Attorney-General Milon K Banerji has advised the government not to sell its residual 49 per cent equity stake in Bharat Aluminium Company to Anil Agarwal's Sterlite Industries because the price set by SBI Caps does not reflect the current value of the company.

Banerji's opinion was sought by the law ministry because of doubts over the validity of a shareholders' agreement signed by Sterlite and the government when Balco was sold.

Banerji said SBI Caps, in January 2006, had valued the government's stake at Rs 842.52 crore (Rs 8.43 billion), based on 2004 data when Sterlite exercised its right to buy the government's 49 per cent stake in Balco.

Sterlite had acquired 51 per cent in Balco during its privatisation in 2001. Since then, the aluminium industry's business environment has improved and it was not in the public interest to sell its stake in Balco at this price, the attorney-general has said.

A Sterlite spokesperson countered, "The parties were contractually obligated to do the transaction in 2004. Sterlite would have had to pay the 2004 valuation amount, even if the international aluminium price had fallen since then."

Banerji felt sections of the SHA, which bound the government to sell its residual stake in Balco to Sterlite, ran counter to the Companies Act, 1956. Therefore, the government was not bound to transfer its stake only to Sterlite, if at all it wanted to sell the stake.

He has also advised the government to reject Sterlite's proposal to infuse equity capital worth Rs 1,000 crore (Rs 10 billion) in Balco all by itself.

The government's top lawyer also said accepting Sterlite's offer to infuse Rs 1,000 crore as share application money would impact the government's position in the company. The opinion was given to the law ministry last week.

Sterlite wants to infuse the money in order to boost Balco's net worth and help it borrow more for an expansion plan, that envisages increasing aluminium production capacity to 400,000 tonnes a year from the current 100,000 tonnes.

Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group