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PETITIONER:

N.PARTHASARATHY ETC.

Vs.

RESPONDENT:

CONTROLLER OF CAPITAL ISSUES AND ANOTHER ETC.

DATE OF JUDGMENT16/04/1991

BENCH:

RAY, B.C. (J)

BENCH:

RAY, B.C. (J)

KASLIWAL, N.M. (J)

CITATION:

1991 SCR (2) 329 1991 SCC (3) 153

JT 1991 (2) 218 1991 SCALE (1)675

ACT:

Constitution of India, 1950: Articles 14, 39(b) and (c)

and 298-Shares of public company held by State

Instrumentalities - Sale of - Public interest - Chance of

creating business monopoly in private hands - Due

consideration to ensure public interest - Need for.

Articles 32 and 226 - Public Interest Litigation -

Petition against grant of consent by Controller of Capital

Issues - Alleged violation of Articles 14: 39 (b) and (c) -

Maintainability of.

Capital Issues (Control) Act, 1947: Section 3 - Issue

of debentures - Consent of controller of Capital issues -

Whether given after due consideration and application of

mind - Variation in consent - Whether permissible - Decision

as to utilisation of the amount received from public or

approving a different consent order - Whether Courts have

the power/jurisdiction - preferential issue reserved for

share holders of inter-connected company - Validity of -

Public Interest - Constitutional directive under Article

39(b) and (c) - To be ensured by Controller of Capital

issues while granting consent for public issue.

Companies Act, 1956: Sections 55, 61,62,63,72(1) (a),

81(1-A), 108 110 and 111 - Special Resolution at general

meeting Consent for public issue - Granted by the Controller

of Capital Issues, after considering the Special Resolution

- Third party acting on it and acquiring rights by purchase

of debentures - Change of consent order in respect of amount

and purpose of utilisation - Whether could be effected

contrary to the Special Resolution adopted in a general

meeting - Preferential allotment to shareholders of

interconnected Group Companies - Validity of - Transfer of

shares - Done surreptitiously and with malafide intention -

Effect of - Whether opposed to public policy and hence

illegal.

Monopolies and Restrictive Trade Practices Act, 1969:

Sections 2(g), 21 and 22 - " Interconnected undertakings" -

Meaning of - Clearance for capital issue - Approval given to

Group Company - Whether valid in respect of the inter-

connected company.

330

HEADNOTE:

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Out of the Equity Shares of M/s Larsen & Turbro Ltd.

held by public financial institutions viz., UTI, LIC and

GIC, 39 lakh shares were sold to BOB Fiscal Services, a

subsidiary of Bank of Baroda. These shares were purchased by

BOB Fiscal Services for Rs. 30 Crores which was given by

four satellite companies of Reliance Group. Immediately

after the purchase, the shares were transferred and

registered in the name of Trishna Investing and Leasing Ltd.

which was also a satellite of the Reliance Group. It had

only a capital of Rs. 44,000 at that point of time. It was

claimed that funds for the purchase of the shares was

provided by Reliance Group from out of the amount received

by6 way of debentures issued to public. Two Directors of the

Reliance Group were co-opted as Director of Larsen and

Toubro Ltd. even though the said shares were not registered

in their names or in the name of Reliance Group. Even the

nominee Director of the financial institutions did not

question the induction of the two Directors. One more

Director from the Reliance Group was later coopted as

Director, which paved the way for the Chairman, Reliance

Group to become the Chairman of Larsen and Toubro Ltd. also.

Thereafter the Board of Directors of Larsen and Toubro

Ltd. as its meeting approved a proposal to raise funds by

issue of convertible debentures for Rs. 920 crores. In the

said meeting it was also resolved to issue a notice for

convening and extraordinary General Meeting to consider a

special resolution for the proposed issue of convertible

debentures. Applications were made to the Controller of

Capital Issues seeking sanction to the rights issue of

debentures of Rs. 200 crores and for public issue of

debentures to the extent of Rs. 620 crores. It was also

stated in the application that it was proposed to

reserve/preferentially allot Rs. 310 crores out of the

public issue, to Larsen and Toubro's Group Companies viz.,

Reliance Industries Ltd. and Reliance Petro Chemicals Ltd.

In its extraordinary General Meeting, the shareholders

of Larsen and Toubro passed a resolution authorising the

Board of Directors of the company to issue 12.5 per cent

fully secured convertible debentures of the total value of

Rs. 820 crores. Accordingly, the Controller of Capital

Issues conveyed the Central Government's consent under the

Capital Issues (control) Act, 1947, to the proposed issue of

debentures by Larsen and Toubro Ltd.

A Writ Petition was filed in the High Court pleading

that the divestment by the financial institutions of the

controlling shares in Larsen and Toubro to the Reliance

Group was a secret circuitous

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arrangement and hence such a divestment was arbitrary,

illegal, mala fide and a fraud on the statutory powers of

the financial institutions. The High Court, however,

dismissed the Writ Petition. Aggrieved by the dismissal of

their Writ Petition, the petitioners preferred Letters

Patent Appeal before the Division Bench of the High Court.

The Respondents in those Writ Petitions filed Transfer

Petitions in this Court praying for transfer of the Letters

Patent Appeal as also the various Writ Petitions filed in

the different High Courts, to this Court. The Court allowed

the Transfer Petitions.

In all these matters, the consent granted by the

Controller of Capital Issues was assailed mainly on the

ground that the sanction was issued without application of

mind and without considering the after effect of it, viz.,

the Reliance Group acquiring debentures of the value of Rs.

310 crores earmarked for preferential allotment to the

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shareholders of Reliance Industries Ltd. and Reliance Petro

Chemicals Ltd. which amounted to allowing the Reliance Group

to have control of Larsen and Toubro. It was also contended

that the consent was given within 24 hours of the making of

the application and the hurry with which the sanction was

granted showed that it was done with mala fide intentions

and with a motive to help the Reliance Group.

On behalf of the Respondents, it was contended that the

shares were sold in the interest of their constituents and

for recycling the fund for investing in the business by

purchasing shares of other companies in public interest and

also in the interest of money market; that there was nothing

hanky and panky in it nor was it effected with the motive of

diluting shares held by public financial institutions in

order to facilitate the increase in the holding of Reliance

group, a private monopoly house, to get into the management

of Larsen & Toubro. It has been further contended that the

tranfer of 39 lakh shares of Larsen & Toubro was not made in

favour of satellite companies of the Group, but through BOB

Fiscal Services Ltd. which is a wholly owned subsidiary of

Bank of Baroda; that it was not made surreptitiously or

discreetly on the basis of any design or secret arrangement.

It was also contended that in transferring the equity shares

the financial institutions acted purely on business

principles and to earn profit by these transactions and in

the case of LIC and UTI in the interest of the policy

holders and the unit holders as the case may be. Further, it

was contended that the acceptance of the requests made by

the subsidiary of Bank of Baroda i.e. BOB Fiscal Services

for selling the 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

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stock market for sale it would have created as adverse

effect on the company and would have adversely affected the

interest of Larsen and Toubro Ltd., and that it was not

possible to know the actual purchasers of these shares from

BOB Fiscal Services Ltd.

Dismissing the matters, the Court,

HELD:

(Per Ray, J).

1. The application for consent was submitted on Rs.

26.7.89 for sanction. On August 21, 1989 at the

extraordinary general meeting of share holders of L & T, a

resolution was passed, with only one shareholder dissenting,

for the issue of debentures of Rs. 820 crores. The company

sent a copy of this resolution to the Controller of Capital

Issues who after duly considering the same accorded the

consent on August 29, 1989. It cannot be said that there has

been complete non-application of mind by the Controller of

Capital Issues in according the consent for the issue

Moreover, the Controller of Capital Issues sent a letter

dated 15 September, 1989 toM/s. Larsen and Toubro asking it

to note amendment of the condition of the consent order to

the effect that fund utilisation shall be monitored by

Industrial Development Bank of India. This will further go

to show that the consent was given after due consideration

in accordance with the provisitions of Section 3 of the

Capital Issues (Control) Act, 1947. [

355C-E]

2. In view of Sections 55, 61, 62, 63 and 72 of the

Companies Act the terms of contract mentioned in the

prospectus or the statemets in lieu of the prospectus cannot

be varied except with the approval of and on the authority

given by the Company in the general meeting. Therefore, the

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consent that was given by the Central Government, may by the

Controller of Capital Issues, on a consideration of the

special resolution adopted in the extraordinary general

meeting of the shareholders of the company on august 28,

1989 cannot be varied, changed or modified both as regards

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 approved by the

Controller of Capital Issues on the basis of the special

resolution adopted at the general meeting of the

shareholders of the company. [363A-C]

3. On a plain reading of section 3(6) of the Capital

Issues (Control) Act, 1947, 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

certifi-

333

cation from the I.D.B.I. can be changed or varied in any

manner whatsoever by the Central Government. The Central

Government can merely vary all or any of the conditions

subject to the consent being given. [363F]

4. There has been no general meeting of the company nor

any special resolution was taken for veriation or

reduction of the amount of debentures to be issued as,

required under Section 81 read with clause IA of the

Companies Act. It is also evident that no steps have been

taken to have the consent already granted by Controller of

Capital Issues, varied or modified as required under the

Capital Issues (Control) Act, 1947. Merely because clause

(v) of the consent order provides for monitoring of the

funds by I.D.B.I.,it does not mean nor it can be inferred

automatically that the suggestion of the I.D.B.I. as regards

the funds requirement can be automatically given effect to

without complying with the statutory requirements as

provided in the provisions in the Companies Act as well as

in the Capital Issues (Control) Act.The consent order is one

and indivisible and as such the same cannot be varied or

vivisected without taking recourse to the provisions of the

statute. It is also well settled that the contract to

purchase shares or debentures is concluded by allotment of

shares issued under the prospectus and Section 72 of the

Companies Act makes it clear that allotment can only be made

after the propectus is issued. The Company is bound by the

special resolution, the prospectus and the consent of the

Controller of Capital Issues. The power to pass a consent

order is a statutory power vested in a statutory authority

under the Capital Issues Act and the Court has no power of

jurisdiction to step into the shoes of the statutory

authority and pass or approve a consent order different from

the statutory consent order given by the statutory

authority. Moreover, the consent order cannot be varied by

the Central Government or Controller of Capital Issues after

the said order has been made public and third parties have

acted on it and acquired rights thereon. [363G-H;364-E]

State of Madhya Pradesh and Ors. v. Nandlal Jaiswal and

Ors. [1986] 4 SCC 566 and Aaron's v. Twiss, [1896] A.c. 273

referred to.

Palmer's Company law, 24th Edition by C.M. Schmitthoff,

pp. 332-333, referred to.

5. In the prospectus of Larsen & Toubro Ltd. it has

been mentioned that Larsen and Toubro Ltd. is part of

Reliance Group. This is in accordance with Section 2(g) of

the Monopolies and Restrictive

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Trade practices Act, 1969 which defines " interconnected

undertakings", which is quite in accordance with this

provision of Section 81(1A) of the Companies Act, 1956. In

the extraordinary general meeting of L & T a special

resolution was made providing for preferential allotment of

debentures to the equity shareholders of R.I.L. and R.P.L.

so the reservation of debentures of the value of Rs. 310

crores of Public issue for allotment to shareholders of

R.I.L. and R.P.L. cannot be questioned. In the prospectus of

L & T Ltd. under Business Plants it has been mentioned that

the requirement of funds of the company for the period from

1st October 1989 to 31st March, 1992 including in respect of

Suppliers credit to be extended to customers under turnkey

projects/ quasi-turnkey projects and for incurring capital

expenditure on new plant and equipment, normal capital

expenditure on modernisation and renovation, meeting

additional working capital requirements and for repayment of

existing loan liability, is estimated to be in the region of

Rs. 1425 crores. The suppliers' credits included Rs. 510

crores to be extended to RIL in respect of its Cracker

Project. The funds requirement was intended to be met out of

the present issue of Debentures to the extent of Rs. 820

crores and the balance would be met from internal accruals

by way of short term borrowings, and out of the proceeds of

the previous Debenture Issue (III Series). It is seen 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 Section

22(3) (e) of the Monopolies and Restrictive Trade Practices

Act, 1969 that it gave approval for the proposal of M/s.

Reliance Industries Ltd. for setting up a cracker complex.

The approval of Central Government was made under Section

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

Section 22(3)(a) of the M.R.T.P. Act for the establishment

of a new undertaking for the manufacture of Acrylic Fibre.

Thus the consent given by Controller of Capital Issues

cannot be challenged on the ground that no M.R.T.P.

clearance for the issue of Capital under Section 21 or under

Section 22 of the M.R.T.P. Act was not given. [356D-H;357A-

B]

Narendra Kumar Maheshwari v. Union of India & Ors.,

J.T. [1989] 2 S.C.338, referred to.

