TMI Blog1991 (4) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... One Mr. Haresh Jagtiani, a practising advocate of the High Court of Bombay and a policy-holder under the Life Insurance Corporation of India and also a holder of units issued by the Unit Trust of India and Mr. Shamit Majumdar, a holder of shares and debentures of Larsen and Toubro Ltd., filed a writ petition, being No. 2595 of 1989, in the High Court of Judicature at Bombay against the Union of India and others including the financial institutions questioning the legality and validity of the consent given by the Controller of Capital Issues to the proposed issue of convertible secured debentures aggregating to Rs. 820 crores by Larsen and Toubro Ltd. in so far as the said issue seeks to offer such convertible debentures to persons other than the existing shareholders and members and employees of Larsen and Toubro Ltd. and praying for quashing the same as well as for a declaration that the transfer of 39 lakhs shares of Larsen and Toubro Ltd. held by the Unit Trust of India, Life Insurance Corporation of India, General Insurance Corporation and its subsidiaries to Trishna Investment and Leasing Ltd. through the instrumentality of BOB Fiscal Services Ltd. is arbitrary, illegal, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the divestment of the shares by the respondents was okayed by the highest level in the Government and the deposit was returned immediately after the Ambani group was able to divert moneys taken by them in the name of Reliance Petrochemicals Pvt. Ltd. by the issue of convertible debentures of the order of Rs. 594 crores. The said 33 lakhs shares were registered in the name of BOB Fiscal Services Ltd. in the register of members of Larsen and Toubro Ltd. on October 11, 1988, and later on January 6, 1989, a further six lakhs shares were registered in the name of BOB Fiscal Services Ltd. On any valuation based on market values of Larsen and Toubro Ltd. shares at the relevant time, the value of 39 lakhs shares would cost not less than Rs. 45 crores. On the very day of the registration of the shares in the name of BOB Fiscal Services Ltd., namely, October 11, 1988, two nominees of the Ambani group, Mr. Mukesh Ambani and Mr. M. Bhakta, a solicitor of Reliance Industries, joined the board of Larsen and Toubro Ltd. and were co-opted as additional directors. Subsequently, on December 30, 1988, Mr. Anil Ambani another nominee of the Ambani group was also co-opted on the board of Lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petition is the proposed issue of convertible debentures by Larsen and Toubro Ltd. now under the management of the house of Ambanis to raise Rs. 820 crores from the stock market. The proposed issue has the effect of aggravating and perpetuating, and irretrievably divesting and transferring the ownership of Larsen and Toubro in favour of the Ambani group. The concealed and covert intent which is manifest in the direct effect of the proposed issue is to make Larsen and Toubro Ltd. a completely family-owned and a decisively family-controlled industrial corporation whereas the openly declared policy of the Government is to force the reverse, viz., professionalise the existing family-controlled companies. By the proposed issue, the house of Ambanis and the shareholders, debentureholders and employees of Reliance Industries and Reliance Petrochemical Industries Ltd. would collectively hold 35.5% of the ownership rights in Larsen and Toubro and will be the single largest block or group in the company. This preferred group which is not in law entitled to any issue of shares from Larsen and Toubro Ltd., has been chosen to be the preferential beneficiaries of the scheme under which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubro to which the public financial institutions are willing and enthusiastic parties inside the board room and in the general meeting of Larsen and Toubro Ltd. In the facts and circumstances, the petitioners pleaded that they are entitled to a declaration that the divestment by the respondents of the controlling shares in Larsen and Toubro to the house of Ambanis in a secret and circuitous arrangement is arbitrary, illegal, mala fide and a fraud on the statutory powers of the respondents. It was further pleaded that, pursuant to this secret arrangement, the financial institutions such as the UTI, LIC, GIC and its subsidiaries divested themselves of 7% shares of Larsen and Toubro Ltd. in favour of the Ambani group in an illegal and arbitrary manner as a result of which the Ambani group became the single largest private shareholder. This paved the way for the said private monopoly group and the Government to rationalise the take over of the management of Larsen and Toubro Ltd. by the Ambani group with the active connivance and support of the Central Government. The modus operandi adopted for the transfer was as under : ( a )In the month of May, 1988, the Bank of Baroda of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its subsidiaries to BOB Fiscal Services Ltd. ( f )On the same day, two nominees of the Ambani group, Mr. Mukesh Ambani and Mr. M. L. Bhakta, a solicitor of Reliance Industries Ltd., who are also directors of Reliance Industries Ltd. and Reliance Petrochemicals Ltd., were co-opted on the board of Larsen and Toubro Ltd. ( g )It is evident from the above events that the sale to BOB Fiscal Services Ltd. by the financial institutions was accepted by all parties concerned to be a sale to the Ambani group itself. Otherwise, there is no provocation or justification for the financial institutions to propose or to support appointment of Mr. Mukesh Ambani and Mr. M. Bhakta, who are the nominees of the Ambani group, on the board of Larsen and Toubro Ltd. The date of the transfer to BOB Fiscal Services Ltd. and the date of appointment of the Ambani group nominees on the Larsen and Toubro Ltd. board being the same is not a mere coincidence. ( h )Again, in