N. PARTHASARATHY ETC. v. CONTROLLER OF CAPITAL ISSUES AND ANOTHER ETC.

.A 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 B taken to approach the Hon'ble High Court at Madras to vacate the said order and/or modify the same suitably and implement the propo- sals 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/or modified suitably. ,J.

It appears that Section 55 of The Companies Act, 1956 en joins c 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 D date of publication of the prospectus." ,~ Under Section 61 of The Companies Act it is specifically pro- vided that:

"A company shall not, at any time, vary the terms of a E contract referred to in the prospectus or statement in lieu of prospectus, except subject to the approval of, or except on authority, given by, the company in general meeting." -,/ Section 62 of the said Act provides for payment of compensation to every person who subscribes for any shares or debentures on the F faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included in the prospectus. Simi- larly, Section 63 of the said Act provides for criminal liability for mis-statements made in the prospectus. Section 72 of The Conpanies Act provides that: -f G "No allotment shall be made of any shares in or debentures • of a company in pursuance of a prospectus issued gener- ally, 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 pros- pectus is first so issued or such later time, if any, as may be specified in the prospectus."

N. PARTHASARTHY v. CONTROLLER {RAY, J.I 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 Com- pany in the general meeting. Therefore, the consent that was given by the Central Government nay by the Controller of Capital Issues, on a ti consideration of the special resolution adopted in the extra-ordinary general meeting of the shareholders of the company on August 28, 1989 cannot be v.aried, changed or modified both as regards the reduc- tion 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.l. 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 sub- ject to the consent being given.

It is appropriate to mention in this connection that the l.D.B.l. G 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 IA of The Com- H

364 SUPREME COURT REPORTS [i991] 2 S.C.R.

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 Capital Issues (Control) Act, 1947. Merely because clause (v) of the consent order provides for monitor- ing 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 con- sent 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:

F "Those who issue a prospectus, holding out to the I public the great advantages which will accrue to persons 'I who will take shares in a proposed undertaking, and invit- / ing 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 stat- G ing 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 pri- vileges and advantages which the prospectus holds out as inducements to take shares."

H Reference may also be made to the observations in Aaron's v.

N. PARTHASARTHY v. CONTROLLER (KASLIWAL. J.} 365 ., Twiss, [1896] A.C. 273 in which Lord Watson said: A

"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 B me to be one on the most audacious pleas that ever was put forward in answer to a charge of fraudulent misreprsen· talion. 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 bas given his victim constructive notice of a document, the perusal of which would expose the fraud." C

In the case of State of Madhya Pradesh and Ors. v. Nandla/Jaiswal and Ors., [1986] 4 SCC 566 this Court while dealing with the !aches and delay held that: D "The High Court does not ordinarily permit a belated resort to the extraordinary remedy under the writ jurisdic- tion because it is likely to cause confusion and public incon- venience and bring in its train new in justices. 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. G The Contempt Petition Nos. 121 and 130 of 1989 are also dismis- sed without costs.

KASLIW AL, .T. 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. H

366 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A Writ Petition No. 2595 of 1989 was filed by Haresh Jagtiani and Shami! Majumdar (hereinafter called 'the petitioners') in the Bombay High Court challenging the validity of the consent given by the Con- troller 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 B 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 Com- pany (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 C was dismissed on 29.9.89 by learned Single Judge of the Bombay High Court. Letters Patent Appeal against the said judgment was filed in the Bombay High Court. Several other writ petitions and suits were filed in 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 D issues raised in these cases are of far reaching impact on the affir- matory 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 E 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 I country's resources. \ F My learned brother has already given the details regarding the ( )

manner and circumstances in which 39 lac shares of L & T were trans- ferred by public financial institutions to Trishna Investments, a sub- sidiary 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 the same.