6.1. The public financial institutions should be very

prudent and cautious in transferring the equity shares held

by them not only being guided by the sole consideration of

earning more profit by selling them but by taking into

account also the factors of controlling the finances in

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the market in public interest. 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

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. [351F-G]

6.2. Considering the entire sequence of events and the

manner in which the financial institutions sold those 39

lakh equity shares of L & T to BOB Fiscal Service which

immediately after purchase of those shares with the 30

crores of rupees given by 4 satellites of the Reliance Group

transferred those shares to Trishna Investments and Leasing

Ltd., a satellite of Ambani Group though it had a capital of

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only Rs. 44,000 and money required for purchase was at least

Rs. 39 crores, leads to the conclusion that such transfers

had been made to help the Ambanis to acquire the shares of

L & T Company in a circuitous way. In the instant case, all

the circumstances taken together clearly spell some doubt

whether the transfer of such a huge number of 39 lakh shares

by the Public Financial Institutions was for public interest

and was made on purely business principles. However, since

the financial institutions have already bought back all the

39 lakh shares from Trishna Investment and Leasing Ltd. with

the accretions thereon, nothing turns on it. [350F-H; 351A-

F]

L.I.C. of India v. Escorts Ltd., A.I.R. 1986 SC 1370,

distinguished.

7. The Writ Petitions filed as Public Interest

Litigation Challenging the consent issued by the Controller

of Capital Issues, are maintainable.

S.P.Gupta & Ors. v. Union of India & Ors. [1982] 2 SCR

365; Bandhua Mukti Morcha v. Union of India & Ors. [1984] 2

SCR 67 and LIC of India v. Escorts Ltd., [1986] 1 SCC 264,

relied on.

(Per Kasliwal, J., Concurring)

1. So far as the relief of a writ of mandamus directing

the respondents to recover 39 lakh shares of L & T and pay

back the amounts received therefor, does not survive in

view of the shares having been 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

336

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 transaction should be made

with circumspection and care to see that the deal may not be

to camouflage some illegal contrivance or in built

conspiracy of a private monopoly house in order to usurp the

management of a public company and which may not be in

public interest. [371E-G]

State of Maharashtra v. Ramdas Shriniwas Nayak & Anr.,

[1983] 1 SCR 8, referred to.

2. It cannot be said that there was nothing wrong or

illegal even if the action of Reliance Group was to corner

or purchase all the shares of L& T, and even if done through

intermediaries or surreptitiously, cannot become illegal.

Babulal Chaukhani v. Western India Theatres, AIR 1957

Cal. 709 disapproved.

3.1 No doubt any person or company is lawfully entitled

to purchase shares of another company in open market, but if

the transaction is done surresptitiously with a mala fide

intention by making use of some public financial

institutions as a conduit in a clandestine manner, such deal

or transaction would be contrary to public policy and

illegal. [372B]

3.2 In the instant case, all the circumstances taken

together clearly spell some doubt whether the transfer of

such a huge number of 39 lakh shares by the public financial

institutions was for public interest and was made on purely

business principles [372H;373A]

4. As regards the preferential issue of Rs. 310 crores

in favour of shareholders of the Reliance Group of companies

is concerned, L & T and Reliance Group of companies were

interconnected within the meaning of Section 2(g) of the

MRTP Act and it is permissible according to law. The size of

the issue was so large that it was considered necessary to

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reserve a substantial portion of it in favour of the

shareholders of Reliance Group of companies, in order to

ensure the successful absorption of the entire issue. It may

also be noted that the shareholders of the Reliance Group of

companies are numbering about 35 lakhs and they represent

the investor base of the entire shareholding community of

the country. Preferential issue per se is not a novel idea.

The Controller of Capital Issues has been permitting

reservations for various categories out of public issue

based on the request made by companies after passing a

special resolution in the general body meeting and there is

no

337

restriction on the shareholders of a company to offer shares

of their company to any body after passing a special

resolution as required under Section 81(1-A)(a) of the

Companies Act. The question of bifurcating or vivisecting

the consent order given by CCI does not survive. The legal

controversy thus raised that the consent given by CCI under

the Capital Issues (Control) Act can be held valid or

invalid as a whole but not some part of it as valid and the

rest invalid, does not require to be decided in this case

and the same is left open. [385A-F]

State of Madhya Pradesh v. Nandlal Jaiswal & Ors.

[1987] 1 SCR 54; Life Insurance Corporation of India v.

Escorts Ltd & Ors., [1985] Suppl. 3 SCR 909: Jai Narain v.

Surajmull, AIR 1949 F.C. 211 and Anisminic Ltd. v. The

Foreign Compensation Commission, [1969] 2 A.C. 147, referred

to.

De Smith's judicial Review of Administrative Action,

4th Edition p.285 referred to.

It is bounden duty of the CCI before giving an order of

consent for the issuance of any mega issue to keep in mind

and to carry out the Directive Principles of State Policy as

enshrined in Article 39(b) and (c) of the Constitution. It

is no doubt correct that the CCI is not required to probe

indepth into the technical feasibilities and financial

soundness of the proposed projects or the sufficiency or

otherwise of the security offered, but at the same time it

has to see that the capital available for investment at any

given time has to be sized and allocated according to the

national priorities, and in the changed socio-economic

conditions of the country to secure a balanced investment of

the country's resources in industry, agriculture and social

services. [386D-H; 387A-B]

Narendra Kumar Meheshwari v. Union of India, JT 1989 2

SC 238, explained.

6. It would not be in the interest of general investor

public to cancel the entire mega issue. Many transactions

must have already taken place on the floor of the stock

exchange regarding the sale and purchase of the debentures

during this intervening period. Under the order of this

Court dated 9.11.89, no restrictions were placed on L & T in

the matter of utilisation of funds. According to L & T

against Rs. 410 crores due on application and allotment, the

L & T has so far received Rs. 396 crores out of which

approximately Rs. 300 crores have been utilised towards

issue expenses, capital expenditure, repayment of loans and

working capital in terms of the objects of the issue. The

balance

338

available with the company is approximately Rs. 96 crores

only. There is already a safeguard provided in the order of

the CCI dated 15.9.89 that the fund utilisation shall be

with the approval of the IDBI. In any case, the consent

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order given by CCI cannot be held invalid on any of the

grounds of Challenge raised by the petitioners. In these

proceedings this Court is neither called upon nor is

entitled to decide as to how and in what manner the amount

mopped up from the public by this mega issue could be

utilised or spent. Thus, the consent given by CCI is valid.

[388C-D]

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Transferred Case No. 61

of 1989 etc. etc.

(Under Article 139-A of the Constitution of India).

Soli J. Sorabjee, Attorney General, Ashok Desai,

Solicitor General, N.Santosh Hegde, Addl. Solicitor General,

B.R.L. Iyengar, F.S. Mariman, T.R. Andhiyarujina, I. Chagla,

Dr. Y.S. Chitale, Dr. L.M. Singhvi, Tapas Ray, G.Ramaswamy,

S.S. Ray, Ashok Sen, R.K. Garg, K.Parsaram, Ram Jethmalani,

Rajesh Kumar, R.Karanjawala, Mrs. M.Karanjawala, Ram

Dashandhi, N.P. Midha, F.H.J. Talayarkhan, Gopal

Subramaniam, R.F.Nariman, V.B.Trivedi, S.C.Sharma, Bharat

Sangal, Miss A.Subhashini, Rajan Mahapatra, S.S.Shroof, S.A.

Shroff, N.Roy, Mrs. Pallavi S.Shroff, A.K.Ghose, A.M.

Singhvi, Sandeep Junakar, Shahid Rizvi, D.K. Singh, Dalveer

Bhandari, A.K.Sangal, K.Swami, N.D.B. Raju, Vineet Kumar,

H.Salve, Ms. Bina Gupta and Ms. Monika Mohil for the

appearing parties.

Onkar Seth appeared in person for the Intervenor.

The Judgment of the court was delivered by

RAY, J. One Mr. Haresh Jagtiani, a practising advocate

of the High Court of Bombay and a policy-holder under the

Life Insurance Corporation of India and also holder of

units issued by the Unit Trust of India and Mr. Shamit

Majumdar, a holder of shares and debentures of Larsen &

Toubro Ltd. filed a writ petition being No. 2595 of 1989 in

the High Court of Judicature at Bombay against the Union of

India and others including the financial institutions

questioning the legality and validity of the consent given

by the Controller of Capital Issues for the proposed issue

of convertible secured debentures aggregating Rs. 820 crores

by Larsen & Toubro Limited insofar as the said issue seeks

to offer such convertible debentures to persons other than

the

339

existing shareholders and members and the employees of

Larsen & Toubro Limited and praying for quashing the same as

well as for a declaration 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 Article 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 eqquity 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

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transfer of shares from the public financial institutions to

the satellite companies of the Ambani Group.

The petitioners also alleged in the petition that

pursuant to this secret agreement, the following events took

place in quick succession:

In or around August 1988, four satellite companies of

Reliance Group, namely Skylab Detergents Limited, Oskar

Chemicals Private Limited, Maxwell Dyes and Chemicals

Private Limited and Pro-lab Synthetics Private Limited,

gave a total deposit of Rs.30 crores to an investment

company associated with Ambanis who, in turn, deposited this

amount with BOB Fiscal Services Ltd., a wholly owned

subsidiary of Bank of Baroda, a nationalised bank.

BOB Fiscal Services Ltd., which had been formed only

three months earlier acquired either immediately before the

above deposite, or immediately subsequent thereto, 33 lakh

equity shares of Larsen & Toubro from UTI, LIC, GIC and its

subsidiaries. Later, in January, 1989 it acquired a further

6 lakh shares from the LIC.

Within weeks after the deposit by the four companies

mentioned above, Trishna Investments and Leasing Limited,

another satellite company of the Ambani Group, aid the

requisite amounts for the acquisition of the said 33 lakh

shares in Larsen & Toubro from BOB Fiscal Services Ltd. to

the latter through a stock broking firm and immediately

thereafter the money advanced by the above four companies

340

was returned by BOB Fiscal Services Ltd. through the

investment company associated with Ambanis, which was

earlier used as a conduit for making the deposit from the

four satellite companies of Reliance Group.

The deposit by the four companies was made immediately

after the divestment of the shares by the respondents was

okayed by the highest level in the Government and the

deposit was returned immediately after the Ambani Group was

able to divert moneys taken by them in the name of Reliance

Petrochemicals Ltd. by the issue of convertible debentures

of the order of Rs.594 crores.

The said 33 lakh shares were registered in the name of

BOB Fiscal Services Ltd. in the Register of Members of

Larsen & Toubro Ltd on 11.10.1988 and later, on 6.1.1989, a

further 6 lakh shares were registered in the name of the BOB

Fiscal Services Ltd. on any valuation based on market values

of Larsen & Toubro Ltd. shares at the relevant time, the

value of 39 lakh shares would cost not less than Rs.45

crores.

On the very day of the registration of the shares in

the name of BOB Fiscal Services Ltd., namely, 11.10.1988,

two nominess of the Ambani Group, Mr. Mukesh Ambani 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 and Toubro Ltd., as an additional director.

On 6th January, 1989, the entire 39 lakh equity sharhes

of Larsen and Toubro Ltd. registered in the naame of BOB

Fiscal Services Limited (of which 6 lakh sahres 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.

Thus, BOB Fiscal Services merely acted as a conduit for

funneling shares from the public financial institutions to

the Aambani group and this interpolation of BOB Fiscal

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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

341

equal to two times the market price.

The Chairman of Bank of Baroda, Mr. Premjit Singh, is

closely linked to the house of Ambanis through the business

of his son Harinder Singh. BOB Fiscal Services Ltd. is the

wholly owned subsidiary of Bank of Baroda and it was

incorporated only two months preceding the acquisition of

Larsen & Toubro Ltd. shares by BOB Fiscal Services Ltd. In

fact, the acquisition of L & T shares for the Ambani Group

for which it had acted as a conduit is the first business of

BOB Fiscal Services Ltd.

Subsequently, on 28th April, 1989, Mr. Dhirubhai

Ambani, the Chairman of Reliance Group, became the Chairman

of Larsen & Toubro Ltd., thus completing the process to

take-over of the management of Larsen & Toubro by the

Ambani Group.

By this process, the public financial institutions

which had virtual ownership and control of Larsen &

Toubro Ltd. holding about 40% shares of the company (with no

other individual shareholder holding more than 2%),

voluntarily diluted their holdings to 33% and parted with

approximately 7% to the house of Ambanis and made them the

single largest private sharesholder. This was done, in the

submission of the petitioners, deliberately and by a design

to legitimise the eventual take-over of Larsen & Toubro by

the Ambanis. While the petitioners challenge the divestment

of 7% ownership rights in Larsen & Toubro Ltd.and the

management of the company to the Ambani Group, the immediate

and proximate provocation for this writ petition is the

proposed issue of convertible debentures by Larsen & Toubro

Ltd.now under the management of the house of Ambanis to

raise Rs.820 crores from stock market.