December, 1988, Mr. Anil Ambani, another nominee of the Ambani group was co-opted on the board of Larsen and Toubro Ltd. as an additional director with the support of financial institutions even though the 33 lakhs shares still stood in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 571 to 573 of 1989 in this court under article 139A of the Constitution of India praying for the transfer of the said Letters Patent Appeal as well as Writ Petition No. 13199 of 1989 filed in the High Court at Madras by one Mr. N. Parthasarathy, a shareholder of Larsen and Toubro Ltd., against the Controller of Capital Issues and Larsen and Toubro Ltd. and Writ Petition No. 18399 of 1989 filed in the Karnataka High Court by Prof. S. R. Nayak and another against the Union of India and others raising similar questions. This court, vide its order dated November 9, 1989, allowed the Transfer Petitions Nos. 506 and 507 of 1989 and 571 to 573 of 1989 and directed that the Letters Patent Appeal against the judgment passed in Writ Petition No. 2595 of 1989 pending in the Bombay High Court be transferred to this court for final disposal. Writ Petition No. 13199 of 1989 filed in the Madras High Court and Writ Petition No. 18399 of 1989 filed in the Karnataka High Court were also transferred to this court. These matters on transfer to this court were numbered as Transfer Case No. 1 of 1990, Transfer Case No. 61 of 1989 and Transfer Case No. 62 of 1989, respectively. Transfer Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f BOB Fiscal Services Ltd. was contributed by the Bank of Baroda aggregating to about Rs. 10,00,00,000 (ten crores) to undertake mutual fund activities. It is to be taken notice of in this connection that Premjit Singh was the chairman of the Bank of Baroda at the relevant time and his son, Harjeet Singh, owned Kristal Poly Fab Ltd. whose only business is with Reliance Industries Ltd. Premjit Singh is closely linked to the house of Ambanis through the business of his son, Harjeet Singh. BOB Fiscal Services Ltd. was incorporated as a subsidiary of the Bank of Baroda only two months prior to the acquisition of shares of Larsen and Toubro Ltd., for the Ambani group for which it had acted as a conduit and it was the first business of BOB Fiscal Services Ltd. On July 15, 1988, BOB Fiscal Services Ltd. approached the Life Insurance Corporation of India and the Unit Trust of India to sell to it two "baskets" of blue chip shares of the value of Rs. 25 crores approximately each. This will be evident from paragraph 6( c ) of the affidavit of the Unit Trust of India. On August 1, 1988, the UTI and the LIC each offered to sell to BOB Fiscal Services Ltd. a basket of shares valued at Rs. 25 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as to the induction of Ambani's on the board of Larsen and Toubro company even though not a single share of Larsen and Toubro stood in their names. On December 30, 1988, Trishna Investment and Leasing Ltd. issued 3,300 equity shares of Rs. 10 each to Reliance Industries Ltd. and Reliance Petrochemicals P. Ltd. The capital of Trishna Investment was Rs. 44,000. On that day, the registered office of Trishna Investment was shifted to Maker Chamber IV, i.e., the office of Reliance Industries Ltd. On December 30, 1988, Anil Ambani was co-opted as director of Larsen and Toubro without any question being raised by the nominee-directors of UTI, LIC and IDBI. On January 6, 1989, the 39 lakhs shares sold by UTI, LIC and GIC to BOB Fiscal Services Ltd. were lodged by BOB Fiscal Services Ltd. for transfer in favour of Trishna Investment and Leasing Ltd. whose registered office was located at the office of Reliance Industries Ltd. Thus, BOB Fiscal Services Ltd. merely acted as a conduit for funnelling shares from the public financial institutions to the Ambani group. This is apparent from the fact that Mr. Premjit Singh, the chairman of the Bank of Baroda is closely linked to the house of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., 50% of the public issue) for Larsen and Toubro group companies, viz., Reliance Industries Ltd. and Reliance Petrochemicals Ltd. The application further mentions that Dhirubhai Ambani is the chairman and Mukesh Ambani is the vice-chairman of Larsen and Toubro and that Anil Ambani and Mr. M. L. Bhakta are directors. On August 11, 1989, a further letter was addressed by Larsen and Toubro to the Controller of Capital Issues forwarding copies of monopolies and restrictive trade practices clearance with regard to projects awarded to Larsen and Toubro made by the Central Government under section 22(3)( a ) of the Monopolies and Restrictive Trade Practices Act. On August 29, 1989, the Controller of Capital Issues passed an order approving the issue of convertible debentures. The prospectus is dated September 5, 1989, stating that the company is part of the Reliance group. We have heard the arguments of the respondents. The public financial institutions tried to justify the transfer of blue chip equity shares of Larsen and Toubro Ltd. on the ground that, while deciding to sell those shares, they acted purely on business principles and sold those shares at a very high market price an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easing Ltd., a satellite of the Ambani group though it had a capital of only Rs. 44,000 and the money required for purchase was at least Rs. 39 crores leads to the conclusion that such transfers had been made to help the Ambanis acquire the shares of Larsen and Toubro Company in a circuitous way. Moreover, the fund for purchase of the said shares was provided by the Ambani group from out of the money received by issue of convertible debentures for Rs. 594 crores to the public and others. Furthermore, immediately after acquisition of shares of Larsen and Toubro Ltd., Mukesh Ambani and M. L. Bhakta, who are directors of Reliance Industries Ltd./Reliance Petrochemicals Ltd. were co-opted as directors without any question