TaxTMI 
TaxTMI 
1991 (4) TMI 450
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....ion that the transfer of 39 lakh shares of Larsen & Toubro Ltd. held by Unit Trust of India, Life Insurance Corporation of India, General Insurance Company and its subsidiaries to Trishna Investment & Leasing Ltd. through the instrumentality of BOB Fiscal Services Ltd. is arbitrary, illegal, mala fide and a fraud on the statutory powers of the respondents and is clearly ultra vires of Articles 14 and 39(b) and (c) of the Constitution on the allegations that in or around the middle of the year 1988 the respondents entered into a secret agreement by which a large chunk of the equity shares of Larsen & Toubro Ltd., the largest engineering company in India, would stand surreptitiously divested by the respondents in favour of the Ambani Group, the third largest monopoly house in India. This divestment was achieved not directly but, indirectly and with a motive to conceal the real nature of the deal by interpolating BOB Fiscal Services Ltd. (a wholly owned subsidiary of Bank of Baroda) as the conduit for the transfer of shares from the public financial institutions to the satellite companies of the Ambani Group. 2. The petitioners also alleged in the petition that pursuant to this sec....
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....ani and Mr. M. Bhakta, a solicitor of Reliance Industries, joined the Board of Larsen & Toubro Ltd. and were co-opted as additional directors. Subsequently, on 30th December, 1988, Mr. Anil Ambani another nominee of the Ambani Group was also co-opted on the Board of Larsen & Toubro Ltd., as an additional director. On 6th January, 1989, the entire 39 lakh equity shares of Larsen & Toubro Ltd. registered in the name of BOB Fiscal Services Limited (of which 6 lakh shares transferred to BOB Fiscal Services Ltd. by LIC was registered in the name of BOB Fiscal Services Ltd. only on 6-1-89) were transferred to Trishna Investments and Leasing Ltd., which is a satellite company of the house of Ambanis. 3. Thus, BOB Fiscal Services merely acted as a conduit for funnelling shares from the public financial institutions to the Ambani group and this interpolation of BOB Fiscal Services was necessitated to get over the legal impediments in the way of selling any part of the controlling shares held by public financial institutions to private parties by private deals except to those already in management and at a price equal to two times the market price. 4. The Chairman of Bank of Baro....
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....ck or group in the company. This preferred group which is not in law entitled to any issue of shares from Larsen & Toubro Ltd., has been chosen to be the preferential beneficiaries of the scheme under which they would get shares in Larsen & Toubro Ltd. at Rs. 60% per share when the shareholders of Larsen & Toubro Ltd. themselves (who, by law, are entitled to further issue of shares from Larsen & Toubro Ltd.) would be issued ' Larsen & Toubro shares under the convertible debentures issued in April 1989 only at Rs. .65/- per share.Thus, as against 35.5% holding of Ambani Reliance Group, the public finance bodies, which held 40% shares before they diluted their holdings in favour of the Ambani group, would have had their holding further diluted to only 22.9% as a result of the present issue. In other words, by approving the terms of the proposed issue the public financial institutions have agreed to a further dilution of their holdings from 32.8% to 22.9% without any consideration whatsoever for agreeing to such reduction and to pass on their vested rights u/ s. 81 of the Companies Act to pre-emptive allotment of shares in Larsen & Toubro to the members, debentureholders and emplo....
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....ce and support of the Central Government. 9. The modus operandi adopted for the transfer was as under:- , (a) In the month of May, 1988, Bank of Baroda of which Mr. Premjit Singh is the Chairman, forms a'subsidiary for merchant banking under the name and style of BOB Fiscal Services P. Ltd. This Company became a public company u/s. 43A of the Companies Act, 1956, in June, 1988. Mr. Harjit Singh, son of. Premjit Singh, owned a company 'Krystal Poly Fab. Ltd.'whose only business is texturising of partially oriented yarn from Reliance Industries Ltd. and the supply of texturised yarn back to Reliance Industries Ltd. or its nominees. (b) On 5th August, 1988, four satellite companies of the House of Ambanis, viz. SKYLAB Detergents Ltd., OSCAR Chemicals Pvt. Ltd., MAXWELL Dyes & Chemicals Pvt. Ltd. and PRELAB Synthetics Pvt. Ltd. gave a total deposit of Rs. 30 crores to an investment company, associated with Reliance who, in turn, deposited the same amount with BOB Fiscal Services. (c) Either immediately preceding this deposit or immediately thereafter, BOB Fiscal Services acquired 33 lakh equity shares in Larsen & Toubro Ltd. from the UTI, LIC and GIC and its sub....