On the date of the filing of the writ 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, ma/a fide and a fraud on the statutory powers of the

N. PARTHASARTHY v. CONTROLLER [KASLIWAL, J.] 367

respondents and is clearly ultra vires Articles 14, 39 (b) & (c) of the A Constitution and to issue a writ of mandamus directing the respon- dents 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 reforned back to the public financial institutions, but Mr. Chinoy, counsel for the petitioners has B prayed that it would be very necessary to declare that such transfer of 39 lac shares at the relevant time was arbitrary, illegal, ma/a 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 ma/a 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 peti- c tion 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 sub- mitted 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 further stated that by buying back the said shares, the financial institutions were in no way either remotely or impliedly acceding the position that the original transactions of sales were illegal or void. The financial institu- tions 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 trans- G fer petition. On 9.11.89 this Court after considering all the circums- tances of the matter thought it just and fair to pass an order that the allotment of debentures will be made by the petitioner company i.e. L & T and such allotment will abide by the decision of this Court in the said matters. It was further directed that the L & T will also affix a similar notice at its Registered Office for the information of the share- H

368 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

holders as well as the original allottees. The Court also indicated in the A above order as under:

"The Court will further make it clear that no equities will be pleaded in respect of allotment of shares."

B 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 peti- tion 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 C 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 seitlement of the matter. Indeed, Shri Ram Jethmalani learned counsel appearing for the petitioners so stated that this D 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 settle- ment upon de nova 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 E 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 as party to the present proceedings. Trishna Investments cannot be F 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 infructu- ous in view of the admitted retransfer of 39 lac shares by Trishna G Investments to financial institutions. It is well setiled that the Court should not decide merely academic points. In this regard it is submit ted that the principal relief as sought in prayers (a) and (c), no longer exist and the aforesaid transaction of retransfer of 39 lac shares waso0n the expectation. that the petitioners will withdraw the proceedings. In support of the above contention reliance is placed on State of H Maharashtra v. Ramdas Shriniwas Nayak & Anr., [(1983) 1 SCR, 8 at

N. PARTHASARTHY v. CONTROLLER [KASLIWAL, J.] 369

p. 121. It has been further submitted that in the alternative Trishna A 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 con- tained in Art. 226 of the Constitution. B 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. Bt>akta c on the Board of Directors of L & Twas only 4out of 20. It was wholly misleading, deliberately mischievous and erroneous to suggest on the part of the petitioners that the real value of the shares transferred/sold by financial institutions was far more than the market value. There are no guidelines, rules, regulations, directions or documents prescribing D 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 in support of the above contention is placed on Babula/ Chaukhani v. Western India Theatres, AIR 1957 Cal. 709 at p. 715 on the passage which reads as under: E

"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 F acquire a control which the law permits cannot be illegal."

It was further submitted in this regard that if purchase or corner- ing, per se and by itself, is neither illegal nor impermissible, then purchase or cornering through intermediaries or even if done surre- ptitiously cannot become illegal merely by the existence of such G intermediaries or by the allegedly surreptitious nature of the transac- tions. 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 or cornering of shares.

Dr. Chitale appearing on behalf of Bob Fiscal pointed out that H

370 SUPREt,IE COURT REPORTS I 1991] 2 S.C.R.

the members of the Bob Fiscal Services Private Limited ai an extra- A ordinary general meeting held on 24th September, 1990 have passed a special resolution for voluntary winding up of the company in accor- dance with etc. 484(i)(b) of the Companies Act, 1956. By the said resolution Chartered Accountant has also been appointed as liqui- dator for the beneficial winding up of the Bob Fiscal Services Pvt. Ltd. B 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 repre- sented by Trishna and Bob Fiscal in order to camouflage the transac- C tions and to prove the transfer of shares to Bob Fiscal in order to avoid compliance of the alleged guidelines and policy of the financial institu- tions 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,

D 1989. It was further submitted that during the course of the proceed- ings 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 expre- E ssly submitted and clarified by Trishna Investments and the institu- tions that Trishna Investments was selling back the said shares and the institutions were buying back the same without in any manner admit- ting any of the allegations in the writ petitions, nor were they admit- ting the position that the original transfer of shares by investment institutions to Bob Fiscal were in any manner arbitrary or unlawful. F Subsequently, it transpired that on or about 8th November, 1989 institutions had 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 if 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

