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PETITIONER: NARENDRA KUMAR MAHESHWARI

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT03/05/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1989 AIR 2138            1989 SCR  (3)  43  1990 SCC  Supl.  440     JT 1989 (2)   338  1989 SCALE  (1)1353

ACT:     Capital   Issues  (Control)  Act,  1947/Capital   Issues (Exemption) Order, 1969: Sections 2, 3 and 12--Controller of Capital  Issues--Scope of power and exercise of function  in according sanction--Extent of.     Companies  Act, 1956: Section 81(5)--’Compulsorily  con- vertible    debentures’--Floating    charge--Debt     equity ratio--What are--Whether a Company can deal with its proper- ty without the permission of debenture holders.     Practice and Procedure: Grant of Interim  Orders--Regard to  be had to principles of comity of  courts  administering same laws throughout the country.

HEADNOTE:     Reliance Industries Ltd. (RIL) and Reliance  Petrochemi- cals  Industries Ltd. (RPL) are inter-connected  and  repre- sented  Companies  in the large industrial  house  known  as Reliance  Group. RIL had promoted RPL. RPL was  incorporated on 11.1.1988 and has been a cent percent subsidiary of  RIL. It was claimed that RPL would set up the largest petrochemi- cal  complex in India with foreign collaboration.  RPL  pro- posed  to issue convertible debentures for  raising  capital for the project.     The  Controller of Capital Issues (CCI),  who  functions under  the Capital Issues (Control) Act, 1947 had,  on  15th September, 1984 by way of press release issued certain  non- statutory  guidelines for approval of issue of secured  con- vertible  and non-convertible debentures.  These  guidelines were subsequently amended on 8.3.1985. Guidelines were  also given by the CCI for issue of convertible cumulative prefer- ence shares, and for employees stock option scheme.     RPL  had,  on 4.5.1988, made an application to  CCI  for issue of debentures of the face value of Rs.200 crores fully convertible into equity shares on the following terms: A  sum of Rs. 10 being 5% of the face value of  each  deben- tures by 44 way of first conversion immediately into one equity share at par on allotment;     (ii)  A sum of Rs.40 being the 20% of the face value  of each debenture by way of second conversion after three years

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but before four years from the date of allotment at a premi- um to be fixed by the Controller of Capital Issues;     (iii)  The  balance of Rs. 150 representing 75%  of  the face value of each debenture as third conversion after  five years but not later than seven years from the date of allot- ment  at a premium to be fixed by the Controller of  Capital Issues.     The  CCI accorded his sanction for the issue  of  deben- tures on 4.7.1988. However, the sanction was amended on 19th July,  1988. The amendment put a non-transferability  condi- tion on the preferential share-holders of RPL. It was limit- ed  to  the corporate shareholders of RIL  and  relaxed  for individual  share-holders of RIL. The amendment also  stipu- lated  that the Company should obtain prior approval of  the Reserve Bank of India, Exchange Control Department, for  the allotment  of  debentures to the non-residents  as  required under  the  Foreign Exchange Regulation Act, 1973.  On  26th July 1988, there was another amendment which restricted  the transfer of shares allotted to the employees of RPL and RIL.     The consent orders issued by the CCI were challenged  in various  High Courts, by way of writ petitions and  a  suit. Some High Courts issued injunctions restraining the issue of the debentures.     This Court, on 19th August, 1988, restrained the  afore- said issuance of injunctions by the High Courts, and  issued directions for the issue of debentures. The cases pending in various High Courts were transferred to this Court.     In these transferred cases the consent orders of the CCI were challenged mainly on the grounds that:     Despite  the fact that RPL did not fulfil  the  require- ments of a proper application and the necessary consent  and approval,  RPL’s application was. entertained and  processed by the CCI with undue expedition and without application  of mind; The guidelines issued by the CCI himself were deviated from; 45     The CCI had processed the application of RPL in a hurry, within two months;     The CCI did not take into account the fact that RIL  had earlier  issued  debentures  for  manufacture  of  identical products;     The CCI failed to note that RPL did not have the  neces- sary  licences,  consents and approvals, from  the  relevant departments of the Government of India;     The  CCI failed to consider the financial soundness  and feasibility of the project of RPL;     The CCI did not take adequate care to examine the  terms of the issue and had blindly accepted the terms as  proposed by RPL;     RPL in its brochures has misled the public by describing the debentures as fully secured convertible debentures; The security for the debentures was inadequate;     RPL has been permitted to create securities which  would have  priority over the securities available to the  present debenture holders and without their consent;     RPL  has misled the public in that in its prospectus  it had stated that security would be provided to the  satisfac- tion of the trustees;     The  CCI had failed to examine whether RIL  had  misused the funds raised on its debentures;     There has been a discrimination in favour of RIL in that RIL  would  be entitled to allotment of shares of  the  face value of Rs.57.50 crores, whereas only 5% of the  investment of the debenture-holders could be converted;     Whereas  RIL’s loan of Rs.50 crores would  be  converted

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into shares at par, the debenture holders would have to  pay premium to be fixed by the CCI at the time of second conver- sion of 20% of the debentures; and     In  the  application filed by RPL, no shares  were  ear- marked  for the employees of RIL and RPL, but ultimately  it was done. 46     On  behalf  of the petitioners, it was  contended  inter alia that the issue of the debentures in question was detri- mental to public interest, and that public interest had been ignored.     On behalf of Respondents it was argued that the sanction issued  by the CCI had been genuine and valid, and  that  no irregularity  had been committed. It was submitted  that  it was  a misconception that the CCI had not followed  his  own guidelines  relating to sanction of the issue of the  deben- tures,  and it was incorrect to say that there had not  been proper security. Dismissing the writ petitions and the suit, this Court,     HELD:   1.1. The CCI functions under the Capital  Issues (Control) Act, 1947, an Act to provide for control over  the issue of capital. The purpose of the Act must be found  from the language used. The scheme and the language used, strict- ly  speaking, do not indicate any positive role for the  CCI in  discharging his functions in respect of grant  of  sanc- tion.  But it has to be borne in mind that he is a  part  of State  instrumentalities committed to the endeavours of  the constitutional  aspiration  to  secure  justice--social  and economic--and also under Article 39(b) & {c) of the  Consti- tution  to  ensure  that the ownership and  control  of  the material resources of the community are so distributed as to best subserve the common good and that the operation of  the economic  system does not result in concentration of  wealth and means of production to the common detriment. Yet,  every instrumentality and functionary of the State must fulfil its own  role and should not trespass or encroach/entrench  upon the  field  of others. Progress is ensured  and  development helped  if each performs his role in the  common  endeavour. [90B; 124F-H; 125A]     1.2.  In  the changed socio-economic conditions  of  the country one who is charged to ensure capital-investment  has to perform a social role in capital formation and to protect the  interest  of  the capital market, and  to  oversee  the growth of industrialisation and investment in such a  manner as to ensure employment and demand in the national  economy, to prevent wasteful investment and to promote sound  methods of corporate finance. In recent years, there has been a vast increase in the number of members of public who have surplus money  to invest. The size of the issues has  assumed  macro proportions  and the type of investments are also  more  so- phisticated.  Entrepreneurs  with  expert  legal  assistance could easily trap unwary investors and the development of  a public  interest lobby that can scrutinise issues  carefully and advise prospective investors may be desirable. [125A, B, F, G] 47     1.3.  The guidelines are only a guide and nothing  more. The  application of mind by the CCI before sanction must  be in  the perspective for which he is enjoined by the Act.  He must endeavour to secure a balanced investment of the  coun- try’s  resources in industry, agriculture and  social  serv- ices.  The  Controller  should perform the  role  of  social control  and fulfil the social purpose in  conjunction  with other authorities and functionaries. It is necessary for him in  the discharge of his functions to ensure that  there  is

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not  too  much  concentration of  particular  industries  in particular areas, and that there is a scientific development and proper investment in key and core projects. [125C-D]     1.4.  The duties of the CCI have to be construed in  the context  of the above, particularly when there is  no  clear cut  delineation  of their scope in the enactment.  This  is also  reinforced  by the expanding scope of  the  guidelines issued  under the Act from time to time and  the  increasing range  of financial instruments that enter the  market.  The responsilbilities of the CCI in this direction should not be widened  beyond the range of expeditious  implementation  of the scheme of the Act and should, atleast be restricted  and limited  to ensuring that the issue to which he is  granting consent is not, patently and to his knowledge, so manifestly impracticable  or financially risky as to amount to a  fraud on the public. While it is true that some procedure may have to be evolved to ensure that the CCI gets the benefit of the comments, suggestions and objections from the public  before arriving  at his decision whether to grant consent  or  not, and  if  so, on what terms and conditions, it  will  be  too cumbersome  to  have a provision that the details  of  every proposed application for consent should be publicised to the maximum extent by the CCI, that objections and comments from the public should be called for, that there should be public hearing by the CCI and that he should pass a reasoned  order granting or withholding consent. That would delay the  whole process  of  approvals  which should be  as  expeditious  as possible. [93C-E; 125G-H; 126A-B]     1.5.  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. To go beyond this and require  that the CCI should probe in depth into the technical  feasibili- ties and financial soundness of the proposed projects or the sufficiency  or otherwise of the security offered  and  such other  details  may  be to burden him with  duties  for  the discharge of which he is as yet ill-equipped. [93D-F]     1.6.  Being non-statutory in character,  the  guidelines are  not  judicially  enforceable. A policy is  not  law.  A statement of policy is not a 48 prescription  of binding criterion. The competent  authority might depart from these guidelines where the proper exercise of  his  discretion  so warrants. In the instant  case,  the statute  provided  that  rules can be made  by  the  Central Government  only. And according to s. 6(2) of the  Act,  the competent  authority has the power and jurisdiction to  con- done  any  deviation from even  the  statutory  requirements prescribed,  under  sections  3 and 4 of the  Act.  The  CCI applied  his mind to the facts of this case and the  factors in  general. The CCI did not act malafide or  on  extraneous consideration. [122D-F; 124B-D]     Fernandez  v.  State  of Mysore, [1967] 3  SCR  636;  R. Abdullah  Rowther  v. State of Tansport, etc., AIR  1959  SC 896;  Dy. Asst. Iron & Steel Controller v.  Manekchand  Pro- prietor, [1972] 3 SCR 1; Andhra Industrial Work v. CCI &  E, [1975]  1  SCR 321; K.M. Shanmugham v. S.R.V.S.  Pvt.  Ltd., [1964]  1  SCR  809; Sagnata  Investments  Ltd.  v.  Norwich Corpn.,  [1971]  2 QB 614; British Oxygen Co.  v.  Board  of Trade, [1971] AC 610, relied on.     Ramanna Dayaram Shetty v. International Airport Authori- ty, [1979] 3 SCR 1014; Motilal Padampat Sugar Mills v. Uttar Pradesh,  [1979] 2 SCR 641; Ex P. Khan, [1981] 1  All.  E.R. 40;  IRC  v. National Federation, [1982] AC 617;  Reqina  v. Preston  Supplementary, [1975] 1 WLR 624; Council  of  Civil Service  Unions & Others v. Minister for the Civil  Service,

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[1985] AC 407, referred to. Foulkes’  Administrative  Law, 6th Edn. pp 181 to  184,  re- ferred to.     2.  As regards the contention that the sanction  of  the CCI  was accorded with undue haste and favouritism,  in  the first  place, an application of this type is intended to  be disposed of with great expedition. In a project of the  type proposed  to be launched by the petitioner, passage of  time may  prejudicially affect the applicant and it is  not  only desirable but also necessary that the application should  be disposed  of  within  as short a time as  possible.  It  is, therefore,  difficult to say that the period of  two  months taken  in granting consent in the present case is  so  short that an inference of haste must follow. Secondly, on  behalf of  the Union of India, a list of various  applications  re- ceived  and  disposed of by the office of  the  CCI  between September,  1987  and September, 1988 has been  produced  to show  that, generally speaking, these applications are  dis- posed  of  within a month or two. It is true  that  none  of these  issues  is  of the same  colossal  magnitude  as  the present  issue. Nevertheless, the CCI could hardly keep  the application  pending merely because the amount  involved  is heavy. It is not possible therefore to say merely from the 49 short  span of time that there was a hasty grant of  consent in the present case. [73G-H;74A-C]     3.1.  The consent of the CCI was not accorded  in  igno- rance of the facts pertaining to the G series of RIL  deben- tures.  The application for consent makes it clear that  the petitioner company is a new company promoted by RIL and that RIL  was promoting this company to manufacture High  Density Polyethylene (HDPE), Poly Vinyl Chloride PVC and Mono Ethyl- ene  Glycol (MEG). The application refers to the  fact  that the  total  cost of the project was expected  to  be  Rs.650 crores and that this cost had been approved earlier in 1985. Considering  that  RPL  had  come  into  existence  only  on 11.1.1988, this was a clear indication that the projects for which  the debenture issue was being proposed were  projects which  had  been mooted even by the RIL as  early  as  1985. Again in the detailed application form submitted by the  RPL it  has  been mentioned that the RIL  had  already  obtained approval of the Central Government for implementation of the aforesaid  projects  under the MRTP Act. In part  C  of  the application  form  it has been mentioned that  the  promoter company  had made necessary applications for endorsement  in favour  of  the company of the Letter  of  Intent/Industrial Licences already issued by the Central Government under  the Industries (Development & Regulation) Act, 1951, in the name of  the  holding company, viz., RIL. It is,  therefore,  ex- tremely  difficult  to agree that the fact of issue  of  the earlier  series  of debentures by the RIL  or  the  purposes thereof  could have escaped the notice of the CCI,  particu- larly,  when it is remembered that the issue of G series  of debentures by the RIL was quite recent and had also attract- ed a lot of publicity. [74D-H; 75C-D]     3.2.  The  CCI was not performing the role of  a  social mentor  taking into account the purpose of RIL. If  RIL  has misutilised  any  of  its funds or the funds  had  not  been utilised for G-series, then RIL would be responsible to  its shareholders or to authorities in accordance with the  rele- vant provisions of the Companies Act, 1956. This aspect does not  enter  into sanctioning the capital issue for  the  new project  in accordance with the guidelines. Even if RIL  and RPL have to be treated as one for this purpose and the grant of consent for earlier debenture issues in favour of RIL are

