The CBI registered a case on Tuesday against Jindal Steel and Power Ltd over coal mining rights, a spokesman of the law enforcement body said, in a move that knocked nearly a fifth off the value of the company's shares.
The Central Bureau of Investigation, India's answer to the American FBI, is investigating whether there were irregularities in the award of the rights, potentially worth billions of dollars, to private firms.
"This is an ongoing CBI investigation into coal block allocation," said Manu Kapoor, head of external affairs at Jindal Steel. "At this stage of investigation, JSPL is committed to fully cooperate with CBI."
Jindal Steel shares were down 18 per cent at Rs 219.65 in afternoon trading after having touched Rs 202.75, their lowest in about four years.
"It is unfortunate news on JSPL, this kind of erosion of wealth will not go well with foreign institutional investors, who hold about 22 per cent in the stock," said G. Chokkalingam, executive director of financial services company Centrum Wealth Management.
Jindal Steel is controlled by Naveen Jindal, a member of parliament for the ruling Congress party. Jindal's house was raided by the CBI on Tuesday, media reports said. A Jindal Steel spokesman declined to comment on any raid.
Accusations of crony capitalism in resource allocation, from coal to mobile telephone spectrum, have dogged the government of Prime Minister Manmohan Singh, now nearing the end of a second term in office. A general election is due within a year.
The main opposition Bharatiya Janata Party (BJP) said the case was evidence the government had "looted" the country.
Media reports said the CBI had also filed cases against three other companies and the agency was raiding 15 sites in the cities of Delhi, Hyderabad and Kolkata. CBI spokesman R.K. Gaur declined to comment on the raids.
"Coalgate," as the scandal is known, has overshadowed the government's legislative agenda, with the BJP calling for Singh to resign and holding up economic reform measures in the last session of parliament.
In May, law minister Ashwani Kumar quit after the Supreme Court said the government substantially changed a report by the CBI on accusations of irregularities in the award of mining rights.