The proposed issue has the effect of aggravating and

perpetuating, and irretrievably divesting and transferring,

the ownership, of Larsen & Toubro in favour of the Ambani

Group. The concealed and covert intent which is manifest in

the direct effect of the proposed issue is to make Larsen &

Toubro Ltd. a complete family owned and a decisively family

controlled Industrial Corporation-whereas the openly

declared policy of the Government is to force the reverse

viz. professionalise the existing family controlled

companies. By the proposed issue, the house of Ambanis and

the shareholders,debenture holders and employees of Reliance

Industries and Reliance Petrochemical Industries Ltd. would

collectively hold 35.5% of the ownership rights in Larsen

and Toubro and will be single largest block or

342

group in the company. This preferred group which is not in

law entitled to any issue of shares from Larsen & Toubro

Ltd., has been chosoen 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 share holders of

Larsen & Toubro Ltd. themselves (who, bylaw, are entitled to

further isue 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

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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 employees of Reliance

Industries Ltd.and Reliance Petrochemicals Ltd. It is in

this background significant that the preferential allotment

to the shareholders, debentureholderss and employees of the

house of Ambanis who have no statutory right, offers to them

shares in Larsen & Toubro Ltd at a premium of only Rs. 50

per share, while in the fully convertible debentures issue

made by Larsen & Toubro Ltd.in April/May, 1989 the existing

shareholders of Larsen & Toubro were given conversion rights

at a premium of Rs.50 per share in the first conversion and

Rs.55 per share in the second conversion i.e. Rs.5 more than

what the Reliance Group is called upon to pay. It means

that while the existing shareholders of Larsen & Toubro were

paying for their own shares a premium of Rs.50 or Rs.55 per

share, new group of shareholders, debentureholders and

employees of the house of Ambanis would be getting Larsen &

Toubro shares at a premium of only Rs.50. It means that, by

making extraordinay favour to a totally different group

which is not entitled to Larsen & Toubro shares, the Ambani

group is creating a favoured lobby of their own, almost a

clan, who are already their shareholders, debentureholders

and employees to act as a group to own and control Larsen &

Toubro Ltd. This is a device to perpetuate and aggravate

their own decisive control over Larsen & Toubro, to which

the public financial institutions are willing and

enthusiastic parties inside the Board room and in the

general meeting of Larsen & Toubro Ltd.

In the facts and circumstances the petitioners pleaded

that they are entitled to a declaration that the divestment

by the respondents of

343

the controlling shares in larsen & Toubro to the house of

Ambanis in a secret and circuitous arrangement is arbitrary

illegal, mala fide and a fruad on the statutory powers of

the respondents. It was further pleaded that pursuant to

this secret arrangement the financial institutions such as

the UTI, LIC, GIC and its subsidiaries divested themselves

of 7% shares of Larsen & Toubro Ltd. in favour of Ambani

Group in an illegal and arbitrary manner as a result of

which the Ambani Group became the single largest private

shareholder. This paved the way for the said private

monopoly group and the government to rationalise the take-

over of the management of Larsen & Toubro Ltd. by the Ambani

Group with the active connivance and support of the Central

Government.

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 Cahirman, forms a susidiary for

merchant banking under the name and style of BOB Fiscal

Services P. Ltd. This Compay became a public company u/s

43 A of the companies Act 1956, in June, 1988. Mr.

Harjit Singh, son of Premjit 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

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the House of Ambanis, viz. SKYLAB Detergents Ltd., OSCAR

Chemicals Pvt. Ltd., MAXWELL Dyes & Chemical Pvt. ltd.

and PRELAS 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 subsidiaries. later, it acquired a

further 6 lakh shares in Larsen & Toubro Ltd. from the

LIC. The manner in which the transfer had been effected

by the public financial institutions and the bulk sale

amounting to about 7% of the then share capital of

Larsen l& Toubro Ltd. left no one in doubt about what

the financial institutions intended to do, viz. they

intended to shed a vital seven per cent of the ownership

rights held by them in Larsen & Toubro Ltd.

344

(d) In July, 1988 Reliance Petrochemicals Ltd. of the

Ambani Group had issued convertible debentures for

Rs.594 crores to public and others and had raised a vast

sum of monies as subscription. The petitioners

understand that as soon as the above funds became

available to the Ambani group for employment, a part of

it was diverted for acquisition of Larsen & Toubro Ltd.

shares not directly in the name of Reliance Industries

Ltd. or Reliance Petrochemicals Ltd. but in the name of

faceless, benami concerns of the Ambani group with

vitrually no financial standing of their own.

(e) Thereafter on October 11, 1988 the 33 lakh equity

shares of Larsen & Toubro Ltd. acquired by BOB Fiscal

Services Ltd. were registered in the register of members

of Larsen & Toubro ltd. in Folio No.B 69567 at pages

1851 to 1858. These shares had been transferred by LIC,

UTI, GIC and its subsidiaries to BOB Fiscal Services

Ltd.

(f) On the same day two nominees of the Ambani Group

Mr.Mukesh Ambani and Mr.M.L.Bhakta, a Solicitor of

Reliance Industires Ltd., who are also directors of

Reliance Industries Ltd. and Reliance Petrochemicals

Ltd., were co-opted on the Board of Larsen & Toubro Ltd.

(g) It is evident from the above events that the sale to

BOB Fiscal Services Ltd. by the financial institutions

was accepted by all parties concerned to be a sale to

the Ambani Group itself. Otherwise there is no

provocation or justification for the financial

institutions to propose or to support appointment of

Mr.Mukesh Ambani and Mr.M.Bhakta, who are the nominees

of the Ambani Group, on the Board of Larsen & Toubro

Ltd. The date of the transfer to BOB Fiscal Services

Ltd. and the date of appointment of the Ambani Group

nominees on the Larsen & Toubro Ltd. Board being the

same and not a mere coincidence.

(h) Again, in December, 1988, Mr.Anil Ambani, another

nominee of the Ambani Group was co-opted on the Board of

Larsen & Toubro 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.

It has been further pleaded that Trishna Investments &

Leasing Ltd. to which the 33 lakh equity shares of Larsen &

Toubro Ltd. were

345

sold by the financial institutions through the

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instrumentality of BOB Fiscal Services Ltd. was incorporated

as a private limited company on Ist 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 to Reliance

Industries Ltd., the paid up share capital was only

Rs.44,000.

An affidavit in opposition was filed on behalf of the

respondents 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 from 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 their investment in the new company or any

other company. It has been further stated that the

Resolution regarding the issue of the debentures was taken

at a special General Meeting of the Company and the decision

is a near unanimous decision of the 1.5 lakh shareholders

with only one dissent among them. It was stated in these

circumstances the writ petition under Article 226 was not

maintainable. It has also been stated that the entirety of

the consent granted by the CCI under the Act is legal and

valid. These statements have been made by the deponent

without filing any proper verification or affidavit and as

such there was no proper controvertion or denial of the

statements made in the writ petition. The other affidavits

filed on behalf of the respondents are also not affirmed or

verified duly in accordance with the provisions of the rules

of the Supreme Court nor in accordance with the provisions

or Order 19 Rule 3 of the Code of Civil Procedure.

The High Court of Bombay by its judgment and order

dated September 29, 1989 dismissed the writ petition at the

preliminary hearing.

A Letters Patent Appeal was filed in the High Court at

Bombay against the said judgment by the petitioners. The

respondents filed Transfer Petition Nos.506-507/89 and

Transfer Petition Nos.571-573 of 1989 in this Court under

Article 139A of the Constitution of India praying for the

transfer of the said Letters Patent Appeal No.-----/89 as

well as writ petition No.13199/89 filed in the High Court at

Madras of one Mr.N.Parthasarathy, a shareholder of L & T

Ltd. against the Controller of Capital Issues and Larsen &

Toubro Ltd. and Writ Petition no. 18399 of 1989 filed in the

Karnataka High Court by Prof.S.R.Nayak and Anr. against the

Union of India & Ors. raising the similar questions.

346

This Court vide its order dated November 9, 1989

allowed the Transfer Petition Nos.506-507 of 1989 and 571 to

573 of 1989 and directed that the L.P.A. No.---- of 1989

against the judgment passed in Writ Petition No.2595 of 1989

pending in the Bombay High Court be transferred to this

Court for final disposal. The Writ Petition No.13199 of 1989

filed in the Madras High Court and the Writ petition No.

18399 of 1989 filed in the Karnataka High Court were also

transferred to this Court. These matters on transfer to this

Court were numbered as Transfer Case No.1 of 1989, Transfer

Case No.61 of 1989 and Transfer Case No.62 of 1989

respectively.

The Transfer Petition Nos.458-467 of 1990 praying for

the transfer of cases filed in different High Courts raising

the similar grounds are allowed and the Tranferred Cases

arising out of these are also heard along with the

Transferred Cases Nos.1 of 1990, 61 of 1989 and 62 of 1989.

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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, 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

monoploy 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, to

preferential issue of debentures by Larsen & Toubro Ltd. of

Rs.310 crores for being subscribed by the shareholders and

employees of R.P.L., R.I.L. amounts to immeasurable injury

and prejudice to the public without any application of mind

and thereby enabling the Ambani group to have the largest

share holding and thereby to control the L & T Company which

is ultra vires of Article 14 and 39(b) and (c) of the

Contitution.

The Larsen & Toubro Ltd. is a public limited company

incorporated under the Companies Act 8 of 1913 and it is

recognised as a Premier Engineering Company in the country

with a pool of highly trained and experienced people. It has

been engaged in diverse activities in the engineering filed,

cement manufacturer, shipping, switch gear, industrial

machinery, electrical equipments etc. and various other core

Sector industries including manufacture of sophisticated

equipment for space and defence programmes of the country.

On

347

October 1, 1989, Trishna Investment and Leasing Ltd., a

satellite company of the Ambani group was incorporated with

paid up capital of Rs.11000 (1,000 shares of Rs.10 each).

This continued till 29.12.1988 when its capital was raised

to Rs.44,000.

In May, 1988, Bob Fiscal Services Ltd., was

incorporated as a wholly owned subsidiary of Bank of Baroda,

a nationalised bank.The entire share capital of Bob Fiscal

Services Ltd. was contributed by Bank of Baroda aggregating

to about Rs.10,00,00,000 (Ten Crores) to undertake mutual

fund activities. It is to be taken notice of in this

connection that Premjit Singh, was the Chairman of the Bank

of Baroda aat the relevant time and his son Harjeet Singh

owned Kristal Poly Fab. Ltd. whose only business is with

R.I.L. Ltd. Premjit Singh is closely linked to the house of

Ambani's through the business of his son Mr.Harjeet Singh.

Bob Fiscal Services Ltd., was incorporated as a subsidiary

of Bank of Baroda only two months prior to the acquisition

of shares of Larsen & Toubro Ltd., for the Ambani group for

which it had acted as a conduit and it was the first

business of Bob Fiscal Services Ltd. On July 15, 1988 Bob

Fiscal Services Ltd., approached Life Insurance Corporation

of India and Unit Trust of India to sell to it two

`baskets', of blue chip shares of the value of Rs.25 crores

approximately each. This will be evident from para 6(c) of

the affidavit of Unit Trust of India. On August 1, 1988

U.T.I and L.I.C. each offered to sell to Bob Fiscal Services

Ltd. a basket of shares valued 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 at 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

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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

lakh shares from the L.I.C. within weeks after the deposit

by the four companies mentioned above. Trishna investment

and Leasing Ltd., another satellite company of the Ambani

Group paid the requisite amounts

348

for the acquisition of the said 33 lakh shares of L & T from

Bob Fiscal Services Ltd. through the Finance Broker,

V.B.Desai, associated with Ambanis. It is convenient to

mention in this connection that in July, 1988 the Reliance

Petro Chemicals Ltd. of the Ambani Group issued convertible

debentures for Rs.594 crores to the public and others and

had raised a vast sum of rupees as subscription. The Ambani

Group diverted a part of it for acquisition of L & T shares

in the name of benami concerns of their group who had

virtually no financial standing.

On October 11, 1988, 33 lakh shares were registered at

a meeting of Board of Directors of L & T in the name of Bob

Fiscal Services Ltd. On the same day two nominees of R.I.L.,

M.L.Bhakta and Mukesh Ambani, who are directors of

R.I.L./R.P.L. were co-opted as Directors of L & T. The

nominee directors of U.T.I., L.I.C. and I.D.B.I. did not

raise any question as to the induction of Ambani's on the

Board of L & T Company even though not a single share of L &

T stood in their names. On Dember 30, 1988, Trishna

Investment & Leasing Ltd. issued 3, 300 equity shares of

Rs.10 each to R.I.L and R.P.L. Ltd. The capital of Trishna

Investment was Rs.44,000. On that day the registered Office

of Trishna Investment was shifted to Maker Chamber IV i.e.

the office of R.I.L.Ltd. On 30-12-1988 Anil Ambani was co-

opted as Director of L & T without any question being raised

by nominee directors of U.T.I, L.I.C. and I.D.B.I. On 6.1.89

the 39 lakh shares sold by U.T.I., L.I.C. and G.I.C. to Bob

Fiscal Services Ltd. were lodged by bob Fiscal Services Ltd.

for transfer in favour of Trishna Investment & Leasing Ltd.

whose registered office was located at the office of R.I.L.

