REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4263 OF 2003

ASHIWIN S. MEHTA & ANR. — APPELLANTS

VERSUS

UNION OF INDIA & OTHERS — RESPONDENTS

J U D G M E N T

D.K. JAIN, J.:

1.This appeal under Section 10 of the Special Court (Trial of Offences

Relating to Transactions in Securities) Act, 1992 (for short “the

Special Court Act”) is directed against the order dated 30

th

April,

2003, as corrected vide order dated 2

nd

May, 2003, passed by the

Special Court at Bombay, in Misc. Petition No. 64 of 1998. By the

impugned orders, the Special Court has permitted the Custodian to sell

54,88,850 shares of Apollo Tyres Ltd. (for short “Apollo”),

respondent No. 3 in this appeal, at Rs.90/- per share.

2.The material facts giving rise to the appeal are as follows:

The appellants, one late Harshad S. Mehta, their other family

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 6

th

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 said

unregistered shares. The management of Apollo objected to the proposed

registration, alleging violation of the takeover code and raised the

question of ownership. However, the Special Court, vide order dated 19

th

2

November, 1999, allowed the registration of the un-registered shares in

the name of the Custodian.

3.By order dated 11

th

March, 1996, in Civil Appeal No.5225 of 1995,

this Court, in a suo motu action, directed the Custodian to draft a

scheme for sale of shares of the notified parties, which constituted

bulk of the attached assets. Accordingly, a scheme was drafted by the

Custodian in consultation with the Government of India and

thereafter, presented to this Court. Vide order dated 13

th

May, 1998, in

Civil Appeal No. 5326 of 1995, this Court directed that the said

scheme may be considered by the Special Court, with further

modifications, if any. In furtherance of the said direction, the

scheme was presented to the Special Court for its approval. The

notified parties strongly opposed the said scheme on several grounds.

All the objections of the notified parties were overruled and the

Special Court, vide order dated 17

th

August, 2000, categorised the

shares into three classes – (i) routine shares; (ii) bulk shares and (iii)

controlling block of shares. The Special Court constituted a Disposal

Committee for disposal of shares as per the norms laid down in the

said order. Norms in respect of sale of controlling block of shares

read as follows:

3

“NORMS FOR SALE OF CONTROLLING BLOCK OF

SHARES:

After completion of demat procedure for registered shares, the

Custodian will give public advertisement in the newspapers

inviting bids for purchase of Controlling Block of shares. The

offers should be for the entire block of registered shares. The

offers should be accompanied by a Demand Draft/Pay

Order/Bankers’ cheque representing 5% of the offered amount

in cases of thinly traded shares of companies like Killick Nixon

whereas in cases of highly valued shares like Apollo Tyres, the

offers shall be accompanied by Demand Draft/Pay

Order/Bankers’ cheque representing 2% of the offered amount.

The said Pay Order/Demand Draft/bankers’ cheque should be

drawn in favour of the Custodian, A/c – name of the notified

parties say Dhanraj Mills. The offers can be made by

individuals as well as by corporate and other entities. The

offerer, whose offer is accepted by 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, except the shares of Apollo because their objection

4

regarding registration of unregistered shares in the name of

Custodian/notified parties, was pending adjudication by this Court.

5.The order of the Special Court was challenged both by the notified

parties and Apollo. By order dated 23

rd

August, 2001 in Civil Appeal

No.7629 of 1999 [connected C.A. Nos. 7630 of 1999 and 5813 to

5814 of 2000], this Court, while approving the basic structure of the

scheme and the directions given by the Special Court for disposal of

shares, disposed of the appeal with the following directions insofar as

the sale of controlling block of shares, was concerned:

“In respect of the sale of controlling block of shares the only

method laid down by the Special Court is to offer the sale of

shares in a composite block. It is not known whether such a

sale will get the best price in respect thereof. We, therefore,

direct that it will be open to the Special Court to decide

whether to have the sale of the controlling block of shares

either by inviting bids for purchase of controlling block as

such or by selling the said shares according to the norms

fixed for the sale of bulk shares or by the norms fixed in

respect of routine shares. The object being that the highest

price possible should be realised, it is left to the Court to

decide what procedure to adopt.

