TMI Blog1991 (4) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... Toubro Ltd. held by Unit Trust of India, Life Insurance Corporation of India, General Insurance Company and its subsidiaries to Trishna Investment Leasing Ltd. through the instrumentality of BOB Fiscal Services Ltd. is arbitrary, illegal, mala fide and a fraud on the statutory powers of the respondents and is clearly ultra vires of Articles 14 and 39(b) and (c) of the Constitution on the allegations that in or around the middle of the year 1988 the respondents entered into a secret agreement by which a large chunk of the equity shares of Larsen Toubro Ltd., the largest engineering company in India, would stand surreptitiously divested by the respondents in favour of the Ambani Group, the third largest monopoly house in India. This divestment was achieved not directly but, indirectly and with a motive to conceal the real nature of the deal by interpolating BOB Fiscal Services Ltd. (a wholly owned subsidiary of Bank of Baroda) as the conduit for the transfer of shares from the public financial institutions to the satellite companies of the Ambani Group. 2. The petitioners also alleged in the petition that pursuant to this secret agreement, the following events took place in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance Industries, joined the Board of Larsen Toubro Ltd. and were co-opted as additional directors. Subsequently, on 30th December, 1988, Mr. Anil Ambani another nominee of the Ambani Group was also co-opted on the Board of Larsen Toubro Ltd., as an additional director. On 6th January, 1989, the entire 39 lakh equity shares of Larsen Toubro Ltd. registered in the name of BOB Fiscal Services Limited (of which 6 lakh shares transferred to BOB Fiscal Services Ltd. by LIC was registered in the name of BOB Fiscal Services Ltd. only on 6-1-89) were transferred to Trishna Investments and Leasing Ltd., which is a satellite company of the house of Ambanis. 3. Thus, BOB Fiscal Services merely acted as a conduit for funnelling shares from the public financial institutions to the Ambani group and this interpolation of BOB Fiscal Services was necessitated to get over the legal impediments in the way of selling any part of the controlling shares held by public financial institutions to private parties by private deals except to those already in management and at a price equal to two times the market price. 4. The Chairman of Bank of Baroda, Mr. Premjit Singh, is closely linked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred group which is not in law entitled to any issue of shares from Larsen Toubro Ltd., has been chosen to be the preferential beneficiaries of the scheme under which they would get shares in Larsen Toubro Ltd. at ₹ 60% per share when the shareholders of Larsen Toubro Ltd. themselves (who, by law, are entitled to further issue of shares from Larsen Toubro Ltd.) would be issued ' Larsen Toubro shares under the convertible debentures issued in April 1989 only at Rs. .65/- per share.Thus, as against 35.5% holding of Ambani Reliance Group, the public finance bodies, which held 40% shares before they diluted their holdings in favour of the Ambani group, would have had their holding further diluted to only 22.9% as a result of the present issue. In other words, by approving the terms of the proposed issue the public financial institutions have agreed to a further dilution of their holdings from 32.8% to 22.9% without any consideration whatsoever for agreeing to such reduction and to pass on their vested rights u/ s. 81 of the Companies Act to pre-emptive allotment of shares in Larsen Toubro to the members, debentureholders and employees of Reliance Industries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd support of the Central Government. 9. The modus operandi adopted for the transfer was as under:- , (a) In the month of May, 1988, Bank of Baroda of which Mr. Premjit Singh is the Chairman, forms a'subsidiary for merchant banking under the name and style of BOB Fiscal Services P. Ltd. This Company became a public company u/s. 43A of the Companies Act, 1956, in June, 1988. Mr. Harjit Singh, son of. Premjit Singh, owned a company 'Krystal Poly Fab. Ltd.'whose only business is texturising of partially oriented yarn from Reliance Industries Ltd. and the supply of texturised yarn back to Reliance Industries Ltd. or its nominees. (b) On 5th August, 1988, four satellite companies of the House of Ambanis, viz. SKYLAB Detergents Ltd., OSCAR Chemicals Pvt. Ltd., MAXWELL Dyes Chemicals Pvt. Ltd. and PRELAB Synthetics Pvt. Ltd. gave a total deposit of ₹ 30 crores to an investment company, associated with Reliance who, in turn, deposited the same amount with BOB Fiscal Services. (c) Either immediately preceding this deposit or immediately thereafter, BOB Fiscal Services acquired 33 lakh equity shares in Larsen Toubro Ltd. from the UTI, LIC and GIC and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Larsen Toubro Ltd: as an Additional director with the support of financial institutions even though the 33 lakh shares still stood in the name of BOB Fiscal Services Ltd. 10. It has been further pleaded that Trishna Investments Leasing Ltd. to which the 33 lakh equity shares of Larsen Toubro Ltd. were sold by the financial institutions through the instrumentality of BOB Fiscal Services Ltd. was incorporated as a private limited company on 1 st October, 1986 with a paid up capital of ₹ 11,000 It is evident that even after acquisition of 3,300 equity shares of ₹ 10 each of Reliance Industries Ltd., the paid up share capital was only ₹ 44,000/-. 