TMI Blog2000 (8) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... covery of huge amounts involved, the Special Courts (Trial of Offences Relating to Transactions in Securities) Ordinance, 1992 was promulgated on 6th June 1992. The Ordinance, inter alia, provided for appointment of Custodian for attaching the properties of the notified parties to prevent diversion of such properties by the offenders. The securities, which were attached included shares of various companies. On 20th February 1995 in Misc. Application No. 107 of 1993 Others, the Special Court formulated certain questions on the interpretation of section 11 of the said Act in respect of the priorities created by section 11 of the said Act, particularly, regarding the amounts due prior to the date of notification. The learned Judge (as he then was) directed the Custodian to move the Supreme Court. This was done vide Civil Appeal No. 5225 of 1995 filed by the Custodian before the Supreme Court. In the said Appeal the notified parties also filed their say. The notified parties also, in turn, filed Civil Applications. They were all clubbed together and disposed off on 11th March 1996. By the said order, the Apex Court directed a Scheme to be drafted in respect of the sale of shares from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icularly, in view of the limited resources and manpower available with the Custodian, the Committee is required to be set up consisting of the Custodian, Director General-Investigation, Department of Revenue, Managing Director of UTI Securities, Mumbai, Managing Director of ICICI Brokerage Services Limited and O.S.D. in the Branch Office of the Custodian at Mumbai. Under the Scheme, Modality of sale was been provided for. It is proposed to engage two institutional brokers viz. UTI Securities as well as ICICI Brokerage Services Limited to undertake sale of shares. In view of the demat facilities, equity shares of a large number of companies can now be traded in demat form, which has many advantages. Therefore, the Scheme contemplates conversion of shares to demat. Under the Scheme, this work of demating shall be handed over by the Committee to the broking houses, which would undertake the job themselves or through their subsidiary under the supervision of the O.S.D., who will act as a Secretary of the Disposal Committee. Under the Scheme, the proceeds of the sale, after deduction of usual brokerage and other charges, shall be made available by the institutional brokers mentioned abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... near future. It was submitted that until the date of distribution is imminent, there is no question of selling the attached assets, which though attached, remain the property of the notified parties. It was submitted that on true and correct interpretation of the Special Courts (Trial of Offences Relating to Transactions in Securities) Act and in particular section 11 thereof, sale of attached assets is inextricably linked to the distribution of assets in the order of priority envisaged under section 11(2). It is contended that sale and distribution are not separate events. Therefore, the sale of assets cannot take place on a particular day and distribution after five years. Such an eventuality has not been mentioned in the Act. It was further contended that keeping in mind the object of the Act, the nature of the property attached, the ownership of the attached property, the position and role of the Custodian vis-a-vis the attached property, it is clear that the sale of the attached assets being solely for the purpose of distribution can only take place at the time of distribution and after the question of nexus of the attached assets with illegal security transactions is consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims against Dhanraj Mills are finally adjudicated upon by the Special Court, assets cannot be distributed under section 11 and, therefore, sale of assets cannot be effected till the date of distribution arises. It was urged that even under section 49 of the Insolvency Act all the debts listed in sub-section (1) are to be paid in priority to all other debts. It was urged that after payment of debts, if any assets remained, the same were to be used for the purposes of paying all other debts proved in insolvency rateably. It was contended that under the Insolvency Act, however, there was no provision for scaling down the amounts payable in respect of the debts mentioned in section 49(1). However, as held by the Supreme Court in paras 35 and 36 of the judgment in Harshad Mehta's case (supra), the Special Court was empowered to scale down the amounts payable under section 11(2)(a) under certain circumstances so that some amounts is left for the purposes of paying the banks and financial institutions under section 11(2)(b). It was contended that before the decision of scaling down is taken, the claims of banks and financial institution will have to be adjudicated upon and crystall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Dhanraj Mills during the aforestated period is only ₹ 22 lakhs whereas ₹ 35 crores were lying with the Custodian to the credit of Dhanraj Mills, which was more than sufficient to meet the tax liability under section 11(2)(a). It was further contended that the issue as to whether the attached assets had any nexus with illegal transactions in securities of the banks during the statutory period is to be decided prior to distribution of assets. As held by the Supreme Court in the above judgment (see paras 14 and 15), it was contended that none of the attached assets of Dhanraj Mills have any nexus with illegal transactions in securities belonging to banks and financial institutions during the above statutory period i.e. 1st April 1991 to 6th June 1992 (hereinafter referred to