STERLITE’S MALPRACTICES:

Violating Share Purchase Agreement With Impunity

THE Sterlite Industries has sold its 55 per cent equity to Twinstar Holdings, Mauritius without permission from the government of India. (The Telegraph, New Delhi, October 28, 2003). The implication of this deal is that BALCO and Hindustan Zinc are being deceptively sold to a third party which may ultimately be handed over to the Volcan Investment Ltd. UK. Twinstar Holdings now having 55 per cent stake in Sterlite industries wants to raise this to 75 per cent.

At the time of disinvestment in BALCO on March 2, 2003, the Sterlite Industries acquired 51 per cent stake in BALCO by paying Rs 551.5 crore for assets worth Rs 3,500 crore. BALCO had been a cash-rich public sector company with reserves and surplus alone worth Rs 460 crore. It Korba power plant was worth more than Rs 1100 crore. BALCO had been a profit-generating, dividend paying company contributing around Rs 300 crore annually to the government by way of taxes.

The government of India had made its Share Purchase Agreement (SPA) with Sterlite Industries which imposed various restrictions on the latter for a minimum period of three years. As per SPA schedule 7.4, the following is binding on Sterlite Industries:

• Minimum period of agreement is for 3 years (renewable).

• During 3 years Sterlite cannot sell/re-sell/ or mortgage BALCO’s fixed and movable assets to another company. Sterlite cannot close down the plant or its units.

• The name and title and business of the company cannot be changed.

• Sterlite cannot enter into business partnership with any other company.

• All service rules and conditions as applicable in government period would continue and no retrenchment of employees can take place except through VRS which shall not be less attractive than the government VRS.

All these conditions were brought before the Supreme Court and both the government and Sterlite submitted in their affidavits filed before the Supreme Court not to violate the Share Purchase Agreement (SPA). However, Sterlite has been violating SPA with impunity. By way of example we may mention the following:

• Just after acquisition of BALCO, Sterlite started selling 6000 MT stock of finished aluminium and receiving the money directly in Sterlite Accounts. This stock was accumulated prior to transfer of BALCO to Sterlite and its hasty sale has caused a loss of about Rs 50 crore.

•  Sterlite also began selling machinery, equipment and other movable assets of Bidhan Bag Unit (West Bengal), Amarkantak (MP) and Gandhamardan (Orissa) mines of BALCO and diverted all the money received to Sterlite Account.

•  Sterlite management replaced experienced BALCO engineers by inefficient and incompetent engineers. As a result prestigious smelter plant of 100,000 MTY was damaged. Many of BALCO officers were removed within few weeks from key posts to keep entire fraudulent management strictly confidential. Under duress many officers of BALCO are being transferred to non-BALCO units viz, MALCO, India Foils, OFC, Ukraine etc.

• In respect of deciding service conditions, particularly retirement age of the officers, Sterlite management has been functioning arbitrarily. As per SPA, retrenchment of employees is not allowed. However, retirement through VRS is possible. The benefits under VRS are to be as attractive as under government VRS. Under this provision Sterlite management invited applications from BALCO officers for opting retirement under VRS in July 2001, but no decision was taken for about 10 months. On March 26, 2003, vide letter No. Kb-Pers Estt (MPP) B-2070/2002, the management communicated to VRS applicants that their applications for retirement under VRS could not the considered because BALCO had expansion plans for the future. But contrary to this, the Sterlite management arbitrarily lowered the retirement age of the officers from 60 to 58 years vide letter No. Kb–VP (HR)/J Employee dated April 15, 2002. This is gross violation of the SPA. The officers in BALCO brought it to the notice of the government of India and made an appeal for its intervention. The government nonetheless remained indifferent to the whole matter and no intervention came from its side for a long time. In February 2003 a high power team headed by Hashu Bhai Dave, president, All India Trade Council was appointed by the prime minister to look into the injustices being done to employees of disinvested PSUs – BALCO and Modern Foods. The committee submitted its report to the prime minister in June 2003 but no action has been taken against the erring management of Sterlite.

•  Emboldened by the indifferent attitude of the government, Sterlite management is illegally selling 75 per cent of its stake in BALCO to Twinstar Holdings/Volcan Investment, UK. The deal is in contravention of the SPA between Sterlite and the government. As a result of this transfer of stake by Sterlite to Twinstar Holdings/ Volcan, its share in BALCO will decline to only 12.75 per cent as against stake of the government of India at 49 per cent. Strangely despite sharp reduction in the stake of Sterlite in BALCO, it still retains management in its hands.

Resale of BALCO by Sterlite to Twinstar Holding without permission from the government of India has been done illegally. Apart from this Sterlite has been found involved in serious malpractices such as evasion of excise duties, and manipulation of BALCO’s balance sheet and other accounts. The working of Sterlite ever since it acquired control over BALCO clearly shows that disinvestment in PSUs has created conditions whereby corruption and frauds in private companies buying PSUs has increased.

(This write up is based on the representation made by BALCO Officers Association to the prime minister of India recently.)