11. An affidavit in opposition was filed on behalf of the respondent by Mr. S. D. Kulkarni, a whole-time Director and Vice- President (Finance) of Larsen Toubro Ltd. In para 6 of the said affidavit it has been stated that the shareholders are different and distinct frtin the company and do not have any interest whatsoever in the property of the company unless and until the winding up takes place. The company is a distinct legal entity and it does not have in law or fact any control over the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were numbered as Transfer Case No. 1 of 1990, Transfer Case No. 61 of 1989 and Transfer Case No. 62 of 1989 respectively. 15. The Transfer Petitions Nos. 458-467 of 1990 praying for the transfer of cases filed in different High Courts raising the similar grounds are allowed and the Transferred Cases arising out of these are also heard along with the Transferred Cases Nos. 1 of 1990, 61 of 1989 and 62 of 1989. 16. Two questions that pose themselves for consideration in all these above cases are':- 1) whether the surreptitious divestment of 39 lakhs shares of. L T, a large Industrial undertaking by sale through the instrumentality of BOB Fiscal Services Ltd., a subsidiary of a nationalised Bank i.e. Bank of Baroda by the public financial institutions -G.I.C., L.I.C., U.T.I. and thereby helping a private monopoly house of the Ambani Group to acquire the said shares and thereby to get into the management of the Public Company amounts to an arbitrary exercise of statutory power of the State and the respondents. Secondly, whether the consent accorded by Controller of Capital Issues, a preferential issue of debentures by Larsen Toubro Ltd. of ₹ 310 crores for being subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell to BOB Fiscal Services Ltd. a basket of shares valued at ₹ 25.Crores. The U.T.I. basket was valued at-Rs. 23.66 crores including 10 lakh Larsen Toubro Ltd. shares which were sold ₹ 108/-, per share. The L.I.C. Basket was valued at ₹ 25.56 crores and it included 15 lakh L T shares. L T shares constituted approximately 55% of the value of the two baskets. This is clear from para 6(d) of the affidavit of Unit Trust of India. On 3-8-88 BOB Fiscal Services Ltd. accepted the two baskets of shares comprising of 25 lakhs L T shares and shares of 7 other companies valued in total ₹ 50.23 crores. On August 5, 1988 four satellite Companies of the Reliance Group gave ₹ 30 crores to V. B. Desai, Finance Broker, who in turn gave a short term call deposit of ₹ 30 crores to BOB Fiscal Services Ltd. as is evident from the affidavit filed by BOB Fiscal Services Ltd. On August 5, 1988, BOB Fiscal Services Ltd. sold 25 lakhs L T shares to V. B. Desai, the Broker. Thus BOB Fiscal Services Ltd. acquired 33 lakhs equity shares of L T from U.T.I., L.I.C., G.I.C. and its subsidiaries. Later in January, 1989 it acquired a further 6 lakhs shares from the L.I.C. withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubro Ltd. shares by it. 20. On 28th April, 1989 Dhirubhai Ambani, the Chairman of Reliance Group, became the Chairman of Larsen Toubro. By this process the public Financial Institutions which held 40% of the shares of L T company voluntarily diluted their holding to 33% and parted with approximately 7% to the house of Ambani's and made them the single largest private shareholder. This was done as submitted by the appellants deliberately and with a design to legitimise the eventual take over of Larsen Toubro by the Ambanis. It is to be noticed that on 26-5-89 the Board of Directors of L T decided to convene an annual General Meeting on 27-7-89. Board also resolved to recommend that 8 crores be invested in two specified companies and that a further sum of ₹ 50 crores be invested in the purchase of equity shares in any other company. On 23-6-1989 Board of Directors of L T further resolved to invest a sum of ₹ 76 crores in the purchase of Equity Shares of R.I.L. On 21-7-89 R.I.L. and R.P.L. wrote letters. to L T seeking suppliers credit to the extent of ₹ 635 crores for projects which they planned to entrust to L T. It is appropriate to note that prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 9 that the transfer of 39 lakh shares of Larsen Toubro were not made in favour of satellite companies of Ambani Group, through BOB Fiscal Services Ltd. which is a wholly owned subsidiary of Bank of Baroda, surreptitiously and