If the Court thinks that it is best to adopt the norms laid

down by it for sale of controlling block of shares (the 3

rd

method) then when highest offer is received and the

Management of the Company is given an option to buy those

shares at that price, then if the Management so desires the Court

should give the Company an opportunity to buy back the shares

at the highest price offered by complying with the provisions of

Section 77A of the Companies Act. In other words, on the

receipt of the offer for the sale of the controlling block, the

Court will give an opportunity, if it chooses to consider the

offer, to the Management to buy or to the Company to buy back

5

under Section 77A of the Companies Act. No other change in

the Scheme as formulated by the Special Court is called for.

It is made clear that in respect of the controlling block

of shares the third method will first be adopted, namely, the

norms for sale of controlling block of shares; and it is only if

the Court is satisfied that by adopting that method the

highest price is not available then it will have an option to

follow the 2

nd

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 1

st

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 Committee. The

6

Hon’ble Special Court after ascertaining the highest

offer may give an opportunity to the management of

the said Company to buy or to the Company to buy-

back as per provisions of the Companies Act, 1956,

the said “Controlling Block” of shares if it so desires.

15. The sale as stated herein above is subject to the

sanction of Hon’ble Special Court. The Hon’ble

Special Court reserves the right to accept or reject any

of the offer or bids that may be received for purchase

of the shares.

…… ………. …….. ……… ……... …………”

6.Pursuant thereto, the Custodian invited bids from individuals as well

as from the corporate and other entities. The offers were to reach the

office of the Custodian by 3.00 p.m. on or before 25

th

April 2003. In

response, only two bids were received, the highest being Rs. 80/- per

share given by Punjab National Bank. The Disposal Committee

evaluated the bids so received and vide its minutes dated 25

th

April

2003, recommended that in addition to the aforesaid 54,88,850 shares,

additional 8,15,485 benami shares also be sold to the highest bidder

subject to sanction by the Special Court. Accordingly, the Custodian

submitted a report to the Special Court for consideration and

appropriate orders. By the impugned order, dated 30

th

April, 2003,

corrected vide order dated 2

nd

May, 2003, the Special Court directed

sale of 54,88,850 shares to Apollo and its management at Rs.90/- per

7

share. Being dissatisfied with and aggrieved by the order indicated

hereinbefore, the appellants have preferred this appeal.

7.At the time of admission of this appeal on 29

th

May, 2003, the

following interim order was made:

“Appeal admitted.

Mr. A.D.N. Rao, Ms. Manik Karanjawala and Ms. Pallavi

Shroff, learned counsel accept notice on behalf of

respondent Nos.1, 3 and 7 respectively. Learned counsel

appearing for the Management – Respondent No.7 submits

that as on date only 4.95% of the shares purchased alone are

in existence. In regard to these existing shares, the learned

counsel undertakes not to further alienate them. We record

the said undertaking.”

8.Ms. Kamini Jaiswal, learned counsel appearing on behalf of the

appellants, while assailing the impugned orders on several grounds,

strenuously urged that the sale of 54,88,850 shares of Apollo ought to

be rescinded, particularly because, the said sale was in conscious

breach of the scheme as also the terms 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 17

th

August, 2000 and with modifications by this

Court vide order dated 23

rd

August, 2001, learned counsel argued that

8

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 28

th

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. It was also urged

that by accepting the bids of Apollo and respondent Nos.5 to 8, who

were the investment companies of the promoters of Apollo, Condition

No.7 of the said terms and conditions was also violated because each

bid had to be for the entire lot of shares and not for a part of shares.

