9911796707
Advanced Search 
TMI Blog1984 (11) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... er foreign remittances into India. In a report of the Working Group of Foreign Remittances into India by India nationals resident abroad and foreign nationals of Indian origin, a view was expressed that this facility should be extended to companies, partnership firms, trusts, societies and other corporate bodies owned predominately by non-residents of Indian nationality/origin. However, with a view to safeguard the interests of the Indian companies and investors, it was suggested that "the criteria for such predominate ownership should be that at least 51% of the ownership of the companies, partnership firms, trusts, societies and other corporate bodies should be with non-resident Indians." Certain other suggestions were also made. Basing on this report and the policy decision indicated in 1982-83 Budget Speech of the Union Finance Minister, the Reserve Bank of India (for shorter referred to as "the RBI"), in exercise of the powers conferred on it under s. 73(3) of the Foreign Exchange Regulation Act, 1973 (for shorter "the FERA"), issued Circular No. 9, dated April 14, 1982, (Exh."G"), liberalising the policy in respect of "investment b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided for NRI investors for investment in India companies with full repatriation benefits, letter were addressed by the Caparo Tea Co. Pvt. Ltd., the Empire Plantations and Investment Ltd. and Assam Frontier Tea Holding Public Ltd. Co., respondents Nos. 5, 6 and 7 herein, to stock exchange brokers, M/s. Rajaram Bhasin & Co., respondent No. 20 herein, instructing them to purchase shares in Delhi Cloth Mills (DCM) and in Escorts Ltd. with full repatriation benefits and intimating them that the Punjab National Bank ("PNB" for short), respondent No. 3 herein, was been authorised to advance to the extent of Rs. 2 lakhs in each case to cover margins payable to the stock exchange. It also authorised PNB to pay the full purchase price of the share to M/s. Rajaram Bhasin & Co., to be adjusted on final delivery of shares. In February, 1983, the PNB granted rupee loan to the Caparo Group Ltd., respondent No. 4 herein, and these amounts were made available to M/s. Rajaram Bhasin & Co., for the purchase of shares in India companies with full repatriation benefits. Remittances in all aggregating to Rs. 8.93 crores were received by the PNB from the Caparo Group Ltd., respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust held 61.6% of the share capital of the Caparo Group Ltd. (respondent No. 4) and the Caparo Group Ltd., in turn, held 100% of the share capital of the other companies except Caparo Properties Ltd., in which it had 98% of ownership stock. It was stated that a certificate of overseas auditors in form OAC had already been submitted along with the application. As regards the details of the purchase of the share in the Indian companies for and on behalf of the Caparo group of companies, the PNB stated that "The same would be supplied when the purchases are complete." 5. Pursuant to the policy statement made in Parliament by the Union Finance Minister, the RBI issued Circular No. 12 dated May 16, 1983, subjecting the existing scheme of portfolio investment by non-residents of Indian nationality/origin and by overseas bodies, to an overall ceiling of 5% of the total paid up equity capital of the company concerned. The purchases, subject to overall ceiling of 5% were to be monitored by the RBI Central Office with the assistance of the designated bankers of non-resident Indians. These banks were required to submit to the RBI a daily consolidated statement of total purchases an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RI (External) Account on various dates up to April 23, 1983, and also, therefore, conforming to the bye-laws and regulations of the Delhi Stock Exchange. On May 27, 1983, the petitioner-company addressed letters to respondents Nos. 20 and 21, calling for particulars; but in their replies dated May 31, 1983, they declined to furnish the information. The PNB, in its letter dated May 31, 1983, stated that it had been advised by M/s. Rajaram Bhasin and Co. respondent No. 20, that until April 28, 1983, 75,000 equity shares of the petitioner-company had been purchased by it for each of the thirteen companies and that a large number of shares had been lodged from the purpose of transfer only in the name of Harish Bhasin and Bharat Bhushan. In response to its letter dated April 29, 1983, the PNB further informed the RBI by its letter dated May 31, 1983, that it had been advised by the brokers, M/s. Rajaram Bhasin & Co., that up to April 28, 1983, they had purchased 80,000 equity shares of DCM and 75,000 shares of the petitioner-company on behalf of and for the benefit of each of the Coparo group companies, Although 5,12,663 shares were purchased by May 14, 1983, only 4,63,000 shares were l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecretary (investments) Ministry of Finance, Department of Economic Affairs, sent a telex to the RBI on June 8, 1983, requesting it to enquire into the details of purchases made by respondents Nos. 4 to 16 and whether they were valid without prior approval of the RBI. On June 11, 1983, the RBI wrote to the PNB that prior permission under s. 29(1)(b) of the FERA was required for any NRI investor to purchase shares in India companies and that the provision specifically prohibited ever non-resident from purchasing shares of India companies except under a general or special permission of the RBI and that none of the thirteen respondent-non-resident companies and the PNB had till then been permitted to purchase shares. The RBI called upon the PNB to explain how it had allowed debit to NRI to explain how it had allowed debit to NRI (External) Accounts of Caparo Group Ltd. in contravention of the provisions of paragraph 28B. 9 of the Exchange Control Manual. It also directed the PNB not to make any payments of those accounts until specific permission of the RBI was granted. A copy of that letter dated June 11, 1983, the RBI requested the PNB for further particulars of the purchases stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved to reject the transfer of shares. As required under s. 111 of the Companies Act, intimation of this rejection was given to the transfers. Non of respondents Nos. 4 to 16 sought reasons for rejection of the registration. They neither questioned the rejection by preferring appeals under s. 111 of the Companies Act nor did they initiate any other proceedings. The petitioner-company, by its letter dated September 5, 1983, also informed the Governor of the RBI the illegalities committed in the purchase of shares and the action taken by the petitioner-company in rejecting the transfer. These facts were reiterated with full particulars by the petitioner in its letter dated September 17, 1983. The RBI forwarded to the PNB a copy of each of the two letters dated September 5, 1983, and September 17, 1983, addressed by the petitioner-company to the Governor of the RBI and the Union Finance Minister and requested the PNB to submit its detailed report. However, on September 177, 1983, the RBI issued a press release (Ex." A ") at New Delhi stating that the Government of India has since clarified that : "It was their original intention that facilities of direct and portfolio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken place up to and inclusive of May 2, 1983, if purchase commitments as evidenced by brokers' contract notes had been entered into up to and inclusive of that date and the shares had been taken delivery of pursuant to such firm commitments at the prices mentioned in the relevant brokers' contract notes". This permission was to be operative for a period of three years from September 18, 1983, and was subject to conditions (a) to (h) mentioned therein. 15. On receipt of this letter, the PNB communicated by its letter dated September 27, 1983, to the RBI the particulars of the shares purchased by the said thirteen companies. The PNB also informed the RBI that no purchases were made by these companies after May 2, 1983. On October 8, 1983, M/s. Rajaram Bhasin & Co. (respondent No. 20) forwarded to the petitioner-company a copy of the PNB's letter dated September 27, 1983, and requested its board of directors to reconsider its refusal to transfer shares in view of the approval given by the RBI under Exh."C". The petitioner-company, by its letter dated October 13, 1983, informed M/s. Rajaram Bhasin & Co. that the decision of the board not to register the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 19, 1983, addressed by the RBI to the PNB in purported exercise of its statutory powers under s. 73(3) of the FERA are arbitrary and issued for collateral purposes and constitute an abuse of statutory powers and authority. (c) for a declaration that the said impugned Circular No. 18 dated September 19, 1983, read with the press release dated September 17, 1983, as also the issue of the letter dated September 19, 1983, by the RBI to the PNB are in violation of the provisions of art. 14 and or art. 19(1)(c) and art. 19(1)(g) of the Constitution of India. (d) for a declaration that the purchase of shares made by or on behalf of respondents Nos. 4 to 17 are illegal and violative of the provisions of the FERA, the provisions of the RBI circulars issued from time to time and the provisions of the Securities Contracts (Regulation) Act, 1956, and of the bye-laws of the stock exchange. (e) or a writ of mandamus or in the nature of mandamus or other appropriate writ, order or direction directing respondent No. 2 to cancel and withdraw the impugned Circular dated September 19, 1983 (Exhibit 'B'), and the impugned letter dated September 19, 1983 (Exhibit 'C'), land fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the financial institutions holding 30% shares in the petitioner-company, delivered a notice at the registered address of the petitioner-company on February 13, 1984, requisitioning an extraordinary general meeting of the company to consider a resolution to remove all the non-executive directors, nine in number, and to appoint in their place, nine permanent employees of the financial institutions as non-executive directors of the petitioner-company. In the explanatory statement annexed to the requisition notice, it was stated thus : "The directors proposed to be removed named in resolutions Nos. 1,3,5,7,9,11,13,15 and 17 are not whole-time directors nor in active management of the company and the requisitionist does not wish them to continue as directors. In the place and stead of the directors whose names are specified in resolutions Nos. 1,3,5,7,9,11,13,15 and 17 who are sought to be removed, the requisitionist proposes to appoint as directors, the following persons whose names are specified in resolution Nos. 2,4,6,8,10,12,14,16 and 18, respectively." 19. Faced with this developments, the petitioners sought leave of the court to amend the writ petition. Pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a surplus amount was received. The petitioner-company's proposal for merger of Goetze (India) Ltd. with Escorts was also kept pending without any decision. The petitioner-company's proposal to issue debentures was also not agreed to and pressure was sought to be brought on the managing director of the company to agree to register transfer of "at least some shares". This was moved by Patel of the Union Trust of India ("UTI" for short), one of the financial institutions and later by Punja, Chairman of the IDBI. When the writ petition was filed, D. N. Davar, one of the directors of the petitioner-company representing all the financial institutions, pressed for withdrawal of the writ petition. The Government of India issued a letter dated July 28, 1983, addressed to the executive directors and the presidents of the stock exchanges in the country stating that "it had been recently observed that the board of directors of some companies have been rejecting transfer of shares lodged by non-resident Indians and such a move negatived the object of the Government to encourage non-resident Indian investors to invest in Indian companies". The presidents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions, notice of an extraordinary general body meeting should be given by the financial institutions". At the luncheon meeting held on November 9, 1983, between Punja and petitioner No. 2, Punja asked petitioner No. 2 to "register at least some shares" and petitioner No. 2 requested Punja that the long pending proposal for prepayment of loans and merger of Goetze-Escorts be accepted. Punja told that, in principle, the proposals were accepted for clearance by all financial institutions, but, final and formal clearance was withheld as Punja wished to have some talk with petitioner No. 2. On November 10, 1983, in a telephonic talk between N. K. Sengupta, the then Controller of Capital Issues and Commissioner of Non-resident Investments and petitioner No. 2, Sengupta insisted that some shares at least must be immediately registered. In view of several illegalities in the purchase of these shares, petitioner No. 2 could not agree to this request. Once again, at a meeting of the lawyers of the petitioner-company, Sengupta insisted that the petitioner-company should register at least some shares. The UTI requested petitioner No. 2 through its letter dated November 2, 1983 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner-company and the financial institutions with respect to the prepayment of loans; and (iii) that the petitioner-company should withdraw this writ petition. This suggestion was made on the basis of three notes typed and signed. Petitioner No. 2 suggested to the UTI on January 6, 1984, that M. S. Shankar of the UTI be appointed as an alternate director to Dr. Irmler, the director appointed by the collaborator. The financial institutions accepted prepayment on January 9, 1984, but the question of merger of Goetze-Escorts and debenture issue was not agreed to and was kept in abeyance. While the matter stood thus, the notice dated January 11, 1984, requisitioning an extraordinary general meeting ("EGM" for short) to remove the nine directors and appoint nine full-time employees of the financial institutions was issued by the LIC, respondent No. 18 herein. 22. The petitioners allege that respondent No. 18 took this step in concert with and at the behest of respondents Nos. 1 and 2 to pressurise and compel the petitioner-company to register the transfer of shares of respondents Nos. 4 to 16 and to withdraw the writ petition. The nine part-time directors were sought to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tently paying 20% dividend for the last few years and the investments of the financial institutions had earned them phenomenal profits. The petitioners submit that the action of the LIC is mala fide, arbitrary and unsustainable. The act of the financial institutions led by respondent No. 18 is unprecedented and extraordinary and shakes the confidence of the promoters of all Indian companies. It is alleged that respondent No. 18 has acted at the behest of respondent No. 1 and is intended to benefit the non-resident investor, Swraj Paul. 23. In the amended writ petition, the petitioners seek "(i) a declaration that the action of respondent No. 18 in issuing the requisition notice for convening an extraordinary general body meeting was arbitrary, illegal and violative of the fundamental rights guaranteed to the petitioners and an order, (ii) to restrain the holding of such a meeting in pursuance of the said requisition". They also sought an interim injunction to restrain respondent No. 18 from proceeding with the requisition. 24. In spite of service of notice of the writ petition, respondents Nos. 4 to 16, the non-resident Indian companies which had purchased the shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rve the foreign exchange so badly needed for the country. They denied that any pressure was sought to be put on the petitioners either directly or indirectly. They claim that prior permission was not required to be obtained under s. 29 of the FERA for valid purchase of shares by an NRI investor; it could be secured even after the shares were purchased. In any event, the letter dated September 19, 1983 (Exh."C"), validates the purchases of shares made by respondents Nos. 4 to 16. 27. The LIC pleaded that the extraordinary general meeting was requisitioned in bona fide exercise of the power vested in it as a shareholder. The financial institutions which hold 52% of the shares cannot be place in a disadvantageous position as compared to the other shareholders in the matter requisitioning an EGM of the company. The exercise of that right cannot be construed as exerting undue pressure on the board of directors and that for any collateral purpose. They thus pleased that the impugned Circular, the impugned letter and the requisition for convening an EGM of the company were perfectly in order and no writ, order or direction could issue. 28. We will refer to the factual averment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and causes of action ? (d) in view of refusal of rule nisi in regard to prayer cl. (d) ? (8) Is there is live issue ? (9) Are the petitioner entitled to the relief of declaration and a writ of mandamus as prayed for ? 32. While dealing with these crucial issues, several other aspects impinging upon these issues were presented and argued at great length which we would deal with in the appropriate context. 33. Before we proceed to address ourselves to the first three principal legal issues referred to above, it will be convenient to notice some facts which we find as established by the record placed before the court. According to the statement filed with the PNB, the purchase of shares under the portfolio investment scheme with full repatriation benefits by the Caparo group of companies, respondents Nos. 4 to 16, commenced on March 2, 1983, and by March 9, 1983, 70,200 shares in DCM and 65,000 shares in Escorts were purchased. These shares were purchased without obtaining the permission of the RBI and in fact even before any application for permission under s. 29 of the FERA was filed by any of these companies. By March 9, 1983, the PNB did not receive any foreign remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made. Even after the receipt of this foreign remittance, the investment was still in excess of these remittances by Rs. 1,01,39,000. 38. On April 13 and 14, 1983, share of DCM and Escorts of the value of Rs. 18.60 lakhs were purchased and the total amount invested in excess of the foreign remittances rose to Rs. 1,19,99,000. 39. On April, 13 and 14, 1983, the fourth installment of foreign remittance amounting to Rs. 76,35,000 was received and some more shares of the total value of Rs. 15,79,000 were purchased. After adjusting the funds received subsequent to the purchase, deficit overseas remittances to the tune of Rs. 59,43,000 remained outstanding. 40. Between April, 19 and April 27, 1983, shares of the value of Rs. 6,18,31,000 were purchased while the total foreign remittance fell short by Rs. 6,77,74,000. 41. The fifth installment of foreign remittance of Rs. 3,13,50,000 came only on April 28, 1983, and further shares of the total value of Rs. 9,61,000 were purchased by that date, leaving a deficit overseas remittance of Rs. 3,73,85,000. According to respondents Nos. 4 to 16, no further shares of DCM or Escorts were purchased after this date. 42. Later, three more forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck brokers, respondents Nos. 20 and 21 herein. The board of directors of the petitioner-company at their meeting held on June 9, 1983, for reasons duly recorded refused to register the transfer of shares. The minutes recording this rejection read as follows : "... 4. To note report dated Resolved that the report dated June 8, 1983, of Share Scrutiny June 8, 1983, of the Share and Transfer Committee of directors. Scrutiny and Transfer Committee of directors The board, vide resolution No. 4 constituted, vide resolution dated May 13, 1983, constituted No. 4 dated May 13, 1983, Share Scrutiny and Transfer Com- placed before the directors mittee of directors to consider and initialled by the chairman applications for transfer of very for the purpose of large number of shares lodged with identification be and is the company including transfer of hereby noted. 2,88,390 equity shares lodged for transfer by Mr. Harish Chander Bhasin and 1,73,947 equity shares lodged for transfer by Mr. Bharat Bhushan. Report dated June 8, 1983, of the Share Scrutiny and Transfer Committee of directors approving transfer of shares specified therein and recommending refusal of registration of transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly it was - Resolved that the transfer of 2,38,390 equity shares of Rs. 10 each fully paid-up lodged by Mr. Harish Chander Bhasin and 1,73,947 equity shares of Rs. 10 each fully paid-up lodged by Mr. Bharat Bhushan as per distin- marker annexures A and B, respectively,, placed before the directors and initialled by the chairman for the purpose of identification be and is hereby refused. Further resolved that Mr. Charnjit Singh, vice-president and secretary of the company, be and is hereby authorised to give and send notice of the refusal to the transferors and the proposed transferees under s. 111(2) of the Companies Act, 1956, and take such and appropriate in the matter of the above resolution. The resolution was passed with all the 13 directors (out of a total of 15 directors of the company) present and voting for the resolution excepting Mr. D. N. Davar, who did not take part in the discussion and voting on the resolution. There was no dissent- ing vote." 45. This resolution was communicated to respondents Nos. 20 and 21. These shares, admittedly, were not purchased by respondents Nos. 20 and 21. Again Rs. 3,68,463 shares were lodged with the petitioner-company on Aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he was making arrangements to pay for them. The Committee has noted that a non-resident cannot purchase shares except from funds remitted from overseas or from a NRI account. A non-resident cannot purchase shares from funds raised in India by way of loans, etc., unless the RBI expressly approved of such a transaction. 