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....oubro Ltd: as an Additional director with the support of financial institutions even though the 33 lakh shares still stood in the name of BOB Fiscal Services Ltd. 10. It has been further pleaded that Trishna Investments & Leasing Ltd. to which the 33 lakh equity shares of Larsen & Toubro Ltd. were sold by the financial institutions through the instrumentality of BOB Fiscal Services Ltd. was incorporated as a private limited company on 1 st October, 1986 with a paid up capital of Rs. 11,000 It is evident that even after acquisition of 3,300 equity shares of Rs. 10 each of Reliance Industries Ltd., the paid up share capital was only Rs. 44,000/-. 11. An affidavit in opposition was filed on behalf of the respondent by Mr. S. D. Kulkarni, a whole-time Director and Vice- President (Finance) of Larsen & Toubro Ltd. In para 6 of the said affidavit it has been stated that the shareholders are different and distinct frtin the company and do not have any interest whatsoever in the property of the company unless and until the winding up takes place. The company is a distinct legal entity and it does not have in law or fact any control over the shareholders in regard to the dealing with ....
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....No. 1 of 1990, Transfer Case No. 61 of 1989 and Transfer Case No. 62 of 1989 respectively. 15. The Transfer Petitions Nos. 458-467 of 1990 praying for the transfer of cases filed in different High Courts raising the similar grounds are allowed and the Transferred Cases arising out of these are also heard along with the Transferred Cases Nos. 1 of 1990, 61 of 1989 and 62 of 1989. 16. Two questions that pose themselves for consideration in all these above cases are':- 1) whether the surreptitious divestment of 39 lakhs shares of. L&T, a large Industrial undertaking by sale through the instrumentality of BOB Fiscal Services Ltd., a subsidiary of a nationalised Bank i.e. Bank of Baroda by the public financial institutions -G.I.C., L.I.C., U.T.I. and thereby helping a private monopoly house of the Ambani Group to acquire the said shares and thereby to get into the management of the Public Company amounts to an arbitrary exercise of statutory power of the State and the respondents. Secondly, whether the consent accorded by Controller of Capital Issues, a preferential issue of debentures by Larsen & Toubro Ltd. of Rs. 310 crores for being subscribed by, the shareholders and empl....
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....ued at Rs. 25.Crores. The U.T.I. basket was valued at-Rs. 23.66 crores including 10 lakh Larsen Toubro Ltd. shares which were sold Rs. 108/-, per share. The L.I.C. Basket was valued at Rs. 25.56 crores and it included 15 lakh L&T shares. L&T shares constituted approximately 55% of the value of the two baskets. This is clear from para 6(d) of the affidavit of Unit Trust of India. On 3-8-88 BOB Fiscal Services Ltd. accepted the two baskets of shares comprising of 25 lakhs L&T shares and shares of 7 other companies valued in total Rs. 50.23 crores. On August 5, 1988 four satellite Companies of the Reliance Group gave Rs. 30 crores to V. B. Desai, Finance Broker, who in turn gave a short term call deposit of Rs. 30 crores to BOB Fiscal Services Ltd. as is evident from the affidavit filed by BOB Fiscal Services Ltd. On August 5, 1988, BOB Fiscal Services Ltd. sold 25 lakhs L&T shares to V. B. Desai, the Broker. Thus BOB Fiscal Services Ltd. acquired 33 lakhs equity shares of L&T from U.T.I., L.I.C., G.I.C. and its subsidiaries. Later in January, 1989 it acquired a further 6 lakhs shares from the L.I.C. within weeks after the deposit by the four companies mentioned above. Trishna Investm....
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....ce Group, became the Chairman of Larsen & Toubro. By this process the public Financial Institutions which held 40% of the shares of L&T company voluntarily diluted their holding to 33% and parted with approximately 7% to the house of Ambani's and made them the single largest private shareholder. This was done as submitted by the appellants deliberately and with a design to legitimise the eventual take over of Larsen & Toubro by the Ambanis. It is to be noticed that on 26-5-89 the Board of Directors of L&T decided to convene an annual General Meeting on 27-7-89. Board also resolved to recommend that 8 crores be invested in two specified companies and that a further sum of Rs. 50 crores be invested in the purchase of equity shares in any other company. On 23-6-1989 Board of Directors of L&T further resolved to invest a sum of Rs. 76 crores in the purchase of Equity Shares of R.I.L. On 21-7-89 R.I.L. and R.P.L. wrote letters. to L&T seeking suppliers credit to the extent of Rs. 635 crores for projects which they planned to entrust to L&T. It is appropriate to note that prior to this the total inter corporate investment of L&T was approximately Rs. 4 crores and investment in the sh....