10.Alleging collusion between the Custodian, Apollo and its

management, learned counsel submitted that, though the appellants

and their relatives and corporate entities promoted by them were

together holding approximately one crore shares in Apollo, which

were ready and available for sale, yet, the Custodian proposed sale of

9

only 54,88,850 shares. Further, the Custodian never explained the

rationale behind breaking up the controlling block of shares to only

15.1% of the equity capital when the total share holdings were easily

more than 25% of the capital of the company. It was asserted that, the

offer for sale of 15.1% shares was deliberately resorted to by the

Custodian only to ensure that no other bid came forward as such a

prospective bidder would have been bound to make a further public

offer for purchase of 20% of the capital under SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 1997. It was

strenuously urged that the Custodian, with ulterior motive, had made

the conditions very stringent and onerous to restrict and for that

matter, practically deny participation of any other institution or

individual in the bidding process.

11.It was contended that the impugned sale was in complete violation of

the order of this Court dated 23

rd

August, 2001, wherein it was stated

that the object for laying down the norms was to realise the highest

possible price for the shares. It was urged that in the instant case,

instead of maximising the price, the shares were sold at a discount of

25% of the then prevailing market price, thereby defeating the very

purpose of the scheme. It was thus, contended before us that the

Disposal Committee and the Custodian ought not to have

1

recommended the acceptance of the bid at Rs.90/- per share since both

the offers received were way below the then prevailing market price as

well as the book value of shares. Under the given circumstances,

according to the learned counsel, the Special Court should have opted

for the 2

nd

method relating to sale of bulk shares, as stipulated in the

order of this Court dated 23

rd

August 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 Vs.

N.L. Anand & Rajinder Singh

1

and Gajadhar Prasad & Ors. Vs.

Babu Bhakta Ratan & Ors.

2

12.Learned counsel strenuously contended that the impugned order was

also arbitrary and in violation of the principles of natural justice in as

1

(1994) 1 SCC 131

2

(1973) 2 SCC 629

1

much as the Special Court not only outrightly rejected the prayer made

by the notified parties during the course of proceedings on 30

th

April,

2003 for grant of 48 hours time to secure a better offer in the same

manner as was done to secure a better offer for the Bulk category

shares of M/s Ranbaxy Laboratories Ltd., it also failed to consider the

objections raised by them in their written submissions filed on 2

nd

May, 2003. It was stressed that the Special Court rejected the

legitimate request of the appellants without any justification and

showed undue haste in ordering the sale of shares, even ignoring the

direction of this Court, i.e., to explore the possibility of selling the

shares either under the Bulk Category or as Routine Shares to secure

maximum price for the shares. On the contrary, the Special Court

granted Apollo and its management two days to bring their proper

offer and earnest money on 2

nd

May, 2003, which fact is duly recorded

in the impugned order dated 30

th

April, 2003. In order to bring home

her allegation of discriminatory treatment at the hands of the

Custodian as also by the Special Court, learned counsel referred to the

two letters dated 28

th

April, 2003 and 29

th

April, 2003, addressed to the

notified parties by the Custodian intimating them about the date when

the Special Court would consider the bids received in response to the

advertisement for sale of subject shares. While letter dated 28

th

April,

2003 allowed the notified parties to submit offers independently

1

received by them for purchase of the said shares, letter dated 29

th

April, 2003, made it clear that no offers brought by the notified parties

to the Court would be considered. As regards the reasoning of the

Special Court that any delay in finalisation of the bid would have

resulted in a crash in the market price of the shares because of break in

the news of purchase of huge quantity of shares by one party, it was

submitted that the said reasoning was again erroneous in as much as

the news of sale of 54,88,850 shares of Apollo was already in public

domain when advertisement for sale of these shares was published. It

was thus, pleaded that the impugned order be set aside and the entire

sale of 54.88 lakhs shares be rescinded in public interest and to

achieve the object of the Special Court Act.