48. The Committee has also taken note of the fact that from information and material collected by this company, which is now on its records (copies of which are attached hereto as annexure III), it is clear that in none of the 13 foreign non-resident companies, are 60 per cent. of the shares held by any persons of Indian origin or nationality. None of these 13 foreign companies has filed with this company any documents to show that 60% of the shares are held by persons of Indian nationality/origin. Hence, in the opinion of this Committee, it appears that none of these 13 foreign nonresident companies are eligible to make investment in shares of Indian companies under the non-resident portfolio scheme. No doubt this matter regarding the eligibility or non-eligibility of the 13 foreign non-resident companies under the non-resident portfolio investment scheme is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign non-resident companies surprising and withholding material and relevant information and by making incorrect statements; 5. that an attempt has been made by the 13 foreign non-resident companies to circumvent the provisions of the RBI circulars and the scheme for portfolio investments by non-residents Indians; 6. that the shares in question do not appear to have been purchased as bona fide investment under the NRI scheme and not for purposes of earning a fair return by way of dividends. On the contrary the said shares appear to have been purchased for speculative purposes; 7. that there is every likelihood that in the event of the registration of these shares, the company, its management and shareholders may be involved in protracted disputes and litigations; There are serious possibilities that in the event of the registration of the said shares, the company, its management and shareholders may be hampered and the company may be put into a state of confusion and chaos; That all such attempts would hamper the further growth and development of the company and may jeopardizes the various projects under implementation and contracts entered into between the company and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain facilities for such purchase. Section 29 of the FERA, In so fair as it is relevant for our present purposes, read as follow :- "29. Restrictions on establishment of Place of business in India. - (1) Without prejudice to the provision of section 28 and section 47 and not-Withstanding anything contained in any other provision of this Act or the provisions of the Companies Act, 1956 (1 of 1956), a person resident outside India (whether a citizen of India or not) or a person who is not a citizen of India but is resident in India, or a company (other than a banking company) which is not incorporated under any law in force in India or in which the non-resident interest is more than forty per cent. or any branch of sub-company, shall not, except with the general or special permission of the Reserve Bank, - (a) carry on in India, or establish in India a branch, office or other place of business for carrying on any activity of a trading, commercial or industrial nature, other than an activity for the carrying on of which permission of the Reserve Bank has been obtain under section 28; or (b) acquire the whole or any part of any undertaking in India of any person or company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n : Provided that no direction shall be made under this clauses unless the parties who may be affected by such direction have been given a reasonable opportunity for making a representation in the matter : (3) Notwithstanding anything contained in sub-section (2), the Reserve Bank may, having regard to - (i) the fact that any person or company (including its branch), referred to in sub-section (1), is carrying on any activity referred to in clause (a) of that sub-section at the commencement of this Act or has established a branch, office or the place of business for the carrying on of such activity at such commencement, in either case, in pursuance of any permission or licence granted by the Central Government; and (ii) in the nature of the activity which is being, or intended to be, carried on by such person or company (including its branch), by order, exempt - (a) such person or company (including its branch); or (b) any class of such persons or companies (including their branches), in the order, from the operation of the provision of sub-section (2) subject to such condition as may be specified in the order : Provided that the Reserve Bank shall not make any orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Notwithstanding anything contained in any other law, no person shall, except with the permission of the Reserve Bank, - (a) enter any transfer of securities in any register or book in which securities are registered or inscribed if he has any ground for suspecting that the transfer involves any contravention of the provisions of this section, or (b) enter in any such register or book, in respect of any security, whether in connection with the issue or transfer of the security or other wise, an address outside India except by way of substitution for any such address in the same country or for the purpose of any transaction for which permission has been granted under this section with knowledge that it involves entry of the said address, or (c) transfer any share from a register outside India to a register in India." 55. Under s. 75, the Central Govt. is invested with the power to issue such general or special directions as it thinks fit to the RBI with a view to augment foreign exchange resources of the country. The RBI also is empowered under s. 73(3) to issue directions for the purpose of securing compliance with the provisions of the Act and of any rules, directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 1 and 2, submitted arguments in the alternative on this issue. Firstly, he contended that s. 29 did not stipulate prior permission of the RBI for valid purchase of shares under the portfolio investment scheme. On that footing, he urged that Circular No. 18 of September 19, 1983, was issued merely to clear the doubt raised in some quarters as to whether only those NRI investing companies in which non-residents of Indian nationality/origin held 60% interest directly or even those in which such interest was held indirectly were entitled to invest. The RBI clarified that even the entities in which such interest is indirectly but ultimately held by non-residents of Indian nationality/origin were entitled to invest under this scheme. He also urged that this letter only declares the eligibility of respondents Nos. 4 to 16 companies to make investments with full repatriation benefits under the portfolio investment scheme envisaged by Circular No. 9 dated April 14, 1982, as amended from time to time. Alternatively, he contended that the letter addressed by the RBI to the PNB on September 19, 1983, read with the Circular itself constitutes permission envisaged by s. 29(1)(b). According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company by an NRI investor. It lays down that a non-resident Indian investor "shall not" "except" with the general or special permission of the RBI purchase shares in India of any such company. There is, of course, a distinction between the actual purchase of shares and an agreement for purchase of shares. This provision only prohibits purchase; it does not prohibit an NRI investor from entering into an agreement for purchase of shares and setting the terms of any such agreement for purchases. The words "shall not" are mandatory; they enjoin a prohibition. Even if the consequences of contravening such a mandatory provision are not provided, the prohibition is imperative. The negative language used in this provision is intended to emphasize the imperative nature of the prohibition. 62. In Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Com Cas 185, the Supreme Court dealing with s. 108 of the Companies Act, which lays down that "a company shall not register a transfer of shares" except on production of an instrument of transfer, declared (at p. 191) : "The words 'shall not register' are mandatory in character, The mandatory char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature or local authority : Provided that - ... (iii) the chairman may permit an employee to offer himself as a candidate for election to a local authority and the employee so permitted shall not be deemed to have contravened the provision of this regulation." 67. It is in that context their Lordships observed (Page 1088) : "Permission ' is a word of wide import and may even survive the death of the person who permits ... Equally clearly, whereas a statue does not necessarily insist on previous permission, it may be granted even later to have retrospective effect." 68. It must be noticed that their Lordships themselves clearly stated That this matter "related to the rationale of election law" and" eligibility of an employee of the LIC to the be a member of the local authority". Their Lordships also noticed that it deals with "stipulation an ineligibility for candidature". Their Lordships further took not of the fact that the chairman is given power to permit an employee to participate in the election depending upon the circumstances of each case and the further proviso that the chairman may grant permission to the emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports the contention that the word "Permission" implied prohibition and if permission has to be obtained for purchase at all. By making permission an implied terms of the contact, the provision enjoins the parties to obtain permission before doing the thing prohibited. The fact that this provision makes obtaining permission an implied terms of the contact, in our view, far from leading to the conclusion that such permission could be obtained subsequently, makes it clear that whatever may have been the intention of the parties, permission must be obtained before the contract is performed. Even if they had not made it specific terms of the contract, s. 21 by its own force (corresponding to s. 47 of the FERA) makes it a terms of their contract, In the result, an agreement to purchases shares may be completed only after obtaining permission and not before, for s. 47 lays down that it "shall not be done unless such permission is grated". The contract may be performed only after obtaining such permission. 72. Holding otherwise would be ignoring the prohibition against purchase contained in s. 29(1) of the FERA. That the prohibition is with respect to purchases and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in giving post facto approval to purchase already made would be superfluous; in any event enforcing compliance of such conditions would be difficult, if not impossible. That would also create a very anomalous situation. The non-resident Indian investors would have purchased shares in the hope of getting permission and if permission were to be refused or if certain conditions which could not be compelled by such investors were to be imposed, the purchasers would be exposed to penal consequences. 75. The learned Attorney-General, however, pointed out that prosecution for contravention of the processions of the FERA is not a matter of course and no one excepts the authorities referred to in s. 61(2) could initiate them. The court is prohibited from taking cognizance of certain offences, including contravention of s. 29 read with s, 56 of the FERA, except with the sanction of the authorities mentioned in s. 61(2). According to him, when an application for permission is made, any purchases made, while such application is for permission is made, any purchases made, while such application. If the application is ultimately granted, it would relate back to the date of the application and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hubli v. Subha Raw Hanumantharao Prayag, [1976] 3 SCR 883, for supporting the contention that the court is bound to consider all the provision of the FERA and construe them as a whole. The Supreme Court laid down (p. 1402) : "It is a well-settled rule of interpretation that the court is 'entitled and indeed bound, when construing the terms of any provisions found in a statute, to consider any other parts of the Act which throw light on the intention of the Legislature, and which may serve to show that the particular provision ought not to be construed as it would be alone and apart from the rest of the Act'. The statue must be read as a whole and every provision in the statute must be construed with reference to the context and other clause in the statue so as, as far as possible, to make a constituent enactment of the whole statute, Obviously, therefore, session 78 to 81 must be so construed as to harmonises with section 82. They must be read together so as to form part of a connected whole." 77. The principle enunciated in this decision itself proceeds on the footing that if a provision is not sos read, that provision would conflict with some other provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous permission. Section 18(9) enables the RBI to issue a notification requiring a person to comply with any the condition mentioned in sub-section (9) of section 18 "prior to the export of the goods". These provisions, in out view, do not necessarily lead to the conclusion that wherever the word "prior" or "previous" does not precede the word "permission" in any section. The Act contemplates that permission maybe obtained either before or after the event envisaged by that procession occurs. If that were so, the same should hold good under s. 13, which imposes restriction on import and export of certain currency and bullion. Just as s. 29, s. 13 also lays down that "No person shall, except with the general or special permission of the Reserve Bank, .... ... Bring or send into India any god or silver or any foreign exchange or any India any gold or silver or any foreign exchange or any Indian currency". If the contention that since this provision does not lay down in so many words that permission of the RBI would be obtained before importing or exporting gold, selves or bullion, permission may be apples for and obtained later, is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e without that permission, shall prevent legal proceedings being brought in India to recover any sum which, apart from the said provisions and any such term, would be due, whether as debt, damages or otherwise, but - (a) the said provisions shall apply to sums required to be paid by any judgment or order of any court as they apply in relation to other sums; (b) no steps shall be taken for the purpose of enforcing any judgment or order for the payment of any sum to which the said provisions apply except as respects so much thereof as the Central Government or the Reserve Bank, as the case may be may permit to be paid; and (c) for the purpose of considering whether or not to grant such permission, the Central Government or the Reserve Bank, as the case may be, may require the person entitled to the benefit of the judgment or order and the debtor under the judgment or order, to produce such documents and to give such information as may be specified in the requisition. (4) Notwithstanding anything contained in the Negotiable Instruments Act, 1881 (26 of 1881), neither the provisions of this Act or of any rule, direction or order made thereunder, nor any condition, whether expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render s. 47(2) otiose. While s. 47 refers to an agreement of sale, s. 29 prohibits purchase of shares by NRI investors except with the general or special permission of the RBI; that necessarily leads to the conclusion that permission envisaged by s. 29 is permission which must be obtained prior to purchase. 82. That the intention of the Legislature is that the parties should obtain prior permission is further evident from s. 19 of the FERA, which so far as it is relevant for our present purpose, reads as follows; "19. Regulation of export and transfer of securities. - (1) Notwithstanding anything contained in section 81 of the Companies Act, 1956 (1 of 1956), no person shall, except with the general or special permission of the Reserve Bank - (a) take or send any security to any place outside India; (b) transfer any security, or create or transfer any interest in a security to or in favour of a person resident outside India; .... (d) issue, whether in India or elsewhere, any security which is registered or to be registered in India, to a person resident outside India; ..... (4) Notwithstanding anything contained in any other law, no person shall, except with the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is likely do deter or scare away foreign investors should, therefore, be avoided. Laws relating economic matters and policies governing financial matters and especially earning of foreign exchange should be viewed with greater latitude than laws concerning civil rights such as freedom of speech and religion, etc., as held in R. K. Garg v. Union of India [1982] 133 ITR 239 (SC) and as observed by Holmes J. (at p. 255) : "Legislature must be allowed some play in the joints ...". If a provision in an enactment like the FERA is susceptible of more than one interpretation, that which advances this object of the enactment should be adopted. This principle as enunciated is unexceptionable. For that matter, interpretation of the provision of any enactment must be made to advance the object of the enactment; not to defeat it. However, the object of the enactment, to our mind, is not merely to attract foreign exchange but also to regulate, monitor, control and limit the inflow of foreign remittances and investment of foreign funds in India and also outflow of foreign investment and profits from India and to conserve foreign exchange in accordance with the provisions of the FERA. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision were laid down, that interpretation which does not make it penal must be accepted. The Full Bench decision of the Calcutta High Court in Jay Engineering v. M. G. Wagh, AIR 1973 Cal 413, was relied upon in support of this contention. That was a case in which s. 12(2) of the FERA, 1947, came up for consideration. Sub-s. 12 authorised the Central Govt. to prohibit by a notification the taking or sending out by land, sea or air of any goods or class of goods specified in the notification unless a declaration is furnished by the exporter to the prescribed authority that the amount representing the full export value of the goods has been or will paid in the prescribed manner. Sub-s. (2) provided as follows (at p. 415) : "(2) Where any export of goods has been made to which a notification under sub-section (1) applies, no person entitled to sell, or procure the sale of, the said goods shall, except with the permission of the Reserve Bank, do or refrain from doing any act with intent to secure that - (a) the sale of the goods is delayed to an extent which is unreasonable having regard to the ordinary course of trade, or (b) payment for the goods is made otherwise than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accepted. 88. The learned Attorney-General pointed out that whether permission is granted under s. 29, prior to the purchase of subsequent to the purchase, would not affect any third party; hence that section must be liberally construed so as to authorise granting of permission subsequent to the purchase. That, according to him, would advance public interest. Any interpretation that advances public interest as laid down in CIT v. Bhattacharya [1979] 118 ITR 461 (SC) must be adopted. He also referred us to s. 28 of the FERA and sub-s. (2) thereof which declares that anything done in contravention of sub-s. (1) of s. 28 shall be void; but the transactions covered by s. 29 are not declared to be void if not backed by prior permission. It is argued that even though permission is required to be obtained before a particular act is done, unless that act, if done without obtaining such permission, is declared void, permission may be obtained even subsequently. The decision in Shekh Zafarbhai Guljarbhai v. Chhaganlal Aditram (1941) 43 BOMLR 854, on which reliance is placed in this behalf arose out of a lease of the wakf property granted by a Muslim mutawalli. It must be remembered that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan until the money-lender registered himself and obtained a certificate. Any person carrying on money-lending business without registering himself as such is exposed to penalties; but the debt itself is not extinguished. Section 11H of that very Act, on the other hand, provided that an unregistered money-lender could register himself subsequently and then institute a suit. It is having regard to these other provisions, the court held that failure to get himself registered before carrying on money-lending business did not render the transaction void and such registration could be obtained even just prior to the suit. 92. It is significant to note that there is no specific provision for granting permission subsequent to the purchase of the shares. That itself makes all the difference. 