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....ugh BOB Fiscal Services Ltd. which is a wholly owned subsidiary of Bank of Baroda, surreptitiously and discreetly on the basis of a design and a secret arrangement by transferring 7% out of 40% of the shareholding in L&T and thus reducing their shareholding in the Company to 33%. It has also been submitted that in transferring those equity shaes the financial institutions acted purely on business principles and to earn profit by these transactions and in the case of L.I.C. and U.T.I. in the interest of the policv holders and the unit holders as the case may be. It has also been urged that the acceptance of the requests made by the subsidiary of Bank of Baroda i.e. BOB Fiscal Services for selling the blue chip shares of L&T to them at the highest market price through the broker was in public interest in as much as if all those 39 lakh shares had been put in the stock market for sale it would have created an adverse effect on the company and there would have been a run affecting adversely the interest of the L&T company. It has also been contended that it was not possible to know the actual purchasers of these shares from respondent No. 10, BOB Fiscal Services Ltd. Certain decisions ....
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....orate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder with all the rights available to such a shareholder." This observation, in my considered opinion, has no application to the facts of the instant., case as the public financial institutions are not purchasing the shares of a company. 24. However, I do not think it necessary to dilate on this point as the financial institutions have already bought back all the 39 lakh shares from Trishna Investment and Leasing Ltd. with the accretions thereon but at the same time we add a note of caution that the public financial institutions while transferring or selling bulk number of shares must consider whether such a transfer will lead to acquisition of a large proportion of the shares of a public company and thereby creating a monopoly in favour of a particular group to have a controlling voice in the company if the same is not in public interest and not congenial to the promotion of business. 25. The contention regarding the maintainability of the Writ Petition as a public interest litigation cannot be taken into consideration in view of the d....
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....Capital Issues, respondent No. 2 stating inter alia that the Company wishes to modify their proposal by reducing the reservation for the shareholders of R. 1. L. / R. P. L. from Rs. 360 crores to Rs. 310 crores etc. and the issue of total debentures was reduced to Rs. 820 crores. On August 21, 1989 at the extraordinary general meeting of L&T Ltd. resolution was passed authorising the Board of Directors of the company to issue 12.5% fully secured convertible debentures of the total' value of Rs. 820 crores to be subscribed in the manner as stated therein. The respondent No. 2, Controller of Capital Issues, by its letter dated 29-8-89 addressed to M/ s. Larsen & Toubro Ltd. with reference to its letter dated 26-7-89 intimated that the Central Government in exercise of the powers conferred by the Capital Issues (Control) Act, 1947 gave their consent to the issue by L&T Ltd. of 12.5% secured fully convertible, debentures of the value of Rs. 820 crores in the manner specified therein. 27. The consent given by the Controller of Capital Issues was challenged on the ground that it was given in undue haste without du!y considering the question that providing the preferential allotmen....
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....ed company out of public issue, unless it is offered to shareholders -of Associate/ Group company of the Issuing Company. It is submitted that Larsen & Toubro had indicated that Reliance Industries Ltd. (RIL) and Reliance Petrochemicals Ltd. (RPL) are their group Companies. It is also submitted that Larsen & Toubro filed a copy of the special resolution passed in the General Body meeting held on 21-8-89 which permitted the company to offer its convertible debentures worth Rs. 310 crores to the shareholders of RIL and RPL. It is submitted that the CCI permitted similar reservation for shareholders of Associate/ Group companies in the.public issue of M/ s. Apollo Tyres Ltd., M/s Essar Gujarat Ltd., M/s. Bindal Agro Ltd., M/s. Chambal Fertilizers and several other companies. It is submitted that there was no reason for CCI to reject the request of Larsen & Toubro for this reservation as the shareholder of L&T had approved such reservation. 29. It has been further submitted that the charge for favouring Reliance Group/Ambani Group is frivolous and misleading and seeks to convey a wrong impression and imputes motives for which there is no basis. It has been further submitted that the....