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to  be  taken into account in judging the necessity  of  the issues, there is no illegality or irregularity in the  grant of  consent  to  RPL. RIL had not been able to  utilise  any part  of the ’G’ series of debentures on the MEG project  as there had been a cost overrun and it  was decided to have  a wholly-owned subsidiary. Hence the projects are those of the RIL  to be implemented by RPL. The additional finances  were needed for the extension, expansion and diversification of 50 the  projects originally envisaged. This is one of  the  ob- jects  for which a debenture issue is permissible under  the guidelines. [101F-H; 102A, B]     4.1. So far as HDPE is concerned, it appears that  there was  a valid licence; and it may be mentioned that  on  24th August,  1985 pursuant to an application made by  RIL  under section 22(3)(a) of the MRTP Act, the Govt. granted approval for  the establishment of a new undertaking for  manufacture of HDPE. [77F]     4.2. Regarding foreign collaboration, an application was made  by RIL in 1984 for approval of  foreign  collaboration with  M/s Du Pont Inc. Canada, for manufacture of HDPE.  The approval  was  given and the validity was extended  and  the foreign collaboration approval was endorsed in favour of RPL on  12th October, 1988. Similar other consents  were  there. Finally,  capital goods clearance was endorsed in favour  of RPL for the PVC project on 12th August, 1988. Capital  goods clearance  was  also  endorsed in favour  of  RPL  for  HDPE project on 23rd August, 1988. Thus, it will be seen that all the basic groundwork had already been done by the RIL. [77G, H; 78A]     4.3.  On 16th June, 1987 by a Press Note issued  by  the Deptt. of Industrial Development in the Ministry of Industry of  the  Govt.  of India declared that  where  a  transferee Company  is a fully owned subsidiary of the Company  holding the  Letter of Intent or licence, the change of the  Company implementing  the  project would be approved. It is  in  the light  of this that the Board of RIL on 30th December,  1987 passed a resolution to incorporate a 100% subsidiary Company whose main objects were to implement the licences/Letters of Intent received by RIL and to carry on the activities relat- ing to production and distribution. The resolution  approved the  name of the Company as RPL. On 11th January,  1988  the RPL  was incorporated and the Certificate  of  Incorporation was  issued. Thereafter, on 12th January, 1988 letters  were written by RIL for endorsement of licences/Letters of Intent in  favour of RPL. The certificate of commencement of  busi- ness was thereafter issued. [78B-E]     4.4. The Press Note is clear that the transfers from one company to an allied company were considered unexceptionable except  where trafficking in licences is intended.  In  this situation  the  change of name from RIL to RPL, of  the  li- cences,  letter  of intent and other approvals  was  only  a matter  of course and much importance cannot be attached  to the  fact  that CCI did not insist upon  these  endorsements being obtained even before the letter of consent is granted. In any event the letter of 51 consent is very clear. Clause (h) of the conditions attached to the consent letter makes it clear that the consent should not be construed as exempting the company from the operation of  the  provisions of the Monopolies  &  Restrictive  Trade Practices  Act, 1969, as amended. Clause (c) makes it  clear that it is a condition of this consent that the company will be subject to any measures of control, licensing, or  acqui- sition  that  may be brought into operation  either  by  the

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Central  or any State Government or any  authority  therein. Under  clause (t) the approval granted is without  prejudice to any other approval/permission that may be required to  be obtained  under any other Acts/laws in force. Having  regard to  the  above and also to the terms and conditions  of  the consent  letter,  the grant of consent itself  being  condi- tioned  on RPL obtaining the necessary  approvals,  consents and  permissions before embarking on the project, there  was no  impropriety  in  the CCI granting  the  consent  without waiting for the formal endorsement of the various  licences, letters  and  approvals in favour of RPL. Moreover,  CCI  is aware  of the progress of the various applications  made  by the company. The Controller is also aware that the ICICI had looked  into the financial soundness and feasibility of  the project  and there is material to show that the comments  of the  ICICI  were made available to him. When  a  project  is being  appraised by the institution like the ICICI and  when the CCI is also aware, by reason of the participation of his representatives at the meetings of the Department of  Indus- try and the Department of Company Affairs about the stage or outcome  of the proposals made under the IDR and MRTP  Acts, it is clear that the CCI did not overlook any crucial aspect and that his grant of consent in anticipation of the  neces- sary transfers to the RPL was based on a practical appraisal of the situation and fully in order. [78F-H; 79A, B; 80B-D]     5. There has been sufficient compliance with the  guide- lines  on the quantum of issue, debt-equity ratio,  interest rate  and  the period of redemption.  There  was  sufficient security  for the debentures in the facts and  circumstances of  this case. The preference in favour of  shareholders  of RIL  was  justified and based on  intelligible  differentia. Indeed, if one considers the role of the CCI, he is primari- ly concerned to ensure a balanced investment policy and  not to  guarantee the solvency or sufficiency of  the  security. Most  of  the  criticisms directed  against  deviation  from guidelines were misplaced. [94G, H; 95A, B]     6.1.  The discrimination alleged is on two grounds.  The first is that RIL is entitled straightaway to the  allotment of shares of the face value of Rs.57.50 crores whereas  only 5%  of the investment by the debenture holders can  be  con- verted into shares at par simultaneously 52 with  the issue. The second is that a loan of  Rs.50  crores advanced by RIL to RPL will be converted into shares at  par at  the  end of 3 years whereas the debenture  holders  will have  to  pay  a premium even for converting  20%  of  their debentures  into shares by that time. These  allegations  do not bear scrutiny. So far as the first ground is  concerned, there is no justification for a comparison between these two categories  of investors. RIL is the promoter company  which has  conceived the projects, got them  sanctioned,  invested huge amounts of time and money and transferred the  projects for  implementation to RPL. It is, therefore, in a class  by itself and there is nothing wrong if it is allotted  certain shares in the company, quite independently of the  debenture issue,  in  lieu of its investments. So far  as  the  second ground  is  concerned, it  overlooks  certain  disadvantages attached  to RIL in regard to the loan of Rs.50  crores  ad- vanced  by RIL as compared with the investor in  the  deben- tures.  Firstly, RIL’s advance is interest free for 3  years whereas  the debenture holders got interest at the  rate  of 12.5%  during  the period. Secondly, the debenture  loan  is secured while the RIL’s are not. Thus the debenture  holders have  certain benefits which RIL does not have and,  if  the debenture  holders have the disadvantage of having to pay  a

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premium,  that cannot constitute basis for a ground of  dis- crimination. [103E-H; 104 A, B]     6.2. RPL is a company--not the State or a State  instru- mentality-that  is issuing the shares and debentures. It  is entirely for the company to issue the shares and  debentures on  such terms as they may consider practicable  from  their point  of  view. There is no reason why they should  not  so structure the issue that it confers certain great advantages and benefits on the existing share holders or promoters than on the new subscribers. It is not permissible for the CCI to withhold  consent only for this reason or to stipulate  that consent can be given only if the share holders and promoters as  well  as prospective debenture holders are  all  treated alike. The subscribers to the debenture are only lenders  to the  company who have an option to convert their  debt  into equity  on certain terms. It is perfectly open to  the  sub- scribers  to balance the pros and cons of the issue  and  to desist from taking the debentures if they feel that the dice are  loaded unfavourably in favour of the  "proprietors"  of the company. [104B-E]     7.1.  In  the present case, a legal  mortgage  has  been created  by RPL in favour of the trustees in respect of  its immovable and movable assets, except book debts, in  respect of which financial institutions will hold a first charge  on account  of  foreign loan. RPL does not  have  any  existing loans.  Therefore,  the charge in favour  of  the  debenture holders 53 iS  presently  the  first charge. No  further  borrowing  is contemplated at this stage except the foreign currency  loan to  the  extent of Rs.84 crores. Even if the  value  of  the foreign  currency which has been sanctioned in principle  by the three financial institutions is taken into account,  the assets  coverage goes down at each stage and does  not  make any critical difference to the value of the security of  the debenture  holders  under the Trust Deed.  The  purposes  of borrowings,  namely, term-loan borrowings, deferred  payment credits/guarantees and borrowing for financing new  projects do not, on analysis, raise any difficulty. There are  suffi- cient  in-built checks and controls. The company,  being  an MRTP  company would have to obtain both MRTP permission  for creating  any security irrespective of its value  and  fresh CCI  consent under the CCI Act, except in case  of  exempted securities. [119G, H; 120A-C]     7.2.  With  the  escalation in the value  of  the  fixed assets  due to passage of time on the one hand and  the  re- demption  of a good portion of the debentures by the end  of three years on the other, the security provided is  complete and,  in  any  event, more than adequate  to  safeguard  the interests of the debenture holders. [96G, H]     8. Clauses 5 and 6 are only enabling clauses and in  the nature  of permitting the Company, despite the  mortgage  in favour  of the debenture holders, to carry on  his  business normally. What is referred to therein as residual charge  is really  a  floating charge. The  Company’s  normal  business activities  would necessarily involve alienation of some  of its  assets from time to time such as goods manufactured  by it as well as procurement and discharge of loan and accommo- dation  facilities  from banks, financial  institutions  and others.  The entire progress of the company would come to  a standstill in the absence of such enabling provisions.  They are  not only usual but essential because the basic idea  is that  the  finances raised by the debentures should  be  em- ployed for running the project profitably and thereby gener- ate more and more funds and assets which will also be avail-

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able  to  the debentures holders. Further what  the  clauses provide  is  only that the consent and  concurrence  of  the debenture holders need not be obtained by the company before creating securities that may have priority over the  present issue  of  debentures. But the trustees  for  the  debenture holders  have  to concur before the company  can  raise  any future  borrowings and create, therefor, the security  which will  have  priority  over the  security  available  to  the present debenture holders. The ICICI is not only a financial institution in the public sector but also one of the  insti- tutions  financing the project and thus has a stake  in  its success and so can be trusted to safeguard the interests  of the debenture holders. The debenture trust 54 deed  also  contains  a provision by which at  the  time  of creation of any future charge the terms and ranking have  to be agreed upon between RPL and ICICI. Clause 16 of the trust deed  authorises the trustees to intervene  and  crystallise the charge in certain circumstances and stultify an  attempt by  the company to create higher ranking charges. There  are also  restraints on the company under the Companies Act  and the  MRTP  Act  involving the consent  of  public  financial institutions,  Commercial  Banks, the  term  lenders,  share holders, the MRTP Commission, the Central Govt. and the  CCI before the creation of such securities. [98B-H; 99A, E, F]     9. In certain brochures and pamphlets issued by RPL, the debentures  were  described as  "fully  secured  convertible debentures".  The  company admitted that there  was  such  a description but explained that this was due to an oversight; the words "fully secured convertible debentures" were print- ed  in  some brochures instead of the words  "secured  fully convertible  debentures"  without meaning or  intending  any change. It was stated that the company’s representation  was that  the debentures were "secured fully convertible"  ones. This  is also what had been set out in the  application  for consent.  Though the company did claim that  the  debentures were also fully secured, the emphasis in the issue was  that the  debentures  were fully convertible  and  secured.  This explanation is plausible. No importance or significance need be  attached  to the different description in  some  places. particularly.  in  the  context of the  nature  of  security actually provided for the debentures. [95F-H; 96A]     10.  Prospectus issued by RPL is not misleading  because it stated that security will be provided to the satisfaction of  the trustees and the CCI accepted that statement in  the application  for  consent. The debenture trustees  are  well known financial institutions and it is not possible for  the CCI  to ensure more than the usual practice which  was  fol- lowed in the present case. [100D, E]     11.  The CCI modified paragraph 5 of the consent by  his letter  of the 19th July, 1988 to say that allotment to  the employees shall not exceed 50 debentures per individual.  It does  not appear that the restriction of the  allotments  to the  employees was at the instance of the Company; nor  does it  seem that any discrimination was intended in respect  of the  allotments  to the employees. Nor  has  attention  been invited to any legal requirements or guidelines  prescribing any fixed or minimum quota of allotment to the employees  of the  Company. Under the circumstances, the question of  dis- crimination does not arise. [107C, D] 55      12. The consent order of the CCI clearly indicated that the consent conveyed in the letter shall lapse on the expiry of 12 months from the date thereof. The consent order  cate- gorically stated that the approval was without prejudice  to

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any  other  aPproval/permission that may be required  to  be obtained  under any other Acts and laws in force. It  neces- sarily  follows that the obligation to obtain other  permis- sions  continued. There was no legal conditions  that  other approvals should be examined by the CCI before grant of  its own consent. 1112E, F]     13.1. As defined in the Companies Act, a debenture  need not be secured. Therefore, guideline 10 means that  security should  be provided as is customarily adopted  in  corporate practice.  In the present case, the debentures  are  compul- sorlly  convertible and so no repayment is really  involved. The debenture is essentially an acknowledgement of debt with a  commitments  to repay the principal  with  interest.  The question  of  security becomes relevant for the  purpose  of payment  of interest only in the unlikely event  of  winding up.  The guidelines did not provide for the quantum and  the nature  of  the  security. A debenture  may,  therefore,  be secured  or unsecured. An ordinary debenture has to be  dis- tinguished  from  a  mortgage  debenture  which  necessarily creates mortgage on the assets of a Company. A  compulsorily convertible  debenture does not postulate any  repayment  of the principal and so does not constitute a debenture in  the classic sense. Even a debenture which is only convertible at option has been recognised as a hybrid debenture. The guide- lines  for  the protection of debenture  holders  issued  on 14.1.1987 recognise the basic distinction between  converti- ble and non-convertible debenture. Compulsorily  convertible debentures  in  corporate  practice were  adopted  in  India sometime  after 1984. Wherever the concept  of  compulsorily convertible debenture is involved, various guidelines issued by  the Government of India treat them as equity and not  as loan  or  debt. Even a non-convertible  debenture  need  not always be secured. In fact, modern tendency is to raise loan by  unsecured stock which does not create any charge on  the assets  of a Company. Whenever a security is created, it  is invariably  in  the form of a floating charge.  In  addition they  are  frequently  secured by a trust  deed  as  in  the present  case  where specific property/land  etc.  has  been mortgaged to the trustees. [116E, F; 117B-G]     13.2.  In  the instant case, if the  permission  of  the debenture  holders  were  required or is  insisted  upon  to create  future security, 2.5 million debenture holders  have to be informed and invited for the meeting. The  extravagant effects  of this course would be collosal especially when  a shareholders  meeting  is also additionally called  for  the same 56 body  of persons. It is, therefore, incorrect to say that  a floating  charge creates an illusory charge  because  future securities  can  be  created ranking in  priority  over  it. [118D-E]     The  British India Steam Navigation Co: v.  The  Commis- sioner  of  Inland Revenue, [1881] 7 QBD 165;  Re.  Colonial Dusts Corporation, [1879] 15 Ch. 465; Speyar Brothers v. The Commissioner  of Inland Revenue, [1907] 1 KB 246;  Lemon  v. Austin Friars Investment Trust Ltd., [1926] 1 Ch. 15;  Flor- ence Land & Public Works Co., [1878] 10 Ch. 530; Re. Panama, New  Zealand, and Australian Royal Mail Co., [1870]  L.R.  5 Ch.  318; Re. Standard Manufacturing Co., [1891] 1 Ch.  627; Re.  Borak Foster v. Borax Co., [1901] 1 Ch.  326;  Creatnor Maritime Co. Ltd. v. Irish Marine Management Ltd., [1978]  1 WLR 966. referred to.     Palmer’s Company Law, 24th Edn. pp. 672, 675, 676,  706; The Encyclopaedia of Forms and Precedents, 4th Edn., Vol.  6 p. 1094, 1095, 1097, 1098, referred to.

