1991 (4) TMI 450 - SC - Indian Laws

Validity of CCI's Consent for Debentures Upheld; Emphasis on Prudent Financial Decisions

The court upheld the validity of the consent given by the Controller of Capital Issues (CCI) for the issue of convertible debentures by Larsen & ... - Issues Involved:1. Legality and validity of the consent given by the Controller of Capital Issues (CCI) for the proposed issue of convertible secured debentures by Larsen and Toubro Ltd.2. Legality and validity of the transfer of 39 lakh shares of Larsen & Toubro Ltd. from public financial institutions to Trishna Investments & Leasing Ltd.3. Allegations of arbitrary, illegal, mala fide actions and fraud on statutory powers by the respondents.4. Whether the actions of the public financial institutions and the CCI were ultra vires of Articles 14 and 39(b) and (c) of the Constitution.5. Maintainability of the writ petition as a public interest litigation.6. The role and responsibilities of the CCI in ensuring public interest.Issue-Wise Detailed Analysis:1. Legality and Validity of the Consent by CCI:The petitioners challenged the consent given by the CCI for the issue of convertible debentures by L&T, arguing that the consent was given without proper application of mind and in undue haste. The court examined the sequence of events and the manner in which the consent was granted. It was noted that the application by L&T was made on 26-7-89, and the consent was given on 29-8-89, refuting the claim of undue haste. The court also considered that the CCI had a role to play in ensuring that public interest does not suffer as a consequence of the consent granted. The court concluded that the consent given by the CCI was valid and in accordance with the provisions of the Capital Issues (Control) Act, 1947.2. Legality and Validity of the Transfer of Shares:The petitioners alleged that the transfer of 39 lakh shares of L&T from public financial institutions to Trishna Investments through BOB Fiscal Services Ltd. was arbitrary, illegal, mala fide, and a fraud on statutory powers. The court examined the sequence of events and the manner in which the shares were transferred. It was noted that BOB Fiscal Services Ltd. acted as a conduit for funneling shares from public financial institutions to the Ambani group. The court observed that the public financial institutions should be prudent and cautious in transferring equity shares and should consider public interest. However, since the financial institutions had already bought back the 39 lakh shares from Trishna Investments, the court did not find it necessary to dilate on this point further.3. Allegations of Arbitrary, Illegal, Mala Fide Actions and Fraud:The petitioners contended that the actions of the public financial institutions and the CCI were arbitrary, illegal, mala fide, and a fraud on statutory powers. The court examined the allegations and found that the transfer of shares and the consent given by the CCI were done following business principles and in public interest. The court noted that the public financial institutions acted to earn profit and recycle funds for investing in other businesses in public interest. The court dismissed the allegations of fraud and mala fide actions.4. Ultra Vires of Articles 14 and 39(b) and (c) of the Constitution:The petitioners argued that the actions of the respondents were ultra vires of Articles 14 and 39(b) and (c) of the Constitution. The court examined the actions of the public financial institutions and the CCI in light of these constitutional provisions. The court observed that the CCI has a role to play in ensuring that public interest does not suffer and that the ownership and control of material resources are distributed to subserve the common good. The court concluded that the actions of the respondents were not ultra vires of the constitutional provisions.5. Maintainability of the Writ Petition as a Public Interest Litigation:The respondents challenged the maintainability of the writ petition as a public interest litigation. The court referred to previous decisions and observed that the petition was maintainable as a public interest litigation. The court noted that the issues raised in the petition were of far-reaching impact on public duty and public obligations of the government and its instrumentalities.6. Role and Responsibilities of the CCI:The court examined the role and responsibilities of the CCI in ensuring public interest. The court referred to the decision in N. K. Maheshwari v. Union of India, where it was observed that the CCI has a role to play in ensuring that public interest does not suffer as a consequence of the consent granted. The court concluded that the CCI acted within its powers and responsibilities in granting consent for the issue of convertible debentures by L&T.Conclusion:The court dismissed the transferred cases and the contempt petitions, upholding the validity of the consent given by the CCI and the actions of the public financial institutions. The court emphasized the need for public financial institutions to act prudently and consider public interest in transferring equity shares. The court also highlighted the responsibilities of the CCI in ensuring that public interest does not suffer as a consequence of the consent granted.