discreetly on the basis of a design and a secret arrangement by transferring 7% out of 40% of the shareholding in L T and thus reducing their shareholding in the Company to 33%. It has also been submitted that in transferring those equity shaes the financial institutions acted purely on business principles and to earn profit by these transactions and in the case of L.I.C. and U.T.I. in the interest of the policv holders and the unit holders as the case may be. It has also been urged that the acceptance of the requests made by the subsidiary of Bank of Baroda i.e. BOB Fiscal Services for selling the blue chip shares of L T to them at the highest market price through the broker was in public interest in as much as if all those 39 lakh shares had been put in the stock market for sale it would have created an adverse effect on the company and there would have been a run affecting adversely the interest of the L T company. It has also been contended that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided in each case with reference to the particular action......... When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder with all the rights available to such a shareholder. This observation, in my considered opinion, has no application to the facts of the instant., case as the public financial institutions are not purchasing the shares of a company. 24. However, I do not think it necessary to dilate on this point as the financial institutions have already bought back all the 39 lakh shares from Trishna Investment and Leasing Ltd. with the accretions thereon but at the same time we add a note of caution that the public financial institutions while transferring or selling bulk number of shares must consider whether such a transfer will lead to acquisition of a large proportion of the shares of a public company and thereby creating a monopoly in favour of a particular group to have a controlling voice in the company if the same is not in public interest and not congenial to the promotion of business. 25. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hairman and Mukesh Ambani is the Vice-Chairman of L T and that Anil Ambani and Mr. M. L. Bhakta are Directors. On 11-8-89 another letter was sent by L T to the Controller of Capital Issues, respondent No. 2 stating inter alia that the Company wishes to modify their proposal by reducing the reservation for the shareholders of R. 1. L. / R. P. L. from ₹ 360 crores to ₹ 310 crores etc. and the issue of total debentures was reduced to ₹ 820 crores. On August 21, 1989 at the extraordinary general meeting of L T Ltd. resolution was passed authorising the Board of Directors of the company to issue 12.5% fully secured convertible debentures of the total' value of ₹ 820 crores to be subscribed in the manner as stated therein. The respondent No. 2, Controller of Capital Issues, by its letter dated 29-8-89 addressed to M/ s. Larsen Toubro Ltd. with reference to its letter dated 26-7-89 intimated that the Central Government in exercise of the powers conferred by the Capital Issues (Control) Act, 1947 gave their consent to the issue by L T Ltd. of 12.5% secured fully convertible, debentures of the value of ₹ 820 crores in the manner specified therein. 27. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s can also offer shares of their company to any person or corporate body who is not even connected with the company. However, CCI would not normally permit reservations for shareholders of any unconnected company out of public issue, unless it is offered to shareholders -of Associate/ Group company of the Issuing Company. It is submitted that Larsen Toubro had indicated that Reliance Industries Ltd. (RIL) and Reliance Petrochemicals Ltd. (RPL) are their group Companies. It is also submitted that Larsen Toubro filed a copy of the special resolution passed in the General Body meeting held on 21-8-89 which permitted the company to offer its convertible debentures worth ₹ 310 crores to the shareholders of RIL and RPL. It is submitted that the CCI permitted similar reservation for shareholders of Associate/ Group companies in the.public issue of M/ s. Apollo Tyres Ltd., M/s Essar Gujarat Ltd., M/s. Bindal Agro Ltd., M/s. Chambal Fertilizers and several other companies. It is submitted that there was no reason for CCI to reject the request of Larsen Toubro for this reservation as the shareholder of L T had approved such reservation. 29. It has been further submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of this resolution was sent to the Controller of Capital Issues who after duly considering the same accorded the consent on August 29, 1989. The argument that there has been complete non-application of mind by the Controller of Capital Issues in according the consent is not sustainable. Moreover, the Controller of Capital Issues issued a letter dated 15th September, 1989 to M/s. Larsen and Toubro to note amendment of the condition of the consent order to the effect that fund utilisation shall be monitered by Industrial Development Bank of India. This will further go to show that the consent was ,given after due consideration in accordance with the provisions of S. 3 of the Capital Issues(Control) Act, 1947 (Act 29 of 1947). 