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   14.  The Court, would be reluctant to  interfere  simply because one or more of the guidelines have not been  adhered to  even where there are substantial deviations  unless  the deviations are by nature and extent such as to prejudice the interests  of the public which it is their avowed object  to protect. Per Contra, the Court would be inclined to overlook or ignore such deviations, if the object of the statute  and public interest warrant, justify or necessitate such  devia- tions in a particular case. Judicial control takes over only where  the deviation either involves arbitrariness  or  dis- crimination  or  is so fundamental as to undermine  a  basic public  purpose which the guidelines and the  statute  under which  they are issued are intended to achieve. In  the  in- stant  case,  there is no such infraction of the  norms  re- quired  to  be followed in granting the  sanction.  [123F-H; 124A, B]     15.  Before the Courts grant any injunction they  should have  regard  to  the principles of comity of  courts  in  a federal  structure  and have regard  to  self-restraint  and circumspection.  It may be impossible to lay down  hard  and fast  rules  of general application because of  the  diverse situations which give rise to problems of this nature.  Each case has its own special facts and complications and it will be a disadvantage, rather than an advantage, to attempt  and apply any stereo-typed formula to all cases. Perhaps in this sphere,  the High Courts themselves might be able to  intro- duce  a  certain amount of discipline having regard  to  the principles of comity of courts administering the same gener- al 57 laws applicable all over the country in respect of  granting interim orders which will have repercussion or effect beyond the jurisdiction of the particular courts. Such an  exercise will  be a useful contribution in evolving good  conventions in the federal judicial system. [126F, G; 127A]     [Having  considered the facts and circumstances  of  the present  cases,  this Court directed refund of  the  sum  of Rs.one  lakh  deposited  RPL  as ordered  by  the  Court  on 9.9.1988.  The deposit amount was meant for payment  to  the petitioners in case they were to spend unduly.]

JUDGMENT: ORIGINAL JURISDICTION: Transfer Case Nos. 161-165 of 1988.     S.  Ganesh,  Arun Jaitely, Miss Bina Gupta,  Miss  Madhu Khatri,  A.N.  Haksar, Praveen Anand,  Anip  Sachthey,  B.L. Pagaria,  P.K.  Jain, Udai Holla and T.  Sridharan  for  the petitioners.     G.  Ramaswamy, Soli, J. Sorabjee, M.H. Baig, F.S.  Nari- man,  H.N.  Salve,  R. Sasiprabhu, S.S.  Shroff,  Mrs.  P.S. Shroff and S.A. Shroff for the Respondents. The Judgment of the Court was delivered by     SABYASACHI MUKHARJI, J. In these transferred writ  peti- tions and one suit, we are concerned with the powers,  func- tions  and the role of the Controller of Capital Issues.  By an  order dated 9th September, 1988 this Court had  directed that  the four writ petitions and one civil suit i.e.,  W.P. No.  1791/88 pending before the Delhi High court,  W.P.  No. 2708/88  pending  before the Jaipur Bench of  the  Rajasthan High Court, W.P. No.  12176/88 pending before the  Karnataka High  court, W.P. No. 4388/88 pending before the High  Court of  Bombay  and Civil Suit No. 1172/88  pending  before  the Civil  Judge,  Junior Division Bench,  Baroda,  Gujarat,  be

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transferred  to this Court for disposal. It would be  appro- priate  to deal with the facts of one of these,  i.e.,  W.P. No. 1791/88, which was filed in Delhi High Court in T.C. No. 161/88. The other writ petitions and the suit raise more  or less  identical  problems and issues on more  or  less  same facts.     The  petitioner  in that writ petition is  one  Narendra Kumar Maheshwari and the respondents are the Union of India, the Controller of Capital Issues, and Reliance  Petro-chemi- cals Ltd. (RPL). The case of the petitioner is that he is an individual who is a public spirited 58 person  and is an existing shareholder of the Company  known as Reliance Industries Ltd. (RIL), which was the promoter of Reliance Petrochemicals Limited, being the respondent No. 3. The petitioner held at all relevant times 144 shares of  RIL and  100 debentures of different categories. The  respondent No. 3, being RPL, was a newly set up public limited  company for  the purpose of carrying on the business of  manufacture of  petrochemicals. These petitions were filed in  different courts challenging the consent of the Controller of  Capital Issues  granted for the issue of shares (Rs. 50 crores)  and debentures  (Rs.516 crores) by the RPL. It was contended  in the  petition  that the respondents Nos. 1 &  2,  being  the Union  of India and the Controller of Capital Issues,  ought not to have granted consent to respondent No. 3, namely, RPL to  issue share and debenture capital at an aggregate  value of  approx.  Rs.600 crores. It may be mentioned  that  after these writ petitions and suit were filed, attempts were made to obtain injunction restraining the issue of  share-capital and debentures as advertised. By an order dated 19th August, 1988  passed  by this Court, this Court had  restrained  the issue  of such injunctions and directed that the shares  and debent- ures would be issued irrespective of any order of injunction passed by any court or authority in India. Different  cases, as  mentioned hereinbefore, were thereafter  transferred  to this Court.     On the basis of the said consent, it was stated that the respondent  No. 3 had issued prospectus and at the  relevant time had intended to open the issue from 22nd August,  1988, of  about  3 crores debentures of the face value  of  Rs.200 each  which was the largest convertible debentures issue  in India. It was alleged that the respondents had adopted  very sharp methods to collect money from the public and ultimate- ly  to defraud them. It was stated that under the  terms  of the  prospectus, each debenture of the face value of  Rs.200 would be fully convertible: Respondent No. 3 would issue one share  of  Rs.  10 at par on the date  of  allotment.  There would,  thus, be an equity capital of about Rs.30 crores  in all  on allotment. Further, it was stated that  the  Company would  convert  Rs.40 of each  convertible  debentures  into share after 3 years and the balance of Rs. 150 into share at any  time between five and seven years. It was mentioned  by the  Company  that it would convert at the second  stage  of conversion  at such premium to be allowed by the  Controller of  Capital Issues. The petitioner alleged that it  was  not clear  as to whether the investors would get 2 shares  or  3 shares or 4 shares for each debenture, at the second conver- sion  of  Rs.40.  Similarly, it was alleged  that  the  last portion  of Rs. 150 would be converted into shares any  time between  five and seven years at which time again  the  Con- troller, would fix the premium for conversion. The 59 petitioner  further stated that it was thus not  clear  what

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the equity capital of the Company would be, whether it would be  Rs. 150 crores or Rs.600 crores or whether the  residual amount  would go into reserve account or whether a  separate account  would be opened in respect of the premium.  It  was alleged that the respondent No. 3 being RPL had been promot- ed by RIL and the past history of RIL showed that the  share prices of RIL had fluctuated widely leaving lot of scope for manipulations. It was alleged in the petition that there was no  explanation from the company or anybody from  the  share market  as to why the share prices fluctuated so widely  and it was obvious that there were market operators who prop  up or  bring down the prices depending on how it  suited  their convenience.  The share value of RIL, the promoter  company, was  subjected to wide fluctuations on account of  the  pur- chase  and  sale operations of certain  interested  quarters close to the management of the respondent No. 3 Company,  it was  alleged. On more than one occasion during the past  six months, the sale of the share in the stock market was banned in some Stock-Exchanges due to fall in price. It was alleged that  it  indicated  the cooperation and  support  from  the authorities  for  maintaining the fictitious  value  of  the share  in the market; and thus on an equity capital  of  Rs. 152 crores an amount of Rs.800 crores in the premium account has  been obtained, but there would be no amount in  General Reserve account because the Company had not earned  anything worthwhile to put in General Reserve. It was further alleged that  the lack of bona fide of the Reliance group was  well- known; and that RIL had issued debentures of ’G’ Series  and had assured to pay interest up to 5th February, 1988. It was alleged that the Company did not keep up this assurance, but converted the debentures into equity shares in the month  of August,  1987 thereby avoiding payment of interest. In  this manner, it was alleged, the Company saved interest of  Rs.30 crores  whereas in fact it incurred a loss. The case of  the petitioner  was  that the Company was  obviously  trying  to repeat the same game through the new Company by  maintaining the share price only on an equity capital converted on  each debenture.  The  paramount duty of respondents Nos.  1  &  2 before according permission was, it was asserted, to  ensure that the requirement of the Company in raising such  capital was bona .fide. It was observed that no public interest  was intended to be served by respondent No. 1, as it had  chosen to  allow respondent No. 3 to collect such huge  amounts  in excess of the requirement.     It is further the case of the petitioner that the opera- tions’  of RIL (Promoter) subsequent to the raising of  past issues  made by it were subjected to severe criticisms  both in the press and in the public. It was 60 pointed out that though the issue proposed was of shares  of Rs.50  crores and debentures of Rs.516 crores,  the  company was  allowed to retain over-subscription to the tune of  15% amounting  to Rs.77.40 crores. It was alleged that  the  re- spondent  No. 3 was a new Company and it should not  be  al- lowed  15%  retention;  and if it  wanted  to  raise  Rs.600 crores,  it  should  have come out with  an  issue  of  that amount.  It was further alleged that the respondent  No.  2, without considering the propriety of the situation,  allowed the  respondent No. 3 to make issue of the capital  for  the interest  of a few people. Hence, the sanction of the  issue of  convertible  debentures of respondent No.  3  calls  for judicial  review. It was also alleged that the sanction  was approved at exorbitant terms: 5% of the face value (equal to nothing) according to the petitioner, would be converted  at par  on  allotment, another 20% {Rs.40) at a premium  to  be

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decided  by the Controller of Capital Issues after  3  years but  before 4 years of allotment and the balance of Rs.  150 at  such premium as might be permitted by the Controller  of Capital  Issues after 5 years but before the end of 7  years from the date of allotment. It was stated that the investors would be completely left thrown at the mercy of  respondents Nos. 3 & 4; and that till date no convertible debenture  had been issued on such vague terms. In those circumstances,  it was  submitted,  the consent of the  Controller  of  Capital Issues was bad, illegal on the ground hereinafter alleged:     The  consent order was hit by arbitrary  and  capricious exercise of jurisdiction by respondent No. 1. It was further alleged  that the respondent No. 3’s promoters i.e. RIL  had been  obtaining from respondent No. 1/2 such Consent  Orders on  the ground that it was in a position to raise such  huge moneys from the public for the purpose of implementation  of its projects without recourse to the Financial Institutions. According  to  the petitioner, for the first  time,  in  the corporate  history of India, RIL (Promoter) was  allowed  to raise Rs. 100 crores by way of issuance of ’F’ Series deben- tures.  On  account of the campaigning through  Brokers  for attractive returns, the public was misled and RIL wooed  the public  and collected Rs. 406 crores. RIL had not  made  any allotment  on  a proper basis but made  allotments  on  some basis  of ’Private Placement’. It was further  alleged  that the  management of RIL through its associate  companies  ob- tained  huge borrowals from nationalised banks; and  several bank  employees got into trouble due to advancing  of  loans for the purpose of subscription in the ’F’ Series debentures through  the  associated companies of respondent  No.  3/RIL which  had  popularly  come to be known  as  ’Reliance  Loan Mela’. It was alleged that the Controller of Capital  Issues and  Union of India acted mala fide in issuing  the  consent order 61 which was designed to benefit respondent No. 3 and prejudice the  interests of the investing public. It was  further  al- leged that in giving the consent order the respondent No.  1 blatantly  overlooked  the magnitude of the  sum  of  Rs.600 crores,  proposed to be raised from the public  through  the new issue of debentures.     It  was alleged that the act of respondent No.  1/2  was vitiated  as in issuing the consent order respondent  No.  2 was  influenced by extraneous considerations not germane  to the public interest. The Capital Market in India has  under- gone turbulent changes in the recent years. Small  investors such as employees, workers and small business community were coming forward, according to the petitioner, for the purpose of  investment  in corporate sector. It was  further  stated that  the  small  investors had no means  of  verifying  the correctness  or otherwise of the statements and  the  sound- ness/financial  viability  of any company.  It  was  further alleged that the respondents Nos. 1/2 had acted wrongly  and illegally  in allowing the respondent No. 3 to raise  share- capital  on premium for financing new projects. It was  con- tended  in the petition of the petitioner that  the  consent order was a fraud.     In  those  circumstances it was prayed  that  the  court should  exercise  its jurisdiction under Art.  226  and  set aside  the consent order which was for the public  issue  on 22nd August, 1988.     The facts and the circumstances leading to this  consent order  have  been stated in the affidavit on behalf  of  re- spondent No. 3 to the writ application. After disputing  the locus  of the petitioner, who challenged the  consent  order