13. Per contra, Mr. Joseph Vellapally, learned senior counsel appearing

for Apollo, supporting the order of the Special Court, at the outset,

submitted that the said order had been passed by the Special Court in

exercise of wide discretionary powers conferred on it by the Special

Court Act as also by 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

1

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 & Ors. Vs. Custodian & Anr.

3

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 And Sons (P) Ltd. Vs. Invest Import

4

and Wander Ltd.

And Anr. Vs. Antox India P. Ltd.

5

, wherein it was held that the

Appellate Court would not ordinarily substitute its discretion in the

place of the discretion exercised by the Trial Courts, save and except

where the Trial Court had ignored the relevant evidence, sidetracked

the approach to be adopted in the matter or overlooked various

relevant considerations. The Appellate Court would normally not be

justified in interfering with the exercise of discretion under appeal

solely on the ground that if it had considered the matter at the trial

stage it would have come to a contrary conclusion. It was strenuously

urged that the Special Court having acted reasonably and in a

3

(2008) 12 SCC 84

4

(1981) 1 SCC 80 at page 96

5

1990 (Supp) SCC 727

1

judicious manner, this Court should not interfere with the decision of

the Special Court in approving the sale of shares to Apollo.

14.It was further contended by Mr. Vellapally that the appellants have no

locus standi to assail the entire sale of 54.88 lakh shares as their

shareholding was only 1,49,570 shares, as stated in the affidavit of the

Custodian. It was pointed out that there was no averment in the appeal

to the effect that the same was being filed in a representative capacity

on behalf of other members of Harshad Mehta Group. At best, the

appellants could impugn sale of 1,49,570 shares.

15.It was also contended by Mr. Vellapally that in terms of the order of

the Special Court dated 17

th

August, 2000 and the order of this Court

dated 23

rd

August, 2001, the management of Apollo had the right to

buy and Apollo had the right to buy back its own shares under Section

77A of the Companies Act, once the highest offer is received from

those entities who participated in the bid. Since the purchase of shares

by Apollo was akin to an auction sale, its interests as a bonafide

purchaser in the shares are saved, having no connection with the

underlying dispute between the Custodian and the notified parties. In

support of the contention, reliance was placed on Ashwin S. Mehta

Vs. Custodian

6

wherein, according to the learned counsel, (albeit

6

(2006) 2 SCC 385 at para 67-72

1

dealing with sale of commercial properties) in a similar situation, the

interests of bona fide purchasers were protected.

16.Refuting the claim of the appellants that the said sale of shares of

Apollo was at a loss, it was submitted by Mr. Vellapally that it is a

matter of common knowledge that transactions in the stock market

are speculative in nature and cannot be predicted with accuracy. It was

submitted that this Court in the matter of Sudhir S. Mehta (supra),

while dealing with the notified 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

1

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

Custodian (respondent No. 2), supporting the impugned order,

vehemently argued that the Special Court had not only followed all the

norms settled by this Court, it was also successful in obtaining a price

higher by Rs.10/- per share as compared to what was offered by the

highest bidder, viz. Punjab National Bank. It was alleged that in spite

of being informed by the Custodian in advance, vide letter dated 28

th

April, 2003, the appellants had failed to arrange for a purchaser who

could bid higher than Apollo and had frivolously sought another two

days time to arrange for a higher bid.

19.Dr. A. M. Singhvi, learned senior counsel appearing for respondents

Nos. 3, 6 and 8, the co-bidders with Apollo, while adopting all the

submissions made on behalf of Apollo, reiterated that the said

respondents being bonafide bidders, having no concern with the

procedure adopted by the Custodian for sale of shares, any

interference by this Court with a well reasoned and equitable order

passed by the Special Court would cause extreme hardship to them. In

support of the submission that having regard to the nature of

1

controversy sought to be raised by the appellants notified parties under

the Special Court Act, this Court will be loath to interfere with the

discretion exercised by the Special Court, learned senior counsel

commended us to the decisions of this Court in Employees’ State

Insurance Corpn. & Ors. Vs. Jardine Henderson Staff Association

& Ors.