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....he Controller of Capital Issues in according the consent is not sustainable. Moreover, the Controller of Capital Issues issued a letter dated 15th September, 1989 to M/s. Larsen and Toubro to note amendment of the condition of the consent order to the effect that fund utilisation shall be monitered by Industrial Development Bank of India. This will further go to show that the consent was ,given after due consideration in accordance with the provisions of S. 3 of the Capital Issues(Control) Act, 1947 (Act 29 of 1947). 31. Much arguments have been made as to the provision in the prospectus reserving preferential allotment of debentures of Rs. 310 crores to the equity shareholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd., mainly on the ground that it will increase the share holding of the Ambani group and thereby and to the monopoly control of Ambani group over this public limited company. Under S. 2(g) of the Monopolies and Restrictive Trade Practices Act, 1969 "interconnected undertakings" mean two or more undertakings which are interconnected with each other in any of the manner mentioned therein. Explanation (1) - For the purposes of this Act, two bodies Cor....
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.... ground that no M.R.T.P. clearnace for the issue of capital under S. 21 or under S. 22 of the Monopolies and Restrictive Trade Practices Act, 1969 was given. It appears from the letter dated 2-12-1988 issued by Government of India to M/ S. Reliance Industries Ltd endorsing a copy of Central Government's'order dated 25-11-1988 passed under S. 22(3) (e) of the M. R. T. P. Act, 1969 that it gave approval for the proposal of M/ s. Reliance Industries Ltd. for setting up a craker complex. The approval of Central Government was made under S. 22(3)(d) of the M.R.T.P. Act and communicated to M/s. Reliance.Petrochemicals Ltd. by letter dated 30-5-1989. Consent was also given by the Central Government under S. 22(3)(a) of the M.R.T.P. Act for the establishment of a new undertaking for the manufacture of 20,000 of Acrylic Fibre. Thus, challenge to the consent given by Controller of Capital issues is, therefore, meritless and so it is rejected. 33. It is pertinent to refer in this connection this Court's judgment in the case of Narendra Kumar Maheshwari v. Union of India (1989) 2 JT (SC) 338 : (AIR 1989 SC 2138), in.which considering the duties of the C.C.I. under the Controller....
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....rch 31, 1990 and were of the opinion that the applicants should make the first call only after utilising substantially the surplus funds available to the extent of Rs. 226 crores in investments (after expenditure) up to June 30, 1990 satisfying the IDBI about the need for raising further funds by way of first call. This was communicated to the applicants by IDBI's letter dated 7th May, 1990. 35. The Board of Directors at its meeting held on 11 th May, 1990 considered the above circumstances as well as the proceedings that the Company could not proceed-with the conversion of Part A of the debentures which was due on 23rd May, 1990. The Board authorised the Company Secretary to make the necessary application to the Controller of Capital Issues seeking directions for the course of action to be followed by the Company in regard to the conversion. The applicant's letter dated 15th May, 1990 to the Controller of Capital Issues pursuant to the aforesaid Board meeting refers to the letter dated 7th May, 1990 from IDBI as well as to the objections raised by the ICICI. 36. The applicants sent a letter dated 15th May, 1990 to the Controller of Capital Issues pursuant to the abov....
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....quity shares of Rs. 10/- each as against two or more equity shares as originally provided in the prospectus. (b) that in case of any debenture-holder not agreeing to the modifications, in prayer(a) above and on intimation being received by the applicant-company as mentioned in prayer (c) below the applicants do refund to such debenture-holders their' its application and allotment money with interest thereon at such rate as may be directed by this Court; (c) that this Court be pleased to direct the applicants to give notice to all debentureholders individually and by publication in national newspapers of the order passed in terms of prayers (a) and (b) above that in case of any debenture-holder not agreeing to the modifications in prayer (a) such debentureholders do give intimation to the applicant company within 30 days of such notice in which case the applicant-company would. refund the applications/'allotment money with interest. (d) for further orders and directions consequential to the orders passed by this Court; (e) for costs of the application." 39. Larsen & Toubro Ltd. Respondent No. 2 in T.C. No. 61 of 1989 filed a rejoinder affidavit to the statemen....
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....is Court or for the Controller of Capital Issues to modify the terms of the said consent order. 43. It is to be noted that the Industrial Development Bank of India by its letter dated June 28, 1990 to the Managing Director, Larsen & Toubro Ltd. stated that:- ....... From a quick review of the status of the new proposal mentioned in your letter dated June 22, 1990, we feel that the net requirements of funds to be met out of debenture funds would be in the region of Rs. 600 to Rs. 650 crores as indicated by you. We further note that from your letter dated June 28, 1990 that you propose to make first and final call Rs. 85 on the debentures on or before 31st October and to effect the first conversion by the end of November, 1990 and second and third conversion according to the original dates mentioned in the prospectus. The L&T Board will have to take a view on the size of the debenture issue in the light of the requirements of funds indicated in your letter and other modifications suggested in the terms of the debentures. The company will no doubt obtain necessary approvals from CCI, debenture-holders /shareholders, etc. in consultation with its Legal Advisers." 44. A m....