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for  making  the public issue of  12.5  Secured  Convertible Debentures  by 3rd respondent, the respondent No.  3  stated that the petition suffers from laches and delays. On  behalf of  respondent No. 3 it was asserted that the public  issues made by the 3rd respondent had been promoted by RIL. The RIL and RPL are inter connected and represented companies in the large industrial house known as ’Reliance Group’.  According to respondent No. 3, they represented India’s fastest  grow- ing  private  sector  companies and  comprised  the  world’s second  largest investor family of over 30 lakhs  investors. It  was further asserted that the 3rd respondent would  have India’s largest private sector Petrochemical Complex for the manufacture  of  critically  scarce  raw-materials.  It  was stated  that the 3rd respondent would manufacture  versatile raw-material  which was behind the plastic revolution,  par- ticulars whereof have been mentioned in the Annexure. It was further  stated  that the petrochemical complex of  the  3rd respondent would come up at Hazira, District Surat in the 62 State of Gujarat and the production was planned to start  in a  phased  manner  between the next 18-24  months.  The  3rd respondent  would be setting up a state-of-art  world  class plant in collaboration with the world leaders in the respec- tive  fields,  i.e. (a) Du Pont, Canada for  HDPE  (b)  B.F. Goodrich  & Co. for PVC, and (c) Scientific Design  Co.  for MEG.     The  terms of the issue of debentures of the face  value of Rs.200 being fully converted into equity shares were  the following:               "(i)  A  sum of Rs. I0 being 5%  of  the  face               value  of  each  debentures by  way  of  first               conversion  immediately into one equity  share               at par on allotment;               (ii) A sum of Rs.40 being the 20% of the  face               value  of  each  debenture by  way  of  second               conversion  after three years but before  four               years from the date of allotment at a  premium               to  be  fixed  by the  Controller  of               Capital issues;               (iii) The balance of Rs. 150 representing  75%               of  the face value of each debenture as  third               conversion after five years but not later than               seven  years from the date of allotment  at  a               premium to be fixed by the Controller ofapital               Issues."     The  premium, it was stated on behalf of respondent  No. 3,  that  would be charged at the time  of  conversion  into equity  shares  would be as fixed and decided  by  the  pre- scribed  statutory  authority,  namely,  the  Controller  of Capital  issues,  and the 3rd respondent and  its  Board  of Directors  would not have any say in the matter or be  enti- tled  to  fix the same on their own. It was  further  stated that,  subject to the necessary approvals being obtained  in that behalf, the shareholders and the convertible  debenture holders of the respondent No. 3, promoter company, would  be entitled to participate in all the future issues of the  3rd respondent.  The  fully convertible debentures  of  the  3rd respondent would thus be a growth instrument with  different rights,  viz.,  earning a fixed rate of  interest  from  the first  day till it was converted into equity and  thereafter entitled to dividend that might be declared after conversion into  Equity. It is to that extent different from  a  purely equity share on which investor would earn dividend only when profits  are declared. Thus, the instrument proposed by  the 3rd  respondent, according to it, has the best  features  of

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share as well as debenture. Apart from the above, in accord- ance  with the application for listing made by the  3rd  re- spondent to the Bombay Stock Exchange and 63 Ahmedabad  Stock Exchange, the 3rd respondent  has  proposed that  all the three components or parts of  the  instrument, namely,  Part  ’A’  representing an equity  share  on  first conversion,  Part  ’B’ being 20% of the face  value  of  the debenture  and  Part ’C’ being the balance 75% of  the  face value of the debentures, would all be listed separately  and independently so that after allotment, an investor can  sell if  he so desires the convertible portion of the  debentures being  Part  ’B’ and ’C’, and just retain the  equity  share being Part ’A’. It was intended to ensure both liquidity and appreciation in the hands of the investor.     The  products which were intended to be manufactured  by the  3rd  respondent  were many, namely,  (a)  High  Density Polyethylene (HDPE) and Poly Vinyl Chloride (PVC) which  are raw-materials  behind plastic revolution; (b)  Mono  Ethylne Glycol (MEG) is a critical polyester raw-material; HDPE  and PVC being vital thermo plastic play an important role in the core sector and are used for manufacture of everything  from films to pipes, auto parts to cable coatings, and containers to furnishings. It is not necessary for the issues  involved in  these  applications to set out in detail the  very  many particulars given by the respondent No. 3 in support of  the contention  that a petrochemical complex proposed to be  set up by the new Company--respondent No. 3--would be beneficial socially and economically for the country as well as for the investors.     The advantages of convertible debentures proposed to  be issued at that time by the respondent No. 3 were also  high- lighted. It is stated that debentures are treated as equity. The  3rd respondent’s borrowing capacity remains  unutilised and  this would help it in implementing the future  projects expeditiously. The first phase of the project is financed by the  proposed issue of debentures and not by  large  capital borrowings from the public financial institutions (except to the  extent of foreign currency loans of Rs.85  crores  from them).  The interest which would, therefore, have been  pay- able  to  the  financial institutions will be  paid  to  the debenture holders ensuring them a return and  simultaneously the  convertible clause which would have been applicable  to term-loans obtained from the financial institutions would be available  to the investors thereby ensuring them growth  in equity value. It was further stated that since the preferen- tial  allotment  of 50% of the total issue was made  to  RIL shareholders, the shareholding pattern of the 3rd respondent will  be the most widely held people’s shareholding  in  the country  and it was pleaded that there will be at  least  20 lacs  shareholders  of the 3rd respondent which would  be  a world market record. 64     It was further stated that RIL, who are the promoters of the project, have one of the best track records for  setting up  of  the Projects such as Polyester Staple  Fibre  (PSF), Polyester  Filament Yarn (PFY), Linear Alkyl  Benzene  (LAB) and Purified Terphthalic Acid (PTA) plants at Patalganga  in record  time.  Business records of  Reliance’s  ’Vimal’  and ’Recorn’ were also emphasised. It is, however, not necessary for the purpose of the issues involved in these applications either  to dilate upon these or to consider the  correctness or otherwise of these assertions. Reliance’s plant at Patal- ganga complex in the State of Maharashtra and its beneficial effects  to  the  community and the State,  as  asserted  on

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behalf  of respondent No. 3, are also not relevant.  It  was stated that Reliance is privy to the technology of the world leaders,  such  as Du Pont of U.S.A. and  Imperial  Chemical Industries of UK. Mr. Pageria, learned counsel appearing for one of the petitioners, Radhey Shyam Goyal tried to  impress upon us that among the world leaders of technology, Du  Pont of  USA and Imperial Chemical Industries of UK cannot  claim such high position. Neither is it necessary nor is it possi- ble for us to consider these assertions and denials.     The industrial licences have been applied for and it was stated  that pending the formation and incorporation of  RPL on  4.1. 1988 under the Companies Act, 1956, RIL had  under- taken  and  performed various acts  and  deeds,  particulars whereof  have been mentioned in the Statement of  Facts.  In the Statement of facts filed on behalf of respondent No.  3, a  list  of consents and approvals obtained by the  3rd  re- spondent, has also been indicated.     It was further stated that pursuant to the order of this Court,  dated  19th August, 1988 the public issue  was  made under  the prospectus dated 27th July, 1988 which opened  on 22nd August, 1988 and closed on 31st August, 1988. There had been an overwhelming response to the issue from all  catego- ries    of    investors    including    nonresidents,    RIL shareholders/employees  and the issue was  heavily  oversub- scribed.  On behalf of the RPL, it was stated that the  time frame  of 10 weeks commencing from 1st September,  1988  and ending  on th November, 1988 had to be strictly adhered  to. The provisions of Section 73 and other applicable provisions of the Companies Act, 1956, the provisions of the Securities (Contract and Regulation) Act, 1956 and the listing require- ments of the Stock Exchanges were also complied with. It  was stated on behalf of the 3rd respondent that for  the purpose 65 of  finalising  the means of finance of HDPE,  PVC  and  MEG Projects,  RIL  as the promoters of the 3rd  respondent  had engaged  the  services of the Merchant Banking  Division  of ICICI which is a public financial institution and one of the foremost  consultants in the field. During  the  discussions which were initiated in the second half of 1987 with  ICICI, the idea of implementing these projects through a new  inde- pendent  Company instead of RIL had taken shape duly  taking into  account  the financial  aspects,  management  aspects, issues  related to management and operation control of  set- ting  up the projects within the existing company  vis-a-vis the  setting up of the projects in the new  company,  namely the 3rd respondent company, was taken up. The 3rd respondent company and ICICI also considered various alternative  means of financing project keeping in view the following criteria:               (a)  That  the project should  be  financially               beneficial to the company. (b) That it  should               be financially attractive to the investor. (c)               That  it should be operationally easy for  the               company  and the investor. (d) That it  should               meet the institutional/stock exchange/Ministry               of  Finance  norms and guidelines  as  regards               financing  of projects. (e) That it should  be               sustainable and attractive enough in terms               of  the profitability/servicing capability  of               the  project.  (f) That it should  reduce  the               dependence  of  the company  on  institutional               finance.  (g)  That it  should  encourage  the               capital market activity in India.     The various alternative means of issue of security  such as  equity  share and/or convertible  cumulative  preference

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shares (CCP) and/or partially convertible debentures  and/or non-convertible  debentures and/or equity  linked  debenture issue and/or fully convertible debentures were all  examined by  the management and ICICI at length from various  aspects including the aforesaid aspect, it was asserted on behalf of respondent No. 3.     It was reiterated that the Controller of Capital  Issues had applied his mind and considered all relevant,  pertinent and proximate matters and the Controller bona fide  bestowed painstaking  consideration by examining the entire gamut  of means of finance, the volume of finance needed and types  of securities,  marketability of securities, conditions of  the capital  market  and other relevant  considerations  as  are normally  and properly to be evaluated by him as  an  expert authority.  A  specialised  expert  statutory  authority  or agency under a valid and legal enactment has been set up for the  purpose of examining on what basis securities  such  as share and/or convertible debenture should be issued 66 and  the merits of his conclusions are not open to  judicial review.     It  has  to be borne in mind that the  writ  petitioners were  only potential investors in the shares and  debentures proposed  to be issued at the time when a large part of  the averments  had been made. It was open to them, if they  felt that  the scheme was not attractive not to subscribe to  the issues. It was, however, not possible for them, contend  the respondents, to prohibit the issue. or prevent the taking of other  steps in pursuance thereof. Respondents 3 and 4  have set out various reasons why an interim injunction should not be granted. These are unnecessary to be dealt with now  when the matter is being finally disposed of.     Two  other affidavits are necessary to be  referred  to. One  is the rejoinder affidavit on behalf of the  petitioner in  writ  petition No. 1791 of 1988 before  the  Delhi  High Court, and the other is on behalf of the Government. So  far as  the petition of Narendra Kumar Maheshwari is  concerned, it is necessary to note that he has stated that the  capital market  had  undergone  changes in raising  issues  and  the investors  had  no means of verifying  the  correctness  and soundness  of the financial viability of the scheme. It  was stated that the Central Govt. did not take the responsibili- ty  for financial soundness of the scheme. It  was  asserted that  a new share of a new company could not be raised at  a premium but the Govt. had improperly permitted the issue  of shares of a new company at a premium in the instant case. It was  stated  that  the consent order of  the  Controller  of Capital  Issues stated that premium would be payable on  the shares to be allotted on conversion which, according to  the deponent, amounted to fraud on the investing public and  the subterfuge to boost up the market value of shares of RIL.     It was reiterated that the RPL had been promoted by  RIL whose  shares had fluctuated in the share market  so  widely for which no explanation came forth from the company.  These fluctuations  in  the share market were,  according  to  the petitioner,  on account of purchases/ sales made by  certain interested  quarters close to the management. On many  occa- sions  the sale of the share of RIL in the stock market  was banned in some stock exchanges due to fall in prices  which, according to the deponent, was a clear indication of cooper- ation and support from the authorities.     It was further alleged that there was discrimination  in respect of time period of conversion of loan/investment into equity  between  the shareholders of RIL and  the  investing public. Immediately on allot-

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67 ment  the  conversion  of percentage of  investment  of  the rights  holders  is  53.49% whereas that  of  the  investing public is only 5%. At the end of 3 years from the  debenture allotment  date, percentage debenture conversion of  invest- ment of the rights holders is 46.51% and that of the invest- ing public is nil. Hence, after the end of 3 years time  the percentage of conversion in investment of rights holders  is 100% whereas that of the investment of right holders at  the end  of 3 years in figures is approx Rs. 107.50  crores  and the  investing public is only 29.67 crores. Between 3 and  4 years of debenture allotment the percentage of conversion of allotment of rights holders is nil and that of the investing public is 20%. Between 5 and 7 years of the debenture allot- ment date the percentage of conversion of investment of  the rights  holders was nil and that of the investing public  is 75%. Thus the conversion of the debenture allotment  between 3  and  7  years of rights holders is nil and  that  of  the investing  public  is 95%, which in figures comes  to  about Rs.563.73 crores.     In  a democratic set up in the country, it was  asserted on  behalf  of the petitioners, the sanction  of  the  issue amounted  to  concentration  of wealth  in  one  hand  which brought  danger to the national economy and was against  the Directive  Principles of State policy enshrined in the  Con- stitution. It was submitted that the validity of the consent order  had  to be decided on the merits of the case  in  the background of the aforesaid. The petitioner had every  right to question the validity of the consent order, it was  stat- ed.     One  consolidated reply to all these writ  petitions  on behalf of the Union of India through the Secretariat, Minis- try of Finance, Deptt. of Economic Affairs and Controller of Capital  Issues was filed by means of an affidavit  affirmed by  Mr. Prabhat Chandra Rastogi who. at the  relevant  time, was  the  Under-Secretary in the Ministry  of  Finance,  and Deputy  Controller of Capital Issues in the office  of  Con- troller of Capital Issues. He has mentioned that the consent of Capital Issues was granted on 4th July, 1988 and the same was  amended to a certain extent on 19th & 26th July,  1988. He  has  explained in his affidavit the  background  of  the circumstances leading to the consent order.     In relation to the 3 projects, namely, (i) for  manufac- ture of 1,00,000 tonnes per annum Polyvinyl Chloride  (PVC), (ii) 60,000 tonnes per annum of MEG (Mono Ethylene  Glycol); and  (iii)  50,000 tonnes per annum. of HDPE  (High  Density Polyethylene),  RPL  submitted an application for  issue  of capital on or about 4th May, 1988 in 68 the  prescribed  form. RPL proposed raising  of  capital  by various  instruments, like, equity shares,  cumulative  con- vertible preference shares (CCP’), partly convertible deben- tures,  intended to be issued to the public, to  the  share- holders  of  RIL, debenture-holders and deposit  holders  of RIL.  The  original  proposal for approval  related  to  the following instruments:               Instrument                   Amount   in   Rs.               (Crores)                     Equity                     Reliance         Industries         Ltd.               47.00                     Shareholders,           debentureholders               4.00                     and deposit holders of Reliance                     Industries Ltd.