93. Arguments were also addressed that in the interpretation of s. 29 of the FERA, the contemporaneous exposition made by the RBI, which is the authority empowered to administer the FERA and empowered to issue directions under s. 73(3) for better implementation, must prevail. In Desh Bandhu Gupta & Co. v. Delhi Stock Exchange Association [1980] 50 Com Cas 84 their Lordships, referring to the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its provision in the discharge of their duties under that enactment. Interpretation of a statute is the exclusive province of the court. When a dispute as to the true meaning of a provision becomes the subject-matter of controversy, this principle may serve as one of the aids to interpretation in respect of an ancient statute. This principle may hold good with regard to any administrative order or policy decision which is not of a statutory character. It may govern departmental proceedings, but certainly not the interpretation of a statute, and especially a statue the provisions of which expose citizens to penal consequences. 97. Even if this principle were to apply, it would appear from the regulations made by the RBI under s. 73(3) for the due compliance of the Act, that it intended that permission under s. 29 should be obtained before the shares were purchased. Paragraph 24A.1 of Chapter 24 of the Exchange Control Manual, Volume I, 1978 edition, issued by the RBI, which deals with foreign investment in India, reads as follows : "24A.1 Purchase of shares and securities by non-residents. - In terms of section 29(1)(b) of the Foreign Exchange Regulation Act, 1973, no pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory authority, if with a view to advancing the object of the FERA and for better enforcing of its provisions, has imposed the obligation to obtain prior permission upon every non-resident Indian investor, we are unable to see how it would be ultra vires or invalid. That, in our view, is precondition validly imposed and it is obligatory upon every investor intending to benefit from such facility to comply with that requirement. Every public authority, much more so the RBI, which is a statutory authority, having laid down under regln. 24.1 framed in exercise of the powers vested in it under s. 73 of the FERA that the prior permission should be obtained, is under an obligation to observe it strictly. It cannot choose to insist upon prior permission being obtained in some cases as being required under regln. 24.1 and in other cases grant permission units arbitrary discretion even after the purchases of shares are completed on the plea that s. 29 enables grant of permission even subsequent to the purchase also. Even in a case where no such requirement is laid down by statute that every public authority having laid down certain norms is obliged to act, according to the said norms, is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras, AIR 1959 SC 694, where directions issued by the Government under s. 43A of the M.V. Act, 1939, came up for consideration, they would not be law regulating the rights of the parties. Just as any scheme not conforming with s. 68C of the M.V. Act, 1939, would be invalid as held in C. S. Rowjee v. State of A.P., [1964] 6 SCR 330, if regln. 24.1 were administrative in nature, it must give way to s. 29. But, as held above, these regulations are issued under s. 73(3) of the FERA and are intended to better enforce the provisions thereof and are not in derogation of s. 29 itself. This regulation is statutory and not administrative. This regulation only further reinforces the conclusion reached by us on an interpretation of s. 29 itself that it contemplates prior permission. 103. The forms prescribed under s. 73(3) for obtaining permission also would disclose that any non-resident Indian investor intending to purchase shares in an Indian company under the portfolio investment scheme with repatriation benefits must obtain prior permission from the RBI under s. 29(1)(b) of the FERA 104. As stated in Circular No. 9, dated April 14, 1982, individuals of Indian nationality or origin we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epatriation benefits. He can, however, acquire additional shares on non-repatriation basis, under the facility referred to in paragraph 3(a) above. As in the case of portfolio investment in shares without repatriation benefits, the Reserve Bank will grant permission to designated banks authorised to deal in foreign exchange for purchasing shares through a stock exchange on behalf of their non-resident customers of Indian nationality/origin, subject, inter alia, to the limits and conditions mentioned above, Applications for permission may be made in the attached Form RPI to the Controller, Exchange Control Department, Reserve Bank of India, Central Office (Foreign Investment Division), Bombay-400 023. Note : To facilitate co-ordination and smoothness in investment operations, non-residents of Indian nationality/origin may designate only one bank in India for making investments in shares through a stock exchange on repatriation basis ....." 106. The facilities of investment with repatriation benefits were further extended under paragraph 5 of the Circular to overseas companies and other corporate bodies. Paragraph 5 of the Circular to overseas companies and other corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These agents may attend to the work relating to the investments of the non residents investors. Permission for investment in shares on behalf of such investors will, however, be granted only to the designated banks authorised to deal in foreign exchange since these banks would be responsible for compliance with the relevant exchange control requirements. Proper coordination and understanding between the designated bank and the investor's agents would be necessary for handling the investment procedures efficiently. 9. (i) Where non-residents of Indian nationality/origin intend to subscribe to new issues of Indian companies, it will be in order for authorised dealers to allow payment of subscription (application money) from the applicant's Non-resident (External) account/FCNR account or Ordinary non-resident account, as the case may be, without seeking prior approval of the Reserve Bank. If the subscription or any portion thereof is refunded by the company, authorised dealers may allow the amount to be reaccredited to the applicant's same account from which it was withdrawn earlier. (ii) Similarly, where subscriptions to new issues were remitted from abroad by non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serve Bank of specific approval, as hitherto." 108. As to who would be deemed to be of Indian origin is stated in paragraph 12 of the Circular as follows : "12. For the purposes of the facilities of investment in shares and securities, the term 'a person of Indian origin' has been defined. The definition is as under : 'A personal shall be deemed to be of Indian origin, if - (i) he, at any time, held Indian passport, or (ii) he or either of his parents or any of his grandparents was an Indian and a permanent resident in undivided India at any time. A wife of a citizen of India or of a person of Indian origin shall also be deemed to be of Indian origin even though she may be of non-Indian origin." 109. It was expressly stated in paragraph 15 that "the directions contained in this circular have been issued under s. 73(3) of the FERA, 1973, and any contravention or non-observance thereof is subject to the penalties prescribed thereunder." Under that Circular, the forms in which the applications were to be made for obtaining permission of the RBI were also prescribed. These applications were to be accompanied by certificates of the audito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the Controller, Exchange Control Department, Reserve Bank of India, Central Office (Foreign Investment Division), in Form RPC attached to the Circular. So far as overseas companies and other corporate bodies are concerned, they are also extended the benefit of such investment, provided, however, these bodies are owned predominantly by non-residents of Indian nationality/origin. The criteria for determining such predominates ownership was that "at least 60% of the ownership of these entities should be with non-residents of Indian nationality/origin. It was necessary for such entities to submit a certificate in this regard in the prescribed Form OAC from an overseas auditor/chartered accountant/certified public accountant along with their applications for investment in shares to the Reserve Bank of India. A pro forma certificate was enclosed. The applications for permission were to be submitted through designated banks. Along with Circular No. 9 of April 14, 1982, the form in which a non-resident Indian investor should make the application for grant of permission and the form of the certificate which he must submit along with that application are also prescribed. Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase shares' on behalf of the applicant." This, in our view, clinches the issue. 110. It was argued for the respondents, that as the shares are purchased through brokers at the stock exchange, it is not possible to state all the particulars required by the pro forma application before they are actually purchased. It is said that the seller would not know for whom the broker was purchasing. It is pointed out that if prior permission is necessarily required to be obtained, the scheme itself cannot be implemented. We are unable to accept this contention. Permission is required to be obtained not by the seller but by the purchaser. While the seller, when selling through a broker, may not know to whom he is selling, the purchaser, whether he is purchasing directly or through authorised brokers, would certainly know all the material particulars required to be mentioned. In fact, it is only armed with the permission granted by the RBI that the authorised broker may purchase at the stock exchange from any seller for an undisclosed non-resident Indian investor. So long as he gets the price he demands, it is not necessary for the seller to know to the whom he is selling the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with full repatriation benefits. 112. Lastly, it was argued that an administrative authority such as the RBI will have to apply the law as it stands to pending proceeding. After the clarification under the impugned Circular, when it is found that the respondent-companies are eligible to invests under portfolio investment scheme with repatriation benefits, it could grant permission even after the shares were purchased. Reliance for this contention is placed upon the decision of the Supreme Court in State of Tamil Nadu v. Hind Stone, [1981] 2S CR742. On the strength of this decision, it is argued that none has a vested right to require disposal of an application on the basis of the rule as it was when it was made. 113. As discussed above, any requirement as to obtaining prior permission for the purchase of shares in Indian companies by a NRI investor is a requirement laid down by s. 29 of the FERA and not merely by any scheme framed under it. Any scheme formulated under the FERA must conform to s. 29 and cannot make any provision ignoring it; it could not permit purchase of shares without prior permission and authorise grant of permission subsequent to the to the purchases of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of shares. 116. We may now examine the liberalised portfolio investment scheme with full repatriation benefits introduced by Circular No. 9 of April, 14, 1982 (Exh."G"), under which the respondent companies haves purchases shares and the purport and effect of the press note of September 17, 1983 (Exh."A"), Circular No. 18 of September 19, 1983 (Exh."B"), and RBI's letter of even date to PNB (Exh."C") impugned in this writ petition. 117. Circular No. 9 dated April 14, 1982 (Exh."G"), while permitting NRI companies to purchase shares in Indian companies, required that the application should be made inform RPC along with OAC certificate, That circular even in its opening paragraph records that "up to date such facility was subject to the prior approval of the RBI ", but does no relax that condition. It still insists that permission referred to therein is permission under s. 29(1)(b) of the FERA which, I as held above, is prior permission. The permission to purchases shares is to be for in form RPC. Instructions in the RPC form lay down : "To qualify for necessary permission for investment in shares, at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . When, by an Indian law or the directions or circulars issued thereunder, investment by a company in which NRI hold interest up to 60% or above is permitted, obviously it could not take within its ambit companies in which the interest is hole indirectly. The fact that a company registered in England is governed by the English law which makes provision for such indirect holding as well, may create some doubt in the minds of the non-resident investors. When the non-resident investor is permitted under Circular No. 9 of April 14, 1982, to make in investment in Indian which does not recognise holding of indirect ownership or beneficial interest in companies, that may require clarification. The RBI, however, was clearly and constantly taking the view that under that Circular, such companies or corporate bodies in which non-residents of Indian nationality/origin held only indirect interest were not eligible to invest. 121. That Circular was issued by the RBI in discharge of its statutory function under s. 73(3) of the FERA albeit to give an effect to the policy decision taken by the Government with a view to attract foreign remittances. It is argued that if any clarification of the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, though after adhering to it over a long period with some conviction, ask inference of mala fides cannot necessarily be drawn. Of course, as rightly conceded by Mr. Nariman, learned counsel for the petitioners, mala fide in the petition, cannot be proved by direct evidence, oral or documentary. It has invariably to be a matter of inference to be drawn from proved circumstances; but, months less, it must be an inescapable inference and exclude all other hypothesis. 122. The main allegation of mala fides again respondent Nos. 1 and 2 in issuing the impugned press release, the circular and the letter, (Exs."A", "B" and "C" retrospectively) is that they were intended to benefit responded 4 to 16, companies, controlled by Swraj Paul, respondent No. 17. It was not a bona fide exercise of power. According to the petitioners, thought it is very clear from Circular No. 9 of April 14, 1982, that only companies in which the non-residents of Indian nationality/origin directly held 60% ownership or beneficial interest therein, were eligible to invest under that scheme, as respondent No. 17 or his family members did not hold 60% interest in respondents Nos. 4 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity". Applications for transfer of registration of 4,62,337 shares so purchases were lodged in the names of two stock borders of respondents Nos. 4 to 16 and 3,68,463 shares were lodged in the names of respondent Nos 4 to 16 stating that these companies were controlled by respondent No. 17. As necessary particulars were not furnished by respondents Nos. 4 to 16 or their stock-border and attorneys (respondents Nos. 20 and 21) or their distinguished banker, respondent No. 3, and as these purchase appeared to be in contravention of the FERA and the circulars governing such purchases, the board of directors at their meeting held on June 9, 1983, declined to register the shares in the names of the two stock-brokers and in the names of respondents Nos. 4 to 16 at their meeting held on August 29, 1983. These decision were taken after obtaining legal advice. It is alleged that respondent No. 2 itself incited investigation and, after obtaining legal advice regarding the validity of these purchase, directed respondent No. 3, the PNB, to freeze the accounts of the 13 companies and not to release any further amounts therefrom. It is further alleged that event the Government of India" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 125. It was asserted that the Government of India had at no stage intended to preclude the companies indirectly owned by non-resident individuals of Indian nationality/origin and that respondent No. 1, was not concerned with the various speeches supposed to have been made by Swraj Paul, the correctness of which is not admitted. 126. On behalf of the RBI, Shobha Singh Thakur, Controller of Exchange, RBI, filed the affidavit-in-reply taking the stand : "It is for the Government and this respondent in the light of Government policy to decide to what extent investments should be permitted by non-resident Indians in the shares of Indian companies. If, having regard to the objective of the policy laid down by Government, it is decided that a body owned, directly or indirectly, by a non-resident Indian should be considered as eligible for making investment in the shares of an Indian company, neither the Indian company nor any of its shareholder can claim that such investment should be permitted only up to a particular extent." 127. It was pleaded that the petitioners have no right to call in question the "administrative policy" of the RBI in the matter of allowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of shares should be made out of the non-respondent accounts unless and until this respondent's specific permission for purchase of the shares on behalf of the 13 overseas companies was obtained and their applications were, therefore, kept under consideration". It sought further option in respect of the said 13 companies. Then it referred to the correspondence that passed between the RBI, PNB and the petitioner-company and stated : "...... this respondent examined the question of eligibility of respondents Nos. 4 to 16 invest in the shares of Indian companies in accordance with the aforesaid circulars issued by them. As the shares of respondents Nos. 4 to 16-companies were not immediately and directly held by non-resident individuals of Indian nationality/origin, this respondent was of the view that respondents Nos. 4 to 16-companies were not eligible to make investments under the non-respondents portfolio investment scheme as formulated in the existing circulars of this respondent. However, as the said circulars were based upon the policies formulated by the Government of India, this respondent referred the matter to the Government of India, and as stated above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investments in and hold the shares of the first petitioner to the extent of 1% of the paid-up capital of the company subject, where the purchase had been made after May 2, 1983, to overall ceiling of 5% of paid-up equity capital of each of the invest companies. The letter further stated that purchases made up to and inclusive of May 2, 1983, would not be subject to the 5% ceiling." 130. As regards the allegation that a portion of the purchases was make with Indian rupee funds and not our of any foreign remittances, the same was one admitted as correct and it was also denied that the purchase were made after May 2, 1983, Respondent No. 2 also averred : "It is denied that the purchase of shares by respondent Nos. 4 to 16 is in excess of the limit of 5% imposed by Circular dated May 16, 1983, as the third respondent has reported that all shares had been purchase before May 2, 1983." 131. The RBI also denied that the petitioners had refused registration for valid reasons and that Exhs."A" "B" and "C" were steps taken in order to assure that respondents Nos 4 to 16 with respondent No. 17, as their head, acquired control of as substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies concerned to produce these same in support of their pleas, neither the court nor the opposing parties are entitled to call upon any one to produce in court such written legal advice tenderised to it. If produced, it would certainly be taken into account. But since communication between the parties and their legal advisers are privileged communications, neither the court on or the other side is entitled to insist upon its production; nor can they call upon the court to draw any adverse inference against a party for failure to produce before the court the record of legal advice. 134. The petitioners allege that the theory of original intention is sought to be pressed into service by the respondents only to save the investment made by respondents Nos. 4 to 17 after releasing that 60% ownership or beneficial interest in those companies was not held by them directly but was only potted to be held indirectly by non-residents of Indian nationality/origin. We are unable to hold that even on the facts alleged, leave alone proved, this is the invest capable conciliation to be reached in the circumstances of this case. Matters of policy when translated into statues or notifications may n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the press note (Exh."A") and the Circular (Exh."B") are not issued bona fide by the RBI but were issued at the dictated of the Central Govt. is that it was done in great haste. The Government of India, Ministry of Finance, Department of Economic Affairs, wrote to Dr. Manmohan Singh, Governor, Reserve Bank of Indian, on September 17, 1983, to the effect that "in order to remove any doubt regarding eligibility of the companies, it is clarified, that overseas bodies, whether owned directly or indirectly, are eligible to invest under the scheme so long as it is clear that the ultimate ownership to the extent of at least 60% is in the hands of non-residents of Indian nationality/origin. Each such applicant company is eligible to make investment subject the existing ceiling of 1% irrespective of whether the ultimate owner ships is in the hands of one more individuals". In that letter, it was further stated : "Since this clarification merely reflects the original intention of the Government, the investment made by the applicants (respondents Nos. 4 to 17) before May 2, 1983, but pending for approval should not be subjected to 5% ceiling. Pending appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. May be that this was the original intention also but was not clearly expressed it in the circular. It may even be that the Circular No. 9 of April 14, 1982, if correctly read, would not make companies in which 60% interest is held by NRI indirectly eligible to invest. But that cannot preclude either the author of the policy or the author of the circular which was required to be translate to the a Statutory order by the RBI from clarifying its original intention. The RBI, which is bound under s. 75 of the FERA, to carry out the decoration of the Government of India in administering the FERA a issued the press release (Exh."A") and the circle (Exh."B") and directed that the action should be taken as stated in the letter. We are unable to impute lack of any bona fides in such a clarification; mush less do we think it legitimate to attribute by any legal or factual mala fides either to the RBI or to the Government of India is this regard. To say that the Circular (Exh."G") does not made the companies in which NRI "A", "B" and "C" as vitiated by mala fides or lack of bona fides is another. The mere fact that this was accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of whether it is at all permissible in law to grant such ex-post facto permission ever arisen or been properly considered." 