Thus Bob Fiscal Services Ltd. merely acted as conduit for

funneling shares from the public financial institutions to

the Ambani group. This apparent from the fact that

Mr.Premjit Singh, the Chairman of Bank of Baroda who is

closely linked to the house of Ambani through the business

of his son Mr.Harjeet Singh and Bob Fiscal Services Ltd. is

the wholly owned subsidiary of Bank of Baroda and it was

incorporated only two months preceding the acquisition of

Larsen and Toubro Ltd. shares by it.

On 28th April, 1989 Dhirubhai Ambani, the chairman of

Reliance Group, became the Chairman of Larsen and 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

delibeately and with a design to legitimise the eventual

take

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349

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

convence 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 shares of other companies

was less than Rs.50 lakhs. On 22.7.89 the Board of Directors

of Larsen & Toubro approved a proposal to raise funds

byissue of convertible debentures amounting to Rs.920

crores. Board resolved that notice should be issued

convening an extraordinary general meeting on 21.8.89 to

consider special Resolution for issue of convertible

debentures of Rs.920 crores.

On 26.7.89 two applications were made to C.C.I. for (1)

the right issue of Rs.200 crores and (ii) the public issue

of Rs.720 crores.The applications states that it is proposed

to reserve preferentially allotment of Rs.360 crores out of

public issue (i.e. 50% of the public issue) for L & T group

companies viz. Reliance Industries Ltd. and Reliance

Petrochemicals Ltd. The application further mentions that

Dhirubhai Ambani is the Chairman and Mukesh Ambani is the

Vice-Chairman of L & T and that Anil Ambani and

Mr.M.L.Bhakta are Directors. On 11.8.89 further letter was

addressed by L & T to the C.C.I. forwarding copies of

M.R.T.P. clearance with regard to projects awarded to L & T

made by Central Government under Section 22(3)(a) of

M.R.T.P. Act. On 29.8.1989 C.C.I. passed an order approving

the issue of convertible debentures. The prospectus is dated

5.9.89 stating that the company is part of the Reliance

Group.

We have heard the arguments of the respondents. The

public financial institutions tried to justify the transfer

of blue chip equity shares of Larsen & Toubro Ltd. On the

ground that while deciding to sell those shares they acted

purely on business principles and sold those shares at a

very high market price and thereby earned huge profit. These

sales were made in order to earn much profit for the

interest of their constituents and for recycling the fund

for investing in the business by purchasing shares of other

companies in public interest and for interest of money

market. There is nothing hanky and panky in

350

it nor it is effected with the motive of diluting shares

held by public financial institutions in order to facilitate

the increase in the holding of Ambani group, a private

monopoly house, to get into the management of this public

company, It has been further contended on behalf of the

respondents Nos.3 to 6 and 9 that the transfer of 39 lakh

shares of Larsen & Toubro were not made in favour of

satellite companies of Ambani Group, through Bob Fiscal

Services Ltd. which is a whooly 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 shares the

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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 interst of the policy 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 crated 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 of this court have been

cited at the Bar.

Considering the entire sequence of events and the

manner in which the financial institutions sold those 39

lakh equity shares of L & T to Bob Fiscal Service and it

immediately after purchase of those shares with the 30

crores of rupees given by 4 satellites of the Reliance Group

transferred those shares to Trishna Investment and Leasing

Ltd., a satellite of Ambani Group though it had a capital of

only Rs.44,000 and money required for purchase was at least

Rs.39 crores leads to the conclusion that such transfers had

been made to help the Ambanis to acquire the shares of L & T

Company in a circuitous way. Moreover, the fund for purchase

of the said shares was provided by Ambani Group from out of

the money received by issue of convertible debentures for

Rs.594 crores to public and others. Furthermore, immediately

after acquisition of share of L & T Ltd. Mukesh Ambani and

M.L.Bhakta, who are Directors of R.I.L./R.P.L. were co-opted

as Directors without any question as to their induction in

the Board of Directors even by the nominee Directors of

financial institutions even though the shares were not

registered in their names. Anil Ambani

351

was also co-opted as Director in December, 1988 and in April

1989, Dhirubhai Ambani became Chairman of L & T. All these

circumstances taken together clearly spell some doubt

whether the transfer of such a huge number of 39 lakh shares

by the Public Financial Institutions was fro public interest

and was made on purely business principles. The public

financial institutions should be very prudent and cautious

in transferring the equity shares held by them not only

being guided by the sole consideration of earning more

profit by selling them but by taking into account also the

factors of controlling the finances in the market in public

interest. In L.I.C. of India v. Escorts Ltd., A.I.R. 1986

SC 1370 at 1424 it was observed:

"Broadly speaking, the Court will examine the

action of the State if they pertain tothe public

law domain and refrain from examining them if they

pertain to the private law field. The

difficultywill be in demarcating the frontier

betwen the public law domain and the private law

field............ The question must be decided in

each case withreference to the particular

action....... When the State or an instrumentality

of the State ventures into the corporate 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

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application to the facts of the instant case as the public

financial institutions are not purchasing the shares of a

company.

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.

The contention regarding the maintainability of the

Writ Petition as public interest litigation cannot be taken

into consideration in view of the decisions of this Court in

S.A. Gupta & Ors. v. Union of

352

Indian & Ors., [1982] 2 SCR 365; Bandhua Mukti Morcha v.

Union of India & Ors., [1984] 2 SCR 67. Even the case of

LIC of India v. Escorts Ltd., [1986] 1 S.C.C. 264 arose out

of a public interest litigation.

The nex crucial question that falls for consideration

is about the legality and validity of the consent given to

the mega issue of debentures for the right issue of Rs.200

crores and for convertible issue of debentures of Rs.620

crores out of which 310 crores of debentures were earmarked

for issue to the shareholders and debentureholders of

Reliance Industries Ltd. and Reliance Petrochemicals Ltd.

As stated hereinbefore that after the purchase of 39 lakh

equity shares of L & T company from the public financial

institutions, Bob FIscal Services, a subsidiary of Bank of

Baroda transferred the same on the same day on which the

transfered shares were registered in its name in the

Register of L & T to Trishna Investing and Leasing Ltd., s

stellite of Ambani Group. It has also been alleged that

after Dhirubhai Ambani became the Chairman of the Board of

Directors of L & T Ltd. on April 28, 1989, Mukesh Ambani and

M.L. Bhakta, Directors of R.I.L./R.P.L. and Anil Ambani were

co-opted as Directors of L & T. The Board of Directors of L

& T at its meeting held on 22.7.1989 approved a proposal to

raise funds by issue of convertible debentures of Rs.920

crores and further resolved that notice should be issued

convening an extraordinary general meeting on 21.8.89 to

consider special resolution for issue convertible debentures

of Rs.920 crores. Immediately thereafter on July 26, 1989

two applications were made to the Controller of Capital

Issues, Department of Economic Affairs for sanction to the

Right issue of debentures of Rs.200 crores and for the

public issue of debentures worth Rs.720 crores. The

application records that it is proposed to

reserve/preferentially allot Rs.360 crores out of the public

issue (i.e. 50% of the public issue) for L & T's group

companies viz. Reliance Industries Ltd. and Reliance

Petrochemicals Ltd. The application also mentions that

Dhirubhai Ambani is the Chairman and Mukesh Ambani is the

Vice-Chairman of L & T and that Anil Ambani and Mr. M.L.

Bhakta are Directos. On 11.8.89 another letter was sent by

L & T to the Controler of 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.I.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.

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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

353

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.

The consent given by the Controller of Capital Issues

was challenged on the ground that it was given in undue

haste without duly considering the question that providing

the preferential allotment to debentures of Rs.310 crores to

the equity shareholders of R.I.L. and R.P.L. will increase

considerably the holding of equity shares by the Ambani

group to control the public limited company. The consent

order made by the Controller of Capital Issues was attacked

mainly on the ground that the said order was made casually

without any application of mind and without considering that

the effect of the same order will be to help the Ambani

Group to acquire debentures of the value of Rs.310 crores

specifically earmarked for preferential allotment to the

shareholders of Reliance Industries Ltd. and Reliance

Petrochemicals Ltd and thereby to have the control of the L

& T, a public limited company. It has also been alleged

that this consent has been given hurriedly within 24 hours

of the making of the application for consent to the

Controller of Capital Issues.

An affidavit in reply has been filed on behalf of

respondent Nos. 1 & 2, Union of India and the Controller of

Capital Issues denying all these allegations. It has been

submitted that the claim made in the Writ Petition that the

undue haste in clearing the application (under the CCI Act)

was shown by Respondent Nos. 1 & 2 and the application was

cleared in just 24 hours, is not correct. It is not correct

that the approval was given by the empowered committee on

21.8.89 at 4.00 p.m., even before the General body meeting

of L & T took place. It has been submitted that the

application by M/s L & T Ltd. was dated 26.7.89 and the

consent was given on 29.8.89. The charge is false, baseless

and mischievous. It has been stated in paragraph 3 of the

said affidavit that the preferential issue, per-se, is not a

novel idea. It has been stated that CCI has been permitting

reservations for various categories out of public issue

based on the requests made by companies after passing a

special resolution in their general body meeting to that

effect. There is no restriction on the shareholders of the

company to offer shares of their company to anybody after

passing a special resolution in the General Body meeting as

per Section 81(IA)

354

of the Companies Act. Through such resolution resolved at

such meetings shareholders can also offer shares of their

company to any person or corporate body who is not even

connected with the company. However, CCI would not normally

permit reservations for shareholders of anyunconnected

company out of public issue, unless it is offered to

shareholders of Associate/Group company of the Issuing

Company. It is submitted that Larsen and Toubro had

indicated that Reliance Industries Ltd. (RIL) and Reliance

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Petrochemicals Ltd. (RPL) are their group Companies. It is

also submitted that Larsen and Toubro filed a copy of the

special resolution passed in the General Body meeting held

on 21.8.89 which permitted the companyto offer its

convertible debentures worth Rs. 310 crores tothe

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 noreason for CCI to reject the

request of Larsen and Toubro for this reservation as the

shareholder of L & T had approved such reservation.

It has beenfurther submitted that the charge for

favouring Reliance Group/Ambani Groupis frivolous and

misleading and seeks toconvey a wrong impression and imputes

motives for which there is no basis. It has been further

submitted that the impugned issue had been consented by

Central Government after due consideration, including the

need for funds. It is submitted that the funds are required

by the company for working capital needs, normal capital

expenditure and for executing the turn-key contracts of L &

T Ltd. It is submitted that L & T indicated the Turn-key

contracts including inter alia the Gas Cracker Project and

Acrylic Fibre Project of Reliance Industries Ltd. and

Caustic Chlorine Project of Reliance Petrochemicals Ltd. for

Rs.635 crores as projects are to be executed. CCI has not

permitted Reliance Industries Ltd. and Reliance

Petrochemicals Ltd. to raise funds for these projects so

far. Earlier funds raised from capital markets were used

or/are being used for the following projects:

RIL-PSF,PFY,PTA,LAB and Textile Units;

RPL-HDPE.PVCL MEG.

The allegation that for the same projects, CCI permitted L &

T to raise funds is baseless. The financing detail of

projects of RIL and RPL were also examined in Maheshwari's

case in Supreme Court and no

355

double financing of same project was found. Reliance

Industries Ltd. and Reliance Petrochemicales Ltd. have given

undertaking that these companies will not raise funds from

public for financing the cost of projects to the extent

suppliers' credits are extended by L & T. It is stated that

MRTP approval to Reliance Industries Ltd. for gas cracker

does not provide for suppliers' Credit from L & T in the

scheme of finance and it is submitted that this statement is

correct. It is also submitted that CCI will take this

aspect into account before permitting any further issue, in

future, to Reliance Industries Ltd. and Reliance

Petrochemicals Ltd. for these projects. However, this

aspect does not affect the consent order of L & T in view of

the undertaking of RIL and RPL mentioned above.

The application for consent was submitted to the

respondent No. 2 on 26.7.89 for sanction. On August 21,

1989 at the extraordinary general meeting of shareholders of

L & T, a resolution was passed with only one shareholder

dissenting for the issue of debentures of Rs.820 crores as

provided therein. A copy of this resolution was sent to the

Controller of Capital Issues who after duly considering the

same accorded the consent on August 29, 1989. The argument

that there has been complete non-application of mind by the

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

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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 Section 3

of the Capital Issues(Control) Act, 1947 (Act 29 of 1947).

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 add to the monopoly control

of Ambani group over this public limited company. Under

Section 2(g) of the Monopolies and Restrictive Trade

Practices Act, 1969 "interconnected undertakings" mean two

or more undertaking which are interconnected with each other

in any of the manner mentioned therein, Explanation (1) -

for the purposes of this Act, two bodies Corporate, shall be

deemed to be under the same management (II) if one such body

corporate holds not less than one fourth of the total equity

shares in the other or controls the composition of not less

356

than one fourth of the total membership of the Board of

Directors of the other. In the prospectus of Larsen &

Toubro Ltd. obviously it has been mentioned that Larsen and

Toubro Ltd. is part of Reliance group. Referring to the

said provisions it has been contended on behalf of the

respondents i.e. the financial institutions that mention of

L & T company as part of the Reliance group is quite in

accordance with this provision. Apropos to this reference

maybe made to the provisions of Sec. 81(IA) of the

Companies Act, 1956 which are set out hereunder:

"Notwithstanding anything contained in sub-section

(1), the further shares aforesaid may be offered to

any persons (whether or not those persons include

the persons referred to in clause(a) of sub-section

(1) in any manner whatsoever-

(a) if a special resolution to that effect is

passed by the company in general meeting, or"

In the extraordinary general meeting of L & T a special

resolution was made providing for preferential allotment of

debentures to the equity shareholder of R.I.L. and R.P.L. so

the reservation of debentures of the value of Rs.310 crores

of Public issue for allotment to shareholders of R.I.L. and

R.P.L. cannot be questioned. In the Prospectus of L & T.