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                   Public               6.00                     Cumulative convertible                     Preference Shares (CCPS)                     Non-resident Indians/Foreign                     Collaborators/Indian   Resident   Public               81.00                     Convertible Debentures                     Sharesholders,   debentureholders    and               214                     deposit holders of Reliance                     Industries Ltd.                     Public               241               The   instrument  of  convertible   cumulative               preference shares was proposed to be converted               at  a price to be fixed by the 2nd  respondent               at  premium  not  exceeding  Rs.40  per  share               between the third and fifth year from the date               of allotment. The debentures proposed were               to be of the face value of Rs.500 each and the               conversion was to be of Rs.200 into 10  shares               as follows:                     "6%  of the face value (Rs.30) would  be               compulsorily converted into equity at par at 1               year from allotment.                      16% of the face value (Rs.80) would  be               compulsorily converted at 2 years from  allot-               ment into equity at a premium to be decided at               the  time of conversion but not  greater  than               Rs.20 per share.               69                     18%  of the face value (Rs.90) would  be               compulsorily converted into equity at 3  years               from  allotment  at a premium decided  at  the               time of conversion but not greater than  Rs.30               per share.                     60% of the face value (Rs.300) would  be               redeemed between 8th and th years from  allot-               ment by draw of lots."     It  appears  that the Industrial Credit  and  Investment Corpn. of India Ltd. (for short ICICI), was the lead  finan- cial  institution and lead manager for the issue of  capital of  RPL,  and its merchant banking  department,  having  the necessary  expertise,  was interacting between the  2nd  re- spondent, namely, the Controller of Capital Issues and  RPL. Discussions  were  held with ICICI to evaluate  whether  the company could proceed with the proposal by respondent No.  3 (RPL)  by removing the instrument of  cumulative  preference shares as also the nonconvertible portion of the debentures. This would have been necessitated by the sluggishness in the capital  market,  the market  reactions  to  non-convertible debentures  and the discount at which such instruments  were traded  after  they came into existence, the  complexity  of cumulative  convertible  preference shares and  the  general reaction anticipated from the public for investment. It  was stated  that it was necessary to encourage  investments  and draw out savings from the home saving sector so that invest- ments  into productive and industrial sectors are  promoted. The  need to encourage growth of the Capital Market  and  to provide impetus for investment in a depressed market  condi- tion  through several liberalisation steps, were factors  in the  consideration  of the Controller of Capital  Issues  so that on balance investment in the industrial sector in  high priority  industries  could be encouraged. RPL  revised  its

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proposal  under which it proposed to raise equity shares  of Rs.50  crores from RIL--its promoter. The fully  convertible debenture issue of Rs.5 16 crores from public was sought  to be subscribed to in a manner that 50% on preferential  share basis to be allotted to shareholders, debenture-holders  and fixed  deposit  holders of RIL. RPL made  a  suggestion  for issue  of debentures’ of the face value of Rs.200 each  with the following terms and conditions:               (i) 5% of the face value of the debentures  at               par on allotment;                     (ii) 20% of the face value (inclusive of               premium)  at  a premium as may be  decided  in               consultation  with the Controller  of  Capital               Issues at the end of the fourth year from  the               date of allotment.               70                     (iii) the residual portion (inclusive of               premium)  at  a premium as may be  decided  in               consultation  with the Controller  of  Capital               Issues at the end of the seventh year from the               date of allotment.     In view of the revised project cost it was felt that the promoter’s contribution of Rs.50 crores was less and RIL  as promoters  were told, as asserted in the affidavit,  to  in- crease  the  promoter’s  contribution to 15%  of  the  total project cost of Rs.700 crores. RIL in view of this  require- ment, agreed to bring in Rs. 107.50 crores as its  contribu- tion to RPL, out of which a sum of Rs.50 crores was directed to  be kept as interest-free unsecured loan at the  time  of allotment which would be converted into equity at par at the expiry of 36 months from the date of allotment of  converti- ble debentures.     As  a practice, it is asserted, respondent No.  2  being the  CCI,  observed  that  debenture  holders/fixed  deposit holders  of RIL were not eligible for preferential  reserva- tion  in  the  capital issue of RPL, and thus  RPL  was  not permitted to issue capital to these categories on  preferen- tial  basis and only the shareholders of RIL were  permitted preferential entitlement in accordance with the practice.     By  a Press Release dated 15th September, 1984  the  2nd respondent  had issued certain non-statutory guidelines  for approval of issue of secured convertible and non-convertible debentures.  These guidelines had been subsequently  amended by  Press  Release  dated 8.3. 1985.  Guidelines  were  also issued by Press Release on 19.8.1985 for issue of  converti- ble  cumulative  preference  shares.  There  are  guidelines issued  by Press Release dated 1.8.1985 for employees  stock option   scheme.  In  accordance  with  the  guidelines   of 15.9.1984, as amended on 8.3. 1985, the consent for  capital issue for secured fully convertible debentures was issued as the  projects originally to be established in RIL were  per- mitted by the Deptt. of Company Affairs to be transferred to RPL.  The application for industrial licences  and  endorse- ments thereof from RIL to RPL had already been filed includ- ing,  inter alia, the endorsement of the letters  of  intent for the MEG Project. The scheme of finance for setting up of 3  projects,  namely,  PVC, HDPE and MEG  had  already  been approved by the Deptt. of Economic Affairs in favour of RIL, promoter  of  respondent  No. 3 and the  Deptt.  of  Company Affairs also approved the transfer of project to RPL, and  a revised scheme of finance was to be submitted by RPL. It was asserted that it was on the basis of appraisal by the ICICI, a  public  financial  institution which  had  evaluated  the project cost for the 3 71

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projects for the purpose of implementation of RPL. ICICI had evaluated  the estimated project cost at Rs.700  crores  for setting up 3 undertakings of RPL--post transfer from RIL, to RPL for implementation. Applications for the endorsement  of industrial licences and the Letter of Intent had been  filed with  the Deptt. of Industrial Development, Secretariat  for industrial  Approvals and these were pending  consideration. The object of the issue was setting up of a new project  and was within the scope of the guide lines.     The  proposal  contemplated was within  the  debt-equity norms and ratio in accordance with para 4 of the  non-statu- tory  guidelines as the debt in the proposal  aggregated  to Rs.47 1 crores. This is because debentures are considered as debt  only when they are unredeemed beyond the period  of  5 years  as  per Explanation to Section 5(ii) of  the  Capital Issues (Exemption) Order, 1969. In the present case, 25%  of the face value of the debenture would stand redeemed by  the 3rd  and  4th  year and before the 5th year,  and  it  would therefore  not  be considered as debt for  evaluating  debt- equity-ratio  as per the guidelines. Similarly, the  promot- er’s  contribution  of  Rs. 100 crores  plus  25%  converted debentures  at  the end of 5 years would be  categorised  as equity representing share-capital and free-reserves convert- ed  from the total investment of Rs.516 crores  proposed  by RPL. It was assumed to aggregate to Rs.229 crores and  debt- equity-ratio  thus  came to  2.05:1-which  approximates  the ratio of 2: 1.     It  was  further asserted that  these  guidelines  being non-statutory  and  not rigid, a relaxation in the  norm  of debt-equity-ratio of 2:1 is considered favourably for  capi- tal  intensive  projects like petrochemicals  which  require large  investments as would appear from the Note annexed  to the  guidelines. The guidelines postulate that these  deben- tures  should be secured. The proposal  itself  contemplated that  the security would be in such form and manner  as  re- quired  by the trustees for the debenture holders  for  con- vertible  debentures.  It  was asserted that it  was  not  a requirement  of the guidelines that the debenture  issue  be compulsorily  under-written. The guidelines themselves  con- templated that the 2nd respondent could satisfy himself that the  issue need not be underwritten. An application to  this effect  had  been  made by RPL and was granted  by  the  2nd respondent after carefully examining this issue. The  guide- lines contemplated simultaneous listing of shares and deben- tures. In the present case, upon allotment, there was simul- taneous compulsory conversion of 5% of the face value of the convertible  debentures.  It was stated that it was  not  an equity  linked  debenture as was asserted on behalf  of  the petitioner. 72     However, it was further stated that, in view of the size of  the  issues, there was a modification dated  19th  July, 1988  of the consent order which restricted and put  a  non- transferability condition on the preferential entitlement of the  shareholders  of RPL. It was limited to  the  corporate shareholders of RIL and relaxed for individual  shareholders of  RIL. The restrictive condition on their right  to  sell. transfer  and  hypothecate their  shareholding  was  thought necessary in order to ensure that they do not disinvest soon after the issue and thus dilute their stake in the Company.     On  behalf  of the Controller it was asserted  that  the guidelines  should not be construed in a manner which  would fetter, constrict or inhibit statutory discretion vested  in the  2nd respondent for taking decisions in the interest  of the  Capital-market and for national purpose  of  furthering

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the  growth of industrialisation and investment in  priority sectors  so  as to encourage employment and  demand  in  the national  economy. The objectives of the control,  according to  the  deponent,  contemplated under  the  Capital  Issues (Control)  Act  was to prevent wasteful investments  and  to promote sound methods of corporate finance. It was  asserted that  the  administrative guidelines were only  enabling  in nature  and could not and ought not to be construed as  pre- venting  the statutory authority from adopting or  modifying varying  norms in operational area of implementing the  pur- poses of the Act especially when there were no fetters under the Statute.     The  Controller  of Capital Issues had  issued,  it  was stated,  guidelines  as a result of the war-time  needs  and controls,  since the year 1947 and flow from the  experience gained under the Defence of India Rules 1939. Hence, accord- ing to the deponent, these controls have been  progressively reduced  and the Capital Issue (Exemption) Order,  1969  was brought  into force so as to reduce the rigours of the  Act. In the absence of any control for capital issues for securi- ties, according to the deponent, there would be no fetter or restriction  on the part of the Company to borrow  or  raise capital from the market. It is to check raising of  wasteful capital and to avoid investment being made in nonproductive, non-priority  sectors  and non-commensurate with  the  needs that  the  Act in question was brought into force.  This  is being  implemented with the aid of competent bodies.  It  is further stated that the stipulation for fixation of  premium at the time of conversion is not a new practice and had been applied  in  the year 1986 in the case of  Standard  Medical Leasing  as  also in ATV Projects Ltd.  and  the  Industrial Credit & Investment Corpn. of India Ltd. As regards Convert- ible  Debenture  Issue,  it was asserted that  there  is  no violation of the provi- 73 sions  of  Section 81(5) of the Companies Act, 1956  as  the section contemplates only an optional conversion of  Govern- ment  loan  into equities. In the instant  case,there  is  a compulsory  conversion  of publicly held debentures  of  the convertible  type. In the premises, Sec. 81(5) of  the  said Act  has absolutely, according to the deponent, no  applica- tion to the facts and circumstances of the case.     All these petitions challenge only the grant of sanction by  the Controller of Capital Issues, though  different  as- pects  have been highlighted in the different petitions  and we have heard different learned counsel. We have, therefore, to examine what is the scope of the powers and functions  of the  Controller  of  Capital Issues  while  discharging  his statutory  functions  in  according  sanctions  to   capital issues. It is further necessary to examine if that role  has in  anyway, changed or altered due to the  present  economic and social conditions prevailing in the country. It has also to be considered whether the guidelines or the provisions of law  under which the Controller has functioned or  has  pur- ported  to function in this case, were proper or  there  had been  deviations  from these guidelines. If  so,  were  such deviations possible or permissible? It is further  necessary to  examine  whether the Controller has acted  bona.fide  in law.  These are the broad questions which have to be  viewed in  respect  of the challenge to the consent order.  It  is, therefore,  necessary to examine the broad features as  have emerged.     Counsel  for  the petitioners contended that  the  RPL’s application  had been entertained even without  the  company fulfilling  the  requirements of a  proper  application  and

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furnishing  the necessary consents and approvals,  processed with  undue  expedition within a very short time  and  sanc- tioned without any application of mind to the crucial  terms of the issue which were detrimental to public interest. This contention,  when  analysed, turns on a  number  of  aspects which can be dealt with separately.     (a)  It  is submitted that the application was  made  on 4.5.88  and sanctioned on 4.7.88--within hardly a period  of two  months;  this  reflects undue  haste  and  favouritism, particularly  if  one  has regard to the  magnitude  of  the public  issue proposed to be made and the various  financial and other intricacies involved. We are unable to accept this contention. In the first place, an application of this  type is  intended  to be disposed of with  great  expedition.  In particular, in a project of the type proposed to be launched by the petitioner, passage of time may prejudicially  affect the applicant and it is not only desirable but also 74 necessary that the application should be disposed of  within as short a time as possible. It is, therefore, difficult  to say that the period of two months taken in granting  consent in  the present case is so short that an inference of  haste must  follow.  Secondly, on behalf of the Union of  India  a list of various applications received and disposed of by the office of the CCI between September 1987 and September  1988 has been placed before us to show that, generally  speaking. these applications are disposed of within a month or two. It is  true that none of these issues is of the  same  colossal magnitude as the. present issue. Nevertheless, the  Control- ler  of  Capital Issues could hardly  keep  the  application pending  merely because the amount involved is heavy. It  is not possible therefore to say merely from the short span  of time that there was a hasty grant of consent in the  present case.     (b)  Secondly, it has been submitted that the RPL was  a company  which  was incorporated only on  11.1.88.  RIL  had issued  a ’G’ series of debentures as recently as  1986  for the same projects. In granting consent to the present  issue the Controller of Capital Issues has completely  over-looked the  fact that in respect of the same projects the  RIL  had been permitted to raise debentures on earlier occasions.  We do not think that the petitioners are correct in saying that the Controller of Capital Issues has over-looked or was  not aware of the debenture issues by the RIL or the purposes for which these debenture issues had been sanctioned. The appli- cation for consent makes it clear that the petitioner compa- ny is a new company promoted by RIL and that RIL was promot- ing this company to manufacture HDPE, PVC and MEG at Hazira. The  application refers to the fact that the total  cost  of the  project was expected to be Rs.650 crores and that  this cost had been approved earlier in 1985. Considering that RPL had  come into existence only on 11.1.1988, this  was  clear indication  that the projects for which the debenture  issue was being proposed were projects which had been mooted  even by the RIL as early as 1985. Again in the detailed  applica- tion  form submitted by the RPL it has been  mentioned  that the RIL had already obtained approval of the Central Govern- ment for implementation of the aforesaid projects under  the MRTP  Act.  In part C of the application form  it  has  been mentioned  that  the  promoter company  had  made  necessary applications for endorsement in favour of the company of the Letter  of Intent/Industrial Licences already issued by  the Central  Government  under  the  Industries  (Development  & Regulation) Act, 195 1, in the name of the holding  company, the RIL. In the context of these statements it is  extremely