143. It was also pointed out that in all the nine cases, "the capital invested in the shares as well as the dividend income that may accrue thereon would not be allowed to be remitted outside India at any time in the future. In fact, all the nine cases, the applicants were required to furnish an undertaking of non-reorganization in the second respondent's regular rising the proposes ... In none of the nine cases listed were shares sought to be acquired with repatriation benefits as in the present case." It was also alleged : "... that the nine instances refereed to Exh."A" to the said affidavit are (not) 'illustrative cases' ... The depend has avoided disclosing if these are the only cases where such post facto approval has been granted and the number of cases where applications for permission made subsequent to the acquisition of the shares have been rejected though this was specifically pointed out by counsel for the petitioner ..." 144. In our view, it is not necessary to given the details of these purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. That is what the press note (Exh."A") and the circular (Exh."B") purport to do. A change of opinion on a legal issue or issuing a circular to translate the Government policy by a body such as the RBI, cannot no this ground alone be treated as a mala fide action so as to render the press note, circular and the letter based, thereon wholly illegal and void. 147. Any clarification of the original intention by a subsequent press release such as Exh."A" or circular such as. Exh."B", however, cannot have the legal effect of amending the previous circular with retrospective effect even if the original intention was, as is now clarified. If Circular No. 9 of April 14, 1982 (Exh."G"), itself does not make companies in which non residents of Indian nationality/origin did not directly hold 60% ownership or beneficial interest, the clarification issued under the impugned documents in September, 1983, cannot have any retrospective effect from April 14, 1982. Administrative orders or orders in the nature of subordinate legislation cannot have any retrospective effect. In fact, this subsequent circular of September 19, 1983, does not at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment scheme (Exh. "G"). In the affidavit-in-reply filed on behalf of the RBI, objection was taken to the filing of an affidavit by the petitioners at this belated stage and making allegations which required verification of facts. It was also pleaded in the affidavit-in-reply that : "... if the petitioners desire to make any submission as to the consequence of the said disclosure it was incumbent on them to make such a submission and not leave the matter at large to be dealt with by oral arguments." 150. Thereafter, copies of the documents received by them were filed. The RBI and PNB filed copies of the correspondence between them and Swraj Paul and also the correspondence that passed between Swraj Paul, his chartered accountants and Bank Hofmann A.G., Zurich and the National Bank (Breach Office Nominees) Ltd. in this behalf. The copy of the latter addressed by the Bank Hofmann A.G., Zurich, states : "This is to confirm that we are holding shares of CAPARO GROUP LIMITED on behalf of Mr. Swraj Paul and family for safe custody as his trustees. These shares were issued on April 15, 1983, in the name of Bank Hofmann itself and from May 4, 1984, they were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either the Government or of the RBI that companies in which NR Indian had more than 60% interest even indirectly should be given the benefit of investment with full reparation benefits. Any such clarification of the intention under Exhs."A", "B" and "C" cannot enlarge the scope of the circular (Exh."G"); much less can it enlarge its scope with retrospective effect. It can only operate prospectively from the date of its issue, i.e., September 19, 1983. The letter (Exh."C") also states : "The permission granted hereby will initially be valid for a period of three years form the date of this letter. In case the permission is required to be renewed for further period, you may place make a request in this regard by a letter be behalf of the non-resident investor company to enable up to take necessary action." 154. This permission operates only from September 19, 1983, onwards. Respondents Nos. 4 to 16 would be entitled to purchases share from that date, if in fact they even indirectly 60% interesting the NRI company, for the letter specifically states : "The permission will remain valid so long as at least 60 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for any company eligible to make investment under the port-folio scheme promulgated under the circular (Exh."G") or even under the circular (Exh."B"), the obtaining of prior permission of the RBI under s. 29 of the FERA for purchasing shares in Indian companies is precondition. If without obtaining prior permission by shares are purchased, they would be contravening the provision of s. 29 and would be exposing themselves to administrative action under s. 50 and penal action under s. 56 of the FERA. 157. The letter of the RBI, addressed to the PNB, dated September 19, 1983 (Exh."C"), does not in terms state that permission is granted with effect form the date the shares were purchased or with effect from the date on which the applications were made by respondents Nos. 4 to 16 for grant of permission. It may be recalled that applications were made by respondents Nos. 4 and 8 to 16 on March 12, 1983. The impugned letter (Ex."C") only declares the eligibility of these 13 respondent companies "to hold" the shares, if purchased prior to May 2. 1983, up to 1% in each company and subject to a ceiling of 5% of the paid-up capital of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 17 who are sought to removed, the requisitionist proposes to appoint as directors, the following persons whose names are specified in resolutions Nos. 2, 4, 6, 8, 10, 12, 14, 16 and 18 respectively." 160. Pursuant to this notice. as bound in law, notices covering the GEM were issued by the company. 161. It is the contention of the petitioners : (i) that this requisitionist is not in conformity it provisions of the Companies Act and in particular contravenes s. 284 of that Act; (ii) that it is beyond the scope and against the intendment of the provisions of the LIC Act; and (iii) that it is issued for a collateral purpose and it is a mala fide and arbitrary action of the LIC taken at the behest of respondent Nos. 1 and 2. 162. Mr. Nariman, learned counsel for the petitioners, referring to the first ground, drew our attention to the provisions of s. 284 of the Act and contended that whenever a resolution is moved to remove a director, "he is entitled to be heard on such resolution at the meeting" as laid down therein. he director concerned is entitled to make representation in writing and request must the company to notify to the members of the company. That req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting. The learned Attorney-General contended that the shareholders have a right to remove a director without any reason whatsoever and what any private shareholder can do, the LIC cannot be prevented from doing. That right, according to the learned Attorney-General, springs from LIC's position as a shareholder and the provisions of the Companies Act and not on account LIC, being a statutory body, constituted under the LIC Act. Merely because the LIC happens to be a statutory body, it cannot be deprived of the right which it is entitled to exercises as a shareholder of the company. This requires us to consider to the question whether the LIC may exercise the same unfettered right which an ordinary shareholder may exercise the same unfettered right a statutory body it must conform to the provision of LIC Act also. To this aspect we would advert after dealing with the question whether in the juxtaposition of the director being given a right make a written representation and also the right to be heard orally against his removal, the shareholders of the company entitled to vote at the EGM may require reasons to be given in the notice of requisition and failure to given to give reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a representation. Section 284(3) gives the directors the right to make a written representation even before the meeting is concerned and much before the members are given notice of the meeting. That written representation of the director is required to be sent to the shareholders. Obviously therefore, reasons must be given by the requisitionist before the notice EGM is given If the requisitionist do not state the reasons in there notice of requisitions, the company cannot of its own divine those reason and communicate them to the members. As a corollary to the right of representation give to the detenue by the Preventive Detention Act, Obligation to furnish grounds to detain to enable effective and intelligible representation being made was implied by the Supreme Court in State of Bombay v. Atma Ram Shridhar Vaidya, 1951 CriLJ 373, in the following words (headnote) : "The conferment of the right to make a representation necessarily carries with it the obligation on the part of the detaining authority to furnish the grounds, i.e., materials on which the detention order was made." 166. When s. 284 of the Companies Act gives a right of representation to the director soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against this principle, but came to the conclusion on evidence that the principles of natural justice were not violated and agreed with the ultimate order, The right of the licensee in that case was based on a contract and the power to terminate was not sought to be exercised by any statutory body like the LIC. The question of arbitrariness was to be determined with reference to the contract between the parties and not with reference to any statute. Their Lordships were not concerned with the fundamental right guaranteed under sec. 14 of the Constitution and enjoined upon every statutory authority. If the stewards were performing a statutory duty and not enforcing a contractual right, their Lordships would, in all probability, have improved the principles of natural justice even in that case as well. That decision rests on the terms of the contract and proceeds upon the footing that under the contract, an unfettered discretion was vested in the licensing authority to withdraw the licence. The principle of that case cannot apply to the exercise of any right by the LIC, a body which cannot claim to have an unfettered bad unguarded power or discretion in discharge of its functions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make representations before the decision to dismiss was taken, but also that if admitted to state his case, he had a case of substance to make. His appeal was allowed and remitted to the Court of Session with a direction to reduce the resolution for dismissal and the consequent letter of dismissal. 174. It would be seen that in that case the principles of natural justice even though not made applicable by the statute, the court implied an obligation to observe those principles having regard to the per-existing law and the person's right to made a representation against his removal which is the situation in the present case. Section 284 of the Companies Act gives a specific right of representation to a director whose terms was sought to be curtailed by requesting an EGM of the company. The principles of natural justice even in a case governed by the statute were themselves enlarged so as to require reasons to be stated for dismissal. 175. In Gaiman v. National Association for Mental for Mental Health [1970] 2 All ER 362 the Church of Scientology of California, or, more popularly known as the Scientologists, sought to expel some of its members. The court held (p. 364) : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some what limited. But, I were these right to make a representation is conceded to a director under s. 284(4) of the Companies Act, the representation to be effective must be in respect of something put against him for removal. The principles of natural justices cannot be put into a stain jacket. They must be adequate to meet the requirements of the particular situation. Their amplitude must depend upon the requirements of the caused by the non-observance of these principles. In such a case, the wider concept of natural justice requiring reason to be given must be wider concept of natural justice requiring reasons to be given must be implied and held to be obligatory. If the statute itself has laid drawn that reason should be given, there would not be any occasion to invoke any principle of natural justice. Then that would be a statutory requirement of a valid requisition notice and if reasons were not given, the notice would have fields for not complying with that statutory requirement. The necessity to invoke the principles of natural justice arises only because theirs is no such express statutory stipulation. Even in the absence of such a statutory requirement, because of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court Act, 1981) had not extended that jurisdiction". Though the court had jurisdiction to issue infection where it was just and convenient to do so, it could not be extended to include the decision of private or domestic tribunals. In view of the that the stawards' authority to suspend the plaintiff's licence was derived solely from the contract between him and the defendants and no public element in their jurisdiction as such was involved, their decision was held to be not reviewable and no complaint of non-observance of the was held to be not reviewable and no complaint of non-observance of the principles of natural justice arose. Lastly, reliance is also places on the decision in Russell v. Duke of Norfolk [1949] 1 All ER 109 that in removing a director it is not a judicial power of expulsion but an administrative power vested in the general body that is invoked and hence the principles of natural justices would not apply. The general principles of natural justice may not be invoked to (sic) in the case every notice requisitioning an EGM is valid. Still, when a direct is sought to be removed and for this purpose a requisition notice is given and s. 284 of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likely to have been in the minds of the members of these Council of State when they dealt with the Bill." 178. It is urged that it is not open to the court to question the shareholders as to what prompted them to exercises their vote in a particular manner or to issue a requisition notice for convening a meeting. Here the question is not as to why these shareholders are voting for removal or retraction of the directors; the issue is whether the notice of requisition is in accordance with the requirement and intendment of s. 284 of Companies Act. 179. Reliance is also placed on the decision of a Division Bench of this court in Ramkrushna Gangaram Rathi v. Kisan Zingraji Madke, AIR 1971 Bom 305, wherein it was held that for requisitioning a special meeting for removing president under the Maharashtra Municipalities Act, 1965, the requisition need not state the grounds on which he is sought to be removed. Only signatures of not less than one-fourth councillors are required for a valid requisition. The reasons given for this conclusion are stated thus (at p. 313) : ".... the tenure of the office of the president if wholly at the pleasure and the will of the majority of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one case indeed which would justify this court in restraining a meeting of shareholders. I do not mean to say of courses that there could not be a case in which it would be necessary and proper to exercise such a power, I can conceives a case in which a meeting might be called under such a notice that noting legal could be done under it. Possibly in that case an injection to restrain the meeting might be granted. I do one say that it would; that case may be dealt with even it arises. In the present case, it must be observed that the notice is not a notice of particular resolutions-it is a notice stating objects which the requisitionist wish to accomplish by any legal means. That is these only notice which they need give, according to the terms of the Act of Parliament. One of their affidavits is to remove the directors. In my opinion, when we look at section 91 of the Companies clause Act. There can be no doubt that a general meeting has power to do this." 181. It would be observed that even in that case the Lord justice envisaged a situation where a meeting could be restrained through these particular case they were dealing with was not found to be one such. 182. In Andrew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision proceeds to consider the resolution adopted at the meeting and was not concerned with the anterior stage as to whether the requisition itself was properly made and the meeting was duly converted. In fact, it recognised that while the decision at the meeting itself may not be gone into once it is arrived at by majority, if the meeting itself is not duly covered and regularly held, it would be other wise, Further, when the impugned action is taken by an authority a which is a "State" within the meaning of art. 12 of the Constitution, whether that authority has requisitioned the meeting arbitrary and without any reasonable causes or for collateral purpose, as discussed hereinafter, would become germane. That the general body has a right to adopt a resolution without disclosing the reasons in support body has a right to adopt a resolution without disclosing the reasons in support of that resolution, cannot clothe an authority such as the LIC to requisition a meeting arbitrary and without any reasonable cause or for collateral purpose. 185. All these decisions deal with the question as to whether a resolution passed at the general body meeting of the company could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng is not properly convened and the explanatory statement does not contain all material facts, the court will have to pronounce upon the validity of such a notice and the meeting. 188. In Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd, [1971] 41 Com Cas 377, dealing with the object of an explanatory statement to be appended to the notices sent to the shareholders to set out the nature or concern or interest of the solicitor-director in the matter of the appointment of a private company, on the facts it was held that there was no full land frank disclosure and that the shareholders were not given a full and complete opportunity. As such, the notice of the meeting bad and the resolution passed at that meeting invalid. That was case dealing with s. 301 of the companies Act which prohibited as director from taking part in any discussion of or vote on any contract or arrangement entered into or to be intercede into for and on behalf of the company if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement. The vote of such a director was declared to be void. The attack in this causes is one the validity of the requisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appellant had made out a case for a winding up order under 222(f). The Court of Appeal allowed the appeal holding that in the case of a quasi partnership company excluding the opponent from participation in the management and conduct to the business did not form a ground for holding that it was just and equitable that the company should be wound up unless it was shown that power had not been exercises bona fides in the interests of these company or that the grounds for exercising the power were such that no reasonable mind could think that the removal was in the interest of the company, and that these appellant had failed to show that his removal had not been justified and it in the best interest of the company or that no man could have though so. The House of Lords reversal that decision and held the appellant having lost his right to a share in the profits and being in that respect at the mercy of majority share holders and being unable to dispose of his interest without their consent, the proper counsel was to dissolve the association by winding up the company. We are of the opinion that when such a drastic step would be justified under the Company law, as held by these Hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Breen v. Amalgamated Engineering Union [1971] 1 All ER 1148, the giving of reasons is one of the fundamental of goods administration. The Supreme Court ruled in Khudi Ram Das v. State of West Bengal, [1975] 2 SCR 832, no doubt in the context of a case of termination of service of a Government servant, that there is nothing like unfettered discretion immune from judicial review ability. The court further declared : "...... Where a charge of unfair discrimination is leveled with specificity, or improper motive are imputed to the authority making the impugned order of termination of service, it is the duty of the authority to dispel that charges by disclosing to the court the reason or motive which impelled it to take these impugned action .... the authority cannot withhold such information from the Court on the excuse that the impugned order is parallel administrative and not judicial, having been passed in exercise of its administrative discretion under the rules governing the conditions of service." 