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....areholders of the company on August 28, 1989 cannot be varied, changed or modified both as regard! the reduction of the amount of debentures as well as the purposes for which the fund will be utilised contrary to what has been embodied in the prospectus and apprqved by the Controller of Capital Issues on the basis of the special resolution adopted at the general meeting of the shareholders of the company. Sub-sec. (6) of the S. 3 of the Capital Issues (Control) Act, 1947 states that: "The Central Government may by order at any time- (a) revoke the consent or recognition accorded under any of the provisions of this section; or (b) where such consent or recognition has been qualified with any conditions, vary all or any of those conditions: Provided that before an order under this sub-section is made, the company shall be given a reasonable opportunity of showing cause why such order shall not be made." 49. On a plain reading of this provision, it cannot be inferred that consent order given by the Central Government after consideration of the special resolution passed at the general meeting of the company on taking the no objection certification from the I.D.B.I. can b....
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....#39;The "golden rule" as to framing prospectuses' at pp. 332-333 it is stated that : "Those who issue a prospectus, holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting them to take shares on the faith of the representations therein contained are bound to state everything with strict and scrupulous accuracy, and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the'nature, or extent, or quality, of the privileges and advantages which the prospectus holds out as inducements to take shares." 52. Reference may also be made to the observations in Aaron's v. Twiss, 1896 AC 273 in which Lord Watson said:- "It was argued for the company that, inasmuch its contracts for the purchase of the concession are generally referred to towards the end of the prospectus,'the respondent must be held to have had notice of their contents. This appears to me to be one of the most audacious pleas that ever was put forward in answer to a charge of fraudulent misrepresentation. When analysed....
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....ion was dismissed on 29-9-89 by learned single Judge of the Bombay High Court. Letters Patent Appeal against the said judgment was filed in the Bombay High Court. Several other writ petitions and suits were filed in vario'us'other High Courts. Some Contempt Petitions were also filed and all the above matters were transferred to this Court. Some Interim Applications were also filed by L & T before this Court. The issues raised in these cases are of far reaching impact on the affirmatory public duty and public obligations on the Governmerit of India and its instrumentalities, to preserve and to refrain from squandering away the property and economic power of the 3Late and to prevent illegitimate growth of private monopoly power and to ensure honesty and probity in public life and in industry and business. This is a largest mega issue so far as India is concerned and involves to a great extent the investment of the country's bulk economic resources to be invested for industrial growth or development of the country to a public limited company. The n-ftter has to be looked into on the basis of larger public interest which can be fulfilled by a balanced investment of country&....
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....9 lac shares of L & T with accretion thereto from Trishna Investments. It was further stated that by buying back the said shares, the financial institutions were in no way either remotely or impliedly acceding the position that the original transactions of sales were illegal or, void. The financial institutions stood by their contentions which had been upheld by the Bombay High Court in its Judgment dated September 29, 1989. It was further stated that the transactions had been completed on the expectat ion that the petitioners would withdraw the proceedings as even otherwise a basic portion ,of the petitions filed in the High Court had become infructuous. 60. Mr. Jethmalani, learned counsel appearing on behalf of Haresh Jagtiani also filed a draft of consent terms to be recorded in the transfer petition. On 9-11-89 this Court after considering all the circumstances of the matter thought it just and fair to pass an order that the allotment of debentures will be made by the petitioner company i.e. L & T and such allotment will abide by the decision of this Court in the said matters. It was further directed that the L & T will also affix a similar notice at its Registered Office fo....
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....tion that the petitioners will withdraw the proceedings. In support of the above contention reliance is placed on State of 'Maharashtra v. Ramdas Shriniwas Nayak (1983) 1 SCR 8 at p. 12: AIR 1982 SC 1249. It has been further submitted that in the alternative Trishna Investments must be put in the identical status quo ante position by retransfer of its 39 lac shares back to it, along with all accretions It was also urged that there are large number of disputed questions of fact which cannot be decided in exercise of extraordinary jurisdiction contained in Art. 226 of the Constitution. 63. Dr. Singhvi also urged that even if the action of the Reliance group was to corner or purchase all shares of L & T, there is nothing wrong or illegal about it. There was no law or rule prohibiting the purchase of shares of a company. Thus there was nothing wrong or illegal in purchasing the shares by Trishna Investments. Apart from that the total shareholding vested in Trishna Investments was only about 6.5% and the representation of Ambanis including Mr. Bhakta on the Board of Directors of L & T was only 4 out of 20. it was wholly misleading, deliberately mischievous and erroneous to sugges....