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difficult  to  agree that the fact of issue of  the  earlier series  of  debentures by the RIL or  the  purposes  thereof could have escaped the 75 notice of the CCI, particularly, when it is remembered  that the  issue  of G series of debentures by the RIL  was  quite recent  and had also attracted a lot of publicity.  We  have elsewhere  discussed the contention raised on behalf of  the petitioners  that  the  consent given  has  contravened  the guidelines  because  finances were being raised for  no  new project  but  for the same old projects for  which  RIL  had collected  funds.  We  have  there  pointed  out  that,  MEG project, for all practical purposes, was a new project  that was to be implemented by the RPL and the funds raised by the RIL had been insufficient for even the PAT and LAB  projects launched  by it. The learned Addl. Solicitor General  states that  there was earlier correspondence between the  RIL  and the  CCI  regarding  the cost over-run of the  PTA  and  LAB projects.  We have not gone into the details of this  corre- spondence  as  it  is not our purpose to  enquire  into  the details  of  the  matter. We are referring to  it  only  for indicating  that  the  CCI was fully aware  of  the  earlier series  of debentures, of the stage of the various  projects proposed  therein,  of  the  actual  implementation  of  the projects, of the cost over-run, of the proposal to  transfer to some of those from RIL to RPL and the exact  requirements of  the  present  issue. It is not possible  to  accept  the contention  that  the  consent of the CCI  was  accorded  in ignorance of the facts pertaining to the G series of  deben- tures.     (c)  Thirdly, it is submitted that having regard to  the requirements  of the pro forma prescribed under  the  rules, the  application  for  consent could not have  at  all  been considered by the CCI until the RPL produced the  industrial licence  in  its favour, the collaboration  agreements,  the approvals  of the financial institutions and  the  approvals under the MRTP Act. It is submitted that the application  of the petitioner was cleared hurriedly without insisting  upon these  clearances and this was done specially to oblige  the company.  We must first of all point out that the pro  forma relied  on indicates a general procedure and should  not  be understood  as  a rigid requirement. It is, of  course,  the duty  of the CCI to be satisfied that before the  debentures are actually issued the applicant company has all the neces- sary  licences,  consents, orders, approvals,  etc.  in  its favour.  We are satisfied that in the present case there  is no  reason  to doubt that he had been so  satisfied  if  one remembers that those projects had been initiated by the  RIL which had gone through the necessary exercises and all  that remained to be done was a formal approval of their  transfer for implementation to the RPL. We  shall first refer to the steps taken by the RIL in  this regard. 76     On  10th  October,  1983 as RIL proposed  to  engage  in manufacture of MEG, it filed an application for grant of  an Industrial  Licence  under  the  Industries  (Development  & Regulation) Act, 195 1. On 16th August, 1984 RIL received  a Letter  of  Intent  No. 653(84)  Regn.  No.  1323(83)-IL/SCS issued  by the Govt. of India for the manufacture of  40,000 TPA  of MEG. Thereafter, from time to time on  the  applica- tions made by the RIL, the Govt. of India by various letters extended the validity of the period ending up to 30th  June, 1989. The last of such extensions was made by a letter dated 2nd September, 1988. On 11th May, 1988 pursuant to an appli-

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cation  made,  the  Govt. of India  permitted  expansion  of capacity  for manufacture of MEG from 40,000 TPA  to  60,000 TPA. From 12th January, 1988 to 22nd July, 1988 applications were  made by RIL for change of Company from RIL to RPL  for the  MEG Project. It appears that on 11th August,  1988  ap- proval/sanction was granted by the Govt. of India for change in the implementing agency from RIL to RPL. On or about 19th January,  1985  a letter from the Govt. of  Maharashtra  was issued, stating that there was no objection to the Company’s proposal  for  change of location for the MEG  Project  from Maharashtra  to  Gujarat. It also appears from  the  various documents  which  are mentioned in Vol. IV  of  the  present Paper Books at different pages (from 22 to 44) that by  var- ious orders under the MRTP Act, sanctions and  modifications were approved, the latest sanction being dated 11th October, 1988  whereby  the Govt. approved the proposal  of  RPL  for modified  scheme of Finance. It is also significant to  men- tion  that  on 25th January, 1988 an  application  was  made under  Sec.  22(3)(d) of the MRTP Act with the  proposal  to implement the MEG Project along with other projects of  RPL. It  may be mentioned that by a letter dated 6th  June,  1988 RIL had informed that they had originally planned to utilise a  sum of Rs.85 crores from ’G’ Series debentures  for  this project.  But, however, they were not able t9  utilise  this money as the entire ’G’ Series amount had been utilised  for PTA  and Lab projects including the working capital  on  ac- count of overrun in the cost of LAB and PTA projects. Hence, it  applied  for permitting a new scheme of finance.  By  an order dated 2 Ist July, 1988 the Govt. accorded approval  to the  proposal  of RIL for modified scheme of finance  to  be implemented by RIL. Thereafter, RPL made an application  for modification  of  the  scheme of finance and  the  same  was approved by the Govt’s order dated 11th October, 1988.     It  appears  that on 9th October, 1984  pursuant  to  an application  made by RIL for foreign collaboration with  M/s Union  Carbide Corporation, USA, the Govt. of India  by  its order  of  that date accorded approval to the terms  of  the foreign collaboration for a 77 period  of six months for this project. It  further  appears that on 14th March, 1986 pursuant to an application made  by RIL,  the Govt. accorded approval for foreign  collaboration with  M/s  Scientific Design Company. It  may,  however,  be mentioned  that there was a letter dated 30.4. 1986  whereby approval was granted by the Reserve Bank of India in respect of  foreign  collaboration  agreement  with  M/s  Scientific Design Co. USA.     The  next aspect of the matter which has to be borne  in mind  in  view of the contentions urged  was  regarding  the licences.  It appears that there was an application on  25th March, 1987, for licence. On 9th August, 1988 the Industrial Licence  dated 25.3. 1984 granted to RIL for manufacture  of PVC  was endorsed to RIL. This is important because  one  of the  contentions that Shri Pagaria during the course of  his long submissions made was that there was no valid licence.     It  also  appears that so far as the MRTP  Act  is  con- cerned,  an  application was made by RIL on  or  about  12th October,  1984 under Sec. 22(3)(a) for manufacture  of  PVC. Several other steps were taken and on 29th June, 1988  there was  an order of the Govt. of India under Sec.  22(3)(d)  of the  Act,  according approval to the proposal  for  modified scheme of finance.     There  was a further proposal for modification and  fur- ther  orders.  Last of such order was  dated  11th  October, 1988. Similarly, regarding the foreign collaboration,  there

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were  approval letters and the last one was dated  12th  Au- gust, 1988 for endorsement of foreign collaboration approval in  favour of RPL. So far as HDPE is concerned,  it  appears that there was a valid licence; and it may be mentioned that on 24th August, 1985 pursuant to an application made by  RIL under  section 22(3)(a) of the MRTP Act, the  Govt.  granted approval  for  the establishment of a  new  undertaking  for manufacture of HDPE.     Regarding foreign collaboration, an application was made by  RIL in 1984 for approval of foreign  collaboration  with M/s  Du  Pont  Inc. Canada, for manufacture  of  HDPE.  Such approval  was  given and the validity was extended  and  the foreign collaboration approval was endorsed in favour of RPL on  12th October, 1988. Similar other consents  were  there. Mention may be made of letters dated 28th April, 11th March, 6th December, 1986, 2nd January, 1987, 15th July, 25th, 26th July,  19th  August, 1988 which appear at various  pages  of Vol. IV of the papers. Finally, capital-goods clearance  was endorsed in favour 78 of  RPL  for the PVC project on 12th August,  1988.  Capital goods clearance was also endorsed in favour of RPL for  HDPE project on 23rd August, 1988. Thus, it will be seen that all the basic groundwork had already been done by the RIL.     It  is in above perspective that one has to examine  the events  that  have  happened. The question that  has  to  be considered is whether the CCI could take it for granted that these  approvals, consents, etc. would  stand  automatically transferred  to the RPL. On 16th June, 1987 by a Press  Note issued by the Deptt. of Industrial Development in the Minis- try  of Industry, the Govt. of India declared that  where  a transferee Company is a fully owned subsidiary of the Compa- ny  holding the Letter of Intent or licence, the  change  of the  Company implementing the project would be approved.  It is in the light of this that the Board of RIL on 30th Decem- ber, 1987 passed a resolution to incorporate a 100% subsidi- ary  Company whose main objects were, inter alia, to  imple- ment the licences/Letters of Intent received by RIL and  the objects of undertaking, processing, converting,  manufactur- ing,  formulating, using, buying, dealing, acquiring,  stor- ing,  packing, selling, transporting, distributing  and  im- porting etc. and approved the name of the Company as RPL. On 11th January, 1988 the RPL was incorporated and the Certifi- cate of Incorporation was issued. Thereafter, on 12th  Janu- ary,  1988  letters were written by RIL for  endorsement  of licences/Letters of Intent in favour of RPL. The certificate of commencement of business was thereafter issued.     The  Press note earlier referred to makes it clear  that the  transfers  from one company to an allied  company  were considered  unexceptionable  except  where  trafficking   in licences  is intended. In this situation the change of  name from  RIL  to RPL, of the licences, letters  of  intent  and other approvals was only a matter of course and much  impor- tance cannot be attached to the fact that CCI did not insist upon  these  endorsements  being obtained  even  before  the letter  of  consent is granted. In any event the  letter  of consent is very clear. Clause (h) of the conditions attached to the consent letter makes it clear that the consent should not be construed as exempting the company from the operation of  the  provisions of the Monopolies  &  Restrictive  Trade Practices  Act, 1969, as amended. Clause (e) makes it  clear that it is a condition of this consent that the company will be subject to any measures of control, licensing, or  acqui- sition  that  may be brought into operation  either  by  the Central  or any State Government or any  authority  therein.

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Under  clause (t) the approval granted is without  prejudice to any other approval/permission that may be required to be 79 obtained  under any other Acts/laws in force. Having  regard to  the above history as well as having regard to the  terms and  conditions of the consent letter, the grant of  consent itself being conditioned on the RPL obtaining the  necessary approvals, consents and permissions before embarking on  the project,  we do not think that there was any impropriety  in the CCI granting the consent without waiting for the  formal endorsement  of the various licences, letters and  approvals in favour of the RPL. (d) It is next submitted that under para 3 of the guidelines issued the Government, the amount of issue of debentures for project  financing and other objects will be  considered  on the  basis of the approvals of the scheme of finance by  the financial  institutions/banks/ Government under  the  provi- sions of the MRTP Act, etc. The criticism in this respect is that  since  no approvals of the scheme of  finance  by  the financial institutions/banks/Government under the provisions of the MRTP Act etc. had been produced before the Controller of Capital Issues he could not have been satisfied that  the amount of issue of debentures was necessary and adequate  on the  basis  of such approvals. This argument proceeds  on  a misconception  of  the Government set up  for  dealing  with these  matters.  The learned  Additional  Solicitor  General points  out that the Controller of Capital Issues  does  not function in isolation, sitting at his desk and awaiting  the various types of clearances and consents that are  necessary to be obtained from various quarters before granting consent to  an issue. He points out that the CCI functions in  close coordination  with  all  the concerned  departments  of  the Government.  He is in close touch with the progress of  var- ious projects. On references from the Department of  Company Affairs,  the CCI (MRTP) Section furnishes comments  on  the scheme  of finance relating to the proposals  of  industrial undertakings  covered under the MRTP Act for effecting  sub- stantial  expansion  for  setting up  of  new  undertakings, merger/amalgamations;  and  acquisition/takeover  of   other undertakings.  The comments are furnished to the  Department of  Company Affairs with reference to the norms relating  to equity  debt  ratio  promoter’s  contribution,  dilution  of foreign  equity,  listing requirements for shares  on  Stock Exchanges and on analysis of balance sheets for cash genera- tion etc. An officer attends regular meetings of the Adviso- ry  Committee  meetings held in the  Department  of  Company Affairs in terms of the MRTP Act, hearing held in Department of Company Affairs under section 29 of the MRTP Act,  inter- departmental  meetings  held in the  Department  of  Company Affairs to consider specific issues relating to applications received  under the MRTP Act,  Licensing-cum-MRTP  Committee meetings 80 held in the Department of Industrial Development,  screening committee meetings held in the Administrative Ministries  to consider  applications  from MRTP  companies  and  statutory public hearings held in the MRTP Commission. The  submission of the learned Solicitor General in short is that, in  deal- ing with application for consent to an issue of capital, the CCI does not act in isolation but the entire Central Govern- ment  functions with various Departments closely  monitoring and  coordinating the scrutiny of applications.  He,  there- fore, submits that the Controller of Capital Issues is aware of  the  progress of the various applications  made  by  the company.  The  Controller is also aware that the  ICICI  had