as to their induction in the board of directors even by the nominee-directors of financial institutions, even though the shares were not registered in their names. Anil Ambani was also co-opted as director in December, 1988, and in.April, 1989, Dhirubhai Ambani became chairman of Larsen and Toubro. All these circumstances taken together clearly spell some doubt as to whether the transfer of such a huge number of 39 lakhs shares by the public financial institutions was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial question that falls for consideration is about the legality and validity of the consent given to the mega issue of debentures for the rights issue of Rs. 200 crores and for convertible issue of debentures of Rs. 620 crores out of which 310 crores of debentures were earmarked for issue to the shareholders and debentureholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. As stated hereinbefore that, after the purchase of 39 lakhs equity shares of Larsen and Toubro company from the public financial institutions, BOB Fiscal Services Ltd., a subsidiary of the Bank of Baroda transferred the same on the same day on which the transferred shares were registered in its name in the register of Larsen and Toubro to Trishna Investing and Leasing Ltd., a satellite of the Ambani group. It has also been alleged that, after Dhirubhai Ambani became the chairman of the board of directors of Larsen and Toubro Ltd. on April 28, 1989, Mukesh Ambani and M.L. Bhakta, directors of Reliance Industries Ltd./Reliance Petrochemicals Ltd. and Anil Ambani were co-opted as directors of Larsen and Toubro. The board of directors of Larsen and Toubro, at its meeting held on July 22, 1989, approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Reliance Industries Ltd. and Reliance Petrochemicals Ltd. will increase considerably the holding of equity shares by the Ambani group to control a public limited company. The consent order made by the Controller of Capital Issues was attacked mainly on the ground that the said order was made casually without any application of mind and without considering the fact that the effect of the same order will be to help the Ambani group to acquire debentures of the value of Rs. 310 crores specifically earmarked for preferential allotment to the shareholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. and thereby to have the control of Larsen and Toubro, a public limited company. It has also been alleged that this consent has been given hurriedly within 24 hours of the making of the application for consent to the Controller of Capital Issues. An affidavit-in-reply has been filed on behalf of respondents Nos. 1 and 2, the Union of India and the Controller of Capital Issues, denying all these allegations. It has been submitted that the claim made in the writ petition that undue haste in clearing the application (under the Capital Issues (Control) Act) was shown by respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the charge of favouring the Reliance group/Ambani group is frivolous and misleading and seeks to convey a wrong impression and imputes motives for which there is no basis. It has been further submitted that the impugned issue had been consented by the Central Government after due consideration, including the need for funds. It is submitted that funds are required by the company for working capital needs, normal capital expenditure and for executing the turnkey contracts of Larsen and Toubro Ltd. It is submitted that Larsen and Toubro indicated the turnkey contracts including, inter alia , the Gas Cracker Project and Acrylic Fibre Project of Reliance Industries Ltd. and Caustic Chlorine Project of Reliance Petrochemicals Ltd., for Rs. 635 crores as projects are to be executed. The Controller of Capital Issues has not permitted Reliance Industries Ltd. and Reliance Petrochemicals Ltd. to raise funds for these projects so far. Earlier funds raised from capital markets were used or/are being used for the following projects : RIL-PSF, PFY, PTA, LAB and Textile Units ; RPL-HDPE, PVCL and MEG. The allegation that, for the same projects, the Controller of Capital Issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Industries Ltd. and Reliance Petrochemicals Ltd. mainly on the ground that it will increase the shareholding of the Ambani group and thereby add to the monopoly control of the Ambani group over this public limited company. Under section 2( g ) of the Monopolies and Restrictive Trade Practices Act, 1969, "interconnected undertakings" means two or more undertakings which are interconnected with each other in any of the manner mentioned therein. Explanation I. For the purposes of this Act, two bodies corporate, shall be deemed to be under the same management. . . ( iii ) if one such body corporate holds not less than one fourth of the equity shares in the other or controls the composition of not less than one fourth of the total membership of the board of directors of the other. In the prospectus of Larsen and Toubro Ltd., obviously, it has been mentioned that Larsen and Toubro Ltd. is part of the Reliance group. Referring to the said provisions, it has been contended on behalf of the respondents, i.e., the financial institutions that mention of Larsen and Toubro company as part of the Reliance group is quite in accordance with this provision. Apropos this, a reference may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or setting up a cracker complex. The approval of the Central Government was made under section 22(3)( d ) of the Monopolies and Restrictive Trade Practices Act and communicated to Reliance Petrochemicals Ltd. by letter dated May 30, 1989. Consent was also given by the Central Government under section 22(3)( a ) of the Monopolies and Restrictive Trade Practices Act for the establishment of a new undertaking for the manufacture of 20,000 ( sic ) of acrylic fibre. Thus, challenge to the consent given by the Controller of