as the statutory period ). On facts it was contended that Dhanraj Mills had filed several applications in this Court to raise attachment on their assets. However, this Court by its judgment dated 14th October 1999 in Misc. Petition No. 44 of 1999 was pleased to reject the applications filed by Dhanraj Mills on the ground that there was a nexus between Dhanraj Mills and the illegal transactions in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets under section 11 was approaching for two notified parties viz. Harshad Mehta Group and Fairgrowth Financial Services Limited. He also invited my attention to the order passed by the Supreme Court dated 11th March 1996 being the interim order in Civil Appeal No. 5326 of 1996 in which the Supreme Court has also stated that time for distribution of the assets in possession of the Custodian was drawing very near and this was with reference to only two notified parties viz. Harshad Mehta Group and Fairgrowth Financial Services Limited, which clearly show that the Supreme Court was fully aware that time for distribution had approached only for two notified parties viz. Harshad Mehta Group and Fairgrowth Financial Services Limited. Therefore, the time for distribution of assets of Dhanraj Mills has still not arrived. This was on the footing of the above arguments. It was contended that the order of Variava, J., dated 20th February 1995 clearly shows that, even according to the learned Judge, distribution of the assets is required to be made only in respect of Harshad Mehta Group and Fairgrowth Financial Services Limited and, therefore, the Scheme should not be applied to Dhanraj M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable opportunity is given to Harshad Mehta Group to bring down the demands to realistic levels. It was further contended that under the interim order passed by the Supreme Court on 26th August 1996 and also under the order of this Court dated 22nd March 2000, an amount of ₹ 234 crores has been deposited with the department. It is contended that the said amount exceeds the tax liabilities of the department. It was contended that in most cases the accounts are now complete. It was further contended that under section 11 of the Act as construed by the Supreme Court, the expression 'taxes due' does not refer merely to liability created by the charging section, but they refer to ascertained liability. He contended that taxes, which are not legally assessed or assessments which have not become final and binding, are not covered by section 11(2)(a) and the words 'taxes due' would mean taxes finally assessed. Therefore, this Court should not consider any Scheme of sale as there is no need to distribute any further amounts under section 11 of the Act. It has contended that the sale of shares and distribution are interlinked. It was contended that the Act does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties in the last eight years have come before the Court saying that the assets are more than the liabilities. He contended that priority is given to tax arrears by section 11(2)(a) in respect of the priority period, which corresponds to the statutory period under the Act viz. 1st April 1991 to 6th June 1992. He contended that the object of the Special Court Act is speedy recovery of the dues of the creditors including the Income-tax department. He contended that even under section 49 of the Insolvency Act, 1909, the Official Assignee cannot be asked to wait and not to sell the assets till crystallisation of all debts of debtors. He contended that even under section 49 of the Insolvency Act, the Official Assignee can sell the assets and pay off the tax dues without being asked to wait till crystallisation of all other debts of the insolvent to banks, financial institutions, etc. He contended that there is no dispute that distribution can only take place on realisation of assets. In fact under the Insolvency Act, dividends can be declared even if certain debts are not cleared. Reliance is placed on sections 69, 70 and 71 of the Insolvency Act. Accordingly, it was contended that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that under the above circumstances, sections 11(2)(a), (b) and (c) would cover all assets particularly in view of the fact that all the assets of the notified parties stood statutorily attached under section 3(3). He contended that if the contentions of the notified parties are accepted that in respect of claims for pre-statutory period/post -statutory period can never be enforced as nothing could be sold and that be the case then one fails to understand as to where the decree holder would go for enforcement of his claim for pre-statutory period and post- statutory period. He contended that since all the assets of the notified parties stood attached, the decree holder can only come to the special Court because no other Court can attach the properties of the notified parties. If the argument of the notified parties on the above interpretation is accepted then no claim could be enforced as there would be no machinery to enforce such claim of pre-statutory and post-statutory period. He contended that in the above judgment of the Supreme Court, the Supreme Court has laid down the scope of section 11(2)(a). It has not laid down the scope of sections 11(2)(b) and (c). He contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that there is no merit in the contentions advanced on behalf of the notified parties that income-tax dues were required to be separately worked out on the basis of income from security transactions. He contended that it was not possible to spell out the income from security transactions. He further contended that there is no basis to support the contention that only the income-tax dues relating to security transactions should be spelt out