N. PARTHASARTHY v. CONTROLLER [KASLIWAL, J.] 371

and iis Chairman should be dropped from the array of parties. A 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 earnec huge, profit. There was no basis in the allegation made by the petitioners that the investment institutions ought to have charged and B recovered substantially higher price (which according to the petitio- ners should have been at least 200% 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 c 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 was now merely academic and any decision in this regard would be a waste of judicial time and totally unneces- sary. It was also submitted that all allegations of conspiracy between the financial institutions and any other 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 conclusions arrived at by my learned brother B.C. Ray in respect of transfer of 39 lac sh~res. I may, further add that so far as the relief of a writ of mandamus direct- "< · ing the respondents to recover 39 lac shares ot'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 worthwhile to note that public financial institutions while making a deal in respect of a very large number or bulk of shard worth several crores of rupees must also make some inquiry as to who was the purchaser of such shares. Such transactions should be made with circumspection and care to see that the deal may not be to camouflage some illegal con- trivance or in built conspiracy of a private monopoly house in order to usurp the management of a public company and w'iich in its opinion may not be in public interest.

We cannot subscribe to the contention raised by Dr. 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 H

372 SUPREME COURT REPORTS [1991] 2 S.C.R.

A through intermediaries or surreptitiously cannot become illegal. If, that is the law laid down by Calcutta High Court in Babula/ 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 B 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 c 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 Relinace Group. There is no force in the contention that the propriety of such deal cannot be considered without impleading RIL/RPL as parties to these proceedings. It may be stated that the entire transactions have been made by Bob Fiscal and Trishna Invest- ments who are already parties. It may be 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 conclu- sions on the basis of admitted facts and not otherwise. It may be worth mentioning that Bob Fiscal was formed in June. 1988 and soon there- after entered into transactions of purchase of 39 lac shares of L & Ton 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 Extra- ordinary 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 merely to act as a conduit and was merely an interloper to affect the transfer of 39 lac shares of public financial institutions in favour of Ambani Group and their satellite firms. It came into existence like a rainy insect and lived out its utility after acting as a conduit for the transfer of 39 lac shares in favour of Trishna Investments. I do not consider it necessary to further dilate on t~is point and fully agree with my learned brother that all the circumstances taken together clearly

N. PARTIIASARTIIY v. CONTROLLER [KASLIWAJ •• J.] 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 & Thad 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 B Rs.720 crores (subsequently reduced to Rs.620 crores). It may be noted 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 c purchase of Equity Shares of RIL. On 21. 7 .89 RIL and RPL had written letters to L & T seeking suppliers credit to the el(tent 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 D .. 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 & Twas 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). E cc:i 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 consi- derable 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 ()fpayment o¹ 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- H

374 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A 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 B 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 origi- nally envisaged first call of Rs.75 and the final call of Rs.75 aggregat- ing to Rs. 150. L & T thus proposed to affect the first equity conver- c sion 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 postpone- ment of the first conversion of Part-A of the debentures into equity shares as originally scheduled to be on 23rd May, 1990 was occasioned D by IDBI requiring L & T 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.

E 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 CC!'s consent order the scope and para- meters 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 allot- ment 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

N. PARTHASARTHY v. CONTROLLER [KASLIWAL, J.] 375

Rs.820 crores, but finally took the stand that the issue may be pro- A ceeded 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 extent of Rs.820 crores and only a post- B ponement 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 vehe- mently submitted that the petitioners had not come forward with a grievance regarding the validity of issue of debentures only. His con- C tention 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 capa- city of the investor public in the shares and CCI as a controller ought D to see that such public investment should not go in the hands of a few industrialists which would be ccintraray to the Directive Principles enshrined in Article 39 (b) & ( c) of the Constitution oflndia. It should adhere to the above State Policy enshrined in the Directive Principles that the ownership and control of the material resources of the com- munity are so distributed as best to subserve the common good and that the operation of the economic system does not result in concentra- E tion of wealth and means of production to the common detriment. It was submitted that the facts on record clearly establish that the mega ' -~

issue was conceived, proposed and implemented with the intent and object of utilising the reputation and goodwill of L & T to raise funds to the extent of Rs.635 crores for funding projects of Reliance Group of Industries. The consent 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).