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....vestment institutions and Ambani group represented by Trishna and Bob Fiscal in order to camouflage the transactions and to prove the transfer of shares to Bob Fiscal in order to avoid compliance of the alleged guidelines and policy of the financial institutions to charge at two times the market price for such sale of shares. The allegations were denied by various respondents which were upheld by Bombay High Court by its judgment dated 29th September, 1989. It was further submitted that during the course of the proceedings before this Court on 18th October, 1989 Trishna Investments made offer in open Court to sell back or retransfer the 39 lac shares in quetion together with accretions to the investment institutions on no loss no profit basis. On 27th October, 1989 the institutions agreed to buy back the said 39 lac shares with accretions thereon. It was expressly submitted and clarified by Trishna Investments and the institutions that Trishna Investments was sellling back the said shares and the institutions were buying back the same without in any manner admitting any of the allegations in the writ petitions, nor were they admitting the position that the original transfer of shar....
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....t 39 lac shares which were sold to Bob Fiscal were at any time intended or destined for the Ambani group as alleged. 67. I agree with the observations made and conclusions arrived at by my learned brother B. C. Ray in respect of transfer of 39 lac shares. 1 may, further, add that so far as the relief of a writ of mandamus directing the respondents to recover 39 lac shares of L & T and pay back the amounts received therefor, does not survive in view of the shares having already bought back by the financial institutions from Trishna Investments. However, for future guidance it may be worthwhile to note that public financial institutions while making a deal in respect of a very large number or bulk of shares worth several crores of rupees must also make some inquiry as to who was the purchaser of such shares. Such transactions should be made with circumspection and care to see that the deal may not be to camouflage some illegal contrivance or inbuilt conspiracy of a private monopoly house in order to usurp the management of a public company and which in its opinion may not be in public interest. 68. We cannot subscribe to the contention raised by Dr. Singhvi that there was nothi....
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....een passed for voluntary winding up of Bob Fiscal. This leads one to draw a legitimate inference that Bob Fiscal was brought into existence merely to act as a conduit and was merely an interloper to affect the transfer of 39 lac shares of public financial institutions in favour of Ambani Group and their satellite firms. It came into existence like a rainy insect and lived out its utility after acting as a conduit for the transfer of 39 lac shares in favour of Trishna Investments. I do not consider it necessary to further dilate on this point and fully agree with my learned brother that all the circumstances taken together clearly spell some doubt whether the transfer of such a huge number of 39 lac shares by the public financial institutions was for public interest and was made on purely business principles. 70. Another important question is with regard to the consent given by CCI. L & T had filed two applications to CCI on 26-7-89. One for the Rights Issue of Rs. 200 crores and another for the Public Issue of Rs. 720 crores (subsequently reduced to Rs. 620 crores). It may be noted that up to this time 39 lac shares of L & T had come to Trishna Investments and M. L. Bhakta, Muke....
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....ing prior written consent of the IDBI. IDBI then considered the unaudited statement giving details of the utilisation of debenture funds up to 30th March, 1990 and were of the view that the applicants (L & T) should make the first call only after utilising substantially the surplus funds available to the extent of Rs. 226 crores in investments (after expenditure) up to June 30, 1990 and after satisfying IDBI about the need for raising further funds by way of first call. After a prolonged discussion and correspondence with all the concerned authorities L & T proposed to make a call (first & final) of Rs. 85/- on or before 31st October, 1990 in place of the originally envisaged first call of Rs. 75 / -and the final call of Rs. 75 aggregating to Rs. 1501-. L & T thus proposed to affect the first equity conversion by end of November, 1990. IDBI approved the above propsoal. In view of the fact that the postponement of the first call upon the debenture holders to be made on 30th April, 1990 and the postponement of the first conversion of Part A of the debentures into equity shares as originally scheduled to be on 23rd May, 1990 was occasioned by IDBI requiring L & T to first satisfy IDBI....