Capital Issues is, therefore, meritless and so it is rejected. It is pertinent to refer in this connection to this court's judgment in the case of Narendra Kumar Maheshwari v. Union of India [1989] JT 2 SC 338 in which, considering the duties of the Controller of Capital Issues under the Capital Issues (Control) Act, while giving consent it has been observed (at page 368) : "That apart, whatever may have been the position at the time the Act was passed, the present duties of the Controller of Capital Issues have to be construed in the context of the current situation in the country, particularly, when there is no clear cut delineation of their scope in the ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the IDBI about the need for raising further funds by way of first call. This was communicated to the applicants by the IDBI's letter dated May 7, 1990. The board of directors, at its meeting held on May 11, 1990, considered the above circumstances as well as the proceedings pending in this court and decided that the company could not proceed with the conversion of Part A of the debentures which was due on May 23, 1990. The board authorised the company secretary to make the necessary application to the Controller of Capital Issues seeking directions for the course of action to be followed by the company in regard to the conversion. The applicant's letter dated May 15, 1990, to the Controller of Capital Issues pursuant to the aforesaid board meeting refers to the letter dated May 7, 1990, from the IDBI as well as to the objections raised by the ICICI. The applicants sent a letter dated May 15, 1990, to the Controller of Capital Issues pursuant to the above board meeting. After lengthy and detailed discussion by the IDBI with the applicant, the IDBI was satisfied that the amount of funds that would be presently required would be to the tune of Rs. 650 to 700 crores. The company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in prayer ( a ) above and on intimation being received by the applicant company as mentioned in prayer ( c ) below the applicants do refund to such debentureholders their/its application and allotment money with interest thereon at such rates as may be directed by this court ; ( c )that this court be pleased to direct the applicants to give notice to all debentureholders individually and by publication in national newspapers of the order passed in terms of prayers ( a ) and ( b ) above that in case of any debentureholder not agreeing to the modifications in prayer ( a ) such debentureholder to give intimation to the applicant company within 30 days of such notice in which case the applicant company would refund the application/allotment money with interest; ( d )for further orders and directions consequential to the orders passed by this court ; ( e )for costs of the application." Larsen and Toubro Ltd., respondent No. 2 in T. C. No. 61 of 1989, filed a rejoinder affidavit to the statement of objections filed by N. Parthasarathy to the Interim Application No. 1 of 1990 in T. C. No. 61 of 1989. In para 2 of the said rejoinder affidavit, it has been stated that : "By his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 990, to the managing director, Larsen and Toubro Ltd., stated that : "... From a quick review of the status of the new proposal mentioned in your letter dated June 22, 1990, we feel that the net requirements of funds to be met out of debenture funds would be in the region of Rs. 600 to Rs. 650 crores as indicated by you. We further note that from your letter dated June 28, 1990, that you propose to make the first and final call of Rs. 85 on the debentures on or before 31st October and to effect the first conversion by the end of November, 1990, and the second and third conversions according to the original dates mentioned in the prospectus. Larsen and Toubro board will have to take a view on the size of the debenture issue in the light of the requirements of funds indicated in your letter and other modifications suggested in the terms of the debentures. The company will no doubt obtain necessary approvals from the Controller of Capital Issues, debentureholders/shareholders, etc., in consultation with its legal advisers." A meeting of the board of directors of the company was held on June 29, 1990, and it was resolved that the directions of the Supreme Court of India be soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes for which the fund will be utilised contrary to what has been embodied in the prospectus and approved by the Controller of Capital Issues on the basis of the special resolution adopted at the general meeting of the shareholders of the company. Sub-section (6) of section 3 of the Capital Issues (Control) Act, 1947, states that : "The Central Government may by order at any time ( a )revoke the consent or recognition accorded under any of the provisions of this section ; or ( b )where such consent or recognition has been qualified with any conditions, vary all or any of those conditions : Provided that before an order under this sub-section is made, the company concerned shall be given a reasonable opportunity of showing cause why such order should not be made." On a plain reading of this provision, it cannot be inferred that the consent order given by the Central Government after consideration of the special resolution passed at the general meeting of the company on taking the no objection certification from the IDBI can be changed or varied in any manner whatsoever by the Central Government. The Central Government can merely vary all or any of the conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus, holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature, or extent, or quality, of the privileges and advantages which the prospectus holds out as inducements to take shares." Reference may also be made to the observations in Aaron's Reefs v. Twiss [1896] AC 273 (HL) in which Lord Watson said : "It was argued for the