376 SUPREME COURT REPORTS [1991] 2 S.C.R.

A 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 B 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 & Twho 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 wheIJ the project is handed over as a running unit by L & T. The suppliers/ C 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 instalment inclusive of further running interest from the date of hand- ing 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 ckar 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 trunkey projects of RIL/RPL in the pros- pectus. 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 F crores and the entire issue would be subject to the fulfillment of the above contracts made with RIL/RPL. The original consent of the Con- troller was given on 29.8.89 and the same cannot be changed by subse- quent 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 c.onstrued as authorising IDBI or L & T to redraw the consent or to override the special resolu- tion 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.

N. PARTHASARTHY v. CONTROLLER [KASLIWAL, J.) 377

Mr. Ashok Sen, learned Sr. advocate appearing on behalf of A 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 s~t gut in De Smith's Judicial Review of Administrative Actio,1 4th Ed. page 285 which sets 0111 the principles governing the B exercise of discretionary powers as under:

"The relevant principles formulated by the courts may be .J.. broadly summarised as follows. The authority in which a discretion is vested can be compelled to exercise that dis- cretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the author- c ity 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 exercis- ing a discretion in each individual case. In the purported exercise of its discretion it must not do what it has been D ..., 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 pro- mote 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 discre- tion, and excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, dis- cretion may be improperly fettered because irrelevant con- siderations 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 differen- tiate with precision the grounds of invalidity contained G · within each category." · r When such order is Jlassed withou\ regard to relevant con- sideration 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- H

378 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

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 fliis order. It was submitted that the prospectus did not specify any contract apart from the turnkey con- tract 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 H crores as is sought to be argued on behalf of L & T. The propectus

N. PARTIIASARTHY v. CONTROLLER [KASLIWAL, J.] 379

mentions at page 45 of the interim application under the head 'busi- A ness 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 supplieis credit, inter a/ia 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 B 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 borrowin$ 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 C 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 Ilecessarily result in his taking up a legal position which D "' . may agree with the stand taken by one or other of the parties. It has been submitted that the consent order passed by CCI is either valid or invalid. There is no third position possible. It was further submitted that prospectus is an invitation for offer from the public for the sub- scription or purchase of any shares or- debentures. The invitation is accepted and the offer is made when an application is made for allot- E ment 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 io the shares, specific performance is the rule. Reliance in support of this contention is placed on Jai Narian v. Surajmul/, 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 for 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 tlie 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. H

380 SUPREME COURT REPORTS [1991] 2 S.C.R.

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 & Tand the CCI. I Mr. Ray also brought to the notice of the Court two events • _.. happened thereafter namely order of this Court dated 9.11.89 by c which allotment of the debentures was allowed without claiming any equity by the allottee and allotment of the debentures to the plaintiff 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 & Ton 2.4.90 to call an Extraordinary General Meeting to remove Ambanis from the board but no meeting was held. On 19.4.90 D 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: E "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 y'

indicated by you . . . . . . .... The L & T Board will have to take a view on the size of the debenture issue in the light of F the requirement of funds indicated in your letter and other modifications suggested in the series of the debentures. The company will no doubt obtain necessary approvals from CCI, debenture holders/shareholders, etc. in consul- tation with its legal advisors."

G It is clear that ID BI 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 H RIL were cancelled. It was pointed out by Sh. Ray that taking note of

N. PARTHASAR1HY v. CONTROLLER [KASLIWAL, J.I 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 RILi 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 RILi c f _RPL. The pros{lectus 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 D .., . 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 ~·~ "·'1 respondent Nos. 1 and 5 in Transfer Petitions Nos. 458-467/90 con- tended that the sole question involved in all the cases is whether the E 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 contracts 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 suppliers 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 contracts 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 H

382 SUPREME COURT REPORTS [1991] 2 S.C.R.

turnkey projects to L & T. It was further submitted that after the A allotment of debentures a concluded contract between the debenture holders and L & T has come into existence and the rights and liabilities as contained in the prospectus cannot be varied by this Hon'ble Court. \- The CCI has no power to defeat, destroy or vary the contracts made between the investor and the company concerned. B 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 sup- pliers credit. The dominant and real object underlying the issue was to ,.. make available funds for application to the Reliance Group projects c 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. D 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 E 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 F High Court. Mr. Iyengar further submitted that the capital available for investment at any given time has to be sized and allocated accord- ing 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 functio- nary in the Finance Ministry. At the given time that is in 1988-89 the G 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 f"'1r 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 H Reliance Petro Chemicals had already appropriated Rs.560 crores thus