31. Much arguments have been made as to the provision in the prospectus reserving preferential allotment of debentures of ₹ 310 crores to the equity shareholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd., mainly on the ground that it will increase the share holding of the Ambani group and thereby and to the monopoly control of Ambani group over this public limited company. Under S. 2(g) of the Monopolies and Restrictive Trade Pract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of debentures to the extent of ₹ 820 crores and the balance would be met from internal accruals by way of short term borrowings, and out of the proceeds of the previous Debenture Issue (III Series). The consent was challenged on the ground that no M.R.T.P. clearnace for the issue of capital under S. 21 or under S. 22 of the Monopolies and Restrictive Trade Practices Act, 1969 was given. It appears from the letter dated 2-12-1988 issued by Government of India to M/ S. Reliance Industries Ltd endorsing a copy of Central Government's'order dated 25-11-1988 passed under S. 22(3) (e) of the M. R. T. P. Act, 1969 that it gave approval for the proposal of M/ s. Reliance Industries Ltd. for setting up a craker complex. The approval of Central Government was made under S. 22(3)(d) of the M.R.T.P. Act and communicated to M/s. Reliance.Petrochemicals Ltd. by letter dated 30-5-1989. Consent was also given by the Central Government under S. 22(3)(a) of the M.R.T.P. Act for the establishment of a new undertaking for the manufacture of 20,000 of Acrylic Fibre. Thus, challenge to the consent given by Controller of Capital issues is, therefore, meritless and so it is rejected. 33. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose debentures to equity shares before reference was made to the Controller of Capital Issues and without obtaining prior written consent of the IDBI. The IDBI considered the unaudited statement of the utilisation of debenture fund up to March 31, 1990 and were of the opinion that the applicants should make the first call only after utilising substantially the surplus funds available to the extent of ₹ 226 crores in investments (after expenditure) up to June 30, 1990 satisfying the IDBI about the need for raising further funds by way of first call. This was communicated to the applicants by IDBI's letter dated 7th May, 1990. 35. The Board of Directors at its meeting held on 11 th May, 1990 considered the above circumstances as well as the proceedings that the Company could not proceed-with the conversion of Part A of the debentures which was due on 23rd May, 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 15th May, 1990 to the Controller of Capital Issues pursuant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date originally scheduled viz. 23rd May, 1991. (v) that the third equity conversion of Part C of the debentures be made on the originally scheduled viz. 23rd May, 1992 at such premium per equity share as may be fixed by the Controller of Capital Issues but not exceeding ₹ 55 per share and such conversion be made into one or more equity shares of ₹ 10/- each as against two or more equity shares as originally provided in the prospectus. (b) that in case of any debenture-holder not agreeing to the modifications, 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 debenture-holders their' its application and allotment money with interest thereon at such rate 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 debenture-holder not agreeing to the modifications in prayer (a) such debentureholders do give intimation to the applicant company within 30 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-sec. (6) of S. 3 of the Capital Issues (Control) Act, 1947, the Central Government has the power to vary all or any of the conditions qualifying a consent. 42. It has been denied in para 8 of the said affidavit that the consent order of the Controller of Capital Issues is at all illegal or improper as alleged. It has been denied that it is not open for this Court or for the Controller of Capital Issues to modify the terms of the said consent order. 43. It is to be noted that the Industrial Development Bank of India by its letter dated June 28, 1990 to the Managing Director, Larsen 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 ₹ 600 to ₹ 650 crores as indicated by you. We further note that from your letter dated June 28, 1990 that you propose to make first and final call ₹ 85 on the debentures on or before 31st October and to effect the first conversion by the end of November, 1990 and second and third conversion according to the original dates mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct mentioned in the prospectus or the statements in lieu of the prospectus cannot be varied except with the approval of and on the authority given by the Company in the general meeting. Therefore, the consent that was given by the Central Government nay by the Controller of Capital Issues, on a consideration of the special resolution adopted in the extraordinary general meeting of the shareholders of the company on August 28, 1989 cannot be varied, changed or modified both as regard! the reduction of the amount of debentures as well as the purposes for which the fund will be utilised contrary to what has been embodied in the prospectus and apprqved 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-sec. (6) of the S. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove a consent order different from the statutory consent order given by the statutory authority. Moreover, the consent order cannot be varied by the Central Government or Controller of Capital Issues after the said order has been made public and third parties have acted on it and acquired rights thereon. 51. In Palmer's Company Law (24th Edition) by C. M. Schmitthoff under the caption 'The golden rule as to framing prospectuses' at pp. 332-333 it is stated that : Those who issue a prospectus, 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. 52. Reference may also be made to the observations in Aaron's v. Twiss, 1896 AC 273 in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Limited Company (in short L T). Challenge was also made in respect oi transfer of 39 lac shares of L T held by Unit Trust of India (UTI), Life Insurance Corporation of India (LIC), General Insurance Company (GIC) and its subsidiaries to Trishna Investments and Leasing Limited (in short Trishna Investments) through the instrumentality of Bob Fiscal Services Limited (in short Bob Fiscal). The Writ petition was dismissed on 29-9-89 by learned single Judge of the Bombay 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 vario'us'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 L T before this Court. The issues raised in these cases are of far reaching impact on the affirmatory public duty and public obligations on the Governmerit of India and its instrumentalities, to preserve and to refrain from squandering away the property and economic power of the 3Late and to prevent illegitimate growth of private monopoly power and to ensure honesty and probity in public li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed writ petitions and suits in several High Courts and this Court in the above circumstances thought it proper to transfer all the cases to this Court. Pursuant to the order of this Court dated October 27, 1989 learned Additional Solicitor General appearing on behalf of the financial institutions submitted a memorandum. It was stated in the memorandum that the financial institutions had already bought back 39 lac shares of L T with accretion thereto from Trishna Investments. 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 expectat ion that the petitioners would withdraw the proceedings as even otherwise a basic portion ,of the petitions filed in the High Court had become infructuous. 60. Mr. Jethmalani, learned counsel appearing on behalf of Haresh Jagtiani also filed a draft of consent terms to be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the present proceedings have now become infructuous in view of the admitted retransfer of 39 lac shares by Trishna Investments 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 exists and the aforesaid transaction of retransfer of 39 lac 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 Nayak (1983) 1 SCR 8 at p. 12: AIR 1982 SC 1249. It has been further submitted that in the alternative Trishna Investments must be put in the identical status quo ante position by retransfer of its 39 lac shares back to it, along with all accretions It was also urged that there are large number of disputed questions of fact which cannot be decided in exercise of extraordinary jurisdiction contained in Art. 226 of the Constitution. 63. Dr. Singhvi also urged that even if the action of the Reliance group was to corner or purchase all shares of L T, there is nothing wrong or illegal about it. There was no law o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up of the Bob Fiscal Services Pvt. Ltd. It was further submitted by Dr. Chitaley that essential grievance of the writ petitioners related to the transfer of 39 lac shares of L T by the investment institutions and its subsidiaries to M/s. Trishna Investments and Leasing through the alleged conduit or instrumentality of Bob Fiscal. It has been alleged by the petitioners that a conspiracy was hatched between investment institutions and Ambani group represented by Trishna and Bob Fiscal in order to camouflage the transactions and to prove the transfer of shares to Bob Fiscal in order to avoid compliance of the alleged guidelines and policy of the financial institutions to charge at two times the market price for such sale of shares. The allegations were denied by various respondents which were upheld by Bombay High Court by its judgment dated 29th September, 1989. It was further submitted that during the course of the proceedings before this Court on 18th October, 1989 Trishna Investments made offer in open Court to sell back or retransfer the 39 lac shares in quetion together with accretions to the investment institutions on no loss no profit basis. On 27th October, 1989 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investment institutions at any time were aware of the fact that 39 lac shares which were sold to Bob Fiscal were at any time intended or destined for the Ambani group as alleged. 