Ltd under Business Plans it has been mentioned that the

requirement of funds of the company for the period from 1st

October 1989 to 31st March, 1992 including in respect of

Suppliers credit to be extended to customers under turnkey

projects/quasiturnkey projects and for incurring capital

expenditure on new plant and equipment, normal capital

expenditure on modernisation and renovation, meeting

additional working capital requirements and for repayment of

existing loan liabilityh is estimated to be in the region of

Rs. 1425 crores. The suppliers' credits, inter alia include

Rs.510 crores to be extended to RIL in respect of its

Cracker Project. The funds requirement is intended to be

met out of the present issue of Debentures to the extent of

Rs.820 crores and the balance would met from internal

accruals by way of short term borrowings, and out of the

proceeds of the previous Debenture Issue (III Series). The

consent was challenged on the ground that no M.R.T.P.

clearance for the issue of capital under Section 21 or under

Section 22 of the Monoplies 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

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Industries ltd. endorsing a copy of Central Government's

Order dated 25.11.1988 passed under Section 22(3)(e) of the

M.R.T.P. Act 1969

357

that it gave approval for the proposal of M/s Reliance

Industries Ltd. for setting up a cracker complex. The

approval of Central Government was made under section

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 Govt. under section

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.

It is pertinent torefer in this connection this Court's

judgment in the case of Narendra Kumar Maheshwari v. Union

of India & Ors., J.T. 1989 2 S.C. 338 in which considering

the duties of the C.C.I. under the Controller of Capital

Issues Act while giving consent it has been observed:

"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 noclear 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 Act from time to time

and the increasing range of financial instruments

that enter the market. Looking to all this, we

think that the CCI hasalso a role to play in

ensuring that public interest does not suffer as a

consequence of the consent granted gy him. But as

we have explained, later, the responsibilities of

the CCI in this direction should not be widened

beyond the range of expeditious implimentation 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

impracticably or financially risky as to amount to

a fraud on the public. To go beyond this and

require that the CCI should probe in-depth into the

technical feasibilities and financial soundness of

the proposed projects or the sufficiency or

otherwise of the security offered and such other

details may be to burden him with duties for the

discharge of which he is as yet illequipped."

Three applications for directions being I.A. No. 1,

I.A. NO. 2 and I.A. No. 3 of 1990 have been filed in T.C.

Nos. 61 of 1989, T.C.

358

No.62 of 1989 and T.C. No. 1 of 1990 by the L & T. Ltd. It

has been stated therein that the Deputy Controller of

Capital Issues by a letter dated 15th September, 1989 has

intimated M/S Larsen & ToubroLtd. that condition No. V of

the consent letter provides that the utilisation of fund

shall be monitered by Industrial Development Bank of India

Ltd. The representatives of Industrial Credit and Investment

Corporation of India Ltd. (instant ICICI) issued a letter to

the L & t stating that it would not be correct for them as

Debenture Trustees to give conversion of those debenturs of

equity shares before a reference was made to the Controller

of Capital Issues and without obtaining prior written

consent of the IDBI. The IDBI considered the unaudited

statement of the utilisation of debenture fund upto March

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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) upto 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.

The Board of Directors at its meeting held on 11th May,

1990 considered the above circumstances as well as the

proceedings pending in this Hon'ble Court and decided that

the Company could not proceed with the conversions 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

direction 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 tothe aforesaid Board Meeting refers to the letter

dated 7th May, 1990 from IDBI as well as to the objections

raised by the ICICI.

The applicants sent a letter dated 15th May, 1990 tothe

Controller of Capital Issues pursuant to the above Board's

meeting. After lenghthy detailed discussion by the I.D.B.I.

with the applicant, the IDBi was satisfied that the

amount of funds that would be presently required

would be to the tune of Rs.650 to 700 crores. The

company keeping this in view proposed to make a

call (first and final) of Rs.85 on or before 31st

October, 1990 in place of originally envisaged

first call of Rs. 75 and the final call of Rs. 75

aggregating Rs. 150. The applicants recorded the

above discussions and intimated IDBI of its

modified proposal by its letter dated 28.6.90.

On 29th June, 1990 the Board of Directors of the

Company were

359

apprised of the relevant proposals as approved by the IDBI.

In the meeting of the Directors it was decided (though not

unanimously) that directions of the Supreme Court be sought

on the said proposals and that the company should take

necessary steps to approach this Court and Madras High

Court and implement the proposals after obtaining the

directions and vacating the order of the Madras High Court.

These Interim Applications were filed for following

directions:

(a) (i) that the size of the issue do stand reduced

from Rs.820 crores to Rs.640 crores as followes:

Public issue of debentures of Rs.235 each Rs.485 crores

Rights issue of debentures of Rs.225 each Rs.155 crores

-------------

Total Rs.640 crores

-------------

(ii) that in place of the first call of Rs.75 and the

final call of Rs.75 as originally provided for in the

prospectus, a first and final call of Rs.85 in the case

of the public issue and Rs.80 in the case of the rights

issue be made on the debentureholders on or before 31st

October, 1990.

(iii) That the first conversion of Part A of the

debentures into one equity share of Rs.10 at a premium

of Rs. 40 (premium of Rs.30 in the case of rights

issue) be made on 1st December, 1990.

(iv) that the second conversion of Part B of the

debentures into two equity shares of Rs.10 each at a

premium of Rs. 50 be made on the date originally

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scheduled viz. 23rd May, 1991.

(v) that the third equity conversion of Part C of the

debentures be made on the date originally scheduled

viz. 23rd May, 1992 at such premium per equity share as

may be fixed by the Controller of Capital Issues but

not exceeding Rs.55 per share and such conversion be

made into one or more equity shares of Rs.10 each as

against two or more equity shares as originally

provided in the prospectus.

(b) that in case of any debentureholder not agreeing

to the modifications, in prayer (a) above and on

intimation being received by the applicant company as

mentioned in prayer (c) below

360

the applicants do refund to such debentureholders

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 debentureholder not agreeing to the

modifications in prayer (a) such debentureholders do

give intimation to the applicant companywithin 30 days

of such notice in which case the applicant company

would refund the application/ allotment money with

interest.

(d) for further orders ands directions consequential

to the orders passed by this Court;

(e) for costs of the applications.'

Larsen & Toubro Ltd. respondent No. 2 in T.C. No. 61 of

1989 filed a rejoinder affidavit to the statement of

objections filed by N. Parthasarathy to the interim

application No. 1 of 1990 in T.C. No. 61 of 1989. In para 2

of the said rejoinder affidavit it has been stated that:

"By his order dated November 9, 1989 this

Court specifically directed Larsen & Toubro Ltd. to

make allotment subject to the decision of this

Court in the said matters. This Hon'ble Court

therefore allowed the issue to proceed on the basis

of the original consent purported to be impugned by

the petitioner in the Madras High Court Petition.

I, therefore, submit that Larsen & Toubro Limited

was fully justified in seeking the directions of

this Hon'ble Court as prayed for in the Interim

Application. I deny that the directions in the

Interim Application, if granted, would render

nugatory the Petition filed by the Petitioner or

that the same would amount to a determination of

the issue in the Petitioner's writ petition as

erroneously contended by the petitioner. I deny

that Larsen & Toubro Limited are at all misleading

this Hon'ble Court or that it committed any act

which is at all illegal, as falsely allged. I

submit that a decision of this Hon'ble Court on the

legality of the original consent order is not

necessary for the issue of interim directions of

the nature prayed for by Larsen & Toubro Limited in

the above Interim Application.'

361

It has also been stated in para 3 of the said affidavit

that this Court does not have jurisdiction to entertain the

said interim application either for the reasons alleged or

otherwise. The said application, it is submitted, does not

amount to performance of any executive function by this

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Court as erroneously alleged by the petitioner.

The statement that the Controller of Capital Issues has

no power to modify or vary a consent as alleged has been

denied. It has been submitted that the Controller of Capital

Issues has not varied his consent nor is any such variation

of the consent order per-se being sought by the Respondent

No. 2. It has also been stated that under sub section (6)

of Secftion 3 of the Capital Issues (Control) Act, 1947, the

Central Government has the power to vary all or any of the

conditions qualifying a consent.

It has been denied in para 8 of the said affidavit that

the consent order of the Controller of Capital Issues is at

all illegal or improper as alleged. It has been denied that

it is not open for this Court or for the Controller of

Capital Issues to modify the terms of the said consent

order.

It is to be noted that the Industrial Development Bank

of India by its letter dated June 28, 1990 tothe 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-

362

holders/shareholders, etc. in consultation with its

Legal Advisers."

A meeting of the Board of Directors of the Company was

held on June 29, 1990 and it was resolved that the

directions of the Supreme Court of India be sought on the

said proposals and necessary steps the taken to approach the

Hon'ble High Court at Madras to vacate the said order and/of

modify the same suitably and implement the proposals only

after the directions from the Supreme Court were obtained

and the Order passed by the Hon'ble High Court at Madras was

vacated and/of modified suitably.

It appears that Section 55 of The Companies Act, 1956

enjoins that:

"The prospectus issued by or on behalf of a

company or in relation to an intended company

shall be dated, and that date shall, unless the

contrary is proved, be taken as the date of

publication of the prospectus."

Under Section 61 of The Companies Act it is

specifically provided that:

"A company shall not, at any time, vary the terms

of a contract referred to in the prospectus or

statement in lieu of prospectus, except subject

tothe approval of, or except on authority, given

by, the company in general meeting."

Section 62 of the said Act provides for payment of

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compensation to every person who subscribes for any shares

or debentures on the faith of the prospectus for any loss or

damage he may have sustained by reason of any untrue

statement included in the prospectus. Similarly, Section 63

of the said Act provides for criminal liability for mis-

statements made in the prospectus. Section 72 of The

Companies Act provides that:

"No allotment shall be made of any shares in or

debentures of a company in pursuance of a

prospectus issued generally, and no proceedings

shall be taken on applications made in pursuance

of a prospectus so issued, until the beginning of

the fifth day after that on which the prospectus is

first so issued or such later time, if any, as may

be specified in the prospectus."

363

Thus, it is evident from a consideration of the above

provisions of The companies Act that the terms of contract

mentioned in the prospectus or the statements in lieu of the

prospectus cannot be varied except with the approval of and

on the authority given by the Company in the general

meeting. Therefore, the consent that was given by the

Central Government nay by the Controller of Capital Issues,

on a consideration of the special resolution adopted in the

extra-ordinary general meeting of the shareholders of the

company on August 28, 1989 cannot be varied, changed or

modified both as regards 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 approved 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-

section (6) of Section 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."

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 be changed or varied in

any manner whatsoever by the Central Government. The

Central Government can merely vary all or any of the

conditions subject to the consent being given.

It is appropriate to mention in this connection that

the I.D.B.I. also asked the Larsen & Toubro Ltd. to obtain

the necessary approval from the Controller of Capital

Issues, debentureholders/shareholders etc. in respect of the

reduction in requirement of funds. There has been no

general meeting of the company nor any special resolution

was taken for variation or reduction of the amount of

debentures to be issued as required under Section 81 read

with clause 1A of The Com-

364

panies Act. It is also evident that no steps have been

taken to have the consent already granted by Controller of

Capital issues, varied or modified as required under The

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Capital Issues ( Control) Act, 1947. Merely because clause

(v) of the consent order provides for monitoring of the

funds by I.D.B.I., it does not mean nor it can be inferred

automatically that the suggestion of the I.D.B.I. as regards

the funds requirement can be automatically given effect to

without complying with the statutory requirements as

provided in the provisions in The Companies Act as well as

in The Capital Issues (Control) Act. The consent order is

one and indivisible and as such the same cannot be varied or

vivisected without taking recourse to the provisions of the

statute. It is also well settled that the contract to

purchase shares or debentures is concluded by allotment of

shares issued under the prospectus and Section 72 of the

Companies Act makes it clear that allotment can only be made

after the prospectus is issued. The company is bound by the

special resolution, the prospectus and the consent of the

Controller of Capital Issues. The power to pass a consent

order is a statutory power vested in a statutory authority

under the Capital Issues Act and the Court has no power or

jurisdiction to step into the shoes of the statutory

authority and pass or approve a consent order different from

the statutory consent order given by the statutory

authority. Moreover, the consent order cannot be varied by

the Central Government or Controller of Capital Issues after

the said order has been made public and third parties have

acted on it and acquired rights thereon.