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....ntention was that the petitioners had come forward raising larger issues affecting the entire economy of the country and the underhand practice adopted by the financial institutions and the big private industrialists. It was submitted that there was a limited financial capacity of the investor public in the shares and CCI as a controller ought to see that such public investment should not go in the hands of a few industrialists which would be contrary to the Directive Principles enshrined in Art. 39(b) & (c) of the Constitution of India. It should adhere to the above State Policy enshrined in the Directive Principles that the ownership and control of the material resources of the community are so distributed as best to subserve the common good and that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment. It was submitted that the facts on record clearly establish that the mega issue was conceived proposed and implemented with the intent and object of utilising the reputation and goodwill of L & T to raise funds to the extent of Rs. 635 crores for funding projects of Reliance Group of Industries. The consent....
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....on of suppliers credit to RIL, inter alia in respect of its cracker. project which has also been shown on pages 10 and 11 of the prospectus. Similarly, reference has been made to other turnkey projects of RIL/ RPL in the prospectus. It has thus been argued that if the consent of CCI was given taking note of all these circumstances then L & T has no right to change the same and utilise the funds for other purposes. The issue was only of Rs. 820 crores for specific projects of RIL/ RPL worth 635 crores and the entire issue would be subject to the fulfilment of the above contracts made with RIL/ RPL. Theoriginal consent of the Controller was given on 29-8-89 and the same cannot be changed by subsequent letters of the Controller dated 15-9-89. Those letters can only be construed harmoniously and in conjunction with the sanction of 29-8-89. They can only be construed as nominating IDBI to monitor the sanction of 29-8-89 which is based on the proposal and the special resolution of the company. It was argued that the issue was carried out according to the prospectus filed on 6th September, 1989. The two letters of 15th September, 1989 cannot be construed as authorising IDBI or L & T to re....
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....d to relevant consideration or irrelevant grounds or for an improper purpose or in bad faith then the order becomes void. Mr. Sen also cited a passage of House of Lords in Anisminic Ltd. v. The Foreign Compensation Commission, (1969 2 AC 147) which has been quoted by the Supreme Court in (1971) 3 SCR 557 at p 570: (AIR 1971 SC 1558 at p 1565), which reads as under: "It has sometimes been said that it is only where a tribunal acts without jurisdiction that its decision is a nullity. But in such cases the word "jurisdiction" has been used in a very wide sense and 1 have come to the conclusion that it is better not to use the term except in the narrow and original sense of the tribunal being entitled to enter on the enquiry in question. But there are many cases where, although the tribunal had jurisdiction to enter on the enquiry, it has done or failed to do something in the course of the enquiry which is of such a nature that its decision is a nullity. It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the enquiry to comply with the requirements of natural justice. It may in perfect good faith....
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....in the High Court of Madras and subject matter of Transfer Petitions in this Court argued that each compulsorily convertible debenture holder has rights accrued in his favour pursuant to the allotment. Each debenture holder has his own perception of the rights accrued in his favour which he may seek to enforce. Such enforcement of rights accrued in his favour will necessarily result in his taking up a legal position which may agree with the stand taken by'one or other of the parties. It has been submitted that the consent order passed by CCI is either valid or invalid. There is no third position possible. It was further submitted that prospectus is an invitation for offer from the public for the subscription or purchase of any shares or debentures. The invitation is accepted and the offer is made when an application is made for allotment of debentures. Once the debentures is allotted, the contract is concluded. It was further contended that each and every allottee of the debenture is entitled to specifically enforce the contract for specific performance. The Court will enforce specific performance in favour of the allottee debenture holder and maintain consent as a whole and bi....
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.... "From a quick review of the status of the new proposal mentioned in your letter date 22-6-90 we feel that the net requirement of funds to be met out of debenture funds would be in the region of Rs. 600 to Rs. 650 crores as indicated by you................. The L&T Board will have to take a view on the size of the debenture issue in the light of the requirement of funds indicated in your letter and other modifications suggested in the series of the debentures. The company will no doubt obtain necessary approvals from CCI, debenture holders/shareholders, etc. in consultation the with its legal advisors." It is clear that IDBI also realised that further approvals from CCI was necessary and also of the debenture holders, but this was never done. 79. A meeting by the Board of Directors of L&T was held on 26-9-90 in which the mega issue was reduced from Rs. 820 crores to Rs. 640 crores. The dates of conversion of debentures were varied and the suppliers credit for Rs. 545 crores in respect of turnkey projects of RIL were cancelled. It was pointed out by Sh. Ray that taking note of the above documents and the happenings even if a part of the consent order dated 29-8-89 is found ....