N. PARTHASARTHY v. CONTROLLER (KASLIWAL, J.) 383

nearly 3000 crores of rupees had been appropriated by larie 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 -I 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 C 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. Sec. 22(3)(b) and (d) of D the Monopolies Act required indepth policy examination at the high- .,. . est pplicy levels and consultation with the Monopolies Commission and the Planning Commission. The record does not disclose any such comideration or oonsultation, on the other hand the so called con- sid<;:ration can be seen to be casual, perfunctory and biased. Even in ti);e case of transfer of shares of an ordinary company, the directors E . have discretion to refuse the transfer if they feel that the person is ~ undesirable or his shareholding is not in the best in. terests of the com- ,.. pany and repeatedly the Courts have upheld such bona fide 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 F 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 Chairman'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 G Reliance Group of industires 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- H

384 SUPREME COURT REPORTS [1991] 2 S.C.R.

ments a subsidiary of Ambanis. The third step was the induction of A 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 of the entire mega issue of Rs.820 crores. This could not have been done B without the active connivance and support of CCI and other financial institntions. The question raised in this case is not one of legality but of propriety and reasonableness and bona fides of the action of the finan- cial institutions in the course of execution of this plan which has virtu- ally resulted in not merely transfer of professionalised managed com- pany 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 - . c to raise enormous capital in the capital market for the execution of its projects. It was further submitted by Mr. Iyengar that the whole con- sent is liable to be quashed and the same cannot be bifurcated.

The petitioners and the group of lawyers supporting them have D 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 applica- tion of mind, in violation of the provisions of the MRTP Act and mala . .,.. fide in order to benefit Reliance Group. In the alternative it has been contended that no preferential reservation could have been made hf Rs.310 crores of Convertible Debentures for the shareholders of E 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 comp,anies may be declared invalid but the remaining part of the issue of Rs.5.10 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 oHhe Courts to declare one part of the consent order as valid and the other part as invalid.

As already mentioned above this is a mega issue amounting to Rs.820 crores, out of which Rs.200 crores is the Rights Issue for the shareholders and employees of L & T itself. Issue of Rs.310 crores

N. PARTilASARTifY v. CONTROLLER [KASLIWAL, J.] 385

being reserved as preferential issue for the shareholders of Reliance A 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

' I 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 substan- tial 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 communtiy 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 share- holders 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 brot.her B. C. Ray, J. After the aforesaid view taken by us, the question of bifurcating or vivisecting the consent order given by E CCI does not survive. The. legal controversy thus raised that the con- sent 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. F 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 ifle-gal or not on the grounds raised by the petitioners. This _Court in N.K. Maheshwari's case (supra) while con- sidering the duties of the CCI under the Control of Capital Issues Act while giving consent has observed as under: G

"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 fio clear cut delineation of their scope in the enactment. This line of thought is also H

386 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

reinforced by the expanding scope of the guidelines issued A 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 conse- quence of the consent granted by him. But as we have .B explained later, the responsibilities of the CCI in this direc- tion should not be widened beyond the range of expediti- ous 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 finan- cially risky as to amount to a fraud on the public. To go c 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 can- not be permitted to take an alibi and a pvlicy 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 ill- equipped". 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 Direc- tive 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."

I r N. PARTiiASARTHY v. CONTROLLER [KASLIWAL, J.I 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 off:red, 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 ecomomic reports, had about Rs.5000 crores pubic 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. c 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 and nearly 3000 crores of rupees had been appropr.iated by large issues when the impugned issue was presented. After that the capital available for wage goods D industries, other labour intensive industries critical industries sought to be set up by hundreds of professionals who had neither political influence nor the ~eans 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 sup- E pliers 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 conside,red by the CCI. ·:;:.·., F

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 G the tune of 15% amounting to Rs.77.40 crores. RIL was the promo- ter of RPL. Though mega issues had already been issued by RIL/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 H

388 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A 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 turn- B key 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 C' 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 utilisa- D tion of funds. According to L & T against Rs.410 crores due on appli- cation 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 safe- E guard 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, 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 dis- posed 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 appli- cations are dismissed. The parties are left to bear their own costs.

G.N. Applications dismissed.