separately. He contended that there is no such provisions under section 11(2)(a) of the Act. He contended that wide para 24 of the judgment of the Supreme Court in Harshad Mehta's case (supra) the words 'taxes due' have been stated to mean ascertained liability quantified in accordance with law. According to the Supreme Court, taxes due would mean taxes as assessed which were presently payable by the notified parties. He contended that the Supreme Court has used the words presently 'payable by the notified parties' and not finally payable. Hence, there is no merit in the contentions of the notified parties that till the entire matter is decided by CIT (Appeals) or by the Tribunal or by the Supreme Court, the sale shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondence, I find that in most of the cases the notified parties have relied upon netting transactions. Even in the income-tax record produced before me of Dhanraj Mills show that the assessee had relied Upon the netting transactions. However, in a netting transaction purchase is netted out against the sales and vis-a-vis. Where the documents of purchase were produced, there are no sales. This aspect is stated because after eight years of the implementation of the Act, the position which has emerged is that the notified parties have not brought before the authorities/accountants appointed by the Court the relevant documents. It is for this reason that even the Income-tax department has ultimately proceeded to assess some of the assessee-notified parties under best judgment assessment, During the said period none of the notified parties have come before the Court claiming that the assets are more than the liabilities. Their only contention is that the liabilities have not been crystallised. Their only contention is that till final adjudication is carried out by all the authorities under the Income-tax Act by way of appeals, the assessment is not final and binding. Of course, one c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j Mills had also challenged the validity of Kar Vivad Samadhan Scheme, which is also pending under Article 226 of the Constitution. In short, the submission is that till all the above claims are finally adjudicated upon by this Court or by the High Court in its writ jurisdiction or by the various Appellate Authorities under the Income-tax Act, the date of distribution cannot be said to have arrived particularly, when according to the notified parties, the department has made best judgment assessment. According to the notified parties, the claim of the Income-tax department are highly exaggerated. In some cases, the CIT (Appeals) have set aside the assessment orders and have remanded the matter back to the AO and, therefore, it is urged that the liabilities are not crystallised. Therefore, the scheme for sale of shares should not be sanctioned. It was further urged that the mere fact that an amount is ascertained by an assessment order would not mean that the date of distribution has arrived. It was contended that on the passing of the assessment order, the same may be executable, but the said order should not be final and binding. That there is a difference between executability an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a demand in respect of the statutory period, but if such demand is not related to or having nexus to the security transaction then such liabilities will not fall under section 11(2)(c). Therefore, the power to distribute exclude the demands for the periods other than statutory period or demands for the statutory period but not related to the security transactions. According to the notified parties, the said nexus is yet to be decided. Therefore, the assets cannot be sold. Reliance was placed on para 27 of the judgment of the Supreme Court in the case of Harshad Mehta (supra) in which it has been observed that the date of distribution arise when the Special Court completes the examination of claims under section 9-A and if on that day any tax liability for the statutory period is legally assessed and the assessment is final and binding, then that liability will be considered for payment under section 11(2)(a). On the basis of the said observation, the learned Counsel for the notified parties contended that only on completion of examination of claims under section 9-A, the date of distribution can arise. That date has not arrived. Therefore, the assets cannot be sold. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the judgment of the Supreme Court in the case of Harshad Mehta (supra). However, on reading the said judgment it is clear that various questions referred by this Court to the Supreme Court, each of the said questions were separately answered. While answering the question, the Scheme of section 11(1), sections 11(2)(a), (b) and (c) are separately considered. Therefore, when reading the judgment, one has to keep in mind the relevant question and the context on which the said question is framed. In para 13 of the said judgment in the context of section 11(1), the Supreme Court has clearly laid down the condition which would attract the said section. The Supreme Court has held that section 11(1) empowers this Court to direct the Custodian to dispose of the property under attachment. The only condition prescribed by the Supreme Court in the said judgment vide para 13 is the satisfaction of the Special Court before it gives directions for disposal to the effect that the attached property belonged to the notified party. In other words, before the direction of disposal is given, the Special Court should be satisfied that the attached property belonged to the notified party. All subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O is required to check whether the returned income is computed in accordance with the Act. The