67. I agree with the observations made and conclusions arrived at by my learned brother B. C. Ray in respect of transfer of 39 lac shares. 1 may, further, add that so far as the relief of a writ of mandamus directing the respondents to recover 39 lac shares of L T and pay back the amounts received therefor, does not survive in view of the shares having already bought back by the financial institutions from Trishna Investments. However, for future guidance it may be worthwhile to note that public financial institutions while making a deal in respect of a very large number or bulk of shares worth several crores of rupees must also make some inquiry a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 and soon thereafter entered into transactions of purchase of 39 lac shares of L T on the strength of deposit of ₹ 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 24-9-90 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 affect the transfer of 39 lac shares of public financial institutions in favour of Ambani Group and their satellite firms. It came into existence like a rainy insect and lived out its utility after acting as a conduit for the transfer of 39 lac shares in favour of Trishna Investments. I do not consider it necessary to further dilate on this point and fully agree with my learned brother that all the circumstances taken together clearly spell some doubt whether the transfer of such a huge number of 39 lac shares by the public financial institutions was for public int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e p30th April 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 30th April, 1990 to L T stating that it would not be correct for them as debenture trustees to give conversion of these debentures into equity shares before a reference was made to the CCI and without obtaining prior written consent of the IDBI. IDBI then considered the unaudited statement giving details of the utilisation of debenture funds up to 30th March, 1990 and were of the view that the applicants (L T) should make the first call only after utilising substantially the surplus funds available to the extent of ₹ 226 crores in investments (after expenditure) up to June 30, 1990 and after satisfying IDBI about the need for raising further funds by way of first call. After a prolonged discussion and correspondence with all the concerned authorities L T proposed to make a call (first final) of ₹ 85/- on or before 31st October, 1990 in place of the originally envisaged first call of ₹ 75 / -and the final call of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was L T's own decision. The L T thus in its affidavit dated 11 th September, 1990 made it clear that the issue may be proceeded to the full extent of ₹ 820 crores and only a postponement of the dates of the first call, first equity conversion and the second call may be permitted. 72. Mr. Chinoy, learned counsel appearing for the petitioners vehemently submitted that the petitioners had not come forward with a grievance regarding the validity of issue of debentures only. His contention was that the petitioners had come forward raising larger issues affecting the entire economy of the country and the underhand practice adopted by the financial institutions and the big private industrialists. It was submitted that there was a limited financial capacity of the investor public in the shares and CCI as a controller ought to see that such public investment should not go in the hands of a few industrialists which would be contrary to the Directive Principles enshrined in Art. 39(b) (c) of the Constitution of India. It should adhere to the above State Policy enshrined in the Directive Principles that the ownership and control of the material resources of the community ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject would be paid in instalment inclusive of further running'interest from the date of handing over till the date of payment. It has been submitted that all official documents and other materials in the present case specifically stipulate and specify the precise particular projects for which the moneys were sought to be raised by L T. Thus it is uncontrovertibly clear that the sole and only purpose for raising of funds and the sole and only requirement of funds by L T related to the extension of suppliers credit to RIL, inter alia in respect of its cracker. project which