194. This principle should, in our view, also apply where the directors are sought to be removed and under the statute they are given a right of representation. 195. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner-company. Thus, the only reason given in the requisition notice does not stand a moment's scrutiny and falls to the ground. 196. Assuming, as contended for the LIC, that it was not bound to give reason for requisitioning an EGM, having chosen to give a reason, it is not open to its to contend that the court is barest from examining how far that reason is true and sustainable and how far it is as bona fide act of the LIC. Apart from the reason given, obviously there is not other reason. When that reason is for to be whole entries and untenable, and arbitrary or is for reasons extraneous and collateral which even these LIC is either unreasonable and arbitrary or is for reasons extraneous and collateral which even the LIC did not choose to discloses in its affidavits. It is not now open to the LIC to assert that there are other justifiable reason for requesting the meeting. If, in fact, there were any, they would have been stated at least in the affidavits filed in reply before this court. Any contention that the power to requisition an EGM could have been exercised for many valid reasons which need not have been disclosed and which were suggested at the Bar, cannot real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Parmeshwar Sahai has been the director of the petitioner-company since 1977. He has held several position in the Central Govt. He was member of the Railways Board and chairman of Project and Equipment Corporation Ltd., wholly owned Government company. He was a director of several other public limited companies. He was due to retire by rotation at the annual general meeting of 1985. J. M. Shrinagesh is a retired ICS officer who has been a director of the petitioner-company since 1965. He held various positions in the Central Govt. He was the member of the Railway board chairman of Hindustan steel Ltd., a wholly owned Government company, for a number of year and was a director of several companies of the date he was sought to be removed. He was due to retires by rotation at the annual general meeting of 1986. Dr. Bharat Ram has been the director of the petitioner-company since 1964. He was due to retire by rotation at the annual general meeting in June, 1984. On the date he was sought to be removed he was the chairman and managing director, DCM Ltd. and the chairman of Andhra Cement Co. Ltd., Besides being a director in several other public limited companies. S. Ranganathan is ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Commerce and Secretary and then Principal Secretary, Ministry of Defence. He was also Ambassador of India to Belgium. He was the chairman of several prestigious committees and chairman and director of a number of other companies. That these directors possessed the qualifications, Status and experience as described above and that they were to retire in the normal course as stated above is not disputed. It should be taken that they had brought to bear their rich and varied experience in managing the affairs of the petitioner-company and in taking policy decisions during their entire term of office principally that accounted for its steady progress and good track record. To exercise the majority vote held by the public financial institutions in this manner to remove person of such stature and proved capability and against whom nothing is alleged even now and no better reason than the LIC does not "wish to have them" on the board of the petitioner-company is, to say the least, the most arbitrary and naked exercise of brute majority power. They were last elected unanimously, supported by all the financial institution, including the LIC. Although some of them were to retire i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We must notice that the present writ petition was filed complaining about the invalidity of the requisition notice. It was filed at the earliest opportunity without any loss of time. The complaint is of violation of a statutory provision and the principles of natural justice by a statutory public authority. The complaint is that only on the strength of the decisive majority shareholding, all norms are being thrown to winds to secure the registration of transfer of shares purchased in violation of law. 202. The learned Attorney-General, in sum, pleaded that even where the statute incorporates some principles of natural justice, the court may import some more principles of natural justice by way of necessary implication; but that must be done having regard to the facts and circumstances of the case. Those circumstances do not exist in this case. He pointed out that in the context of the present case, the court has to keep in view : (i) that it is dealing with a matter concerning corporate sector in which the court should not interfere unless it is absolutely necessary for its proper functioning, (ii) that the shareholders have full control of the company and their right to control t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure to give reasons. In out view, in such a situation, the majority shareholders too must be compelled to observe the law by issuing an appropriate writ. 204. The requisition notice is assailed on the further ground that is beyond the scope and against the intendment of the LIC Act. Mr. Nariman, the learned counsel for the petitioners, that s. 6 of the LIC Act defines the functions of the Corporation. The function of the LIC is to carry on life insurance business and not to take over the management of other companies. The step taken to remove 9 out of 15 directors of the petitioner-company amounts totaling over its management. This is not authorised by the LIC Act. (Act No. 31 of 1956). 205. Section 6 of the LIC Act, 1956, details the functions of the LIC and in so far as it is relevant for out propose, reads as follows : "6. Functions of the Corporation. - (1) Subject to the rules, if any, made by the Central Government in this behalf it shall be the general duty of the Corporation to carry on life insurance business, whether in or outside India, and the Corporation shall so exercise its powers under the this Act as to secure that life insurance business is developed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " That power is only subject to the rules, if any, made by the Central Govt. Though s. 6(1) empowers the LIC in general terms to carry on life insurance business and to exercise all the powers vested in it to develop the life insurance business to the best advantage of the community, it does not empower it to carry on any other business; The ambit of s. 6(1) extends to the whole gamut of life insurance business and it may take only such steps as are necessary to develop life insurance business to the best advantage of the community. However wide the ambit of section 6(1) may be, it does not extend to carrying on any other business; much less can it extend to taking over the management of other companies. That power is specifically vested to a limited extent under sub-s. (2) of s. 6. Without affecting the generality of the power vested under s. 6(1), the LIC is empowered "to take all such steps as may be or expedient for the protection or realisation of any investment including the taking over and administering any property offered as security for the investment until a suitable opportunity arises for its disposal." Clause (g) of sub-s. (2) of s. 6 only authorises the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osses suffered by the LIC in carrying on other business or taking over the management of other companies for achieving purposes not envisaged by the LIC Act. That would defeat there very purpose of establishing the LIC. We are, therefore, clearly of the view that the LIC cannot takeover the business or management of any propriety which is not offered as security for investment or any other company except for the purpose of protecting or realising its own investment or for advancing life insurance business. All its activities must be directed to carry on life insurance business and towards advancing that business and for protecting its investment. It must not dissipate its resources and energies to takeover management of any properties or companies for any other purpose. 208. The LIC has not stated before this court in any of its affidavits that removal of the nine directors of the petitioner-company, which virtually amounts to taking over the management of the petitioner-company, was necessary for protecting the investment made by it; nor has it averred that it was necessary to move this resolution to develop its business of the life insurance. 209. The funds of the Corporation m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, therefore, required to be taken for protection of or realisation of its investment, mulch less to remove any of the directors who maintained such enviable record of progress. 210. Thus, s. 6(2)(b) of the LIC Act authorise the LIC even to take over the management of the companies only for protecting its investment. However, it is not the case of the LIC that its investment was in jeopardy and that this step was necessitated with a view to safeguard its investment. It is not pleaded by the LIC that the requisition notice convening the EGM to replace nine directors who happened to have opposed the registration of transfer of shares, with the nominees of the financial institutions, was issued with the intention of taking over the management of the petitioner-company. In fact, this allegation of the petitioners the LIC emphatically deadens and stoutly refuse this installation. 211. The petitioners rightly contended that it was the avowed and declared policy of the Government, the directions of which are to be carried out by LIC, that in making the investment, it is not the intention of the LIC or other public financial institutions to take over the management of companies. The pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Rs. 12.24. As on March 31, 1984, the value of each share of the face value of Rs. 10 had risen to Rs. 56. Over the period, with the huge profits earned by the company, the LIC acquired right shares and bonus shares ten times its original holdings. The LIC now holds 40,13,113 equality shares in the petitioner-company earning 20% dividend per annum. The investment of LIC in the petitioner-company far from being in jeopardy has increased manifold and is paying such rich dividends as no other company is so consistently paying. There was, therefore, no justification for removing any of the nine directors managing the affairs of the petitioner-company; much less was there any ground to initiate any step to take over the management of the petitioner-company. 214. The provisions of the LIC Act do not authorise the taking over of other companies only because the LIC by itself or along with other financial institutions, happened to invest considerable sums of money or hold over 50% of the shares in the borrowing company; nor does the policy decision of the Union Government authorise them to take over the management of another company. That can done only for the purpose of safeguarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If that is the logical consequence, it must necessarily be restrained by the issue of writ. 217. It is also not alleged either in the correspondence, which proceeded the filing of the writ petition or in any affidavit filed before this court by the LIC, that any of the nine directors for whose removal it has requisitioned the EGM were acting against the interest of the company or particularly against the interest of the LIC which was a substantial shareholders in the petitioner-company. In spite of the petitioners alleging that the LIC "in concert" with the other financial institutions had, for the collateral purpose of punishing petitioner No. 2 and the other nine directors who had opposed the registration of the transfer of shares and with the object of virtually taking over the management had moved this resolution, the LIC was content with merely denying this allegation. It did not choose to give any reason why is sought to move this resolution. None was suggested in the affidavit filed in reply. At the Bar it was argued that no reasons need to be given for moving such a resolution. Just as any other shareholder cannot be compelled to give reasons for moving such a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its authority and control its activity. It must, therefore, necessarily conform to the stature and any transgression on its part may be interdicted by a writ. Even where no statutory limitation is placed on the activity of such a statutory body or public authority, it must act reasonably and for the furtherance of the object the enactment under which it is constituted. It cannot act arbitrarily. 221. In Ajay Hasia v. Khalid Mujim Sehravardi, (1981) ILLJ 103 SC, even a society running an Engineering college was held to be an "authority" and, therefore, "State" within the meaning of art. 12, from which must follow that it is subject to the constitutional obligation under art. 14. The court also pointed out that the content and each of art. 14 must not be confused with the doctrine of classification and that article has highly activist magnitude and embodies a guarantee against arbitrariness. In what context interfered with approval to the observations in E. P. Royappa v. State of Tamil Nadu, (1974) ILLJ 172 SC "The basic principle which, therefore, informs both articles 14 and 16 is equality and inhibition against discrimination ..... From a positivisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm to the norms. Failure to conform to the norms prescribed by such authorities themselves may amount to discrimination or arbitrary action violating the fundamental right of the citizen under the art. 14 of the Constitution. 225. Even where no statute governs the field and the public authority has not laid down any norms to govern its particular field of activity, still a public authority, which is an instrumentality of the State, being a "State" within the meaning of art. 12 of the Constitution, would be required to act justly and fairly; it cannot be permitted to act arbitrarily. Such arbitrary action would be violative of art. 14 of the Constitution and liable to be struck down by the court in exercise of its jurisdiction under art. 226 of the Constitution. 226. The action of respondent No. 18 in issuing the requisition notice has to be judged in the light of these well recognized principles. The LIC, though a shareholder, unlike private individual shareholder is required to function within the four corners of LIC Act. One may not be entitled to question the act of a private individual shareholder; but the same action, if by a statutory body like the LIC can be assa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitutional powers. But, after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines rights and obligation of the parties inter se. No question arises of violation of articles 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. In this sphere, they can only claim rights conferred upon them by contract and are bound by the terms of the contract only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract." 229. That was a case in which the court found that the contracts do not contain any statutory terms and/or obligations which could attract the application of art. 14 of the Constitution. In that decision the court declared that cases of alleged breaches of obligations by the State of its agents could be divided broadly into three categories as follows : (at p. 1500) "(i) Where a petitioner makes a grievance of breach of promise on the part of the State in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a contracting party and it should be judged as such. This again is a case which was not governed by any statute and the question whether in giving a contract to a particular party the Government acted in violation of art. 14 did not arise. 233. Premji Bhai Parmar v. Delhi Development Authority, [1980] 2 SCR 704, was also realised upon by the learned Attorney-General in support of this contention. That was a case in which fixation of the price of the flats constructed by the Delhi Development Authority was questioned as violative of art. 14 of the Constitution. The court repelling that contention observed in p. 743 : "Conceding ... that the authority has the trappings of a State or would be comprehended in 'other authority', for the purpose of article 12, while determining price of flats constructed by it, it acts purely in its executive capacity and 'is bound be the obligations which dealing of the State with the individual citizens import into every transaction entered into in the exercise of its constitutional powers. But after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the contract for supply of conductors to the electricity board was suspend by the board under a clause of contract and enforcement of the same was sought by the other contracting party. The writ petition was held to be not maintainable for the reason that it sought enforcement of a contractual obligation. The distinction between that case and this is obvious. The petitioners do not seek to enforce any contractual obligation; they require the LIC to conform to the provisions of the LIC Act and the objectors of that enactment in issuing the notice of requisition as per EGM. That is a duty cast upon the statutory body by virtue of its constitution and by virtue if the fact that is had in exercise of the power conferred on it under s. 6(2)(b), invested its funds and became a shareholder in the petitioner-company. The right so acquired through exercisable as a shareholder can be exercised only for the purpose of the LIC Act. 237. In Lekhraj Sathramdas Lalvani v. N. M. Shah, Dy. Custodian [1966] 1 SCR 120, where the action of the Custodian termination of a manager appointed under s. 10(2)(b) of the Administration of Evacuee Property Act, 1950, was question, the court held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide and arbitrary act, that is created monopoly in favour of respondent No. 2 therein who was a private individual and that it was not public interest. Following the authority in Ramana Dayaram Shetty v. International Airport Authority of India (1979) IILLJ 217 SC, the Supreme Court held (at p. 1999) : "The discretion of the Government has been held to be not unlimited is that the Government cannot give largess in its arbitrary discretion or at its sweet will or on such terms as it chooses in its absolute discretion. There are two limitations imposed by law which structure and control the discretion of the Government in this behalf. The first is in regard to the terms on which may be granted and the other, in regard to the person who may be recipients of such largess." 241. The court held (at p. 1999) : "So far as the first limitation is concerned, it flows directly from the thesis that, unlike a private individual, the State cannot act as it pleases in the matter of giving largess. Though ordinarily a private individual would be guided by economic consideration of self-gain in any action taken by him, it is always open to him under the law to act contrary to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be 'other authority ' under article 12 of the Constitution can commit breach of a solemn undertaking on which other side has acted and then contend that the party suffering by the breach of contract may sue for damages but cannot specific performance of the contract." 244. There, under the State Financial Corporation Act, 1951, the Corporation entered into a contract agreeing to advance loan of Rs. 30 lakhs to the write petitioner to set up 4-star hole. The court (headnote) : "The agreement to advance the loan entered into in performance of the stator duty case on the corporation by the state under which it was created and set up. On its column promise, evidenced by the aforementioned two documents, the respondent incurred expenses, suffered liabilities to set-up a hotel ... Thus, the principle of promissory estoppel would certainly stop the corporation from backing out of its obligation arising from a solemn promise made by it to the respondent. The respondent acting upon the solemn promise made by the appellant incurred huge expenditure, and if the appellant is held to its promise, the respondent would be put in very disadvantages position and, therefore, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 247. The learned Attorney-General argued that every shareholder has an unrestricted right vested in him to seek removal of a director. It amounts to the exercise of a mere vote by the shareholder, The notice of requisition is merely a step towards the exercise of this right. That right cannot be hind to the LIC. 248. Before we proceed to examine what the various decisions have held on this aspect, we may notice the Principles of Modern Company Law as they have emerged. 