The United Progressive Alliance has dealt yet another blow to the country's divestment process.

In a major decision, the Cabinet Committee on Economic Affairs on Thursday decided to return the cheque of Rs 1,098.89 crore (Rs 10.988 billion) to Sterlite Industries Ltd, a group company of Anil Agarwal-controlled Vedanta Resources Limited, for the acquisition of the 49 per cent residual shares held by the government in the public sector unit Bharat Aluminium Company (Balco).

This was disclosed by Parliamentary Affairs Minister Priya Ranjan Dasmunshi at a news conference in New Delhi.

However, there is no change in the decision taken by the previous National Democratic Alliance government, which sold 51 per cent stake in Balco for Rs 551.50 crore (Rs 5.515 billion) in February 2001 when it went ahead with the divestment of the company.

"A three-member committee headed by the law secretary will hold negotiations with Sterlite Industries. The divestment secretary and the secretary mines will be the other members of the committee. The Cabinet secretary will oversee the decisions taken in light of the CAG report that was placed before Parliament on the last day of the monsoon session, but could not be discussed because of paucity of time," Dasmunshi said.

In March 2004, Sterlite had sent a call notice along with a cheque of Rs 1098.89 crore to buy the 49 per cent stake of 108,100,605 shares.

The Government of India had in February 2001 divested 51 per cent stake in Balco to Sterlite Industries in a deal that fetched the government a total of Rs 800 crore (Rs 8 billion), even as it retained 49 per cent holding in the company.

The government had prior to that reduced its holding to 50 per cent, but the employees went to the Delhi high court challenging the decision.

However, the court dismissed the employees' petition and allowed the government to offload its holding.

The final agreement was signed on February 26, 2001 when Sterlite handed over a cheque of Rs 551.50 crore (Rs 5.515 billion) to the Union government. The company had already made a payment of over Rs 240 crore (Rs 2.40 billion) to the government earlier and also paid tax on it to the tune of Rs 30 crore (Rs 300 million).

The decision to refund Rs 1,098 crore to Sterlite will lead to a legal tussle between the government and Sterlite. According to the shareholders agreement, Sterlite can buy the remaining 49% stake at a price to be decided on the basis of the valuation of Balco shares.

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