In Palmer's Company Law (24th Edition) by C.M.

Schmitthoff under the caption The "golden rule" as to

framing prospectuses at page 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."

Reference may also be made to the observations in

Aaron's v.

365

Twiss, [1896] A.C. 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 on the most audacious pleas that ever was put

forward in answer to a charge of fraudulent

misrepresentation. When analysed it means simply

that a person who has induced another to act upon a

statement made with intent to deceive must be

relieved from the consequences of his deceit if he

has given his victim constructive notice of a

decument, the perusal of which would expose the

fraud."

In the case of State of Madhya Pradesh and Ors. v. Nandlal

Jaiswal and Ors., [1986] 4 SCC 566 this Court while dealing

with the laches and delay held that:

"The High Court does not ordinarily permit a

belated resort to the extraordinary remedy under

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the writ jurisdiction because it is likely to cause

confusion and public inconvenience and bring in its

train new injustices. The rights of third parties

may intervene and if the writ jurisdiction is

exercised on a writ petition filed after

unreasonable delay, it may have the effect of

inflicting not only hardship and inconvenience but

also injustice on third parties."

For the reasons aforesaid I dismiss all these

Transferred Cases. There will no be order as to costs. All

the interim applications filed in these Transferred Cases

stand disposed of in view of the observations made

hereinbefore.

The Special Leave Petition (C) No. 13801 of 1989 filed

against the order of the Bombay High Court in Contempt

Petition No. 1 of 1989 in writ petition No. 2595 of 1989 is

dismissed.

The Contempt Petition Nos. 121 and 130 of 1989 are also

dismissed without costs.

KASLIWAL,J. I have gone through the judgment of my

learned brother B.C. Ray,J. and I agree with the conclusions

drawn by him. But, I would like to express my own views.

366

Writ Petition No. 2595 of 1989 was filed by Haresh

Jagtiani and Shamit Majumdar (hereinafter called 'the

petitioners') in the Bombay High Court challenging the

validity of the consent given by the Controller of Capital

Issues (CCI) dated 29.8.89 and subsequently amended by Order

dated 15.9.89 for the issuance of Fully Convertible

Debentures of Rs.820 crores by Larsen & Toubro, a Public

Limited company (in short L & T ). Challenge was also made

in respect of transfer of 39 lac shares of L & T held by

Unit Trust of India (UTI), Life Insurance Corporation of

India (LIC), General Insurance Company (GIC) and its

subsidiaries to Trishna Investments and Leasing Limited (in

short Trishna Investments) through the instrumentality of

Bob Fiscal Services Limited (in short Bob Fiscal). The Writ

petition was dismissed on 29.9.89 byu 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 various 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 government of India and its instrumentalities, to

preserve and to refrain from squandering away the property

and economic power of the State 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 matter has to be looked into on the basis of larger

public interest which can be fulfilled by a balanced

investment of country's resources.

My learned brother has already given the details

regarding the manner and circumstances in which 39 lac

shares of L & T were transferred by public financial

institutions to Trishna Investments, a subsidiary of

Reliance Group of Industries i.e. Reliance Industries

Limited (RIL) and Reliance Petro-chemicals Limited (RPL),

through the conduit of Bob Fiscal, as such I need not repeat

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the same.

On the date of the filing of the writ6 petition in the

Bombay High Court a prayer was made in this regard to

declare that the transfer of 39 lac shares of L & T held by

UTI, LIC, GIC and its subsidiaries to Trishna Investments

through the instrumentality of Bob Fiscal is arbitrary,

illegal, mala fide and a fraud on the statutory powers of

the

367

respondents and is clearly ultra vires Articles 14, 39(b) &

(c) of the Constitution and to issue a writ of mandamus

directing the respondents to recover the shares of L & T and

pay back the amount received there for. This later part of

the prayer for writ of mandamus has now become infructuous

in view of the changed circumstances that the 39 lac shares

of L & T have already been returned back to the public

financial institutions, but Mr. Chinoy, counsel for the

petitioners has prayed that it would be very necessary to

declare that such transfer of 39 lac shares at the relevant

time was arbitrary, illegal, mala fide and a fraud in order

to further hold that the consent given by the CCI for the

proposed issue of convertible debentures of Rs. 820 crores

by L & T was not only arbitrary but based on mala fide

exercise of power based on extraneous grounds. In this

regard it would be necessary to state some more facts which

happened after the dismissal of the writ petition by the

learned Single Judge of the Bombay High Court dated

29.9.1989. The petitioners aggrieved against the judgment

of the learned Single Judge filed a Letters Patent Appeal

before the Division Bench of the High Court. Some

shareholders filed writ petitions and suits in several High

Courts and this Court in the above circumstances thought it

proper to transfer all the cases to this Court. Pursuant to

the order of this Court dated October 27, 1989 learned

Additional Solicitor General appearing on behalf of the

financial institutions submitted a memorandum. It was

stated in the memorandum that the financial institutions had

already bought back 39 lac shares of L & T with accretion

thereto from Trishna Investments. It was farther 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 expectation that the petitioners would

withdraw the proceedings as even otherwise a basic portion

of the petitions filed in the High Court had become

infructuous.

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 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 for the information of the share-

368

holders as well as the original allottees. The Court also

indicated in the above order as under:

"The Court will further make it clear that no

equities will be pleaded in respect of allotment

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of shares."

After the passing of the above order debentures were

released and several lacs of persons have purchased these

debentures.

Trishna Investments had not filed any counter to the

writ petition before the Bombay High Court, but have filed

counter affidavit and written submissions before this Court.

Dr. L.M. Singhvi, learned Sr. advocate appearing on behalf

of Trishna Investments contended that Trishna Investments

had agreed to the retransfer of 39 lac shares to the

financial institutions and it was agreed by learned counsel

for the petitioners that it would form the basis for fully

comprehensive and wholistic settlemtn of the matter.

Indeed, Shri Ram Jethmalani learned counsel appearing for

the petitioners so stated that this Hon'ble Court was also

pleased to record the same in its order dated 9.11.89

Since the petitioners have now resiled from their

categorical offer, Trishna Investments also cannot be made

to agree to a settlement upon de novo terms and conditions.

It has been submitted that in its affidavit dated 7.11.90

filed by Trishna Investments, it has been stated that the

retransfer of shares resulted in a loss of Rs. 10 crores to

Trishna Investments. It has also been submitted that though

Trishna Investments is a company wholly owned and subsidiary

of RIL but contracts made by Trishna Investments in the

present case should not be construed to mean that this

Hon'ble Court may hear and adjudicate all other allegations

against Reliance group without making the later uyjhnb7as

party to the present proceedings. Trishna Investments

cannot be treated as a substitutable alter ego without

making RIL/RPL as parties.

It was contended by Dr. Singhvi, learned counsel for

Trishna Investments that the present proceedings have now

become infructuous in view of the admitted retransfer of 39

lac shares by Trishna Investments to financial

institutions. It is well settled that the Court should not

decide merely academic points. In this regard it is

submitted that the principal relief as sought in prayers (a)

and (c), no longer exist and the aforesaid transaction of

retransfer of 39 lac shares was on the expectation. That

the petitioners will withdraw the proceedings. In support

of the above contention reliance is placed on State of

Maharashtra v. ramdas Shriniwas Nayak & Anr., [(1983) 1 SCR,

8 at

369

p. 12]. 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, alongwith 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.

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 suggest on the part of the petitioners that the

value of the shares transferred/sold by financial

institutions was far more than the market value. There are

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no guidelines, rules, regulations, directions or documents

prescribing any method of sale of shares where such shares

are sold individually or in chunk. No control can be said

to have been transferred on the basis of 6.42% shareholding

and representation of Board of Directors after the transfer

to Trishna Investments. Reliance is support of the above

contention is placed on Babulal Chaukhani v. Western India

Theatres, AIR 1957 Cal. 709 at p. 715 on the passage which

reads as under:

"It is in evidence that Modi has been purchasing

large blocks of shares of this company, but

cornering as such or purchase of large block of

shares as such, so long as they are permissible

by law is not unjustified. That by itself does

not prove mala fides or bad faith either in fact

or in law. To acquire a control which the law

permits cannot be illegel."

It was further submitted in this regard that if

purchase or cornering, per se and by itself, is neither

illegal nor impermissible, then purchase or cornering

through intermediaries or even if done surreptitiously

cannot become illegal merely by the existence of such

intermediaries or by the allegedly surreptitious nature of

the transactions. The aforesaid decision of the Calcutta

High Court has been applied in a large number of decisions

of statutory authorities dealing with allegations of chunk

purchase of cornering of shares.

Dr. Chitale appearing on behalf of Bob Fiscal pointed

out that

370

the members of the Bob Fiscal Services Private Limited at an

extraordinary general meeting held on 24th September, 1990

have passed a special resolution for voluntary winding up of

the company in accordance with etc. 484(i)(b) of the

Companies Act, 1956. By the said resolution Chartered

Accountant has also been appointed as liquidator for the

beneficial winding up of the Bob Fiscal Services Pvt. Ltd.

It was further submitted by Dr. Chitale that essential

grievance of the writ petitioners related to the transfer of

39 lac shares of L & T by the investment institutions and

its subsidiaries to M/s Trishna Investments and Leasing

through the alleged conduit or instrumentality of Bob

Fiscal. It has been alleged by the petitioners that a

conspiracy was hatched between investment 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 question

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 selling 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 shares by investment institutions to Bob Fiscal were in

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any manner arbitrary or unlawful. Subsequently, it

transpired that on or about 8th November, 1989 institutions

has purchased the said 39 lac shares on full payment. As a

sequel to the above, the main relief sought by the

petitioners have become infructuous and do not survive at

all. The entire challenge of the writ petitions in regard

to the actions of the financial institutions for sale of

shares to Trishna Investments through Bob Fiscal had become

merely academic and any trial of the issue in relation

thereto would only be an abuse of the process of law and

wholly unnecessary and waste of time of this Hon'ble Court.

Bob Fiscal is not concerned with the challenge of the

petitioners in regard to the order of CCI. It was thus

submitted that the entire petition has become infructuous

but it for any reasons this Hon'ble Court desires to

continue with the case in respect of the challenge to the

consent of the CCI then Bob Fiscal

371

and its Chairman should be dropped from the array of

parties.

The stand taken by the public financial institutions in

this regard is that while deciding to sell those shares they

acted purely on business principles and sold those shares at

a very high market price and thereby earned huge profit.

There was no basis in the allegation made by the petitioners

that the investment institutions ought to have charged and

recovered substantially higher price (which according to the

petitioners should have been at least 2005 of the market

price) for the transfer of such shares had the shares been

transferred directly to Trishna Investments being a company,

representing a group/persons other than those in the

management. The investment institutions had transferred 39

lac shares to Bob Fiscal as part of a 'basket' of securities

purely on commercial considerations. Investment

institutions were in no way concerned with any subsequent

dealings of the said shares by Bob Fiscal. The entire

challenge of the writ petitioners to the actions of the

financial institutions w2as now merely academic and any

decision in this regard would be a waste of judicial time

and totally unnecessary. It was also submitted that all

allegations of conspiracy between the financial

institutions and any others party are denied. It is denied

that investment institutions at any time were aware of the

fact that 39 lac shares which were sold to Bob Fiscal were

at any time intended or destined for the Ambani group as

alleged.

I agree with the observations made and conclusion

arrived at by my learned brother B.C. Ray in respect of

transfer of 39 lac shares. I 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 there for, 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 worth while to note that public

financial institutions while making a deal ins respect of a

very large number of 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 comouflage some illegal contrivance or in built

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.

We cannot subscribe to the contention raised by Dr.

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Singhvi that there was nothing wrong or illegal even if the

action of Reliance Group was to corner or purchase all the

shares of L & t, and even if done

372

through intermediaries or surreptitiously cannot become

illegal. If, that is the law laid down by Calcutta High

Court in Babulal Chaukhani v. Western India Theatres,

(supra), we disapprove it.

It is no doubt correct that any person or company is

lawfully entitled to purchase shares of another company in

open market, but if the transaction is done surreptitiously

with a mala fide intention by making use of some public

financial institutions as a conduit in a clandestine manner,

such deal or transactions would be contrary to public policy

and illegal. If the, matter was so simple as propounded by

Dr. Singhvi, why Trishna Investments did not come forward

directly to purchase 39 lac shares from public financial

institutions and why entered in a deal through the conduit

of Bob Fiscal in a clandestine manner. That apart why

Trishna Investments readily agreed to sell back these

shares to public financial institutions even at a loss of

Rs. 10 crores as suggested, after the filing of these

petitions. This itself speaks volumes against the conduct

of Trishna Investments who was a subsidiary of Reliance

Group. There is no force in the contention that the

propriety of such deal cannot be considered without

implading RIL/RPL as parties to these proceedings. It may

be stated that the entire transactions have been made by

Bob Fiscal and Trishna Investments who are already parties.

