Judicial review of capital issue consent is limited where preferential reservation follows a valid special resolution and statutory framework.

Bulk sales by public financial institutions should be conducted with circumspection, especially where the use of an intermediary and onward transfer may suggest an improper takeover; here, the challenge to recovery of the shares had become infructuous after the institutions bought them back, so no operative relief survived on that aspect. In reviewing capital-raising approvals, the Court held that a preferential reservation under a valid special resolution and within the statutory framework would not be struck down unless the consent was patently illegal, mala fide, financially impracticable, or a fraud on the public; on that basis, the consent for the convertible debenture issue was upheld and no interference was warranted.

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Issues: (i) Whether the transfer of 39 lakhs shares through BOB Fiscal Services Ltd. was arbitrary, illegal or mala fide and whether the challenge survived after the shares were bought back by the public financial institutions. (ii) Whether the consent granted by the Controller of Capital Issues for the Rs. 820 crores convertible debenture issue, including the preferential reservation in favour of the Reliance group, was invalid for non-application of mind, mala fides or violation of public interest and statutory requirements.

Issue (i): Whether the transfer of 39 lakhs shares through BOB Fiscal Services Ltd. was arbitrary, illegal or mala fide and whether the challenge survived after the shares were bought back by the public financial institutions.

Analysis: The transfer was scrutinised in the light of the sequence of transactions, the use of BOB Fiscal Services Ltd. as an intermediary, the immediate onward transfer to Trishna Investment and Leasing Ltd., and the surrounding circumstances showing that public financial institutions ought to have acted with greater caution in large block sales. At the same time, the principal relief seeking recovery of the shares had lost practical significance because the shares had already been bought back by the institutions, rendering that part of the challenge infructuous. The Court nevertheless recorded that bulk sales by public institutions should be made with circumspection so that the transaction does not become a camouflage for an improper takeover of a public company.

Conclusion: The grievance regarding recovery of the shares had become infructuous, and no operative relief survived on that aspect, though the Court disapproved of the manner in which such bulk transactions had been carried out.

Issue (ii): Whether the consent granted by the Controller of Capital Issues for the Rs. 820 crores convertible debenture issue, including the preferential reservation in favour of the Reliance group, was invalid for non-application of mind, mala fides or violation of public interest and statutory requirements.

Analysis: The consent was examined against the statutory scheme governing company prospectuses, special resolutions, and capital issues, together with the limits of judicial review over economic and commercial decisions. The Court held that a preferential reservation could be made pursuant to a special resolution, that the concerned companies were interconnected within the statutory framework, and that the Controller's order had been made after consideration of the material placed before him. Applying the governing principle that review is confined to whether the consent is patently impracticable, financially risky or a fraud on the public, the Court found no ground to invalidate the consent order. The later monitoring arrangement through IDBI did not justify striking down the sanction.

Conclusion: The consent order was upheld as valid and no interference was called for.

Final Conclusion: The transferred cases and connected proceedings were disposed of without granting substantive relief to the petitioners, while the impugned capital issue was sustained and the challenge to the share transfer did not survive in an effective form.

Ratio Decidendi: In judicial review of capital-raising decisions, the Court will interfere only where the statutory consent is shown to be patently illegal, mala fide, or a fraud on the public; a preferential reservation sanctioned pursuant to a valid special resolution and supported by the statutory framework will not be invalidated merely because it may incidentally facilitate a change in corporate control.

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