249. Gower in "Principles of Modern Company Law", 4th edition, notes (at pp. 614, 615, 616) : "Scattered through the reports are statements that members must exercise their votes 'bona fide for the benefit of the company as a whole', a statement which suggests that they are subject to precisely the same rules as directors. But it is clear this is highly misleading, and that the decisions do not support any such rules a general principle. On the contrary, it has been repeatedly laid down that votes are proprietary rights, to the same extent as any other incidents of the shares, which the holder may exercise in this own selfish interests even if these are opposed to those of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fulfill a proper purpose." 253. In E. D. Sassoon & Co. Ltd. v. K. A. Patel (1943) 45 BOMLR 46, Justice Pratt sitting singly held : "The right to vote may be so controlled by the purchaser as to ask the vendor to vote for alterations in articled of association of the company with a view to procure transfer of the shares in this name. Such a purchase is entitled to a restrictive as well as mandatory injunction, i.e., to restrain him from attending meetings of the company and to enjoin him to sign a proxy with regard to the shares to the purchaser." 254. That a person registered as a shareholder is entitled to vote does not mean that he an vote in such a manner as to result in oppression of the other. The limit of such right is recognised by nullifying any act which result in oppression. 255. In North-West Transportation Co. Ltd. and James Hughes Beatty v. Henry Beatty [1887] 12 AC 589 where a voidable contract was entered into by a shareholder who had a majority of votes, exercised his voting power as a shareholder in general meeting to ratify such contract, the court held the he was acting oppressively towards the minority. 256. In Ngruli Ltd. v. McCann 90 CL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian law is developing on its own lines. Court will have to adjust and adapt, limit or extend, the principles derived from English decisions, entitled as they are to great respect, suiting to the conditions of India society and the country in general, always, however, with one primary consideration in view that the general interests of the shareholder may not be readily sacrificed at the alter of squabbles of directors of powerful groups for power to manage the company." 260. That was a matter arising under s. 433(f) of the Act where winding up was sought on just and equitable grounds and the court cautioned that merely because the shareholding is between two family groups, it could not be said that the company thereby takes the image of partnership, and held that the principles of dissolution of partnership could not be applied. 262. In In re Holders Investment Trust Ltd. [1971] 1 WLR 583, the question posed was whether the majority preference shareholders has acted in the interest of the class as a whole in voting for the reduction of capital so that an effectual sanction had been given to the modification of the class rights, and whether in any event, the company's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remove a director vested under the articled of a company was held to be subject to equitable considerations. At large 380 of the report, the court regarded the case of expulsion of a director to stand on a different footing from a case of retirement of a director and election of a director to fill in such vacancy. The court stated that in such cases the just and equitable clause would apply and the question would be, whether it is equitable to allow one for two to make use of his legal right to the prejudice of his associated and held (at p. 380) : "The law of companies recognised the right, in many ways, to remove a director from the board .... And quite apart from removal power, there are normally provisions for retirement of directors by rotation so that their re-election can be opposed and defeated by a majority, or even by a casting vote. In all these ways, a particular director-member may find himself no longer a director, through removal or non-relation; this situation he must normally accept, unless he undertakes the burden of proving fraud of mala files. The just and equitable provision nevertheless comes to his assistance if he can point to, and prove, some specia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that can be done without committing flagrant breaches of contract; but its that a different matter where, as for this block, the policy cannot be carried out without committing such breaches." 269. Thus, it is now well recognised even under the Companies Act that the majority cannot act in whatever manner it chooses; the rights of the minority shareholders are also recognised. That the majority cannot oppress the minority shareholders and the minority shareholder have a right to move the court for taking the extreme step of winding up of the company is statutorily recognised. As discussed above, the shareholder even if they are in a majority, cannot act in their individual interest or group interest; even if the group happens to be holding majority they are bound to act in the interest of the company as a whole. Were the writ court find that the majority, is acting against the interest of the company, which is a public authority it is not powerless to intervene. If the court find that the act of the majority is not in the interest of the company as a whole, it can certainly restrain the majority from acting so. 270. From the cases referred to and relied upon by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial institution are adversely affected by the nine directors whom they now seek to remove continuing on the board of Directors. These directors have been on the board for the last more than a decade, some of them ever since the inception of the company. This very directors have been elected and re-elected for successive terms unanimously supported even by these financial institution. The company itself has been showing a consistently good record of growth and progress. It has been declaring 20% dividend for the last three years. The assets of the company have grown and the financial institution themselves have obtained right shares amounting to nearly ten times their original investment within a short period of 24 years. What prompted these financial institution to seek replacement of these nine director is not spelled out in any of the affidavits. The assertion of the petitioner is that there can be no other reason than that these nine directors did not fall in line with the wishes of the financial institution to register the transfer of shares in favour of the respondent-companies. We are unable to imagine how the interest of these financial institution or of the petitioner-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other collateral purpose. They cannot seek to exercise their right arbitrarily. In the circumstance of the case, we are unable to hold that in requisitioning the EGM for removing the nine director, the LTC has kept in view the interest of the petitioner-company as whole of which it is a shareholder. The requisition notice deserves to be quashed on this ground as well. 273. The petitioners also allege that the action of the LIC in requisitioning the EGM to remove the nine directors and to bring in its own whole-time employees as part-time directors of the petitioner-company was a mala fide action. That, according to them, is the culmination of a course of undue pressure put upon the petitioner-company to register the transfer of shares in favour of respondents Nos. 4 to 16. Finding that the petitioner were not yielding to the pressure, the LIC sought to punish the petitioner-company and its management by initiation steps to remove nine out of fifteen directors who had opposed registration or transfer. According to the petitioner, even respondents Nos. 1 and 2, the Union of Indian and the RBI, were behind these steps. By way of amendment of the original writ partition, the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of Rs. 35 crores. (4) Note submitted by D. N. Davar at the meeting of the petitioner-company held on January 6, 1984, to withdraw the present Writ Petition No. 3063 of 1983. 275. The case of the petitioner with reference to each of these facts gathered from the affidavits in supports of the writ petition requires to be noticed is some details, for the learned Attorney-General rightly contends that where the allegations of mala fides are made, all the material particular must be stated and established. Unless all the material particular are averred, the respondents cannot be called upon to answer them. At the stage itself, we may deal with an objection in the natural of a preliminary objection taken by the learned Attorney-General that the allegation of mala fides are not properly verified by disclosing the source of information and the documents on which they are based and hence the pleading in this behalf should be struck off and should not be investigated further. 276. The learned Attorney-General referred us to the decisions of the Supreme Court is Sukhwinder Pal Bipan Kumar v. State of Punjab, [1982] 2 SCR 31, in which the petitioner had verified the affidavit stating &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and also to make the deponent responsible for allegations. The non-disclosure of grounds or sources of information in an election petition which is to be filed within 45 days from the date of election of the returned candidate, will have to be scrutinised from two points of view.. If there is any embellishment of the case, it will be discovered." 279. This rule is specially applicable to election petition because of r. 94A. Their Lordship were construing the M.P. High Court Rules which required the particular from of verification and the importance thereof in the context of the period of limitation within which an election petition may be filed. 280. In Barium Chemicals Ltd. v. Company law Board [1966] 36 Comp Cas 639, the Supreme Court, while recognising that it would be difficult for a petitioner to have person knowledge in regard to an averments of mala fides held (p. 678) : "... where such knowledge is wanting he has to close his souse of information so that the other said gets a fair chance to verify it and make an effective answer." 281. In this context, the Supreme Court referred to its observations in State of Bombay v. Purushottam Jog Naik, 1952 Cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idation, duress or misrepresentation which alone render an act void or voidable. Mr. Parasaran prefaced his arguments in regard to the pressure alleged to have been exerted on the petitioner-company and petitioner No. 2, managing director, by stating that unless the pressure amounted to duress, coercion or intimidation or undue influence, it can have no bearing on the issues involved in this case. Pressure as such is not a legal or juristic concept. The pressure exercised must be such as to amount to undue influence or coercion. Even if it were to constitute undue influence or coercion, it would be a factor relevant to the general law and not the administrative law. In the field of administrative law, unless the right of a party was affected and some injury or prejudice is caused to that party by a statutory authority in discharge of a duty, it cannot be questioned by way of writ. He urged that if in discharge of that duty, the administrative authority exercised undue influence or coercion, that act does not become void; it is only voidable. However, if the administrative authority in discharge of its duty, act mala fide, legal or factual, the act would be void. It could be quashed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to reverse their decisions refusing registration of shares in the names of respondent Nos. 4 to 16." 286. This averment too, it is urged, is devoid of all particulars. The letter addressed by the Government of India to the stock exchange also is stated to be instance of bringing pressure in the legal sense of the term. The learned Attorney-General contends that that letter only clarified the legal position in general in the interests of the economy of the nation and did not amount to a direction to any company; much less can it be termed as pressure exerted by the Government of India on the petitioner-company to register the transfer of shares. 287. In para. 149A(8) of the petition, it is pleaded that the financial institution contained to press upon the petitioners to register the transfer of shares, notwithstanding the legal advice. It was pointed out that even petitioner No. 2 accepted in his affidavit filed in June, 1984, at page 1545 of the compilation, that the financial institution did not exert any pressure for the registration of transfer of shares until September 17, 1983. That statement is contrary to what was stated in para. 149A (9) of the petition. We, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para. 11 of the petition, it is averred that : "In view of the mounting pressures on the board of directors of the petitioner-company to revoke their decision to reject the transfer of shares and in order not to cause embarrassment to the public financial institutions which have also invested large sums by way of loans in the petitioner-company, the managing director of the petitioner-company in October, 1983, not only offered to repay the entire outstanding loans of Rs. 2 crores of public financial institutions, but as a matter of fact sent cheque for Rs. 61,51,000 it the lead financial institution, IDBI, towards total prepayment of outstanding principal loan as per their letter dated December 17, 1983." 292. Although the IDBI made a public statement that lit was short of funds and appealed to the borrowers to repay the loans, the manager of the IDBI, in his letter dated December 24, 1983, refused to accept prepayment of the loan amount and treated a sum of Rs. 52,44,000 as "excess amount received from the company." The petitioners allege that this was done in spite of petitioner No. 2's letter "to the chairman of the IDBI protest in against the lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies. Nadkarni also requested that at least some shares be registered immediately. Petitioner No. 2 apprised him of the illegalities in the purchase of shares and also gave copies of letters addressed by the company to the RBI detailing all the illegalities which forced them not to register the shares. On December 13, 1983, a meeting between petitioner No. 2 and representatives of the financial institutions including the LIC was held at the office of Punja. At this meeting, petitioner No. 2 was called upon to explain why the shares were no being registered and he was also informed that all issues relating to prepayment, Goetze-Escorts merger, etc., were inter linked with the question of non-registration of shares. At this meeting. Petitioner No. 2 told them that in view of illegalities in the (purchase of) shares "he would not succumb to the unethical pressures being exerted upon him to register the shares in the names of Caparo group of companies". Once again on December 20, 1983, when petitioner No. 2 had a telephonic conversation with Punja in New Delhi to enquire about the clearance of the company's proposals for prepayment of loans, the Goetze-Escorts merge and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is suggestions were not adopted by the board. Petitioner No. 2 addressed a letter dated January 9, 1984, to Punja appealing him to restore good faith and goodwill between the petitioner-company and the financial institutions. 293. The averments detailed above, in our opinion, give sufficient particulars to enable the respondents to meet the case of the petitioners. The allegations are with reference to specific dates and event. They also refer to the correspondence relevant in this behalf. It cannot be said that the averments in the petitioners' affidavit are devoid of material particulars so as to above the respondents from the respondents from the obligation to rebut them. 294. Respondents Nos. 1 to 3 in their affidavits-in-reply did not state anything in regard to these allegations obviously because it was a master which did not concern them and related to the facts within the knowledge of the financial institutions. 295. The LIC field affidavits-in-reply at the admission stage as well as on February 22, 1984, and February 28, 1984. After it was admitted, another affidavit-in-reply was filed on May 17, 1984. The LIC denied that in issuing the said requisition it had acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 61.50 lakhs by way of prepayment to IDBI's loan with interest. On receipt of that cheque, as the question was not finally decided, IDBI retained only the amount due by that date and returned the balance. 296. In paragraph 5(a)(x) of its affidavit-in-reply, the LIC alleged that for the first time, petitioner No. 2, in his letter dated December 20, 1983, addressed to IDBI, stated that "acceptance of prepayment was imperative and prepayment was being offered because of the urgency of debenture issue of Rs. 35 crores" and so that "all the present and future security package and assets of the company can be offered as securities against the proposed secured debenture issue". The petitioners alleged that at a meeting held on December 29, 1983, petitioner No. 2 got the impression that prepayment of the borrowings of the financial institutions would be approved expeditiously and he, therefore, sent a cheque on December 31, 1983, once again towards prepayment of the loans. It is averred that the financial institutions with a view to take a decision in this matter addressed a letter to the petitioner-company calling for certain information which was forwarded on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentary evidence which is not dispute. Only certain allegations made and inference sought to be drawn on the strength of these documents have to be considered. 299. The offer of prepayment made for the first time on October 25, 1983, was accepted finally by the financial institutions on January 13, 1984. It is true that under the loan agreements, the financial institutions have been given the power to insist upon ninety days' notice of intended prepayment. They have also been given the power to refuse prepayment. Any prepayment must be in full to all the financial institutions or proportionate to all the financial institutions. Unless all financial institutions accept, the petitioner-company could not insist upon acceptance of prepayment. However, when any debtor-company proposes to make prepayment, that offer must be accepted or rejected on its own merits. It cannot be linked up with any other extraneous issue. It is the allegation of the petitioners that although the financial institutions had no ground to refuse prepayment especially after IFC/W had agreed to accept prepayment and the petitioner-company had agreed to pay the entire loan advanced to it by all the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clarifications issued by the Reserve Bank of India by its circular dated September 17 and 19, 1983, the board of directors of the first petitioners might reconsider the matter and consider registering the transfer of at least those shares which were legally acquired and properly lodged. I deny that at such meeting or conversations I told petitioner No. 2 that 'I appeal to you to register the shares' that is to say, all the shares as now suggested by petitioner No. 2. All requests by me were only appeals 'to transfer some shares ' as were legally acquired and properly lodged and that I had not at any stage insisted or put any pressures on petitioner No. 2 that unless the share so some of them were transferred to respondents Nos. 4 to 17, the financial institutions would not consider or approve of the three proposals of the petitioners, individually or collectively, namely, (i) proposal for prepayment of loans, (ii) proposal for Goetze-Escorts merger, (iii) proposal for debenture-cum-equity issue." He also denied that he had either in the interviews, correspondence or telephonic conversations informed petitioner No. 2 that the above three proposal would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petition. Respondents Nos. 4 to 17, who were interested in obtaining the transfer, did not choose to enter their appearance or oppose the grant of relief. 