco . This arbitrator award would impact residual stake sale in Hindustan Zinc as well.

The arbitration panel comprised of two former chief justices of India and a third senior judge. When Sterlite acquired Balco's 51% stake for Rs 550 crore in 2001 it was all fine, it had a call option to buy the remaining 49% but things changed for the company and they changed politically.

In May 2004 after the UPA came to power it referred the call option, which is the right to buy the governments balance shareholding to the attorney general who said that the call option was not legal under the companies act and that it violated Section 111A of the Companies Act, this act in very simple terms really sort of specifies that the law of the land comes first, followed by the articles of association of a company and finally third and last the mutual contract between two partners and that is the basis on which the arbitration award has gone against Balco. 

In simpler terms the award says that a contract between two parties cannot supersede Section 111A which allows for free transferability of shares and there is stated case law in this regard.  Sources close to the company Sterlite are suggesting that Sterlite could look at some sort of legal option. It is perhaps safe to say at this stage that this matter is sort of gone case for the company. Therefore it impacts the other call option, the second and last call option that Sterlite Industries, which is the Indian arm of London listed Vedanta has in Hindustan Zinc Limited and more importantly it impacts all other call options across sectors including notably insurance in the days going forward.