tax, which becomes payable on the basis of the returns, is an assessed tax. Therefore, the Supreme Court has laid down that the words 'taxes due' referred to the liability which was crystallised into a legally ascertained sum immediately payable. In other words, the expression 'taxes due' is equated with assessed tax. In fact, while answering question No. 1 the Supreme Court has clearly stated in para 24 that the expression 'taxes due' in section 11(2)(a) meant assessed taxes, which are presently payable. The Supreme Court has nowhere stated that the 'taxes due' would mean the taxes which are finally payable. The expression 'taxes due' finds place in section 11(2)(a). It is the section which deals with distribution of assets. Therefore, the Supreme Court has laid down that in the context of distribution, the expression 'taxes due' can only mean assessed taxes. In the circumstances, there is no merits in the contentions of the notified parties that till they have exhausted all their remedies under the Act, the taxes do not become due for paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory period shall be taken into account although the liability of the assessee-notified party shall continue. In fact, the Supreme Court has clarified that every kind of tax liability may be discharged under the directions of the Special Court under section 11(2)(c), but for the purposes of scaling down in appropriate cases, the Court may consider the taxes only for the statutory period. It does not mean that the Special Court cannot consider, at the time of distribution, the tax liability for the pre-statutory and post-statutory period. On the contrary, the Supreme Court has laid down that all such tax liabilities may be discharged under section 11(2)(c) or the department may recover the same from any subsequently acquired property or in any other manner in accordance with law. However, the priority under section 11(2)(a) would cover the liability for the statutory period. There is one more reason that on the coming into force of the notification, all the properties of the notified parties stood attached. If the argument of the notified party was to be accepted, the consequences would be disastrous. It would defeat the provisions of the Act. It would mean that although al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that assets match the liabilities. This Court need not wait in the matter of framing of the Scheme for sale of shares till all matters are finally decided because even at this stage, it is clear that assets do not match the liabilities. Further, it has been contended on behalf of Dhanraj Mills that under the Act even if the demand falls within the statutory period but, if such demand is not related to the security transactions, it will not fall under section 11(2). It was contended that therefore, in every matter the Custodian should be directed to apply for sale so that the notified party gets an opportunity to prove that there was no nexus. If the demand has no nexus with the security transaction, then it will not fall under section 11(2) even if it relates to the statutory period. Before closing the discussion on Point A, it may be mentioned that the question of nexus discussed hereinabove has been repeatedly raised by the notified party- Dhanraj Mills. By Misc. Petition No. 16 of the 1998 preferred by Dhanraj Mills, it was urged that Dhanraj Mills came to be notified under the Act vide notification dated 5th August 1992. In the said petition, it was alleged that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention. It was contended on behalf of the Custodian that in the judgment of Variava, J., dated 8th March 1999 in Misc. Application No- 1 of 1999, Dhanraj Mills had relied upon the judgment of the Supreme Court in the case of the Harshad Mehta (supra). Relying on the said judgment, it was contended on behalf of Dhanraj Mills that the Special Court would have jurisdiction only if the claim was in respect of security transaction during the statutory period. It was contended that even according to the Supreme Court, if the property had no nexus with illegal dealing, then it can be released from attachment. In the said matter, it was contended that monies were taken by CIFCO Champaklal Investments and CIFCO Finance Limited from Kennilworth Investment Company Private Limited by way of loans and, therefore, the assets has no nexus with the security transaction. In the said Judgment in para 24, Variava, J., had rejected the said argument. The learned judge has clearly considered the judgment of the Supreme Court in Harshad Metha's case (supra) and has laid down that the Supreme Court has only declared that jurisdiction in civil matters is vested in the Special Court if the claim r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f claims under section 9-A and any tax liability for the statutory period is finally assessed and the assessment is final and binding, then such liability will be considered for payment under section 11(2)(a) of the Act. As stated hereinabove, the pre-condition for sale of the property is that the attached property belongs to the notified parties whereas, the precondition of distribution is completion of examination of claims under section 9-A. There can be no quarrel that at the time of distribution, the completion of the examination of claims is required. Therefore, the Supreme Court has stated that the date of distribution will arise when the Special Court completes the examination of claims under section 9-A. (see para 27 of the judgment). However, the entire discussion is in the context of distribution under section 11(2)(a) of the Act. There is no principle of law shown to this Court that sale cannot take place till completion of examination of all claims under section 9-A of the Act. Moreover, we are dealing