7

, State of M.P. & Ors. Vs. Nandlal Jaiswal & Ors.

8

, Ramana

Dayaram Shetty Vs. International Airport Authority of India &

Ors.

9

; Sesa Industries Limited Vs. Krishna H. Bajaj & Ors.

10

and on

a decision of the House of Lords in Susannah Sharp Vs. Wakefield

& Ors.

11

. In the alternative, learned counsel submitted that if for any

reason, this Court was to come to a conclusion that the price realised

for sale of said shares was at a discount and/or less than the market

price then the relief granted to the appellants ought to be confined to

their shareholding and the promoters may be directed to pay the

difference between the price paid by them for the purchase of shares

i.e. Rs. 90/- per share and the then prevailing market price i.e. Rs.

120/- per share. In support of his proposition that this Court had

sufficient powers under Article 142 of the Constitution of India to

balance the equities between the parties and render complete justice

by moulding the relief, learned senior counsel placed reliance on the

7

(2006) 6 SCC 581

8

(1986) 4 SCC 566

9

(1979) 3 SCC 489

10

(2011) 3 SCC 218

11

(1891) A.C. 173

1

observations made by this Court in Rajesh D. Darbar Vs.

Narasingrao Krishnaji Kulkarni

12

.

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 6

th

June, 1992. It replaced the Special Court (Trial

of Offences Relating to Transactions in Securities) Ordinance 1992, as

promulgated on 6

th

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 name of a person, who has been involved in

any offence relating to transactions in securities during the period as

mentioned therein. Sub-sections (3) and (4) of Section 3 stipulate that

with the issue of the aforesaid notification, properties, movable or

immovable or both, belonging to the notified person shall stand

12

(2003) 7 SCC 219

1

attached, and such properties are to be dealt with by the Custodian in

such manner as the Special Court may direct. Section 9A of the

Special Court Act deals with the jurisdiction, power, authority and the

procedure to be adopted by the Special Court in civil matters. In

short, on and from the commencement of the Special Court Act, the

Special Court exercises all such jurisdiction etc. as are exercisable by

a Civil Court in relation to any matter or claim relating to any property

that stands attached under sub-section (3) of Section 3 and it bars all

other courts from exercising any jurisdiction in relation to any matter

or claim referred to in the said Section. Sub-section (4) of Section 9A

of the Special Court Act contemplates that the Special Court shall not

be bound by the procedure laid down by the Code of Civil Procedure,

1908 and shall have the power to regulate its own procedure, but shall

be guided by the principles of natural justice. The other provision,

which is relevant for our purpose is Section 11 of the Special Court

Act, which exclusively empowers the Special Court to give directions

in the matter of disposal of the property of a notified person, under

attachment. Sub-section (2) of Section 11 lists the priorities in which

the liabilities of the notified person are required to be paid or

discharged.

2

21.It is plain that the Special Court Act which is a special statute, is a

complete code in itself. The purpose and object for which it was

enacted was not only to punish the persons who were involved in the

act of criminal misconduct by defrauding the banks and financial

institutions but also to see that the properties, moveable or immovable

or both, belonging to the persons notified by the Custodian were

appropriated and disposed of for discharge of liabilities to the banks

and financial institutions, specified government dues and any other

liability. Therefore, a notified party has an intrinsic interest in the

realisations, on the disposal of any attached property because it would

have a direct bearing on the discharge of his liabilities 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. Vs. Custodian & Ors.