It may ber noted that Bob Fiscal and Trishna Investments

were made parties to the writ petition filed in the Bombay

High Court and serious allegations were made against them

but they did not choose to refute any allegations by filing

any counter affidavit in the High Court. In any case we

have derived our conclusions on the basis of admitted facts

and not otherwise. It may be worth mentioning that Bob

Fiscal was formed in June. 1988 and soon thereafter entered

into transactions of purchase of 39 lac shares of L & T on

the strength of deposit of Rs.30 crores by the four

satellite companies of the Ambani Group and soon thereafter

transferred the shares in favour of Trishna Investments. It

has now, been stated before us by Dr. Chitale appearing on

behalf of Bob Fiscal that in an Extraordinary General

Meeting held on 24.9.90 a special resolution has been passed

for voluntary winding up of Bob Fiscal. This leads one to

draw a legitimate inference that Bob Fiscal was brought into

existence merelyh 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

373

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.

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

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that upto this time 39 lac shares of L & T had come to

Trishna Investment and M.L. Bhakta. Mukesh Ambani and Anil

Ambani had been coopted as Directors of L & T and lastly

Dhirubhai Ambani had become the Chairman of L & T on

28.4.89. On 23.6.89 Board of Directors of L & T had

resolved to invest a sum of Rs. 76 crores in the purchase of

Equity Shares of RIL. On 21.7.89 RIL and RPL had written

letters to L & T seeking suppliers credit to the extent of

Rs.635 crores for turnkey projects which they planned to

entrust to L & T. Out of the above public issue of Rs.820

crores it was proposed to reserve preferential allotment of

Rs.310 crores (50% of the issue after deducting Right

Issue) for the shareholders of RIL and RPL treating them as

group companies of L & T. On 29.8.89 CCI passed an order

approving the above issue of Convertible Debentures. The

Prospectus was issued on 5.9.89 in which it was stated that

L & T was part of the Reliance Group. CCI by a further

order dated 15.9.89 amended the earlier consent order dated

29.8.89 to the effect that fund utilisation shall be

monitored by Industrial Development Bank of India

(IDBI).CCI in another letter of the same date namely 15.9.89

also stated that 50% to be raised in calls would be based

upon the monitoring by IDBI for utilisation. This Court on

9.11.89 allowed the L & T to open the issue subject to the

condition that allotment will abide by the decision of this

Court. The issue was then opened and it was over

subscribed and more than 11 lac applicants applied for the

allotment of the debentures. On the ground that by virtue

of the conditions in the consent Order, IDBI being the

monitoring agency required the L & T to furnish its funds

requirement before making calls and since considerable

details had to be worked out by the L & T, it became

necessary to postpone the first call originally due on 30th

April. Accordingly the Board of Directors of L & T resolved

that the date of payment of the first call money payable by

the debenture holders on or before 30th April, 1990 would be

postponed till such time as may be decided by the Directors.

Meanwhile the Industrial Credit Investment Corporation of

India (ICICI) who are the debenture trustees in respect of

Series IV debentures issued a letter dated 30th April, 1990

to L & T stating that it would not be correct for them as

debenture trustees to give conver-

374

sion of these debentures into equity shares before a

reference was made to the CCI and without obtaining prior

written consent of the IDBI. IDBI then considered the

unaudited statement giving details of the utilisation of

debenture funds upto 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) upto 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. 150. L

& T thus proposed to affect the first equity conversion by

end of November, 1990. IDBI approved the above proposal.

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

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to first satisfy IDBI as to its requirement of funds and an

objection raised by ICICI for giving its consent to the

conversion of Part-A of the debentures, L & T submitted

interim applications before this Court for directions which

have been mentioned in extenso in the judgment of my learned

brother.

Mr. Nariman, learned Sr. advocate appearing on behalf

of L & t in the changed circumstances submitted that the

impugned issue of convertible debentures was passed by a

special resolution in the Extraordinary General Meeting of

the shareholders of L & t dated 21.8.89 and the said special

resolution had not been challenged by any of the

petitioners. Only consent order of the CCI had been

challenged and thus the debentures which had been issued on

the authority of a special resolution remained unchallenged.

It was further argued that as regards the authority of CCI's

consent order the scope and parameters of the Court's power

to scrutinise the consent order have already been laid down

in a recent decision of this Court in N.k. Maheshwari v.

Union of India, [1989] 3 SCR 43. It was submitted that the

limits as laid down in N.K. Maheshwari's case (supra) have

not been transgressed so as to call for any interference in

the consent order. Mr. Nariman thus justified the

sanctioning of preferential allotment of shares worth Rs.300

crores for the shareholders of Reliance Group as well as the

consent order for the entire issue of Rs. 820 crores. It

may be further noted that initially L & T had taken the

stand to reduce the total amount of the issue to Rs. 640

crores instead of

375

Rs. 820 crores, but finally took the stand that the issue

may be proceeded to the full extent of Rs.820 crores in

view of the fact that the IDBI had itself in an affidavit in

reply to their application before this Court had taken the

stand that it was not IDBi's view to curtail the amount of

issue and that it was L & T's own decision. The L & T thus

in its affidavit dated 11th September, 1990 make it clear

that the issue may be proceeded to the full extend of Rs.820

crores and only a postponement of the dates of the first

call, first equity conversion and the second call may be

permitted.

Mr. Chinoy, learned counsel appearing for the

petitioners vehemently submitted that the petitioners had

not come forward with a grievance regarding the validity of

issue of debentures only. His contention was that the

petitioners had come forward raising larger issues affecting

the entire economy of the country and the under hand

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 Article 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.636 crores for funding projects of

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Reliance Group of Industries. The consent so given by CCI

was vitiated on account of the non application of mind and

its failure to consider the facts of the case in the light

of its application to act in public interest and in

consonance with the principles embodied in Article 39 (b) &

(c).

Dr. Singhvi, learned Sr. advocate appearing on behalf

of Trishna Investments submitted that economic and corporate

issues can never be a subject matter of judicial review, as

already laid down in State of Madhya Pradesh v. Nandlal

Jaiswal & Ors., [1987] 1 SCR, 54 and Life Insurance

Corporation of India v. Excorts Ltd. & Ors., [1985] Supp 3

SCR, 909 at p. 1017 & 1018. It was submitted that CCI had

given consent after thoroughly applying its mind in any case

the impugned consent order is a single, composite

indivisible order which cannot be

376

appropriately bisected or bifurcated. Even if for arguments

sake it may be considered that the consent was not proper

then the whole consent must go and it cannot be selectively

upheld and selectively quashed. As regards suppliers credit

it has been urged that provision of suppliers credit is an

extremely common and well known commercial modality and

indeed, construes and alternative scheme and mechanism of

finance. In deed, the concept of suppliers credit is

integrally connected and inextricably intertwined with the

concept of a turnkey project. In sum and substance the

concept of suppliers credit simply means that the entire

turnkey project is the property of L & T who executes it and

then hands it over to the purchaser (in this case RIL/RPL)

and extends credit for payment to RIL/RPL with effect from

the date when the project is handed over as a running unit

by L & T. The suppliers/workers contractor(L & T) gives

credit in the sense that the purchaser promises to pay,

inter alia by bills of exchange or other customary payment

organised with the price of the project would be paid in

installment inclusive of further running interest from the

date of handing over till the date of payment. It has been

submitted that all official documents and other materials in

the present case specifically stipulate and specify the

precise particular projects for which the moneys were sought

to be raised by L & T. Thus it is uncontrovertibly clear

that the sole and only purpose for raising of funds and the

sole and only requirement of funds by L & T related to the

extension 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 fulfillment of the above contracts

made with RIL/RPL. The original 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 conjuction

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 redraw the consent or to

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override the special resolution or the prospectus for that

would be completely violative of the provisions of the

Companies Act. Capital Issues Control Act and the Rules

made thereunder.

377

Mr. Ashok Sen, learned Sr. advocate appearing on behalf

of K.B.J. Tilak opposed the interim applications submitted

on behalf of L & T. It was contended that L & T had no

right to change the conditions of the consent order as well

as the terms and conditions mentioned in the prospectus.

Mr. Sen also placed reliance on the principles set out in De

Smith's Judicial Review of Administrative Action 4th Ed.

page 285 which sets out the principles governing the

exercise of discretionary powers as under:

"The relevant principles formulated by the courts

may be broadly summarised as follows. The

authority in which a discretion is vested can be

complelled to exercise that discretion, but not to

exercise it in any particular manner. In general,

a discretion must be exercised only by the

authority to which it is committed. That authority

must genuinely address itself to the matter before

it: it must not act under the dictation of another

body or disable itself from exercising a discretion

in each individual case. In the purported exercise

of its discretion it must not do what it has been

forbidden to do, nor must it do what it has not

been authorised to do. It must act in good faith,

must have regard to all relevant considerations and

must not be swayed by irrelevant considerations,

must not seek to promote purposes alien to the

letter or to the spirit of the legislation that

gives it power to act, and must not act arbitrarily

or capriciously. Nor where a judgment must be

made that certain facts exist can a discretion be

validly exercised on the basis of an erroneous

assumption about those facts. These several

principles can conveniently be grouped in two main

categories: failure to exercise a discretion, and

excess or abuse of discretionary power. The two

classes are not, however, mutually exclusive.

Thus, discretion may be improperly fettered because

irrelevant considerations have been taken into

account; and where an authority hands over its

discretion to another body it acts ultra vires.

Nor, as will be shown, is it possible to

differentiate with precision the grounds of

invalidity contained within each category."

When such order is passed without regard 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 Com-

378

mission, [1969] 2 A.C. 147 which has been quoted by the

Supreme Court in [(1971) 3 SCR p. 557] at page 570 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 I 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

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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 have misconstrued the provisions giving

it power to act sothat it failed to deal with the

question remitted to it and decided some question

which was not remitted to it. It may have refused

to take into account something which it was

required to take into account. Or it may have

based its decision on some matter which, under the

provisions setting it up, it had not right to take

into account. I do not intend this list to be

exhaustive. But if it decides a question remitted

to it for decision without committing any of these

errors it is as much entitled to decide that

question wrongly as it is to decide it rightly."

It was also submitted that the consent order of the

Controller is an integrated and composite order and it

cannot be vivisected either by the IDBI or by the High

Court. It is a statutory order which has been made by a

statutory authority in accordance with the Capital Issues

(Control) Act and Rules, approved by the Controller and the

issue was subscribed on the basis of such consent order and

prospectus and on other functionaries can change this order.

It was submitted that the prospectus did not specify any

contract apart from the turnkey contract of RIL and also did

not mention anything except the supply credit necessary for

financing these turnkey projects which would require Rs. 635

crores out of 820 crores. In other words, the principal

purpose of the issue was the financing of the turnkey

projects of the value of Rs. 635 crores. It is fallacious

to argue that the issue was for Rs. 1425 crores as is sought

to be argued on behalf of L & T. The propectus

379

mentions at page 45 of the interim application under the

head 'business plans' that for the period 1st October, 1989

to 31st March, 1992 funds requirement was estimated at

Rs.1425 crores. It was further specifically stated that

the suppliers credit, inter alia included Rs.510 crores to

be extended to RIL in respect of its Naptha Cracker project.

It was further specifically stated that the funds

requirement was intended to be met out of the present issue

of the debentures to the extent of Rs.820 crores and the

balance would be met from internal accruals, in other words

from the internal resources of the company and not

borrowing or debenture proceeds.

Mr. Parasarn, learned Sr. advocate appearing on behalf

of the petitioners in writ petitions Nos. 11112-11113 of

1990 filed 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

right 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

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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 are 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 bind

other allottees on grounds of equity as all have acted on

the basis of the consent. It was contended that with

regard to the shares, specific performance is the rule.

Reliance in support of this contention is placed on Jai

Narian v. Surajmull, AIR 1949 F.C., 211. It was pointed out

by the Federal Court that shares of a company are limited

in number and are not ordinarily available in the market, it

is quite proper to grant a decree fro specific performance

of a contract for sale of such shares. The IDBI can only

monitor the utilisation of funds by L & T as they are

collected in terms of the clause as specified in the

prospectus to ensure that the funds are actually utilised

for the specific predetermined projects for which they are

raised and this condition cannot be so interpreted to confer

right on IDBI to decide as to the mode and manner and

collection of funds itself.

380

Mr. S.S. Ray, learned Sr. advocate contended that

consent order dated 29.8.89 was perfectly lawful and valid

and the judgment of the Bombay High Court in this regard was

correct. It was not possible for the Court to bisect or

vivisect the consent order or to apply the 'blue pencil

theory' thereto and also to hold that a part of it is valid

while the rest is invalid. The consent order was an

integral part of a single scheme having a single purpose and

had to be considered in total conjunction of a series of

documents and happenings. Mr. Ray drew attention of the

Court to the correspondence which took place from 26.7.89 to

25.9.89 between the L & T and the CCI.

Mr. Ray also brought to the notice of the Court two

events happened thereafter namely order of this Court dated

9.11.89 by which allotment of the debentures was allowed

without claiming any equity by the allottee and allotment of

the debentures to the palaintiff on 23.11.89. Mr. Ray also

brought to the notice of this Hon'ble Court further events

relevant for the purpose of this case. Notice given by LIC

to L & T on 2.4.90 to call an Extraordinary General Meeting

to remove Ambanis from the board but no meeting was held.