company that, inasmuch as its contracts for the purchase of the concession are generally referred to towards the end of the prospectus, the respondent must be held to have had notice of their contents. This appears to me to be one of the most audacious pleas that ever was put forward in answer to a charge of fraudulent misrepresentation. When analysed it means simply that a person who has induced another to act upon a statement made with intent to deceive must be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court. Letters Patent Appeal against the said judgment was filed in the Bombay High Court. Several other writ petitions and suits were filed in various other High Courts. Some contempt petitions were also filed and all the above matters were transferred to this court. Some interim applications were also filed by Larsen and Toubro before this court. The issues raised in these cases are of far-reaching impact on the affirmatory public duty and public obligations on the Government of India and its instrumentalities, to preserve and to refrain from squandering away the property and economic power of the State and to prevent illegitimate growth of private monopoly power and to ensure honesty and probity in public life and in industry and business. This is the largest mega issue so far as India is concerned and involves to a great extent the investment of the country's bulk economic resources to be invested for industrial growth or development of the country in a public limited company. The matter has to be looked into on the basis of the larger public interest which can be fulfilled by a balanced investment of the country's resources. My learned brother has already given the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted a memorandum. It was stated in the memorandum that the financial institutions had already bought back 39 lakhs shares of Larsen and Toubro with accretion thereto from Trishna Investment and Leasing Ltd. It was further stated that, by buying back the said shares, the financial institutions were in no way either remotely or impliedly acceding the position that the original transactions of sales were illegal or void. The financial institutions stood by their contentions which had been upheld by the Bombay High Court in its judgment dated September 29, 1989. It was further stated that the transactions had been completed on the expectation that the petitioners would withdraw the proceedings as, even otherwise, a basic portion of the petitions filed in the High Court had become infructuous. Mr. Jethmalani, learned counsel appearing on behalf of Haresh Jagtiani, also filed, a draft of consent terms to be recorded in the transfer petition. On November 9, 1989, this court, after considering all the circumstances of the matter, thought it just and fair to pass an order to the effect that the allotment of debentures will be made by the petitioner company, i.e., Larsen and Toubro and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave now become infructuous in view of the admitted retransfer of 39 lakhs shares by Trishna Investment and Leasing Ltd. to financial institutions. It is well-settled that the court should not decide merely academic points. In this regard, it is submitted that the principal relief as sought in prayers ( a ) and ( c ) no longer exist and the aforesaid transaction of retransfer of 39 lakhs shares was on the expectation that the petitioners will withdraw the proceedings. In support of the above contention, reliance is placed on State of Maharashtra v. Ramdas Shriniwas Nayah [1983] 1 SCR 8, at page 12. It has been further submitted that, in the alternative, Trishna Investment and Leasing Ltd. must be put in the identical status quo ante by retransfer of its 39 lakhs shares back to it, along with all accretions. It was also urged that there are a large number of disputed questions of fact which cannot be decided in exercise of the extraordinary jurisdiction contained in article 226 of the Constitution. Dr. Singhvi also urged that even if the action of the Reliance group was to corner or purchase all shares of Larsen and Toubro, there is nothing wrong or illegal about it. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant has also been appointed as liquidator for the beneficial winding up of BOB Fiscal Services Pvt. Ltd. It was further submitted by Dr. Chitaley that the essential grievance of the writ petitioners related to the transfer of 39 lakhs shares of Larsen and Toubro by the investment institutions and its subsidiaries to Trishna Investment and Leasing Ltd. through the alleged conduit or instrumentality of BOB Fiscal Services P. Ltd. It has been alleged by the petitioners that a conspiracy was hatched between the investment institutions and the Ambani group represented by Trishna and BOB Fiscal in order to camouflage the transactions and to prove ( sic ) the transfer of shares to BOB Fiscal in order to avoid compliance with the alleged guidelines and policy of the financial institutions to charge twice the market price for such sale of shares. The allegations were denied by various respondents which were upheld by the Bombay High Court by its judgment dated September 29, 1989. It was further submitted that, during the course of the proceedings before this court on October 18, 1989, Trishna Investments made an offer in the open court to sell back or retransfer the 39 lakhs shares in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of a "basket" of securities purely on commercial considerations. The investment institutions were in no way concerned with any subsequent dealings in the said shares by BOB Fiscal. The entire challenge of the writ petitioners to the actions of the financial institutions was now merely academic and any decision in this regard would be a waste of judicial time and totally unnecessary. It was also submitted that all allegations of conspiracy between the financial institutions and any other party are