with Special Court Act. The tax liability of the notified parties for all the years including the statutory period runs into several crores. By way of illustration, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the power under section 3(4). That section 11 ensures that the attached property is distributed as per the directions of the Special Court. That section 3 was enacted only to prevent the property in question from the misappropriation or in any other manner made unavailable for discharge of liabilities. Therefore, as and when the property was attached under section 3(3), it was open to the aggrieved person to approach the Special Court in order to satisfy the Court that the attachment levied was far in excess of the ultimate liability. At this stage it may be noted that none of the notified parties have moved an independent application before this Court stating that the property be released from attachment on the ground that the attachment levied is far in excess of the ultimate liability. In the case of Custodian v. CIFCO Properties Private Limited (supra), this Court held that the Special Court has jurisdiction under the Act if one of the two conditions are fulfilled viz. if it relates to any properties statutorily attached under section 3(3) and secondly, if the claim arises from a transaction in securities and the notified person is involved. It was also held that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (c) On scaling down, in appropriate cases as held by the Supreme Court, the liability of the assessee of the balance tax would subsist and the taxing authorities would be entitled to realise the remaining liabilities including penalty and interest from the assessee under section 11(2)(c). Therefore, there is no merit in the contention that the funds of some of the notified parties with the Custodian are far in excess of the tax demand and, therefore, they should not be brought within the Scheme for sale of shares. (d) In view of the provisions of the Special Court Act, it is not necessary for this Court to postpone, in any event the sale of shares till all claims against the notified parties are finally adjudicated upon. Looking to the Income-tax demands, the decrees passed in various suits by this Court, it is clear that the liabilities of the notified parties exceed the attached assets and, therefore, one need not wait till all pending claims are finally adjudicated upon. (e) The words 'taxes due' in section 11(2)(a) only refers to the liability, which is completed in accordance with the provisions of the Income-tax Act. In other words, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r General (Investigation), Department of Revenue, Ministry of Finance, Managing Director, UTI Securities, Managing Director, ICICI Brokerage Services Limited and the OSD in the branch office of the Custodian at Bombay, who will act as Secretary of the Committee. The Scheme also proposes distribution of work. For example, in the case of unregistered shares, the work of registration would have to be carried out in batches. Similarly, with the introduction of demat, large number of shares of the companies, in respect of which demat facility is available, are also required to be demated. Therefore, an enormous task is required to be carried out. Therefore, the Committee appointed consist of experts, who are fully conversant with the modality of sale. Under the Scheme vide para 4, it is proposed to engage institutional brokers viz. UTI Securities, ICICI Brokerage Services Limited to undertake sale of registered and benami shares in physical possession of the Custodian. Under the Scheme, it is proposed to initiate conversion of shares in dematerialised form, for which the task shall be given by the Disposal Committee to the broking houses, which would undertake the job themselves or thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares will not create adverse impact in the capital market in general and also the price of the shares of the company in particular. Under the Scheme, the Committee will scrutinise and process the scrips so as to establish the saleability on the basis of a certificate of the custodian's representative to the effect that no certification process was pending either before this Court or before the Stock Exchange. The Committee will also call for clearance from the respective companies certifying that the shares proposed to be sold would actually result in good delivery. Under the Scheme, this task of obtaining clearance from respective companies has been given to U.T.I. Securities/I.C.I.C.I Brokerage Services Limited. It is only after the establishment of the saleability of the shares that the Custodian's representative will sign and affix the custodian's stamp on the transfer deeds of the scrips and the transfer deeds so signed by the Custodian's representative, shall constitute good delivery. In respect of demat shares, the custodian shall instruct the depository participants to effect the sale by debiting the account of the concerned notified persons. Under the schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Dhanraj Mills to the shares of Killick Nixon is not in dispute. He contended that even if the shares were required to be sold through public auction, they may not get a good price because the shares are thinly traded. He contended that the shares of Killick Nixon can only be sold in one lot. They constitute the controlling interest. If they are sold as controlling interest, it would certainly fetch a good price. Therefore, the shares should be sold by private treaty. He further contended that if the Custodian could make an application to this Court for sale of shares of Killick Nixon the matter could be heard and disposed off within a short time. He contended that essentially the Scheme should be