has also been shown on pages 10 and 11 of the prospectus. Similarly, reference has been made to other turnkey projects of RIL/ RPL in the prospectus. It has thus been argued that if the consent of CCI was given taking note of all these circumstances then L T has no right to change the same and utilise the funds for other purposes. The issue was only of ₹ 820 crores for specific projects of RIL/ RPL worth 635 crores and the entire issue would be subject to the fulfilment of the above contracts made with RIL/ RPL. Theoriginal consent of the Controller was given on 29-8-89 and the same cannot be cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o main categories : failure to exercise a discretion, and excess or abuse of discretionary power. The two classes are not mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account; and where an authority hands over its discretion to another body it acts ultra vires. Nor, as will be shown, is it possible to differentiate with precision the grounds of invalidity contained within each category. 75. When such order is passed without regard to relevant consideration or irrelevant grounds or for an improper purpose or in bad faith then the order becomes void. Mr. Sen also cited a passage of House of Lords in Anisminic Ltd. v. The Foreign Compensation Commission, (1969 2 AC 147) which has been quoted by the Supreme Court in (1971) 3 SCR 557 at p 570: (AIR 1971 SC 1558 at p 1565), which reads as under: It has sometimes been said that it is only where a tribunal acts without jurisdiction that its decision is a nullity. But in such cases the word jurisdiction has been used in a very wide sense and 1 have come to the conclusion that it is better not to use the term except in the narrow and original sense of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded ₹ 510 crores to be extended to RIL in respect of its Naptha Cracker project. It was further specifically stated that the funds requirement was intended to be met out of the present issue of the debentures to the extent of ₹ 820 crores and the balance would be met from internal accruals, in other words from the internal resources of the company and not borrowing or debenture proceeds. 76. Mr. Parasaran, learned Sr, Advocate appearing on behalf of the petitioners in Writ Petitions Nos. 11112 - 11113 of 1990 filed in the High Court of Madras and subject matter of Transfer Petitions in this Court argued that each compulsorily convertible debenture holder has rights accrued in his favour pursuant to the allotment. Each debenture holder has his own perception of the rights accrued in his favour which he may seek to enforce. Such enforcement of rights accrued in his favour will necessarily result in his taking up a legal position which may agree with the stand taken by'one or other of the parties. It has been submitted that the consent order passed by CCI is either valid or invalid. There is no third position possible. It was further submitted that prospectus is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to the notice of this Hon'ble Court further events relevant for the purpose of this case. Notice given by LIC L T on 2-4-90 to call an Extraordinary General Meeting to remove Ambanis from the board but no meeting was held. On 19-4-90 Mr. Dhirubhai Ambani stepped down as Chairman of L T. Various correspondence between L T and ID-BI vide two letters dated 22-6-90 and one dated 28-6-90. IDBI also sent a reply on 28-6-90 to both the letters dated 22-6-90 and 28-6-90 sent by L T. In this reply letter IDBI stated as under:- From a quick review of the status of the new proposal mentioned in your letter date 22-6-90 we feel that the net requirement of funds to be met out of debenture funds would be in the region of ₹ 600 to ₹ 650 crores as indicated by you................. The L T Board will have to take a view on the size of the debenture issue in the light of the requirement of funds indicated in your letter and other modifications suggested in the series of the debentures. The company will no doubt obtain necessary approvals from CCI, debenture holders/shareholders, etc. in consultation the with its legal advisors. It is clear that IDBI also realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions. The CCI after application of mind insisted on an undertaking to be given by Reliance that on extension of suppliers credit they would be precluded to raise this amount from the market. It was further submitted that L T themselves had applied for sanction in order to compete for these lucrative contracts with foreign business rivals who were extending suppliers credit as a matter of routine and Indian companies were losing business to them because of their superior financial strength though without superior special skills or experience. According to Mr. Garg construction of Hajira project sponsored by RIL would have gone to foreign business rivals who were required to, be paid in foreign exchange with considerable detriment to national economy and as sucn