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looked  into the financial soundness and feasibility of  the project  and there is material to show that the comments  of the  ICICI  were made available to him. When  a  project  is being  appraised by the institution like the ICICI and  when the CCI is also aware, by reason of the participation of his representatives at the meetings of the Department of  Indus- try and the Department of Company Affairs about the stage or outcome  of the proposals made under the IDR and MRTP  Acts, it is clear that the CCI did not overlook any crucial aspect and that his grant of consent in anticipation of the  neces- sary transfers to the RPL was based on a practical appraisal of the situation and fully in order.     The  assumptions behind the petitioners’ arguments  that the terms of the issue as proposed by the RPL were  approved in  toto by the CCI-without examination is  also  unfounded. The  record  before us indicates that  there  were  frequent discussions leading to alterations in the original proposals from  time to time as well as changes in the  conditions  of consent  both  before and even after the letter  of  consent dated 4.7.1988. Some aspects of these have been referred  to elsewhere and some are referred to below and these will show that  consent  was not granted as a matter  of  course.  The allegation that consent was accorded without any application of mind is, on the materials before us, clearly untenable.     It is stated in the affidavit that in March/April,  1988 discussions  centered around the concept of cumulative  con- vertible  preference  shares (CCP) which was  mooted  as  an instrument for the means of finance. The instrument  offered would have been equity shares to the extent of Rs.57 crores, cumulative  convertible preference shares to the  extent  of Rs.81  crores  and convertible debentures to the  extent  of Rs.478  crores  with four conversions. In  this  connection, reference may be made to Annexure 1 at page 39 of the  reply affidavit filed in these proceedings by RPL. Thereafter,  on 4th May, 1988 RPL made an 81 application  to  the Controller of  Capital  Issues  seeking permission  to  make an Issue of Capital on  certain  condi- tions. Specific details thereof are not necessary to be  set out here. It also made a proposal for issue of 81 lakhs  10% cumulative convertible preference shares of Rs. 100 each for cash   at   par   through   prospectus   to    non--resident Indians/resident Indian public--81 crores. It is stated that in  accordance  with the present guidelines  issued  by  the Govt.  of India, the Company intended to retain excess  sub- scription  amount  to the extent of 15%  of  Rs.566  crores, i.e., a right to retain an additional amount.     It was further stated that in accordance with the Guide- lines  issued  by the Government of India, the  Company  had intended to retain excess subscription amount to the  extent of  15% of Rs.566 crores, i.e., a right to retain  an  addi- tional amount of Rs.85 crores. The idea was that the company would in the event of over-subscription request the CCI  for allotment of such additional amount of Rs.85 crores. It  was further proposed to issue a part of the cumulative converti- ble  preference  shares to NRIS and a part  to  the  foreign collaborators.               Terms  of the proposed convertible  debentures               were:                      (a)  Convertible debentures upto  12.5%               (interest)  taxable: Each  convertible  deben-               tures  of  Rs.500 would be converted  into  10               equity  shares  of Rs. 10 each as  per  scheme               envisaged.  The residual portion of each  Con-               vertible Debenture would be redeemable at  the

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             end of th year from the date of allotment with               an  option  to  the  company  to  repay  these               amounts in one or more instalments by  drawing               lots  at  any time after the end of  5th  year               from the date of allotment.                      (b) Cumulative  Convertible  Preference               Shares  10% (dividend) taxable. Each CCP would               be fully converted into equity share of Rs. 10               each at such a premium not exceeding Rs.40 per               share  as might be approved by the CCI at  any               time between the 3rd and/or 5th year from  the               date of allotment to be decided by the  compa-               ny, by draw of lots, if necessary. Then there are other conditions regarding securities, under- writing, allotment of equity shares to RIL shareholders.  In May,  1988,  several NRIS also evinced  interest  in  equity participation  in  RPL. It was stated that  though  the  CCP shares  appeared  to  be most  appropriate  instrument,  the computation of reserved/preferential entitle- 82 ment resulted in very low entitlement to the existing share- holders  of  RIL. It was then contemplated to  increase  the preferential  entitlement  of  RIL  investors  on  partially convertible  debentures and the ratio of convertible  deben- tures was altered so as give equal share between RIL  inves- tors and the members of public. A three stage conversion was contemplated.  Thereafter, in June 1988, a revised  proposal to  the CCI was made by RPL. It is not necessary to set  out in  detail the said revised proposal. After several  discus- sion, on or about 1st June, 1988, between the company,  RPL, the  Merchant Bankers, ICICI and the Office of CCI,  it  was asserted  on  behalf of the respondent No.  3  that  serious reservations  were expressed that the marketability  of  CCP shares and the investors resistance was likely to be  there. It was in this context and also after considering the reser- vations  that  might  be there on the part  of  the  foreign collaborators  and NRIs, that the CCI required the issue  of fully convertible debentures. The institutional proposal  of the project cost emerged at Rs.700 crores instead of  Rs.650 crores and it was then felt that RIL should increase its own contribution to the project by way of a promotors’ contribu- tion at Rs. 100 crores, thereby increasing its stake to  14% at the suggestion of CCI. It was stated that this was also a requirement  of the CCI guidelines and MRTP  conditions.  At the  end of June, 1988, there was an amendment of the  Order by  the Department of Company Affairs in favour of  RPL  for PVC. Similarly, on 21st July, 1988, the order for MEG passed for  RIL  was amended permitting RPL to  undertake  the  new projects  for implementation of the MEG Project. It  is  not necessary to set out in detail these proposals. On 4th July, 1988,  CCI  granted  the consent under  the  Capital  Issues (Control)  Act, 1947 to the public issue. There were  varia- tions  between the proposal and the Order of consent of  the CCI.     It may be necessary at this stage to refer to the  Order dated 4th July, 1988, which is as follows:               "With    reference   to   your   letter    No.               BOK/DKG/505(c)  dated 8.6.1988, I am  directed               to  say that the Central Govt. in exercise  of               the  powers  conferred by the  Capital  Issues               (Control)  Act,  1947, do  hereby  give  their               consent to an issue by M/s Reliance Petrochem-               icals  Ltd.,  a company  incorporated  in  the               State of Maharashtra, of capital of the  value               of  Rs.650.90 crores (inclusive of  retainable

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             excess subscription to the extent of  Rs.84.90               crores). (A) 5,75,00,000 Equity shares of  Rs.               10  each  for  cash at par’  to  M/s  Reliance               Industries   Ltd.  (inclusive  of   retainable               excess               83               subscription to the extent of Rs.7.50 crores).               (B) 2,96,70,000  12.5%  secured,   redeemable,               convertible debentures of Rs.200 each for cash               at par to public by a prospectus (inclusive of               retainable   excess  subscription   of   77.40               crores).               2. Out of (B) above, reservations for  prefer-               ential allotment will be made as follows:               (i)  Shareholders of M/s  Reliance  Industries               Ltd.               50%.                   (ii)  Employees (including Indian  working               Directors)/ workers of the company and of  M/s               RIL.  5% Unsubscribed portion, if any, of  the               reservations  will  be  added  to  the  public               offer.                   The  Convertible  debentures  will   carry               interest 12.5% p.a. (taxable). The  Debentures               will be fully and compulsorily convertible  in               the following manner:                   (a) 5% of the face value at par on  allot-               ment of the debentures.                   (b) 20% of the face value at a premium  if               any,  as may be decided by this  office  after               three  years  but before four years  from  the               date of allotment of debentures.                   (c) The balance at such a premium if  any,               as may be decided by this office after 5 years               but before the end of 7 years from the date of               allotment.               3. The consent given as aforesaid is qualified               by  the conditions mentioned in  the  Annexure               and the company shall comply with the terms of               the conditions so imposed.               4. I am to make it quite clear that the  grant               of consent to the issue of capital  represents               no  commitment of any kind on the part of  the               Central  Govt.  to render  assistance  in  the               matters.  of priorities or licences  for  sup-               plies  of  raw  materials,  machinery,  steel,               etc.,  of  transport facilities or  any  other               governmental assistance, including the  provi-               sion for foreign exchange.               84               5. This order also conveys the approval of the               Central  Govt. under proviso to Rule  19(2)(b)               of   the  Securities  Contracts   (Regulation)               Rules, 1957 subject to the condition that  the               allotment  to the employees shall  not  exceed               200 shares per individual.                    6. This letter is issued in the name  and               under  the  authority  of  the  President   of               India."                   There  was Annexure to the said Order.  In               that  Annexure, certain conditions  were  laid               down and condition (a) stipulated that in  any               prospectus  or other document referred  to  in               section 4 of the Capital Issues (Control) Act,               1947,  relating to this issue,  the  statement

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             required  by  that section must be  worded  as               follows:               "Consent  of the Central Government  has  been               obtained to this issue by an order of which  a               complete copy is open to public inspection  at               the  Head  Office of the Company. It  must  be               distinctly  understood  that  in  giving  this               consent  the  Central Govt. do  not  take  any               responsibility for the financial soundness  of               any  scheme or for the correctness of  any  of               the statements made or opinions expressed with               regard to them."     It further imposed the condition (b) that the consent to lapse  on the expiry of twelve months from the date of  con- sent.  Order also stipulated that the consent should not  be construed as exempting the company from the operation of the provisions  of the Monopolies & Restrictive Trade  Practices Act,  1969, as amended. The consent also indicated that  the company would be subject to any measures of control, licens- ing,  or  acquisition that might be brought  into  operation either  by the Central or any State Govts. or any  authority therein.  It  also enjoined the company to ensure  that  the prospectus  for the issue of securities consented to  should be printed subject to certain conditions. It also  enjoined, inter alia, that the convertible debentures should be allot- ted  to the employees of the company and of M/s RIL and  the shareholders of M/s RIL. On conversion the equity shares  so converted should not be transferred/sold/hypothecated for  a minimum period of three years from the date of allotment  of convertible  debentures. The other special  conditions  con- tained the following:               "(v)  The equity shares to be allotted to  the               promoters   of  the  company  shall   not   be               sold/hypothecated/transferred for               85               at  least three years from the date of  allot-               ment.               (w)  It is a condition of this  consent  order               that the proceeds from the issue of debentures               should  be invested in fixed duration   depos-               its/instruments    with    the    cooperative/               nationalised  banks, UTI,  Financial  Institu-               tions, Public Sector Undertakings (other  than               public sector bonds) and be used strictly  for               the requirements of the projects mentioned  in               the application and not for any other purpose.               (x) M/s Reliance Industries Limited will bring               in additional amount of Rs.50 crores as inter-               est  free  unsecured  loans, at  the  time  of               allotment of the above convertible  debentures               as  additional  promoters  contribution  which               will  be converted into equity at par  on  the               expiry of 36 months from the date of allotment               of convertible debentures.               (y) (i) The company shall scrupulously  adhere               to the time limit of 10 weeks from the date of               closure of the subscription list for allotment               of  all securities and despatch  of  allotment               letters/certificates and refund orders.                   (ii)  The  company shall, at the  time  of               filing  its  application for  listing  to  the               regional Stock Exchange, furnish an  undertak-               ing  for  compliance of the  above  condition,               along  with a scheme incorporating the  neces-               sary  details  of the  arrangements  for  such

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             compliance.  This undertaking shall be  signed               by the Chief Executive or a person  authorised               by the Board of the company.                   (iii)  The  company shall file,  with  the               Executive Director or Secretary of the region-               al Stock Exchange, within five working days of               the expiry of the stipulated period as  above,               a statement signed by the Chief Executive or a               person  authorised  by the  Board,  certifying               that the allotment letters/securities and  the               refund orders have been despatched within  the               prescribed  time  limit as per  the  condition               above.  A copy of the statement shall  be  en-               dorsed  to the office of the CCI quoting  this               consent order and date.               (iv) Non-compliance of conditions above  shall               be;               86               punishable by the Stock Exchange, in  addition               to  the  action  that may be  taken  by  other               competent authorities."     The  other  conditions mentioned therein  are  not  very relevant.  These only enjoin certain procedural  safeguards. The  said consent order was amended on the 19th July,  1988, which  clarified that the intention for  imposing  condition (w) as set out above, was not to block all the funds  raised out should be invested in terms of the conditions laid  down aforesaid.  The amendment enjoined that the approval of  the Central  Government should be subject to the condition  that allotment  to the employees should not exceed 50  debentures per individual. It was further added that the company should obtain prior approval of the Reserve Bank of India, Exchange Control  Department, for the allotment of debentures to  the non-residents as required under the Foreign Exchange Regula- tion Act, 1973. There was a further amendment of the Consent Order  on the 26th July, 1988 which added condition  (s)  to the following effect:               "(s) The convertible debentures to be allotted               to  the employees of M/s RPL and M/s  RIL  and               the  corporate shareholders of M/s RIL  (other               than individual shareholders of M/s RIL) shall               not be sold/transferred/hypothecated till  the               end  of 3 years from the date of allotment  of               debentures. On conversion the equity shares so               converted  shall not  be  transferred/sold/hy-               pothecated  for  a minimum period of  3  years               from  the  date of  allotment  of  convertible               debentures." It  was stated that between 4th January, 1988 to 24th  July, 1988,  news  about the formation of RPL and to  set  up  the projects  at Hazira, Gujarat and the consent granted by  CCI for  convertible debentures for RPL--all these  were  widely reported  in  various  newspapers  and  magazines  including national  dailies  such as Times of India,  Indian  Express, Financial Express, Gujarat Samachar, Hindustan Times, Bombay Samachar,  Business Standards and other magazines  and  news items.  Thereafter,  till mid August, 1988, there  were  de- tailed  advertisements  about the company  and  nearly  1600 insertions  in nearly 200 newspapers and dailies  were  made advising the opening of the issue. There were from mid July, 1988  onwards till August, 1988, advertisement campaigns  in television  and radio to attract investments in  Petrochemi- cals advising the public about the issue of Rs.593.40 crores of  convertible debentures of RPL. It is asserted on  behalf of the respondents that the public issue of these shares was