made applicable in cases where a large number of shares are involved and simple cases should be kept out from the purview of the Scheme. He contended that Dhanraj Mills has no objection to collection and processing. That he has no objection to discovery. That the only objection was to the sale of shares. He contended that under the Scheme, the Special Court is completely kept out. He contended that under the Act, the Custodian has the power to sell under the directions of this Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court regarding the number of shares which should be sold at a given point of time. Mr. Parekh urged that U.T.I. Securities and I.C.I.C.I. Brokerage Services Limited should not be on the Committee as it may result in conflict of duty and interest. He also relied upon Take Over Regulations framed by S.E.B.I. He contended that the priority, which is contemplated by the Scheme in favour of financial institutions and U.T.I. has been introduced in the Scheme to overcome the embargo placed by the S.E.B.I. Take Over Regulations. He contended that sale of controlling block cannot take place in view of the Take Over Regulations framed by S.E.B.I. Mr. Parekh contended that the Scheme is vague. The Scheme is not touched upon the important provisions of law. He contended that under the Scheme, the modality of sale is vague. Whether the Committee will invite bids from all parties or only from financial institutions, U.T.I., etc. whether tender will be floated, etc. is not spelt out by the Scheme. Mr. Parekh further contended that if at all the controlling block is to be sold, such a sale can only be pursuant to an application made to this Court and by inviting public offers and also after giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares. Mr. Jethmalani contended that the Brokerage Firms were bound to advice for sale of shares for earning brokerage. Therefore, he contended that portfolio managers should be appointed under the Scheme for sale of shares. This is without prejudice to his argument that the date of distribution has not arrived. He contended that if the shares are sold, tax implication would arise. He contended that controlling block of shares should be dealt with separately. They should not be sold like routine shares. He contended that shares should be sold only after the entire block became saleable. That any piecemeal sale of management block would not fetch the premium. That notified parties will be given a last opportunity to improve upon the existing offers. He urged that the notified parties are aggrieved by massive erosion in their asset base during the last eight years and therefore, the work should be entrusted to portfolio managers of repute, which would result into argumentation of the asset based. He has suggested the names of portfolio managers like Infrastructure Leasing Financial Services Limited, I.C.I.C.I. Prudential, Birla Mutual Fund, Tata Mutual Fund, Tata Finance, etc. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares to purchase the same so that, the possibility of distabilisation of the company is avoided. He contended that there should not be a secret take over. In the alternative, he contended that the Committee may sub-divide the lot so that, the Take Over Regulations framed by S.E.B.I. do not come into picture. However, he contended that even in such an eventuality, a tender should be floated so that a best possible price is fetched. He contended that the offer should be accompanied by a certain amount which the Court may decide so that bona fide offers would come before the Court. Mr. Chagla contended that sale of bulk shares should be placed before the Court and not before the Disposal Committee. He also suggested that while fixing the flow price, the six month formula high/low market price could form the basis. In other words, he contended that the average market price of the shares for the last six months could form the basis for fixation of the flow price. He further contended that if in a given case, the best possible price is not obtained, the Court may also consider giving of buy-back option to companies as provided for under section 77 of the Companies Act. Mr. Coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutional brokers on the Committee as they are Brokerage Firms. Mr. Joshi pointed out that U.T.I. Securities Limited is separate and distinct from U.T.I. He contended that the U.T.I. Securities Limited is not scam tainted. He contended that I.C.I.C.I. Brokerage Services Limited is also distinct from I.C.I.C.I. Bank. He contended that I.C.I.C.I. Brokerage Service Limited is also not scam tainted. Mr. Joshi urged that we are dealing with lakhs of shares and, therefore, individual brokers have no role to play. That we require, for the operation of the scheme, institutional brokers, who must have connection with financial institutions. He further contended that under the Scheme, priority has been given to offers from public financial institutions and Mutual Funds promoted by banks and financial institutions because, the financial institutions were in a position to absorb the shares in large numbers without adversely affecting the market. He contended that institutional brokers could tell us as to which shares were to be sold. That they are in the best position to judge the timing for sale of shares. He contended that the Committee proposed to be appointed consist of experts. He cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. FINDINGS ON THE SCHEME. At the outset, it may be mentioned that the main objection of the notified parties is that under the scheme the Court is divested of the entire control about the attached shares of the notified parties. It was contended that as regards the attached shares with the Custodian broadly there are two types of