302. According to the petitioners, in this situation, without contesting the issues before the court Swraj Paul, respondent No. 17, who controls the respondent-companies issued statement that it was now up to the financial institutions and other respondents to see that the shares purchased by NRI are registered and if the directors still do not agree to register, suitable steps may be taken by the financial institutions. The LIC, which held 30% of the shares and along with the support of the other shares and along with the support of the other financial institutions, cumulatively holding 52% issued the requisition notice to replace the nine directors who had opposed the registration of shares so that it could be accomplished thereafter to benefit the responded-companies. The only reason given by the LIC in the resolution, as already discussed above, could not be the true reason and in any case, was untenable. The LIC has not suggested any other reason in its affidavit-in-reply. During the course of the arguments, it was sugges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dians. He, however, did this without mentioning the companies and the non-resident Indians but restricted his reference to 'investors'. But the import of his warning was clear enough and his audience at the Calcutta Stock Exchange this morning received the warning with a thunderous applause. Addressing the platinum jubilee of the stock exchange, Mr. Mukherjee 'told' those who were creating uncertainty in the minds of 'investors' that 'please do not disturb the system, do not allow uncertainty to creep in, do not create a situation when doubts creep into the minds of investors'. Referring to the dominant positions held by the financial institutions in the equity shares of large private companies, he said 'I have a very effective instrument under my command to end the uncertainty'. The Union Finance Minister's warning this morning came in the wake of the blistering attack by Mr. Swraj Paul, the U.K. based industrialist whose large purchases of shares of companies started the controversy over non-resident Indian's investment in the Indian corporate sector on the Reserve Bank Governor and the Deputy Governor for the latest controversy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, did say that such a directive was overdue as 'after September 17, when the eligibility of the Caparo group was cleared, the management of the two firms were fighting against the Government and not Swraj Paul'. He also added provocatively 'as things stand, the Government stands defeated'. As to his own intentions, he said he had no plans to appeal to the Company Law Board or the Government. He insisted that the fight was now between the Government and the two managements, reducing him to the states of an observer." 308. Again in the issue of Telegraph dated December 22, 1983, it is reported that Swraj Paul had made certain statements, which read as follows : "Mr. Swraj Paul, the controversial non-resident India investor, today made it clear that he would consider himself defeated if the Government cleared the recently proposed Rs. 35 crore shares and debentures issue by Escorts, without settling matter of the transfer of shares. 'The Government must take a decision on the matter soon' Mr. Paul declared stressing that it was now a fight between the Government of India and the managements of Escorts and DCM. Asked what he meant by ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further alleged that Swraj Paul had left it to respondents Nos. 1 and 2 to fight out his cases and that it was between the Government, the financial institutions and the company to thrash out the issue and that the requisition notice was issued by the LIC for a collateral purpose already referred to above. Even then, respondent No. 17 or any of his companies did not choose to enter appearance or deny any of these allegations. The statements attributed to him, though appearing in press and have been vouchsafed on oath by petitioner No. 2 and reiterated in a number of affidavits, thus remain uncontroverted. Heaving regard to all the circumstances of the case, we do not see any reason why we should not accept that Swraj Paul had made the statements attributed to him and that he left it to the financial institutions to take up his cause and fight out the case to safeguard his interest both in the company and in the court. It may be significant to note that in his statement he had specifically held out that it is for the financial institutions to see that the registration of the transfer of shares is effected and the financial institutions very soon after Mis statements, proceeded to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re published and instructions accordingly were issued to all commercial banks under DBOD No. Ins. 1473/C.450-70 dated December 14, 1970, to conform to the same. Any directions issued by the RBI in pursuance of the said directives amount to discharging a statutory duty imposed upon it and does not amount to bringing any undue pressure on the banks with which the shares of the petitioner-company are pledged as contended by the petitioner. The letter addressed by the RBI after the EGM was convened to support the LIC resolution is, in out opinion, only intended to see that all financial institutions adopt a uniform stand in such matters. It cannot necessarily raise any inference of mala fides. In any event, that by itself is not sufficient to hold that respondents Nos. 1 and 2 acted in league with respondent No. 18 to issue the requisition notice and move the resolution to remove the nine directors. Even the petitioner does not allege that the RBI brought pressure on the LIC to issue the requisition notice or did any other act thereafter which amounted to bringing pressure on the petitioner-company. Of course, in so far as the LIC and IDBI having requested the RBI to call upon all thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not furnished. The mergers of the companies was dependent upon the consent of all the shareholders, creditors - secured and unsecured - and the financial institutions of both the companies and subject to the ultimate permission of the Controller of Capital Issues and the central Government. It is also pointed out that accepting this proposal would have resulted in the reduction of percentage of the shareholding of the financial institutions from 52% to about 49% and simultaneously increase the holding of the petitioner No. 2's group, i.e., the promoters' group from 16% to 19%. The share exchange ratio was proposed for the first time by Escorts Ltd., on October 21, 1983, from which it was clear that the financial institutions' percentages of shareholding in the petitioner-company would certainly be reduced from that of a majority shareholders of 52% to a minority shareholder of 49%. That was an important aspect to be considered by the financial institutions before accepting the merger proposal. While the petitioners themselves took nine months to furnish the particulars necessary for examining this proposal, within four day of submitting the share exchange ratio, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shares of Rs. 10 each for cash at premium of Rs. 10 per share, aggregating to Rs. 17,50,00,000 were also to be issued. These were to be not on a right basis of as contemplated by s. 81 of the Companies Act, read with the articles of association of the petitioner-company, but on a differential preferential basis which according to respondent No. 18 was resulting in the shareholding of the financial institutions being reduced from 52% to 31% in the petitioner-company. The other shareholders, i.e., the promoters, directors, their friends and relatives, business associates and employee of Escorts Ltd., constituting all petitioner No. 2's group controlled by petitioner No. 2, were to be allotted 16% of the debentures/shares but without any maximum selling. Farmers, customers and dealers and ancillary suppliers were to be issued another 20%. In this context, it was also urged for the petitioner s that while the debenture-cum-equity share issue proposal was acceded to in the case of J. K. Synthetics, Kesoram Industries, Reliance Textiles, Gwalior Rayon, by the financial institutions, the proposal put fourth by the petitioner-company was not acceded to. According to the respondents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benture issue is a factor relevant in deciding whether the LIC acted mala fide in requisition in the meeting. 319. The other two issues - the prepayment of loan and the merger of Goetze-Escorts - were, however, linked up by the financial institutions with the question of registration of shares. That, in our opinion, constitution undue presser on the petitioner-company. That would amount to using their dominant position vis-a-vis the petitioner-company for collateral purpose. In these circumstance, the inescapable conclusion is that the financial institutions sought to punish the petitioner-company and the nine directors who had opposed the registration of transfer of shares, which was, admittedly, mooted in respect of at least some shares by Punja of the IDBI, the lead financial institution, to secure controlling power in the board of directors and to revoke the decision not to register the transfer of shares in favour of respondents Nos. 4 to 16. 320. In the result, we hold that the statement attributed is to the Finance Minister and the allegations of mala fides made against respondents Nos. 1 and 2 are not proved. The requisition notice issued by respondent No. 18 and the reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y company, it is not the policy of the Government that such institution should take over the management of the debtor company. This is the declared policy of Government and limited purpose of for which the management could be taken over by the LIC. In approaching these institutions for financial facilities and accommodation, the borrowing companies have a right to proceed on the basis that the institutions would adhere to the law governing their activities and the policy enunciated by the Government itself. If the policy were otherwise, perhaps, they would not have approached these institutions for such financial assistance at all. The course of conduct of the financial institutions over these years also had lent assurance to the companies that the financing institutions would never use their shareholding to take one the management of such companies. If the financial institutions are permitted to take over the management for no reason at all or for no better reason than the that they hold majority shares in a company as was contended and they a not bound to disclose the reasons every when it is questioned as mala fide, it would be no better than a private creditor or any other shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... longer any live issue to be adjudicated by the court. The argument of the learned Attorney-General runs thus : Petitioner No. 1 is the company and petitioner No. 2 is a shareholders and managing director of the petitioner-company. The company acts as through is board of directors. The act of the board of directors constitutes a corporate act. The petitioner-company had rejected the request for registration of the transfer of shares. There was nothing further to be done either by the managing director or by the board of directors or by company in this regard. If any one was aggrieved by the refusal to register the shares, it was the respondent-companies which had purchased the shares and they had any cause of action in this behalf and not the petitioners. So far as the petitioner were concerned, it was closed chapter. The learned Attorney-General points out that any question as to whether under s. 29 of the FERA prior permission is required and whether refusal to register the shares in the name of the transferee by December 29, 1983, had become wholly academic. It was no longer necessary to pronounce upon the validity of circular No. 18 dated September 19, 1983 (Exh."B"), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per annum is obviously payable in to those in whose names the shares stand registered in the books of the company. If the dividend not paid within the stipulate time, the petitioner-company and its directors would be exposed to penalties under the Companies Act. The question of payment of dividend would recur year after year. In fact, when the question of payment of interim dividend arose, while the respondent-companies claim to be entitled to the payment of the dividend because they have purchased the a shares, the petitioners object to payment because the registration of transfer of shares purchased object without prior permission could not be a effected and the dividend cannot be a paid to persons whose shares are not registered. When the petitioner No. 2 addressed a letter dated December 2, 1983, to D. N. Davar, Executing Director, IFCI, inviting his comments on the decision to withhold the interim dividend with respect to shares purchased by the respondent-companies, he replied through his letter dated December 17, 1983, inter alia, as follows : "Since the payment of dividend in question, as referred to in your letter under reply, pertains to interim dividend as resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been raging throughout the length and breadth of the country and various forums including the shareholders' associations, chambers of commerce and other public bodies have been making observations and suggestions on such issues ...." 328. They also specifically said in that letter that they would refer to that letter at the hearing of the writ petition. This legal issue would arise for decision whenever the action of the petitioners not to register the shares a is questioned by any of the transferors of transfers of the shares. If the respondents could still insist upon the registration of the shares and claim that permission granted to the respondent-companies by the respondent No. 2 subsequent to the purchase of shares is valid, which claim is strongly supported by the stand taken by respondents Nos. 1 and 2, the petitioners are certainly entitled to seek a declaration in this behalf. Whether such a declaratory relief in this behalf could be granted or not will be considered in due course, but certainly it cannot be said that the petitioners have no cause of action for seeking a declaration. Notwithstanding the decision taken by the board of directors, the company con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior permission was given up. Further, even if Exh."B" and Exh."C" are construed as a grant of permission, it would amount to granting permission subsequent to the purchase. When the letter of the petitioner-company expressly states that "Notwithstanding grant of permission by the RBI as referred by you", it could only mean the grant of permission subsequent to the purchase, would not hold good and that they were not prepared to transfer the shares on the basis of that permission. The facts that they actually proceeded to challenge the very permission granted by way of writ petition fully establishes that the company repudiated its liability to transfer the shares on the strength of the impugned circular and letter. While so, it is the case of the petitioners that D. N. Davar, one of the directors, armed with the authority to speak for all the financial institutions including the LIC, continued to insist that the writ petition be withdrawn. Apart from the other pressures exerted on the petitioner-company and its managing director, already discussed above, at the meeting of the board of directors of the petitioner-company held on January 6, 1984, D. N. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and administration of justice as a whole. Although no question of the right of the advocates as such was involved, in the transfer of a judge, the Supreme Court held that the lawyers have locus standi on the ground that "they have a vital interest in the independent of the judiciary and if any unconstitutional or illegal action is taken by the state or any public authority which has the effect of impairing the independence of the judiciary, they would certainly be interested in challenging the constitutionally or legality of such action. The profession of lawyers is an essential and integral part of the judicial system and lawyers may figuratively be described as priests in the temple of justice ....... They are really and truly officers of the court in which they daily sit and practice. They have, therefore, a special interest in preserving the integrity and independence of the judicial system and if the integrity or independence of judiciary is threatened by any act of the State or any public authority, they would naturally be concerned about it, because they are equal partners with the Judges in the administration of justice." Pausing here, if we consider the positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under art. 226 the petitioner should be an "aggrieved person" elucidated (headnote) : "The expression 'aggrieved person' denotes an elastic, and, to an extent. An elusive concept. Its scope and meaning depends on divers, variable factors such as the content and intent o the statue of which contravention is alleged, the specific circumstances of the case, the nature and extent of the petitioner's interest, and the nature and extent of the prejudice or injury suffered by him." 329. This case deals with the overruling of an objection raised by a rival in business to the grant of a "no objection certificate" to a cinema theatre. The Supreme Court held that he had no legal right under the statutory provisions or under the general law which can be said to have been subjected to or threatened with injury as a result of grant of "no objection certificate" to the rival trader. Even in this case, the Supreme Court, while holding that the petitioner therein had no locus standi, observed that the question of locus standi depends upon the facts of each a case. One of the tests for determining whether a petitioner could be deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riefly refer to the decision strongly relied upon the by learned Attorney-General to contend that a merely declaratory relief cannot be granted. In general Manager, Eastern Railway v. Kishor Chandra Khasmobis, AIR 1966 Cal 601, it was ruled that art. 226 should not be used for getting a mere declaratory order. That was suit by an employee, whose services were terminated, for a mere declaration that the order of termination was invalid and was invalid and was intended to lay the foundation for a separate suit for recovery of arrears of salary. As a preliminary step to filing a suit for recovery of arrears of salary, he sought an adjudication on the validity of the termination order. It is in such a suit that the court held that a were declaratory relief should not be granted. It was termed as "an abuse of the writ jurisdiction for a collateral purpose to be utilised as a foundation for subsequent claims in future legal proceedings". 332. Maxwell v. Department of Trade and Industry [1974] ALL ER 122: [974] 2 WLR 338 was a case in which a declaration was sought in respect of report made by inspectors appointed under the Companies Act, 1948 (English), by the department of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of a land over which the plaintiff did not claim any proprietary interest. 335. That a mere declaratory relief should not be granted in is thus not an invariable rule. It depends upon the facts and circumstances of each case. Section 34 of the specific Relief Act, 1963, which correspondence to s. 42 of the India Specific Relief Act, 1877, itself recognises that declaratory reliefs that could be prayed for and granted by a court could be a of varied nature. Every possible declaration that could be prayed for is not governed by that section. The Specific Relief Act, which makes provision in s. 34 for granting declaratory relief, prohibits the grant of declaratory relief simpliciter only where the party is in a position to sue for the consequence relief, but omits to do so. But where declaratory relief itself would serve the purpose and no consequential relief could be prayed for in the circumstances of particular case, the Specific Reliance Act does not preclude the court granting such declaratory relief. As laid down by the Supreme Court in Vemareddy Ramaravghava Reddy v. Konduru Seshu Reddy, AIR 1967 SC 436, s. 34 of the Specific Relief Act is not exhaustive. There could also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that which the appellant asks for carries with it liberty to apply. On a proper notice being given it would be found that the arm of the court would be long enough to reach the offender, whatever his position might be." 337. If that was the position recognised as early as in 1898 by the Privy Council in a regular suit, it would be too late in the day to contend that in exercise of the extraordinary jurisdiction under art. 226, this court cannot grant declaratory relief and any such declaratory relief granted by it would be dead letter. Such a stand does not behave a statute and especially when the contravention complained of by the petitioners is rendered penal. 338. The primary relief in this writ petition prayed for ostensibly is of a declaratory nature. But in reality lit pronounces upon the validity of the action taken by the petitioners on July 9, 1983, and August 29, 1983, refusing registration of transfer of shares and results in restraining the respondents from insisting upon a review of the decision already taken and further restraining them from seeking implementation of the impugned Circular (Ex."B") and the letter (Ex."C"). The decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors would be called upon to implement the impugned Circular (Ex."B") and letter (Ex."C") by the other transferors or transferees of shares. It is, therefore, necessary to deal with and decide the question raised in this writ petition. Further, this contention is raised on the basis that a mere declaratory relief cannot be granted. But, as discussed above, in certain circumstances, the declaratory relief itself may constitute substantive relief and having regard to the declaration granted, the respondents may be also restrained from taking any action contrary to the said declaration. Such declaratory relief is not in a position or is not required to seek any further consequential relief. We are, therefore, clearly of the view that the declaratory reliefs prayed for in this writ petition could be granted and in the circumstance of the case must be awarded. 