TaxTMI 
TaxTMI 
2011 (11) TMI 530
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....mily members and the corporate entities belonging to the family members had purchased more than 90 lakh shares in Apollo. Except for the holding of two family members, the entire holding came to be attached by a notification on 6th June, 1992. Under the said notification, 29 entities both individual and corporate were notified under Section 3(2) of the Special Court Act. Prior to the issue of notification about 15 lakh shares of Apollo stood registered in the name of the notified parties and the balance shares were unregistered. About 39.16 lakh unregistered shares were disclosed by the late Harshad S. Mehta to the office of the Custodian, which were subsequently handed over to the Central Bureau of Investigation (hereinafter referred to as "the CBI"). The CBI seized about 7 to 8 lakh un-registered shares in 1992, which also were handed over by them to the Custodian. The Custodian was also authorised to deal with a few lakh shares, identified as benami shares. Thereafter, the Custodian moved an application before the Special Court seeking orders for effecting registration of unregistered shares in the name of the Custodian and for recovery of lapsed benefits that accrued on the sai....
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....the Court, will be required to make payment within 15 days from the date of acceptance of the offer by the Court. Here also, the Court reserves its rights to accept or reject any of the highest offer or bid that may be received by the Court without assigning any reason whatsoever. Once the highest offer is ascertained, the management of the company should be given an option to buy the shares. This is to avoid destablization of the company. The purchaser(s) shall comply with all regulations including the Take Over Regulations of SEBI. In cases where the Custodian finds that as on the relevant date, he does not possess shares of a company to the extent of 5% or above, but he anticipates that in near future, the limit is likely to reach with the other shares coming in, then the Custodian shall submit his report to the Court for keeping aside such shares of a notified party for future disposal. However, public financial institutions will not be required to make any deposit along with their offer(s)." (Emphasis supplied) 4. The Special Court approved the scheme, propounded by the Custodian for sale of Controlling Block of Shares in toto and ordered sale of all registered shares, exce....
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....e is not available then it will have an option to follow the 2nd method relating to sale of bulk shares. Further, if the Court is satisfied that by following any of the above two methods the highest price is not available, then it will have an option to follow the norms as laid down for routine shares (the 1st method). These appeals are disposed of in the aforesaid terms." (Emphasis supplied by us) In compliance with the aforesaid orders/directions, the Custodian drafted the 'terms and conditions of sale' for sale of 54,88,850 shares of Apollo. Some of the terms and conditions, relevant for this appeal are as follows : ** ** **" 5. Even after acceptance of the offer/identification of the highest bidder by the Disposal Committee, the approval of sale will be subject to the sanction of Hon'ble Special Court. ** ** **" 7. The Bids are to be submitted for the entire lot of shares of the said Company viz. 54,88,850 shares. Bids in part (less number of shares than total) shall not be considered. ** ** **" 14. The Custodian will obtain directions of the Hon'ble Court for approval of the offer of the highest bidder so identified by the Disposal Com....
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....rms and conditions laid down for the sale of these shares and was also in violation of the principles of natural justice. 9. Elaborating her contention that the sale was in contravention of the scheme framed by the Custodian and duly approved by the Special Court by order dated 17th August, 2000 and with modifications by this Court vide order dated 23rd August, 2001, learned counsel argued that Condition No. 14 in the 'terms and conditions for sale' had been violated on three counts: viz. ( i) Apollo and/or its management could be invited to bid only after the Special Court had ascertained the highest offer and satisfied itself about the inadequacy of the other bids. But the Custodian vide letter dated 28th April 2003, invited Apollo to bid for purchase of the said shares on his own volition, even before the bids received were placed before the Special Court; (ii) the offer to bid was to be made either to Apollo 'OR' its management and not to both as was done in the present case and (iii) the buy back effected by Apollo was in complete violation of Section 77A of the Companies Act, 1956 (for short "the Companies Act") as well as SEBI (Buy back of Securities) Regulations, 1998. I....
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....2001. It was urged that the Special Court also failed to follow its past precedents, particularly in the case of M/s Ranbaxy Laboratories Ltd., when 8,04,777 shares were ordered to be sold @ Rs. 565/- per share. In that case, the bid was received under the Bulk Category @ Rs. 540/- per share but on the insistence of the Special Court, the offer was improved to bring it at par with the prevailing market price. In support of the proposition that the Custodian as also the Special Court having committed material irregularities, resulting in substantial injury to the appellants, the subject sale of shares is liable to be set aside, learned counsel placed reliance on the observations of this Court in Desh Bandhu Gupta v. N.L. Anand & Rajinder Singh [1994] 1 SCC 131 and Gajadhar Prasad v. Babu Bhakta Ratan [1973] 2 SCC 629. 12. Learned counsel strenuously contended that the impugned order was also arbitrary and in violation of the principles of natural justice in as much as the Special Court not only outrightly rejected the prayer made by the notified parties during the course of proceedings on 30th April, 2003 for grant of 48 hours time to secure a better offer in the same manner as w....
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....y this Court and that such discretion can be interfered with only if it is shown to have been exercised in violation of the statutory provisions or contrary to the well established judicial principles. It was argued that in the present case the decision of the Special Court was based on the recommendation of the Disposal Committee, which consisted of experts in the field of securities and shares, and therefore, it cannot be said to be perverse so as to warrant interference by this Court. In order to highlight the role of the Disposal Committee and the probative value of its advice and recommendations, learned senior counsel commended us to a decision of this Court in Sudhir S. Mehta v. Custodian [2008] 85 SCL 91. In support of his submission that the Appellate Court should not lightly interfere with the discretion exercised by the Trial Court, learned counsel placed heavy reliance on the decisions of this Court in Ramji Dayawala & Sons ( P) Ltd. v. Invest Import [1981] 1 SCC 80 at page 96 and Wander Ltd. v. Antox India P. Ltd. [1990] (Supp) 1 SCC 727 wherein it was held that the Appellate Court would not ordinarily substitute its discretion in the place of the discretion exercised ....