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....arg construction of Hajira project sponsored by RIL would have gone to foreign business rivals who were required to, be paid in foreign exchange with considerable detriment to national economy and as sucn RIL did a good turn to the national economy by giving contract of turnkey projects to L&T. It was further submitted that after the allotment of debentures a concluded contract between the debenture holders and L&T has come into existence and the rights and liabilities as contained in the prospectus cannot be varied by this Hon'ble Court. The CCI has no power to defeat, destroy or vary the contracts made between the investor and the company concerned. 82. On the other hand, Mr. Harish Salve, learned counsel appearing on behalf of petitioners in transferred case No. 61/89 submitted that the order granting permission by the CCI is alleged to be illegal as the CCI overlooked the implications of the MRTP Act vis-a-vis the suppliers credit. The dominant and real object underlying the issue was to make available funds for application to the Reliance group projects and also to provide a tool by which Ambanis and Reliance Group shareholders could increase their control over L&T and ....
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....ent policy in mind. 85. It was further contended that the Reliance Group of Industries had in about one year established access to about 1500 crores of rupees including suppliers credit of Rs. 635 crores and had thereby become India's largest conglomerate, with three different kinds of industries and that by its very nature a Conglomerate unlike a linear monopoly defies control and regulation was a glaring factor quite apart from the tecnicalities of the Monopolies Act, Sec. 22 (3) (b) and (d) of the Monopolies Act required indepth policy examination at the highest policy levels and consultation with the Monopolies Commission and the Planning Commission. The record does not disclose any such consideration or consultation, on the other hand the so called consideration can be seen to be casual, perfunctory and biased. Even in the case of transfer of shares of an ordinary company, the directors have discretion to refuse the transfer if they feel that the. Person is undesirable or his shareholding is not in the best interests of the company and repeatedly the Courts have upheld such bona fide refusal to transfer. Such being the case, it was notorious in the present cases that th....
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....roup. In the alternative it has been contended that no preferential reservation could have been made of Rs. 3 10 crores of Convertible Debentures for the shareholders of Reliance Group of Companies. In this regard it has been contended that in case this Hon'ble Court does not hold the entire consent as invalid, then the part giving preferential reservation of Rs. 310 crores of Convertible Debentures for the shareholders of the Reliance group of companies may be declared invalid but the remaining part of the issue of Rs. 510 crores be declared valid, as the consent can be legally bifurcated in valid and invalid portions. 87. The other group of lawyers has contended that the consent given by CCI did not suffer from any infirmity and in any case it cannot be bisected or bifurcated in valid and invalid portions. The consent order was an integral part of a single scheme and shall be valid or invalid as a whole and it does not lie within the judicial review of the Courts to declare one part of the consent order as valid and the other part as invalid. As already mentioned above this is a mega issue amounting to Rs. 820 crores, out of which Rs. 200 crores is the Rights Issue for ....
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....ring the duties of the CCI under the Control of Capital Issues Act while giving consent has observed as. under: "That apart, whatever may have been the position at the time the Act was passed, the present duties of the CCI have to be construed in the context of the current situation in the country, particularly, when there is no clear cut delineation of their scope in the enactment. This line of thought is also reinforced by the expanding scope of the guidelines issued under the A t from time to time and the increasing range of financial instruments that enter the market. Looking to all this, we think that the CCI has also a role to play in ensuring that public interest does not suffer as consequence of the consent granted by him. But as we have explained later, the responsibilities of the CCI in this direction should not be widened beyond the range of expeditious implementation of the scheme of the Act and should, at least for the present, be restricted and limited to ensuring that the issue to which he is granting consent is not patently and to his knowledge, so manifestly impracticable or financially risky as to amount to a fraud on the public. To go beyond this and require t....
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....dit from their associates, companies or otherwise. The Reliance Petro Chemicals had already appropriated Rs. 560 crores and nearly 3000 crores of rupees had been appropriated by large issues when the impugned issue was presented. After that the capital available for wage goods industries, other labour intensive industries critical industries sought to be set up by hundreds of professionals who had neither political influence nor the means to exploit the media would have been left with a very meagre amount available for allocation. It has been further contended that the Reliance Group of companies had in about one year established access to about 1500 crores of rupees, including suppliers credit of Rs. 635 crores and had thereby become India's largest conglomerate with three different kinds of industries and that by its very nature a conglomerate unlike a linear monopoly defies control and regulation was a glaring factor quite apart from the technicalities of the Monopolies Act, which ought to have been considered by the CCI. 90. In N. K. Maheshwari's case, (1989) 3 SCR 43 challenge was made to an order of consent of the CCI granted for the issue of shares (Rs. 50 crores)....