341. It is said that in view of the tendency of the appeal filed by respondent No. 19 before the Company Law Board, this court should not exercise its jurisdiction under are. 226. But it is plain that constituted as it is, the Company Law Board before which the appeal filed by respondents No. 19 is pending, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of such shares in the books of the company. Assuming that the Company Law Board has Jurisdiction to decide this issue, still it is not as if the jurisdiction of the High court is barred or that by itself is a sufficient ground for refusing the declaratory relief. The Board of Company Law Administration, the constitution of which is envisaged by Part I-A of the Companies Act, 1956, is to function subject to the directions of the Government under s. 10E of the Act. It is constituted by the Central Government under notification and is to exercise and discharge such powers and functions as are conferred on the Central Government by or under the Companies Act or under any other law as may be delegated to it by the Central Government. The Board, thus, acts as a delegate of the Central Government. It comprises of such members not exceeding nine, as the Central Government deems fit to appoint, of whom one shall be the chairman. Sub-section (6) of s. 10E lays down that in exercise of its powers and discharge or its functions, the company Law Board shall be subject to the control of the Central Government. The RBI itself is enjoined to carry out the directions subject to the contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e portfolio investment scheme. All the relevant particulars regarding the opening of the NRI (External) Account, receipt of foreign remittances and debit of the NRI (External) Account on the advice of respondent No. 17 and as to whether any permission for the purchase of shares was applied for and obtained by the respondent-companies, and if so when, are all matters within the special knowledge of the PNB, the designated bank. In facts, certain obligations are imposed on the designated banks under the FERA and the portfolio investment scheme framed thereunder. The PNB is as much obliged to comply with the provisions of the FERA and the scheme as the non-resident investors themselves. Having regard to the questions raised in this writ petition, the court was required to consider whether the designated bank has acted in accordance with the provisions of the FERA. In the absence of respondent No. 3, the court would have been greatly handicapped in this regard. Far from making a grievance of it, the PNB, which is a nationalised bank, should have welcomed the opportunity of meeting the allegations made against it in the petition. Any aspersion made against the PNB by the petitioner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the documents placed by the PNB and the other correspondence have been noticed at length while dealing with the question of arbitrariness and mala fides alleged against respondents Nos. 1 and 2 in issuing the impugned circular and letter and in issuing notice of requisition. In view of the above, we are clearly of the view that the PNB was at least a proper party if not necessary party to this writ petition. 346. The learned Attorney-General pointed out that the writ petition, both as originally framed as well as after its amendment, suffers from multifariousness; it is bad for misjoinder of parties and causes of action. It was urged that respondents Nos. 1 to 2 are interested only in seeing that the validity of the impugned circular and the impugned letter was upheld by the court. Respondents Nos. 1 and 2 were not concerned with the decisions of the petitioner-company to reject the registration of shares purchased by respondents Nos. 4 to 17. Only respondents Nos. 4 to 17 were concerned with it. Respondents Nos. 1 to 2 were also not concerned with question whether the requisition for EGM was validly made by respondent No. 18. Further, the originally framed against respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several relief claimed therein. 348. The exercise of the jurisdiction under article 226 cannot be put into a strait-jacket by any rules of procedure. The provisions of the CPC are not made applicable in their entity to petition under art. 226 of the Constitution. Where the rule governing writ petition are silent, the court entitled to devise its own procedure for doing justice between the parties. Order I of the CPC is devised to prevent prejudice being caused to parties due to multifariousness or misjoinder or parties of causes of action. The consequences of multifariousness and misjoinder are expressly provided therein. In the absence of any provision making O. I of the CPC specifically applicable to writ petition the consequences of misjoinder proved under the CPC do not necessarily follow in every writ petition. Even under the provisions of the CPC, in our view, the contention of the respondents cannot be upheld. Order I, r. 1 of the CPC lays down that all such persons may join in one suit as plaintiffs where any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged to exist in such persons, whether jointly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the position undoubtedly in regard to respondents Nos. 1 to 17 herein. If our decision on the allegation of mala fides and arbitrariness made against respondent No. 18 and one the necessity of obtaining prior permission for valid purchase of the shares was necessary and correct, then the impleading of the other respondents in the writ petition was undoubtedly proper. As regard misjoinder of parties, r. 9 of O. I of the CPC lays down that no suit shall defeated by reason of the misjoinder or non-joinder of parties and the court may in very suit deal with the matter in controversy so far as regards the rights and interest of the parties actually before it. 351. The respondents also contend that there is misjoinder of parties or causes of action in this writ petition. There is no specific provision making O. I or O. II applicable to writ petitions. Even where in filing a suit against several defendants, several causes of action are joined, it is within the power of the court to separate trials; that cannot be made a ground to dismiss the suit. These rules of procedure are not intended to defeat the rights of the parties on any technical ground. They are laid down to avoid embarra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned single judge did not direct rule nisi to be issued in regard to clause (d), he did order rule nisi with regard to the relief claimed in purer clauses (a), (b), (c), (e), (f), (g), (h) and (i). For deciding whether the petitioner should be granted the reliefs prayed for in these other clauses, this court would certainly have to consider whether prior permission under s. 29(1)(b) of the FERA must be obtained for valid purchases of shares by the NIR investors and whether the press release of the RBI dated September 17, 1963 (Exh."A"), and the Circular No. 18 of September 19, 1983 (Exh."B"), and the letter dated September 19, 1963 (Exh."C"), addressed by the RBI to the PNB are valid with retrospective effect. In that context and especially in considering whether a writ of mandamus restraining respondent No. 2 from directing the implementation of the letter (Exh. "C") and respondents Nos. 4 to 17 from insisting upon implementation of the said direction should be issued or not, even the question that are relevant for granting relief under prayer clause (d) would have to be necessarily gone into. In our view, when by the same order rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he directed one of the transferors, Kishore Paral Ghia, who questioned the order of the petitioner-company rejecting the registration of the transfer of shares before the Board of the Company Law Administration, to be added as a party respondent to the writ petition. He also directed two other transferors of shares "as representing themselves and other transferors" who had sold their shares to respondents Nos. 4 to 16 who may be effected by the decision of this court to be impleaded as respondents. They were accordingly impleaded as respondents Nos. 19, 22, and 23. Since the court has expressly directed rule nisi in respect of other prayer clauses, the principle enunciated in Avtar Singh v. Jagjit Singh, [1980] 1 SCR 122 relied upon the learned Attorney-General, in our view, cannot apply. In Chockalinga Thevar v. Sankarappa Naikar AIR 1942 Mad 421, it was held that when an appeal was pending and a final judgment on the same issue is pronounced by another court of competent jurisdiction in the meanwhile and that has become final, that would operate as res judicata in appeal. This principle, in our view, cannot apply to case where the writ petition itself is admitted an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst a similar petition ...." 354. This strongly suggests that ever where the entire wire petition is dismissed in limine, the principle of res judicata does not necessarily apply. In our view, where no issue as such is divided and while admitting the writ petition, rule nisi is refused to be issued in regard to only one of the reliefs prayed for, no bar of res judicata arises in regard to that issue when it is required to be decided for granting the other reliefs in respect of which rule nisi is issued. In exercise of the extraordinary jurisdiction vested in it under art. 226 of the Constitution, when the High Court admits a writ petition and issues rule nisi, it is always open to the court, having regard to the conclusions reached by it, to would the relief to suit the circumstances of the case. Refusal of rule nisi by itself, in our view does not operate as res judicata for there is no binding decision between the parties at that stage. In our view, all reliefs flowing from the conclusions reached in this case can certainly be granted notwithstanding refusal of rule nisi in regard to prayer clause (d) of the writ petition. 355. It was argued that this writ petition ought n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a lice issue. The LIC had requisitioned a meeting to remove nine directors who were parties to this decision. If the decision of the board of directors, which is a corporate act, is valid, an action could be brought in the name of the corporation to sustain it. In Bennet Coleman & Co. v. Union of India [1977] 47 com Cas 92, a Division Bench of the Bombay High Court held that the company could prefer an appeal in the name of the company even where the dispute in internal. It was also laid down that the board of directors is competent to start proceedings in the name of the company. Justice Tulzapurkar, as he then was, speaking for the court referring to Gower's Principles of Modern Company Law, 3rs Edition, p. 583; Buckley on the Companies Acts, 13th Edition, p. 169; and the decision in Pender v. Lushington [1876] 6 Ch 70, observed (p. 107 of 47 Comp Cas) : "... the normal rule is that in an action arising out of a dispute within the company the appropriate agency to start an action on the company's behalf is the board of director through as an exceptional measure it has been ruled that if the directors cannot and will not start proceedings in the company's nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth by the company and by the managing director. 360. The learned Attorney-General, Mr. Parasaran, next drew out attention to the fact the subsequent to the filing of the writ petition, as permitted by the Supreme Court, the requisitioned extraordinary general meeting of the company was held on several days for considering the resolution moved by the LIC. That resolution was ultimately adopted by the majority of the shareholders. In view of this subsequent event, the court should refrain from granting any of the relief prayed for. On the other hand, the learned counsel for the petitioners, Mr. Nariman pleaded that if the court were to uphold the main contention of the petitioners, taking into account these subsequent event, the court, rather than denying relief to the petitioner, should so could the relief as to make its decision effective. 361. This court, while granting rule nisi, has issued an injunction restraining the holding of the extraordinary general meeting. On appeal, their Lordships of the Supreme Court, while permitting the holding of the meeting, ordered that further directions be obtained before announcing the result of the extraordinary general meeting. When the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. In the result, the none directors sought to be removed do not vacate the office by virtue of those resolutions; they continue to hold office and the other nine directors purported to have been elected in their stead would not assume office. It is, however, clear that if by virtue of any resolution of the annual general meeting, any of the above nine directors or any other directors has vacated office or any person has been elected to fill in any vacancy, nothing said herein will affect those resolutions or the validity of the action, if any, sought to be taken in pursuance thereof. Who then should bear the costs of this writ petition. The learned single judge at the stage of admission observed : "That the questions raised in this petition are of such importance that the matter may be very advantageously heard by a Bench of two judges." He also observed : "When one is considering the challenge to a requisition such as Exh.'AY' the question is not restricted to one company but goes to the entire corporate sector. In a was the importance of this question becomes glaring when we have the admitted track record of Escorts as also the clear position that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be incurred until further orders by petitioner No. 2 only and restrained both the petitioner of an order and injunction of this court from acting in contravention of the aforesaid directions. Until further orders, the court restrained petitioner No. 2 from drawing any amount from the petitioner-company or seeking reimbursement of the costs incurred by him and left his matter to be considered and ordered by this court at the time of final hearing and disposal of the writ petition. In view of the directors, the solicitor of the petitioners informed the solicitors or respondent No. 18 by their letter dated July 17, 1984, that a sum of Rs. 1,75,000 was deposed by petitioner No. 2 towards the costs and expenses of this petition. In this writ petition, we direct that the costs of this writ petition, do come out of the funds of the petitioner-company irrespective of the ultimate result of this writ petition or any appeal that may be filed against this judgment. Petitioner No. 2 shall be reimbursed to the full extent irrespective of the ultimate result of the proceeding initiated by the petitioner. Now that the petitioner have succeeded the petitioner will be entitled to costs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein, only after obtaining prior permission of the RBI under s. 29(1)(b) of the FERA. The NRI investor, if it were to be a company, firm, society or trust and not an individual, was eligible to make investment under that scheme only if non-residents of Indian nationality/origin held ownership or beneficial interest therein up to 60% or upwards. If such beneficial interest was held indirectly they were not eligible and permission could not be granted under s. 29(1)(b) of the FERA to such NIR companies to purchase shares in Indian companies. Parliament could never have envisaged attracting foreign exchange or permitting investment by the NIR investors in purchasing shares Indian companies without obtaining prior permission of the RBI. The press release dated September 17, 1983 (Exh."A"), the Circular dated September 19, 1983 (Exh."B"), and the letter dated September 19, 1983 (Exh. "C"), are not vitiated by mala fides. The clarifications made under Exhs."A", "b" and "C" that the original intention of the Government of Indian and that of the RBI was to permit even such entities in which non-residents of Indian nationality/ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void and inoperative both prospectively and retrospectively. A writ of mandamus issue restraining respondents Nos. 1 and 2 from issuing any direction to register transfer of shares purchased by the respondent-companies pursuant to the letter dated September 19, 1983 (Exh."C") and to further forbear from implementing the said circular (Exh."B") and the said letter (Exh."C"). 365. The LIC and other financial institution linked up the proposals of the petitioner-company to accept prepayment of loan and to agree to the merger of Gortze-Escorts Ltd. with the issue of registration of transfer of shares in favour of Caparo group of companies. The linking up of these two matters by the LIC and other financial institutions amounts to exercising an illegal and unauthorised pressure on the petitioner-company and its management and constitutes commercial dues and abuse of their dominant position. This illegal was brought to secure the registration of transfer of shares in favour of the respondent-companies. Having failed to achieve this object, the LIC resorted to requisitioning an EGM of the petitioner-company. 366. The LIC is a statutory body and is an "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in requisitioning the EGM has not given any reason except that it does not "wish" the nine directors who are part-time directors to continue and has moved a resolution to replace them by nine directors who are whole-time employees of public financial institutions and who, consequently, become part-time directors of the petitioner-company. This is a wholly an incorrect and unsustainable reason. When a statutory body acts for no reason or on a stated reason which is found to be wholly untenable, it must be held that it is acting arbitrarily. Any such arbitrary action of a public authority and more so of a statutory authority like the LIC, which is a "State" within the meaning of art. 12 of the Constitution, must be held to be violative of article 14 of the Constitution. This itself is sufficient to quash the impugned requisition notice. Issuing such a notice of requisition amount to an arbitrary exercise of power by the LIC. Even a private individual shareholder is not entitled to use the majority shareholding for any collateral purpose; much less a statutory body like the LIC. The corporate sector, at least public corporations governed by statute and the public s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , It must necessary be restrained by the issue of a writ. 369. The power exercisable by the LIC is not pure contractual but referable to a statute, which defines the limitations of its authority. The LIC while it may exercise its vote as any other shareholder, it can do so only for the purpose of or in discharge of its function under section 6 and for the objects of the LIC Act and not for any other purpose. While the right to requisition an EGM vests in the LIC as in any other shareholder, the exercise of this right by the LIC is restricted to the objects and purpose define by the LIC Act and not for any other purpose. The LIC being a statutory body fills the character of an authority against whom writ could be issued. The requisition notice and the resolutions adopted at the EGM covered pursuant to the said requisition cannot be sustained and deserve to be quashed. In requisitioning the EGM for removing the nine directors, the LIC has not kept in view the interest of the petitioner-company as a whole of which it is a shareholder. The requisition notice deceives to be quashed on this ground as well. 370. The pendency of the appeal preferred by respondent No. 19 before the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "B" and "C" and the requisition notice and to pray for writ of mandamus and interim relief both on his own behalf and own behalf of the petitioner-company. On the facts and in the circumstance of the case, it was very necessary in the interests of the company itself to get an authoritative adjudication on this issue by the highest court in the State. The company could, therefore, properly move this court under art. 226 of the Constitution. The board of directors as then constituted having taken a decision in exercise of its authority, which constitutes a decisions of the company itself, the second petitioner as managing director was competent to file this writ petition not only on this own behalf but on behalf of the company as well. He was entitled to take all legal proceedings to support and sustain the resolution passed by the board of directors for the time being managing the affairs of the company. The subsequent result of the voting at the EGM amply demonstrates how true the apprehensions of the petitioner were. They fully justify the filing of the writ petition both by the company and by the managing director. In view of the finding arrived at by us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the petitioners are entitled to the declaratory relief and also to a writ of mandamus and costs, as herein after detailed. 376. Rule nisi is made absolute as under : Section 29(1) (b) of the FERA is mandatory. No NRI investor is authorised to purchase shares in an Indian company without prior permission of the RBI under s. 29(1)(b) of the FERA; any purchase of shares without such prior permission is illegal. Neither the Union of India not the RBI is empowered to order otherwise either by issuing directions under s. 75 or under s. 73(3) of the FERA; nor are they empowered to grant permission after the shares are purchased so as to validate such purchases or to permit holding of the shares purchased without obtaining prior permission. The press release dated September 17, 1983 (Exh."A"), the Circular dated September 19, 1983 (Exh."B"), and the letter dated September 19, 1983 (Exh."C"), cannot operate retrospectively so as to validate the purchase of shares made by the NRI companies which were ineligible on the date of purchase; nor can they authorize purchased of shares without obtaining prior permission of the RBI under s. 29(1)(b) of the FERA. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