denied. It is denied that the investment institutions were at any time aware of the fact that 39 lakhs shares which were sold to BOB Fiscal were at any time intended or destined for the Ambani group as alleged. I agree with the observations made and conclusions arrived at by my learned brother B. C. Ray in respect of transfer of the 39 lakhs shares. I may further add that so far as the relief of a writ of mandamus directing the respondents to recover 39 lakhs shares of Larsen and Toubro and pay back the amounts received therefor is concerned, the prayer therefor does not survive in view of the shares having already been bought back by the financial institutions from Trishna Inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay High Court and serious allegations were made against them but they did not choose to refute any allegations by filing any counter affidavit in the High Court. In any case, we have derived our conclusions on the basis of admitted facts and not otherwise. It may be worth mentioning that BOB Fiscal was formed in June, 1988, and soon thereafter entered into transactions of purchase of 39 lakhs shares of Larsen and Toubro on the strength of deposit of Rs. 30 crores by the four satellite companies of the Ambani group and soon thereafter transferred the shares in favour of Trishna Investments. It has now, been stated before us by Dr. Chitaley appearing on behalf of BOB Fiscal that, in an extraordinary general meeting held on September 24, 1990, a special resolution has been passed for voluntary winding up of BOB Fiscal. This leads one to draw a legitimate inference that BOB Fiscal was brought into existence merely to act as a conduit and was merely an interloper to effect the transfer of 39 lakhs shares from the public financial institutions in favour of the Ambani group and their satellite firms. It came into existence like a rainy insect and lived out its utility after acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stated that 50 per cent, to be raised in calls would be based upon the monitoring by the IDBI for utilisation. This court, on November 9, 1989, allowed Larsen and Toubro to open the issue subject to the condition that the allotment will abide by the decision of this court. The issue was then opened and it was over-subscribed and more than 11 lakhs applicants applied for the allotment of the debentures. On the ground that, by virtue of the conditions in the consent order, the IDBI being the monitoring agency required Larsen and Toubro to furnish its funds requirement before making calls and since considerable details had to be worked out by Larsen and Toubro, it became necessary to postpone the first call originally due on April 30. Accordingly, the board of directors of Larsen and Toubro resolved that the date of payment of the first call money payable by the debenture-holders on or before April 30, 1990, would be postponed till such time as may be decided by the directors. Meanwhile, the Industrial Credit Investment Corporation of India (ICICI) who are the debenture-trustees in respect of Series IV debentures issued a letter dated April 30, 1990, to Larsen and Toubro stating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Controller of Capital Issues' consent order, the scope and parameters of the court's power to scrutinise the consent order have already been laid down in a recent decision of this court in N. K. Maheshwari v. Union of India [1989] 3 SCR 43. It was submitted that the limits as laid down in . K. Maheshwari's case [1989] 3 SCR 43, have not been transgressed so as to call for any interference in the consent order. Mr. Nariman thus justified the sanctioning of preferential allotment of shares worth Rs. 300 crores for the shareholders of the Reliance group as well as the consent order or the entire issue of Rs. 820 crores. It may be further noted that, initially, Larsen and Toubro had taken the stand to reduce the total amount of the issue to Rs. 640 crores instead of Rs. 820 crores, but finally took the stand that the issue may be proceeded with to the full extent of Rs. 820 crores in view of the fact that the IDBI had itself, in an affidavit-in-reply to their application before this court, taken the stand that it was not the IDBI's view to curtail the amount of issue and that it was Larsen and Toubro's own decision. Larsen and Toubro thus, in its affidavit dated September 11, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital Issues had given consent after thoroughly applying its mind. In any case, the impugned consent order is a single, composite indivisible order which cannot be appropriately bisected or bifurcated. Even if, for argument sake, it may be considered that the consent was not proper, then the whole consent must go and it cannot be selectively upheld and selectively quashed. As regards suppliers' credit it has been urged that provision of suppliers' credit is an extremely common and a well known commercial modality and indeed, constitutes an alternative scheme and mechanism of finance. Indeed, the concept of suppliers' credit, is integrally connected and inextricably intertwined with the concept of a turnkey project. In sum and substance, the concept of suppliers' credit simply means that the entire turnkey project is the property of Larsen and Toubro which executes it and then hands it over to the purchaser (in this case Reliance Industries Ltd./Reliance Petrochemicals Ltd.) and extends credit for payment to Reliance Industries Ltd./Reliance Petrochemicals Ltd. with effect from the date when the project is handed over as a running unit by Larsen and Toubro. The suppliers/works contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oke Sen, learned senior advocate appearing on behalf of K. B. J. Tilak, opposed the interim applications submitted on behalf of Larsen and Toubro. It was contended that Larsen and Toubro had no right to change the conditions of the consent order as well as the terms and conditions