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....d parties' objections to a sale of shares of Reliance Industries Ltd. had observed that the sale of shares between the period '12.12.2000 to 1.11.2007' (said period covering the sale of shares of Apollo) could not be said to be at a loss, especially because of the fact that the said sale had been approved by the Disposal Committee, a committee of experts. 17. Lastly, learned senior counsel submitted that pursuant to the buy back of shares and on due compliance with the provisions of Section 77A read with Section 77A (7) of the Companies Act, Apollo had already extinguished 36.90 lakh shares so bought-back and therefore, to that extent, prayer of the appellants to rescind the purchase of shares is rendered infructuous. It was asserted that any order at this juncture, setting aside the impugned order, would not result in resurrection of the extinguished shares but entail a fresh issue of shares under Sections 79 and 81 of the Companies Act, which is fraught with statutory restrictions and difficulties, resultantly affecting the rights of third party shareholders, who are not parties to the present dispute. 18. Mr. Arvind Kumar Tewari, learned counsel appearing on behalf of the ....
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.... and render complete justice by moulding the relief, learned senior counsel placed reliance on the observations made by this Court in Rajesh D. Darbar v. Narasingrao Krishnaji Kulkarni [2003] 7 SCC 219. 20. Before addressing the contentions advanced on behalf of the parties, it will be necessary and expedient to notice the overarching considerations behind the enactment of the Special Court Act, which came into force on 6th June, 1992. It replaced the Special Court (Trial of Offences Relating to Transactions in Securities) Ordinance 1992, as promulgated on 6th June 1992, when large scale irregularities and malpractices pertaining to the transactions in both Government and other securities, indulged in by some brokers in collusion with the employees of various banks and financial institutions were noticed. The Special Court Act provides for establishment of a Special Court for speedy trial of offences relating to transactions in securities and disposal of properties attached thereunder. Section 3 of the Special Court Act relates to the appointment and functions of the Custodian. Sub-section (2) thereof clothes the Custodian with the power to notify in the official gazette, the na....
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....iabilities in terms of Section 11 of the Special Court Act. It is also clear that the Custodian has to deal with the attached properties only in such manner as the Special Court may direct. The Custodian is required to assist in the attachment of the notified person's property and to manage the same thereafter. The properties of the notified persons, whether attached or not, do not at any point of time, vest in him, unlike a Receiver under the Civil Procedure Code or an official Receiver under the Provincial Insolvency Act or official Assignee under the Presidency Insolvency Act (See : B.O.I. Finance Ltd. v. Custodian [1997] 12 SCL 99 (SC)). The statute also mandates that the Special Court shall be guided by the principles of natural justice. 22. At this juncture, it would also be profitable to briefly note the salient features of the scheme formulated by the Custodian for sale of shares in terms of the directions issued by this Court in its order dated 11th March 1996 (CA No.5225/1995); the norms laid down by the Special Court vide order dated 17th August 2000 and the modification of these norms by this Court vide order dated 23rd August, 2001 (CA No.5326/1995). What clearly em....
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....aid, so far as issue of notification in terms of Section 3(2) is concerned, the Custodian derives his power and authority from the Special Court Act but his jurisdiction to deal with property under attachment, flows only from the orders which may be made by the Special Court constituted under the said Act. It is obligatory upon the Custodian to perform all the functions assigned to him strictly in accordance with the directions of the Special Court. In the present case, although we do not find any material on record which may suggest any malafides on the part of the Custodian yet we are convinced that by inviting Apollo to bid, vide letter dated 28th April, 2003, the Custodian did exceed the directions issued to him by the Special Court. However, we feel that this being in the nature of a procedural omission, the alleged violation is not per se sufficient to nullify the sale of shares. 24. The next question for determination is whether or not the impugned decision of the Special Court is in breach of the principles of natural justice, thereby vitiating its decision to sell the subject shares to Apollo and the companies managed by their promoters? 25. It is true that rules of ....
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.... or frustrate the need for utmost promptitude. In short, this rule of fair play must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. The court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise." (emphasis supplied by us) 27. It is thus, trite that requirement of giving reasonable opportunity of being heard before an order is made by an administrative, quasi judicial or judicial authority, particularly when such an order entails adverse civil consequences, which would include infraction of property, personal rights and material deprivation for the party affected, cannot be sacrificed at the alter of administrative exigency or celerity. Undoubtedly, there can be exceptions to the said doctrine and as aforesaid the extent and its application cannot be put in a strait-jacket formula. The question whether the principle has to be applied or not is to be considered be....
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....eral proposition that an Appellate Court will not ordinarily substitute its discretion in the place of the discretion exercised by the Trial Court unless it is shown to have been exercised under a mistake of law or fact or in disregard of a settled principle or by taking into consideration irrelevant material. A 'discretion', when applied to a court of justice means discretion guided by law. It must not be arbitrary, vague and fanciful but legal and regular. (See : R. v. Wilkes [1770] 4 Burr 2527). 30. We have therefore, no hesitation in agreeing with Mr. Vellapally to the extent that same principle would govern an appeal preferred under Section 10 of the Special Court Act. However, since we have come to the conclusion that the Special Court has exercised its discretion in complete disregard to its own scheme and 'terms and conditions' approved by it for sale of shares and above all that the impugned order was passed in violation of the principles of natural justice, we think that the facts in hand call for our interference, to correct the wrong committed by the Special Court. 31. For the view we have taken above, we deem it unnecessary to deal with the other contentions urge....