13

). The statute

13

(1997) 10 SCC 488

2

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 11

th

March 1996 (CA No.5225/1995); the norms laid down by the Special

Court vide order dated 17

th

August 2000 and the modification of these

norms by this Court vide order dated 23

rd

August, 2001 (CA

No.5326/1995). What clearly emerges from the scheme/orders is that

the underlying object of the procedure/norms laid down in the scheme

is to ensure that highest possible price on sale of shares is realised. It

is manifest that with this end in view, this Court vide order dated 23

rd

August, 2001, left it to the Special Court to decide what procedure to

adopt in order to realise the highest price for the shares. The

scheme/norms had been further modified by the Special Court and this

Court in a way to inject flexibility in the scheme in order to secure the

highest price for the shares.

23.Having examined the impugned order in the light of the Statutory

provisions and the norms laid down for sale of the subject shares, we

are of the opinion that there is substance and merit in the submissions

made by learned counsel for the appellants to the extent that the

2

Special Court failed to make a serious effort to realise the highest

possible price for the said shares. We also feel that the Special Court

overlooked the norms laid down by it in its order dated 17

th

August

2000; ignored the afore-extracted directions by this Court contained in

order dated 23

rd

August 2001 and glossed over the procedural

irregularities committed by the Custodian. As stated above, Condition

No.14 of the terms and conditions of sale, clearly stipulated that it was

only after the Special Court had ascertained the highest offer that

Apollo or its management was to be given an option to buy back the

shares. However, the letter of the Custodian dated 28

th

April, 2003,

addressed to Apollo clearly divulges the fact that the Custodian had,

without any authority, invited Apollo and its management ‘to bid’ on

30

th

April, 2003, the settled date, when the report of the Disposal

Committee was yet to be considered by the Special Court. It is evident

from Condition No.15 of terms and conditions of sale, that the Special

Court has the discretion to accept or reject any offer or bid that may be

received for purchase of shares. Therefore, the stand of the Custodian

that inviting Apollo to make the bid was necessarily in compliance of

the scheme/condition of sale, cannot be accepted inasmuch as it was

for the Special Court to take such a decision at the appropriate time

and not the Custodian. The Custodian could not have foreseen that the

Special Court would not accept the bid of the sole bidder viz. Punjab

2

National Bank. As aforesaid, 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 28

th

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 “natural justice” are not embodied rules. The

phrase “natural justice” is also not capable of a precise definition. The

underlying principle of natural justice, evolved under the common

2

law, is to check arbitrary exercise of power by any authority,

irrespective of whether the power which is conferred on a statutory

body or Tribunal is administrative or quasi judicial. The concept of

“natural justice” implies a duty to act fairly i.e. fair play in action. As

observed in A.K. Kraipak Vs. Union of India

14

, the aim of rules of

natural justice is to secure justice or to put it negatively to prevent

miscarriage of justice.

26. In Swadeshi Cotton Mills Vs. Union of India

15

, R.S. Sarkaria, J.,

speaking for the majority in a three-Judge Bench, lucidly explained

the meaning and scope of the concept of “natural justice”. Referring to

several decisions, His Lordship observed thus: (SCC p. 666)

“Rules of natural justice are not embodied rules. Being

means to an end and not an end in themselves, it is not

possible to make an exhaustive catalogue of such rules. But

there are two fundamental maxims of natural justice viz. (i)

audi alteram partem (ii) memo judex in re sua. The audi

alteram partem rule has many facets, two of them being (a)

notice of the case to be met; and (b) opportunity to explain.

This rule cannot be sacrificed at the altar of administrative

convenience or celerity. The general principle--as

distinguished from an absolute rule of uniform application--

seems to be that where a statute does not, in terms, exclude

this rule of prior hearing but contemplates a post-decisional

hearing amounting to a full review of the original order on

merits, then such a statute would be construed as excluding

the audi alteram partem rule at the pre-decisional stage.