On 19.4.90 Mr. Dhirubhai Ambani stepped down as Chairman of

L & T. Various correspondence between L & T and IDBI vide

two letters dated 22.6.90 and one dated 28.6.90. IDBI also

sent a reply on 28.6.90 to both the letters dated 22.6.90

and 28.6.90 sent by L & T. In this reply letter IDBI stated

as under:

"From a quick review of the status of the new

proposal mentioned in your letter dated 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,

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debenture holders/shareholders, etc. in

consultation 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.

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 date 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

381

the above documents and the happenings even if a part of the

consent order dated 29.8.89 is found to be bad or unlawful,

nothing can remain of the consent order and it has to go in

its entirety.

Mr. Hegde, learned Additional Solicitor General

appearing on behalf of the Financial Institutions submitted

that it was wrong that the Ambani holding in L & T has

increased from 12% to 35.3% it is based on a completely

erroneous hypothesis that the shareholdings in RIL/RPL are

only of Ambanis. 35 lac shareholders comprised of 50 per

cent of the investing public of India are in fact the public

at large. 200 crores worth of debentures were under the

rights issue and it was mandatory under the guidelines for

subscribing any issue. Out of remaining 620 crores,

approximately 320 crores debentures were reserved for

preferential entitlement to equity shareholders of RIL/RPL.

The prospectus itself mention that any unsubscribed portion

in the public offered by prospectus would go to the category

of public. The claim of any loss as suggested in the

statement given by the petitioners is completely wrong and

baseless. The allegation that an illegal benefit is made by

the Ambanis from the 7% transfer of shares does not survive

as the entire shares with accretions have been handed over

back to the public financial institutions.

Mr. R.K. Garg, learned Sr. advocate appearing on behalf

of respondent Nos. 1 and 5 in Transfer Petitions Nos. 458-

467/90 contended that the sole question involved in all the

cases is whether the Controller of Capital Issues was acting

illegally or constitutionally in giving consent to L & T for

coming out with mega issue of Rs. 820 crores, primarily and

substantially for execution of turnkey cantracts for

Reliance projects, with a stipulation in the contract that

the cost of construction. would be Rs. 510 crores and

suppliers credit will be extended on mutually agreed terms

and conditions. The CCI after application of mind insisted

on an undertaking to be given by Reliance that on extension

of supliers credit they would be precluded to raise this

amount from the market. It was further submitted that L & T

themselves had applied for sanction in order to compete for

these lucrative contractrs with foreign business rivals who

were extending suppliers credit as a matter of routine and

Indian companies were loosing business to them because of

their superior financial strength though without superior

special skills or experience. According to Mr. Garg

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 such RIL did a good turn to the national

economy by giving contract of

382

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

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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.

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 dilute the control of the financial

institutions. The issue was brought about directly as a

result of the illegal takeover of L & T by the Ambanis.

Thus the entire issue is tainted by fraud and void ab

initio.

It has been further submitted that in reality and

substance, the entire issue is tainted since the issue was

an attempt of the Ambanis who had by means fair and foul

garnered the control of L & T to raise moneys using the fair

name of L & T for their own purposes. The money raised

admittedly was not even required except for projects of

Reliance Group.

Mr. B.R.L. Iyengar, learned Sr. advocate appearing on

behalf of petitioners S.R. Nayak and Ors. in the writ

petition filed in the Karnataka High Court and transferred

to this Court, supported the contentions of the petitioners

in the writ petitions filed in the Bombay High Court. Mr.

Iyengar further submitted that the capital available for

investment at any given time has to be sized and allocated

according to national priorities by laying down an

investment policy which should inform and govern the action

of the different departments of the Govt. including the

Controller of Capital Issues, who is a functionary in the

Finance Ministry. At the given time that is in 1988-89 the

capital market had according to available economic reports,

about Rs.5000 crores public investment funds, limited as it

was by poor savings and high inflation. There were so

called mega issues four or five in number who had the

resources to exploit the media including the electronic

media. None of these mega issues had anything like

suppliers credit from their associates, companies or

otherwise. The reliance Petro Chemicals had already

appropriated Rs.560 crores thus

383

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. Thus Articles 38 and 39(b) & (c) of the

Constitution were not kept in mind by the authorities in

making capital allocation. They addressed themselves to the

so called requirement of L & T in isolation and admittedly

did not have material priorities on the investment policy in

mind.

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

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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. 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 bonafide refusal to transfer. Such

being the case, it was notorious in the present cases that

the Ambanis' high ambitions were out to takeover L & T. It

was thus contended that the nominees of the financial

institutions were at the very outset put on inquiry, when

without any shareholding the first two Ambanis sat on the

Board of Directors and, thereafter Dhirubhai Ambani usurped

the Chairmnan's seat. The CCI failed to perform its duties

in a proper manner and such action of granting consent in

the prevailing circumstances was not done in good faith.

The sale of shares by the financial institutions itself was

a grave breach of trust. For Reliance Group of industries

it was not possible to further increase their capital base

by releasing any mega issues and they have tried to succeed

in doing indirectly what they could not have done directly.

The first step in the execution of this nefarious plan was

to transfer of 39 lac shares from the financial institutions

to Bob Fiscal. The second step was the transfer of these

shares by Bob Fiscal to Trishna Invest-

384

ments a subsidiary of Ambanis. The third step was the

induction of Ambanis into the board of management of L&T and

fourth step was of convening an Extraordinary General

Meeting of the shareholders and to get a resolution passed

in such meeting for execution of certain projects of RIL and

RPL cornering more than 3/4th amount out of the entire mega

issue of Rs.820 crores. This could not have been done

without the active connivance and support of CCI and other

financial institutions. The question raised in this case is

not one of legality but of propriety and resonableness and

bonafide of the action of the financial institutions in the

course of execution of this plan which has virtually

resulted in not merely transfer of professionalised managed

company with a reputation built over the years into the

hands of a private group but also the said company being

used by the said private group to raise enormous capital in

the capital market for the execution of its projects. It was

further submitted by Mr.Iyengar that the whole consent is

liable to be quashed and the same cannot be bifurcated.

The petitioners and the group of lawyers supporting

them have argued that the consent given by CCI is bad and

should be struck down on the ground that it was given in

undue haste, without proper application of mind, in

violation of the provisions of the MRTP Act and mollified in

order to benefit Reliance Group. In the alternative it has

been contended that no preferential reservation could have

been made of Rs.310 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

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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.

The other group of lawyers have 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 Right Issue for the shareholders and employees of L & T

itself. Issue of Rs.310 crores

385

being reserved as preferential issue for the shareholders of

Reliance group of companies being an associate/group of L &

T itself. The balance issue of Rs.510 crores is meant for

the general public. So far as the Rights Issue of Rs.200

crores is concerned, the same is perfectly valid and nobody

has come forward to challenge the same. As regards the

preferential issue of Rs.310 crores in favour of

shareholders of the Reliance group of companies is

concerned, L & T and Reliance group of companies were

interconnected within the meaning of Sec.2(g) of the MRTP

Act and it is permissible according to law. The size of the

issue was so large that it was considered necessary to

reserve a substantial portion of it in favour of the

shareholders of Reliance group of companies, in order to

ensure the successful absorption of the entire issue. It may

also be noted that the shareholders of the Reliance group of

companies are numbering about 35 lacs and they represent the

investor base of the entire shareholding community of the

country. My learned brother B.C.Ray has dealt with this

matter in detail and has found that preferential issue per

se is not a novel idea. CCI has been permitting reservations

for various categories out of public issue based on the

Request made by companies after passing a special resolution

in the general body meeting and there is no restriction on

the shareholders of a company to offer shares of their

company to anybody after passing a special resolution as

required under Sec.81 (I-A) (a) of the Companies Act. I am

fully in agreement with the above view taken by my learned

brother B.C.Ray, J. After the aforesaid view taken by us,

the question of bifurcating or vivisecting the consent order

given by CCI does not survive. The legal controversy thus

raised that the consent given by CCI under the Capital

Issues (Control) Act can be held valid or invalid as a whole

but not some part of it as valid and the rest invalid does

not require to be decided in this case and the same is left

open.

The next question which calls for consideration is

whether the consent order for the mega issue of Rs.820

crores as a whole given by the CCI can be declared illegal

or not on the grounds raised by the petitioners. This Court

in N.K.Maheshwari's case (supra) while considering the

duties of the CCI under the Control of Capital Issue Act

while giving consent has observed under:

"The 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

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also

386

reinforced by the expanding scope of the guidelines

issued under the Act 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 a

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 that the CCI should probe in-depth into the

technical feasibilities and financial soundness of

the proposed projects of the sufficiency or

otherwise of the security offered and such other

details may be to burden him with duties for the

discharge of which he is as yet ill-equipped."

In the above paragraph this Court has clearly laid down

that the CCI has also a role to play in ensuring that public

interest does not suffer as a consequence of the consent

granted by him. The CCI connot be permitted to take an alibi

and a policy of hands off on the ground that this Court had

said in the above case that it may be "to burden him with

duties for the discharge of which he is as yet illequipped".

It was never the intention in the above case to lay down

that the CCI was not even required to see whether any public

interest suffers or not as a consequence of the consent

granted by him. It is the bounden duty of the CCI before

giving an order of consent for the issuance of any mega

issue to keep in mind and to carry out the Directive

Principles of State Policy as enshrined in Article 39(b) &

(c) of the Constitution which provide as under:

39(b):

"That the ownership and control of the material

resources of the community are so distributed as

best to subserve the common good:

39(c):

That the operation of the economic system does not

result in the concentration of wealth and means of

production to the common detriment."

387

It is no doubt correct that the CCI is not required to probe

in-depth into the technical feasibilities and financial

soundness of the proposed projects or the sufficiency or

otherwise of the security offered, but at the same time it

has to see that the capital available for investment at any

given time has to be sized and allocated according to the

national priorities, and in the changed socio-economic

conditions of the country to secure a balanced investment of

the country's resources in industry, agriculture and social

services.

It has been agrued by Mr.Iyengar that in 1988-89 the

capital market, according to available economic reports, had

about Rs.5000 crores public investment funds, limited as it

was by poor savings and high inflation. There were so called

mega issues 4 or 5 in number who had the resources to

exploit the media including the electronic media. None of

these mega issues had anything like suppliers credit from

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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.

In N.K.Maheshwari's case challenge was made to an order

of consent of the CCI granted for the issue of shares (Rs.50

crores) and debentures (Rs.516 crores) by the RPL. It was

pointed out that though the issue proposed was of shares of

Rs.50 crores and Debentures of Rs.516 crores, the company

was allowed to retain over subscription to the tune of 15%

amounting to Rs.77.40 crores. RIL was the promoter of RPL.

Though mega issues had already been issued byRIL/RPL and a

substantial amount of about Rs.1060 crores had already been

mopped up from the public for the projects of Reliance group

of companies and they were not entitled to raise any further

public issue in this regard, a devise of suppliers credit

and turnkey projects to the

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extent of Rs.635 crores was made for funding the projects of

Reliance Group of industries by L & T. It was proposed from

the side of L&T at the time when Dhirubhai Ambani was the

Chairman and his two sons and M.L.Bhakta their Solicitor

were on the Board of Directors of L & T. Thus the intention

was to syphon an amount of Rs.635 crores out of the issue of

Rs.820 crores in utilising and funding for the turnkey

projects of the Reliance group. These facts were known to

the CCI and were certainly relevant at the time of granting

consent of the impugned issue of Rs.820 crores. Though this

point has lost its force now in the changed circumstances

but certainly it was worth noticing by the CCI at the time

of granting consent. This Court on 9.11.89 had allowed the

allotment of the debentures and thereafter approximately 11

lac debenture holders have bought the debentures. It would

not be in the interest of general investor public to cancel

the entire mega issue. Many transactions must have already

taken place on the floor of the stock exchange regarding the

sale and purchase of the debentures during this intervening

period. Under the order of this Court dated 9.11.89, no

restrictions were placed on L & T in the matter of

utilisation and allotment, the L & T has so far received

Rs.396 crores out of which approximately Rs.300 crores have

been utilised towards issue expenses, capital expenditure,

repayment of loans and working capital in terms of the

objects of the issue. The balance available with the company

is approximately Rs.96 crores only. There is already a

safeguard provided in the order of the CCI dated 15.9.89

that the fund utilisation shall be with the approval of the

IDBI. In any case, the consent order given by CCI cannot be

held invalid on any of the grounds of challenge raised by

the petitioners. In these proceedings this Court is neither

called upon nor is entitled to decide as to how and in what

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manner the amount mopped up from the public by this mega

issue could be utilised or spent. Thus, I agree with my

learned brother B.C.Ray, J. that the consent given by CCI is

valid.

All the above cases including the interim applications

stand disposed of by the above order.The judgment of the

Bombay High Court dated 29.9.89 also stands modified in

accordance with the findings and observations recorded by us

as mentioned above. The Contempt applications are dismissed.

The parties are left to bear their own costs.

G.N. Applications dismissed.

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