mentioned in the propectus. Mr. Sen also placed reliance on de Smith's Judicial Review of Administrative Action, 4th edition, page 285, which sets out the principles governing the exercise of discretionary powers as under : "The relevant principles formulated by the courts may be broadly summarised as follows.. The authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it. It must not act under the dictation of another body or disable itself from exercising the discretion in each individual case. In the purported exercise of its discretion, it must not do what it has been forbidden to do, nor must it do what it has not been authorised to do. It must act in good faith, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may have refused to take into account something which it was required to take into account. Or it may have based its decision on some matter which, under the provisions setting it up, it had no right to take into account. I do not intend this list to be exhaustive. But if it decides a question remitted to it for decision without committing any of these errors, it is as much entitled to decide that question wrongly as it is to decide it rightly." It was also submitted that the consent order of the Controller is an integrated and composite order and that it cannot be vivisected either by the IDBI or by the High Court. It is a statutory order which has been made by a statutory authority in accordance with the Capital Issues (Control) Act and Rules, approved by the Controller and the issue was subscribed on the basis of such consent order and prospectus and no other functionaries can change this order. It was submitted that the prospectus did not specify any contract apart from the turnkey contract of Reliance Industries Ltd. and also did not mention anything except the supply credit necessary for financing these turnkey projects which would require Rs. 635 crores out of Rs. 820 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the consent. It was contended that, with regard to the shares, specific performance is the rule. Reliance in support of this contention is placed on Jai Narain v. Surajmull [1949] AIR 1949 FC 211. It was pointed out by the Federal Court that shares of a company are limited in number and are not ordinarily available in the market, and that it is quite proper to grant a decree for specific performance of a contract for sale of such shares. The IDBI can only monitor the utilisation of funds by Larsen and Toubro as they are collected in terms of the clause as specified in the prospectus to ensure that the funds are actually utilised for the specific predetermined projects for which they are raised and this condition cannot be so interpreted as to confer a right on the IDBI to decide as to the mode and manner and collection of funds itself. Mr. S. S. Ray, learned senior advocate, contended that the consent order dated August 29, 1989, was perfectly lawful and valid and that the judgment of the Bombay High Court in this regard was correct. It was not possible for the court to dissect or vivisect the consent order or to apply the "blue pencil theory" there too and also to hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of debentures was varied and the suppliers' credit for Rs. 545 crores in respect of turnkey projects of Reliance Industries Ltd. was cancelled. It was pointed out by Mr. Ray that taking note of the above documents and the happenings, even if a part of the consent order dated August 29, 1989, is found to be bad or unlawful, nothing can remain of the consent order and it has to go in its entirety. Mr. Hegde, the learned Additional Solicitor-General appearing on behalf of the financial institutions, submitted that it was wrong to say that the Ambani holding in Larsen and Toubro has increased from 12% to 35.3%. It is based on a completely erroneous hypothesis that the shareholdings in Reliance Industries Ltd./Reliance Petrochemicals Ltd. are only of the Ambanis, 35 lakhs shareholders comprising 50 per cent of the investing public of India are in fact the public at large. Rs. 200 crores worth of debentures were under the rights issue and it was mandatory under the guidelines for subscribing to any issue. Out of the remaining Rs. 620 crores, approximately, Rs. 320 crores debentures were reserved for preferential entitlement to equity shareholders of Reliance Industries Ltd./Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , destroy or vary the contracts made between the investor and the company concerned. On the other hand, Mr. Harish Salve, learned counsel appearing on behalf of the petitioners in Transferred Case No. 61 of 1989, submitted that the order granting permission by the Controller of Capital Issues is alleged to be illegal as the Controller of Capital Issues has overlooked the implications of the Monopolies and Restrictive Trade Practices Act vis-a-vis the supplier's credit. The dominant and real object underlying the issue was to make available funds for application to the Reliance group projects and also to provide a tool by which the Ambanis and the Reliance group shareholders could increase their control over Larsen and Toubro and dilute the control of the financial institutions. The issue was brought about directly as a result of the illegal takeover of Larsen and Toubro by the Ambanis. Thus, the entire issue is tainted by fraud and void ab initio. It has been further submitted that, in reality and substance, the entire issue is tainted since the issue was an attempt by the Ambanis who had, by means fair and foul, garnered the control of Larsen and Toubro to raise moneys using t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nopoly defies control and regulation was a glaring factor quite apart from the technicalities of the Monopolies Act. Section 22(3)( b ) and ( d ) of the Monopolies and Restrictive Trade Practices Act required an indepth policy examination at the highest policy levels and consultation with the