Conversely if the statute conferring the power is silent with

regard to the giving of a pre-decisional hearing to the person

affected and the administrative decision taken by the

14

(1969) 2 SCC 262

15

(1981) 1 SCC 664

2

authority involves civil consequences of a grave nature, and

no full review or appeal on merits against that decision is

provided, courts will be extremely reluctant to construe such

a statute as excluding the duty of affording even a minimal

hearing, shorn of all its formal trappings and dilatory

features at the pre-decisional stage, unless, viewed

pragmatically, it would paralyse the administrative process

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 bearing in mind the express

language and the basic scheme of the provision conferring the power;

the nature of the power conferred; the purpose for which the power is

2

conferred and the final effect of the exercise of that power on the

rights of the person affected.

28.In the backdrop of the aforenoted legal principles and the requirement

of sub-section 4 of Section 9A of the Special Court Act, we are of the

opinion that in the present case the Special Court failed to comply

with the principles of natural justice. As noted above, the Special

Court rejected the prayer of the appellants to grant them 48 hours’

time to secure a better offer. In fact, by his letter dated 29

th

April, 2003

addressed by the Custodian to the notified parties, including the

appellants, the right of the appellants to bring better offer was

foreclosed by the Custodian, which evidently was without the

permission of the Special Court. Furthermore, the Special Court also

ignored its past precedents whereby it had granted time to the parties

to get better offers for sale of shares of M/s Ranbaxy Laboratories Ltd.

There is also force in the plea of learned counsel appearing for the

appellants that the reason assigned by the Special Court in its order

dated 30

th

April, 2003, for declining further time to the appellants, that

deferment of decision on the sale of shares would have resulted in the

share market falling down is unsound and unfounded. As stated above,

the share market was already aware of the sale of a big chunk of

shares of Apollo in view of the advertisement published by the

2

Custodian and therefore, there was hardly any possibility of further

volatility in the price of said shares. We are thus, convinced that the

appellants have been denied a proper opportunity to bring a better

offer for sale of shares, resulting in the realisation of lesser amount

by way of sale of the subject shares, to the detriment of the appellants

and other notified parties. Therefore, the decision of the Special Court

deserves to be set aside on that short ground.

29. We shall now advert to the plea strenuously canvassed on behalf of

the respondents that the Special Court having exercised the discretion

vested in it under the Special Court Act, keeping in view all the

parameters relevant for disposal of the shares, this Court may not

interfere with the impugned order. There is no quarrel with the

general 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. Vs.

Wilkes

16

).

16

(1770) 4 Burr 2527

2

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 urged on behalf of the parties on the merits

of the impugned order.

32.This brings us to the question of relief. In view of our finding that the

decision of the Special Court is vitiated on the afore-stated grounds, it

must follow as a necessary consequence that in the normal course, the

impugned order must be struck down in its entirety. However, bearing

in mind the fact that the sale of 54,88,850 shares was approved and all

procedural modalities are stated to have been carried out in the year

2003, we are inclined to agree with Mr. Vellapally and Dr. Singhvi

that at this stage, when 36.90 lakh shares of Apollo are claimed to

have been extinguished, the relief sought for by the appellants to

2

rescind the entire sale of 54,88,850 shares will be impracticable and

fraught with grave difficulties. In our opinion, therefore, the relief in

this appeal should be confined to 4.95% of the shares, subject matter

of interim order, dated 29

th

May, 2003, extracted above.

33.In the result, we allow the appeal partly; set aside the impugned order

to the extent indicated above and remit the case to the Special Court

for taking necessary steps to recover the said 4.95% shares from

Apollo or its management, as the case may be, and put them to fresh

sale strictly in terms of the aforenoted norms as approved by this

Court vide order dated 23

rd

August, 2001. The shareholders who will

be affected by this order shall be entitled to the sale consideration paid

by them to the Custodian alongwith simple interest @6% p.a. from the

date of payment by them upto the date of actual reimbursement by the

Custodian in terms of this order.

34.However, in the facts and circumstances of the case, the parties are

left to bear their own costs.

………………………………….J.

(D.K. JAIN)

………………………………….J.

(ASOK KUMAR GANGULY)

NEW DELHI;

NOVEMBER 8, 2011.

RS

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