N. Parthasarathy Vs. Controller of Capital Issues & Anr [1991] INSC 105 (16 April 1991)
Ray, B.C. (J) 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
HEAD NOTE:
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 331 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 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 332 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 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 334 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 335 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 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 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 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]
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 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 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 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, debenture holders 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, debenture holders 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 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 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.
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 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 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 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 difficulty will 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 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.
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 con