Monopolies Commission and the Planning Commission. The record does not disclose any such consideration or consultation ; on the other hand, the so-called consideration can be seen to be casual, perfunctory and biased. Even in the case of transfer of shares of an ordinary company, the directors have discretion to refuse the transfer if they feel that the person is undesirable or that his shareholding is not in the best interests of the company and, repeatedly, courts have upheld such bona fide refusal to transfer. Such being the case, it was notorious in the present case that the Ambanis' high ambitions were out to take over Larsen and Toubro. It was thus contended that the nominees of the financial institutions were at the very outset put on inquiry, when, without any shareholding, the first two Ambanis sat on the board of directors and, thereafter, Dhirubhai Ambani usurped the chairman's seat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made of Rs. 310 crores of convertible debentures for the shareholders of Reliance group of companies. In this regard, it has been contended that in case this court does not hold the entire consent as invalid, then the part giving preferential reservation of Rs. 310 crores of convertible debentures for the shareholders of the Reliance group of companies may be declared invalid but the remaining part of the issue of Rs. 510 crores be declared valid, as the consent can be legally bifurcated into valid and invalid portions. The other group of lawyers have contended that the consent given by the Controller of Capital Issue did not suffer from any infirmity and, in any case, it cannot be bisected or bifurcated into valid and invalid portions. The consent order was an integral part of a single scheme and shall be valid or invalid as a whole and it does not lie within the judicial review of the courts to declare one part of the consent order as valid and the other part as invalid. As already mentioned above, this is a mega issue amounting to Rs. 820 crores, out of which Rs. 200 crores is the rights issue for the shareholders and employees of Larsen and Toubro itself. Issue of Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal or not on the grounds raised by the petitioners. This court, in N. K. Maheshwari's case [1989] JT 2 SC 338, 368 while considering the duties of the Controller of Capital Issues under the Control of Capital Issues Act while giving consent, has observed as under : "That apart, whatever may have been the position at the time the Act was passed, the present duties of the Controller of Capital Issues have to be construed in the context of the current situation in the country, particularly, when there is no clear cut delineation of their scope in the enactment. This line of thought is also reinforced by the expanding scope of the guidelines issued under the Act from time to time and the increasing range of financial instruments that enter the market. Looking to all this, we think that the Controller of Capital Issues has also a role to play in ensuring that public interest does not suffer as a consequence of the consent granted by him. But, as we have explained later, the responsibilities of the Controller of Capital Issues in this direction should not be widened beyond the range of expeditious implementation of the scheme of the Act and should, at least for the present, be restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued by Mr. Iyengar that, in 1988-89, the capital market, according to available economic reports, had about Rs. 5,000 crores public investment funds, limited as it was by poor savings and high inflation. There were so called mega issues, four or five in number, which had the resources to exploit the media including the electronic media. None of these mega issues had anything like suppliers' credit from their associates, companies or otherwise. Reliance Petrochemicals had already appropriated Rs. 560 crores and nearly 3,000 crores of rupees had been appropriated by large issues when the impugned issue was presented. After that, the capital available for wage goods industries, other labour intensive industries, critical industries sought to be set up by hundreds of professionals who had neither political influence nor the means to exploit the media would have been left with a very meagre amount available for allocation. It has been further contended that the Reliance group of companies had, in about one year, established access to about 1,500 crores of rupees, including suppliers' credit of Rs. 635 crores and had thereby become India's largest conglomerate with three different ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res during this intervening period. Under the order of this court dated November 9, 1989, no restrictions were placed on Larsen and Toubro in the matter of utilisation of funds. According to Larsen and Toubro against Rs. 410 crores due on application and allotment, Larsen and Toubro has so far received Rs. 396 crores, out of which approximately Rs. 300 crores have been utilised towards issue expenses, capital expenditure, repayment of loans and working capital in terms of the objects of the issue. The balance available with the company is approximately Rs. 96 crores only. There is already a safeguard provided in the order of the Controller of Capital Issues, dated November 15, 1989, that the fund utilisation shall be with the approval of the IDBI. In any case, the consent order given by the Controller of Capital Issues cannot be held invalid on any of the grounds of challenge raised by the petitioners. In these proceedings, this court is neither called upon nor is entitled to decide as to how and in what manner the amount mopped up from the public by this mega issue could be utilised or spent. Thus, I agree with my learned brother B. C. Ray J. that the consent given by the Controll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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