RIL did a good turn to the national economy by giving contract of turnkey projects to L T. It was further submitted that after the allotment of debentures a concluded contract between the debenture holders and L T has come into existence and the rights and liabilities as contained in the prospectus cannot be varied by this Hon'ble Court. The CCI has no power to defeat, destroy or vary the contracts made between the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 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. Thus Articles 38 and 39 (b) (C) of the Constitution were not kept in mind by the authorities in making capital allocation. They addressed themselves to the so called requirement of L T in isolation and admittedly did not have material priorities on the investment policy in mind. 85. It was further contended that the Reliance Group of Industries had in about one year established access to about 1500 crores of rupees including suppliers credit of ₹ 635 crores and had thereby become India's largest conglomerate, with three different kinds of industries and that by its very nature a Conglomerate unlike a linear monopoly defies control and regulation was a glaring factor quite apart from the tecnicalities of the Monopolies Act, Sec. 22 (3) (b) and (d) of the Monopolies Act required indepth policy examination at the highest policy levels and consultation with the M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p but also the said company being used by the said private group to raise enormous capital in the capital market for the execution of its projects. It was further submitted by Mr. Iyengar that the whole consent is liable to be quashed and the same cannot be bifurcated. 86. The petitioners and the group of lawyers supporting them have argued that the consent given by CCI is bad and should be struck down on the ground that it was given in undue haste, without proper application of mind, in violation of the provisions of the MRTP Act and mala fide in order to benefit Reliance Group. In the alternative it has been contended that no preferential reservation could have been made of ₹ 3 10 crores of Convertible Debentures for the shareholders of Reliance Group of Companies. In this regard it has been contended that in case this Hon'ble Court does not hold the entire consent as invalid, then the part giving preferential reservation of ₹ 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 ₹ 510 crores be declared valid, as the consent can be legally bifurcated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consent order given by CCI does not survive. The legal controversy thus raised that the consent given by CCI under the Capital Issues (Control) Act can be held valid or invalid as a whole but not some part of it as valid and the rest invalid does not require to be decided in this case and the same is left open. 88. The next question which calls for consideration is whether the consent order for the mega issue of ₹ 820 crores as a whole given by the CCI can be declared illegal or not on the grounds raised by the petitioners. This Court in N. K. Maheshwari's case, (1989) 3 SCR 43 (supra) while considering the duties of the CCI 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 CCI 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 A t from time to time and the increasing range of financial instruments that enter the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be sized and allocated according to the national priorities, and in the changed socio-economic conditions of the country to secure a balanced investment of the country's resources in industry, agriculture and social services. It has been argued by Mr. lyengar that in 1988-89 the capital market, according to available economic reports, had about ₹ 5000 crores public investment funds, limited as it was by poor savings and high inflation. There were so-called mega issues 4 or 5 in number who 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. The Reliance Petro Chemicals had already appropriated ₹ 560 crores and nearly 3000 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during this intervening period. Under the order of this Court dated 9-11-89, no restrictions were placed on L T in the matter of utilisation of funds. According to L T against ₹ 410 crores due on application and allotment, the L T has so far received ₹ 396 crores out of which approximately ₹ 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 ₹ 96 crores only. There is already a safeguard provided in the order of the CCI dated 15-9-89 that the fund utilisation shall be with the approval of the IDBI. In any case, the consent order given by CCI 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, 1 agree with my learned brother B. C. Ray, J. that the consent given by CCI is valid. 91. All the above cases including the interim applications stand disposed of by the above order. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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