shares. Firstly, shares which are thinly traded like shares of Killick Nixon and on the other hand there are high value shares. It was urged that the Court should evolve a scheme under which the Court retains control over the Disposal Committee and also in the matter of sale of shares whereas, under the impugned Scheme, there is no mechanism by which the Court retains its control over the sale of shares. The parties before me have no objection to the procedure for registration dematting, etc. They have no objection to the discovery. However, Apollo Tyres have objected to the unregistered shares being registered in the name of the Custodian/notified parties. The matter is pending in the Supreme Court. I do not find any merit in the contentions advanced on behalf of the notified parties that the Scheme should be made applicable only to Harsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of all registered shares in possession of the Custodian. It is declared that the scheme shall apply to all the parties including Dhanraj Mills. However, the scheme shall not be implemented in respect of the registered shares of Apollo Tyres as the matter is pending in the Supreme Court. Before concluding it may be mentioned that according to Dhanraj Mills, it was argued in the alternative that if the scheme is made applicable to Dhanraj Mills, then apart from the block of shares of 10,80,970 belonging to Dhanraj Mills, 2.90 lakh shares in Killick Nixon belonging to Tirth Hotels Private Limited and equal number of shares belonging to Cambridge Bright Wire 8s Computer Peripherals Private Limited may also be offered for sale. I do not find any merit in the said contention. Shares belonging to Tirth Hotels Private Limited and Cambridge Bright Wire Computer Peripherals Private Limited are covered by decrees which are subject matter of Misc. Application Nos. 170 of 2000 and 164 of 2000 respectively. The said two lots are subject matter of securities for payment of monies due from the above two companies to Dhanraj Mills. Hence, they cannot be clubbed together with the block of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... todian can also invite offers from foreign institutional investors. The Court, however, shall reserve its rights to accept or reject the highest offer or bid that may be received by it for purchase of shares without assigning any reason whatsoever. This process will initially apply, as stated above, to all registered shares in possession of the Custodian. At this stage, the Court is confining the offers only to institutional buyers. If no offers are received from institutional buyers or if best possible price is not likely to come in, then the Court shall consider other alternate options at the relevant time. NORMS FOR LOT PREPARATION IN RESPECT OF CONTROLLING BLOCK OF SHARES : If the Custodian finds that a particular group say Harshad Mehta Group has registered shares, which are in possession of the Custodian and which exceed 5% of the paid up capital in a given company, then such shares shall constitute the controlling block of shares in a given company. NORMS FOR SALE OF CONTROLLING BLOCK OF SHARES : After completion of demat procedure for registered shares, the Custodian will give public advertisement in the newspapers inviting bids for purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Agencies will be prepared by the Custodian. Offers will be invited from the said Agencies including Stock Holding Corporation. The Custodian will submit his report to the Court to empanel such Agencies, whose service charges are reasonable. The Court shall approve the names of the Agencies to be put on the panel of the Custodian for the purposes of registration/demat. (ii) Notified parties are directed to open demat account with D.P. within four weeks from the date of judgment. Custodian to release funds to meet such expenses. (iii) After demat, the Custodian will offer the bulk shares to institutional buyers, like LIC, GIC, UTI, etc. In respect of the bulk shares, the Custodian will submit his report along with the offers received before the Court. The Custodian may also invite offers from foreign institutional buyers. The Court, however, shall reserve its rights to accept or reject any of the highest offer or bid that may be received by it for purchase of the said shares without assigning any reason whatsoever. Initially, the process will apply only to the registered shares in possession of the Custodian. As regards bulk shares, at this stage the Court is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lo Tyres. The controlling interest of Dhanraj Mills in Killick Nixon has been identified. Therefore, the Custodian is hereby, inter alia, directed to start the process of sale of registered shares of Killick Nixon held by Dhanraj Mills. As regards the shares of Apollo Tyres is concerned, the matter is pending by way of Civil Appeal Nos. 7629 of 1999 and 7630 of 1999. Hence, the Custodian will not take any steps to implement the scheme qua Apollo Tyres shares. Subject to above, I am ordering sale of all registered shares in first instance. (vi) Subject to above, the Scheme stands approved in toto. The implementation of the Scheme should be done in phases as mentioned hereinabove. The Court reserves its rights to make additions to the above direction depending on the experience gained from sale of registered shares. This is particularly in view of the fact that implementation has to be done in a phased manner not only in the context of registered shares but also in the context of unregistered shares and benami shares. The Scheme not to apply to shares of private limited companies. THE PURPOSE OF FIXATION OF NORMS. The norms fixed by the Court hereinabove, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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