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made known 87 since  mid July, 1988. As mentioned hereinbefore  since  the words "till conversion" were capable of wide  interpretation and  might have rendered the  shares/convertible  debentures non-transferable  for  upto 7 years, the  CCI  modified  the consent and limited this restriction to a period of 3 years. On  July 27, 1988, the prospectus of RPL was filed with  the Registrar  of Companies, Gujarat and the Stock Exchanges  at Bombay  and Ahmedabad. On August 22, 1988, the issue of  RPL opened  for subscription. A letter was addressed to the  CCI on  August 23, 1988, requesting for the lifting  of  embargo for  non-transferability for three years for  the  corporate shareholders of RIL also. It is asserted that by August  31, 1988, the issue of RPL was fully/over subscribed and closed. By October 25, 1988, the basis of allotment was approved  by Ahmedabad  Stock  Exchange.  A resolution of  the  Board  of Directors of RPL was passed on October 27, 1988 to allot the debentures/shares. On November 4, 1988, lease deed for  land at  Hazira between RPL and GIDC was executed. There  was  no objection  certificate  obtained from GIDC. It  is  asserted that  the  Debenture Trust Deed between RPL  and  ICICI  was executed at Surat and was lodged for registration on  Novem- ber,  7, 1988. Certificate of Mortgage under Section 132  of the  Companies  Act,  1956 was issued by  the  Registrar  of Companies, Gujarat regarding the creation of charge for  the Debentures on November 11, 1988 itself.     In this context, on behalf of the respondents, Mr.  Baig drew our attention to certain dates indicating that the writ petitioners  were  aware of this and it was stated  that  on July 20, 1988, Mr. Radheyshyam Goyal, the Writ Petitioner in Rajasthan  High Court, wrote a letter to the Editor  of  the Financial  Express that the premia for the issue  of  shares upon the second and third conversion had not been fixed  and the  terms and conditions were vague. Shri Goyal  also  made certain  other allegations. Though, of course, no  complaint was  ever made to RIL or RPL on this aspect, on  August  16, 1988, one Mr. J.P. Sharma filed a complaint of Unfair  Trade Practices  under  the MRTP Act before  the  MRTP  Commission seeking injunction against the issue opening on 22nd August, 1988 and alleging the same breaches as claimed by the  peti- tioners in the Transfer cases.     On  being moved, this Court, on August 19, 1988,  passed an order in Transfer Petition,; No. 192-193 of 1988  staying the  three pending Writ Petitions in the three High  Courts, namely,  Bangalore, Delhi and Jaipur and further stayed  the proceedings  in the suit being Civil Suit No. 1172  of  1988 filed  in Baroda. It was directed that the issue  of  deben- tures would proceed without hindrance notwithstanding any 88 proceedings  instituted or orders passed and that any  order or direction or injunction already passed or which might  be passed  would remain suspended till further orders  of  this Court.  It was mentioned that on August 29, 1988,  the  com- plaint  filed by Shri Sharma before the MRTP Commission  was dismissed. On August 31, 1988, one Shri Arvind Kumar  Sanga- neria  issued  notice through his Advocate advising  that  a Writ Petition was being preferred in the Bombay High  Court. On September 1, 1988, this Court granted an ex-parte stay of the  proceedings in Writ Petition No. 4388 of  1988  pending before the Bombay High Court. As mentioned hereinbefore,  on September 9, 1988, this Court had transferred the four  Writ Petitions  in  the four High Courts and civil suit  to  this Court.  It  appears that there was a further  writ  petition filed by Shri Suni1 Ambani in the High Court of Allabahad on

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the basis of two articles published in the Indian Express.     Shri Ganesh made submissions in Transfer Case No. 164 of 1988.  Shri Haksar made his submissions in T.C. No.  161  of 1988. Shri Pagaria argued T.C. 162 of 1988. Shri Udai  Holla who was the counsel for the petitioner in Karnataka matters, appeared  in T.C. 163 of 1988 and made his  submissions.  We heard  Mr. G. Ramaswamy, Additional Solicitor General.  Shri Soli J. Sorabjee, Shri Baig and Shri Salve argued on  behalf of respondents 1 and 2 and Shri F.S. Nariman for  respondent No. 3 in T.C. No. 162 of 1988.     Inasmuch as the charge is the non-evaluation by the  CCI in  enforcing  and  applying the  principles  of  guidelines properly, it would be appropriate at this stage to refer  to the  said guidelines. It appears that from time to time,  in exercise of the powers conferred by section 12 of the  Capi- tal  Issues (Control) Act, 1947, the Central Government  had issued  rules  and guidelines. On or about April  17,  1982, guidelines were issued by the Government of India under  the said  Act  for the "Issue of Debentures  by  public  Limited Companies".  It is not necessary to set out in detail  these guidelines, but it may be necessary to refer to clauses  (4) and (6) of the said guidelines. Clause (4) reads as follows:               "4. Debt-equity.’ The debt-equity ratio  shall               not normally exceed 2: 1. For this purpose:                         "Debt"  will  mean all  term  loans,               debentures and bonds with an initial  maturity               period of five years or more, including inter-               est  accrued  thereon. It  also  includes  all               deferred  payment liabilities but it does  not               include short-               89               term  bank borrowings and advances,  unsecured               deposits or loans from the public,  sharehold-               ers  and  employees, and  unsecured  loans  or               deposits  from others. It should also  include               the proposed debenture issue.                         "Equity"  will  mean  paid-up  share               capital including preference capital and  free               reserves.               Notes: (1) The computations under guidelines 3               and  4  mentioned above will be based  on  the               latest available audited balance-sheet of  the               company.               (2)  A relaxation in the norm  of  debt-equity               ratio of 2:1 will be considered favourably for               capital-intensive  projects such as  fertiliz-               ers, petro-chemicals, cement, paper,  shipping               etc."               Clause  (6) of the said guidelines deals  with               the period of redemption and is as follows:               "6.  Period of Redemption.’  Debentures  shall               not  normally be redeemable before the  expiry               of  the  period of seven years except  in  the               following cases:                        (i) A company will have the option of               redeeming  the debentures from the 5th to  the               9th year from the date of issue in such a  way               that the average period of redemption  contin-               ues  to be seven years. While exercising  such               option  the small investors having  debentures               of the face value not exceeding Rs.5,000  will               have to be paid in one instalment only.                        (ii)   In  case  of   non-convertible               debentures  or nonconvertible portion of  con-               vertible  debentures  a company may  have  the

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             option  of  getting the  debentures  converted               into equity fully with the approval of and  at               such.  price as may be determined by the  Con-               troller  of  Capital  Issues.  The   debenture               holders will, however, be free not to exercise               this right." Clause  (8)  provides for the  denomination  of  debentures. Clause  (9) enjoins the listing of debentures on  the  Stock Exchange.  Clause (10) stipulates that only  secured  deben- tures would be permitted for issue to 90 the  public.  Clause,(11) enjoins the  underwriting  of  the debentures and clause (12) also provides for listing of  the shares of the company proposing debenture issue. Clause (13) permits  linked issue of shares and debentures.  There  were certain amendments to these guidelines which would be  noted at the relevant time.      While  considering the question of the  application  or non-application of mind or infringement of guidelines, it is necessary  to bear in mind the role of the CCI in  this  re- spect. The CCI functions under the Capital Issues  (Control) Act,  1947. This is an Act to provide for control  over  the issue  of  capital.  Section 2(e) of the  said  Act  defines "securities"  and states that the "securities" means any  of the following instruments issued or to be issued, or created or to be created, by or for the benefit of a company,  name- ly:               (i) shares, stocks and bonds;               (ii) debentures;               (iii) mortgage deeds, etc.; and               (iv) instruments acknowledging loan or indebt-               edness.      Section  3(1) of the said Act enjoins that  no  company incorporated in the States shall, except with the consent of the Central Government, make an issue of capital outside the States.  The other sub-sections of Section 3 deal  with  the modalities of such consent. It  may be mentioned that the Statement of Objects and  Rea- sons of the Act states that the object of this measure is to keep in existence ....  the control over capital issue which was  imposed by Rule 94-A of the Defence of India  Rules  in May,  1943  and continued in force after the expiry  of  the Defence of India Act by Ordinance No. XX of 1946. The State- ment  further states that although there has been an  appre- ciable  change in the general conditions  which  constituted the  principal  reason for the introduction of  the  control during  war-time, it was thought in the light of  experience gained  that  the control was still necessary  to  secure  a balanced investment of the country’s resources in  industry, agriculture and the social services. (See Gazette of  India, 1947, Part V, p. 264).      In  this connection, Shri G. Ramaswamy,  learned  Addi- tional I  Solicitor General for the Union of India drew  our attention to the 91 Debates  of the Lok Sabha and the Rajya Sabha  in  February- March, 1956 when the question of continuance of the  control of the capital issues came up for consideration. The  Minis- ter  of Finance, Shri C.D. Deshmukh stated that the  control of  capital issues was first introduced in May,  1943  under the  Defence  of  India Rules. It was  continued  after  the termination  of the war by an Ordinance, thereafter in  1947 by an Act for a term of three years and it was again succes- sively  extended in 1950 and 1952. The Act as it  stood  ex- pired  on the 31st March, 1956. The main purpose  which  the

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Minister explained was to prevent the diversion of  investi- ble   resources   to   none-essential   projects   (emphasis supplied),  the  control had also been used for  many  other purposes  and  the most important of  these  purposes  which might  be called ancillary purposes were the  regulation  of the issue of bonus shares, regulation of capital reorganisa- tion plans of companies including mergers, and amalgamations which involved the use or re-issue of capital and the  regu- lation  of the capital structure. Shri Ashok Mehta,  then  a Member of Parliament, suggested that the purpose of the  Act might be used for evolving a national investment policy. The Minister of Finance further observed that many things  might have  been done to give a proper form and shape to  the  na- tional investment policy (emphasis supplied), but the Minis- ter expressed his surprise how these could have been secured through a negative piece of control (emphasis supplied) like the  Capital Issue Control Act. He observed that there  were other provisions like the Industries (Development &  Regula- tion)  Act,  under which licences were given to  new  indus- tries.  But  this, according to the Minister,  was  not  the purpose  of the negative control of the capital issue.  Var- ious suggestions were made by the members of the  Parliament about the role of the Act, for instance, to encourage public companies,  not too much concentration of particular  indus- tries at particular areas, etc. The Minister referred to the various other Acts which control the industry and the Minis- ter  also  referred that there should not  be  undue  delay. Similar  statements  were  made by Mr. M.C.  Shah  in  Rajya Sabha,  who  was  then the Minister for  Revenue  and  Civil Expenditure. One Member in Rajya Sabha made it  particularly clear that the consent of the Government had been misleading to  some investors and thought that by a regulation, it  was essential that in the prospectus it should be clearly stated that the sanction by the Government did not mean any guaran- tee  about the suitability or the successful running of  the industry. Therefore, this sanction of the Government  should be  stated  more clearly and the public  should  be  clearly warned  that a sanction of the Government did not imply  any sort of guarantee by the Government. 92     We  have referred to the debates only to highlight  that the purpose of the Bill was to secure a balanced  investment of the country’s resources in the industry and not to ensure so much the soundness of the investment or give any  guaran- tee to the investors. The section of the Act in question  in express  terms  does not enjoin the CCI  to  discharge  such obligations nor does the background of the Act so encompass.     There  was considerable discussion before us as  to  the scope  of the powers and responsibilities of the  CCI  while granting  his consent to an issue of shares  and  debentures proposed  by a company. As stated above, the  learned  Addi- tional Solicitor General submitted that the restrictions  on issue  of  capital were introduced as part  of  the  control measures  found  necessary during the period  of  the  first world  war  and that, after the war ended, the  control  was continued  as  it was thought "in the  light  of  experience gained that control is still necessary to secure a  balanced investment of the country’s resources in industry,  agricul- ture  and the social services" (vide, the statement  of  Ob- jects  and  Reasons of the Act in 1947). He  urged,  relying also  upon the speech of the concerned Minister at the  time of  moving the amendment bill of 1956 in Parliament,  (which placed the measure on a permanent footing) that all that the CCI  is  concerned  with is to ensure  that  the  investible resources of the country are properly utilised for  priority

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purposes  and are not invested in non-essential projects  or in  a manner which runs counter to the  accepted  investment policies  of  the  Government. The CCI,  he  submitted,  has neither  the  duty,  nor the staff, the  facilities  or  the expertise to enquire about. or investigate into, the  finan- cial soundness or acceptability of the issue proposed to  be made. He pointed out that one of the conditions on which all consent  is granted is that the Central Government does  not take  any responsibility for the financial soundness of  any scheme or the correctness of any statement made or  opinions expressed  in the prospectus and the condition is  also  ex- plicitly set out in the prospectus.     We  are unable to agree fully with this somewhat  narrow aspect  of the CCI’s role. In the very speech in  Parliament to which the learned Additional Solicitor General  referred, the Minister also stated:               "Apart from this main object of the Bill which               is thus to prevent the diversion of investible               resources   of  non-essential  projects,   the               control  has  also been used for  man),  other               purposes. The more important of these purposes               which may be called ancillary purposes are the               regulation of the               93               issue  of bonus shares, regulation of  capital               reorganisation  plans of  companies  including               mergers  and amalgamations which involved  the               issue  or re-issue of capital, the  regulation               of  the capital structure of companies with  a               view  to discouraging  undesirable  practices,               namely, issue of shares with  disproportionate               voting rights and encouraging the adoption  of               sound methods and techniques in company flota-               tion,  regulation of the terms and  conditions               of additional issues of capital etc."               (emphasis added)     That  apart, whatever may have been the position at  the time the Act was passed, the present duties of the CCI  have to  be construed in the context of the current situation  in the country, particularly, when there is no clear cut delin- eation of their scope in the enactment. This line of thought is also reinforced by the expanding scope of the  guidelines issued  under the Act from time to time and  the  increasing range of financial instruments that enter the market.  Look- ing  to all this, we think that the CCI has also a  role  to play  in ensuring that public interest does not suffer as  a consequence  of the consent granted by him. But, as we  have explained  later,  the responsibilities of the CCI  in  this direction should not be widened beyond the range of  expedi- tious implementation of the scheme of the Act and should, at least for the present, be restricted and limited to ensuring that  the  issue  to which he is granting  consent  is  not, patently  and to his knowledge, so manifestly  impracticable or financially risky as to amount to a fraud on the  public. To  go beyond this and require that the CCI should probe  in depth into the technical feasibilities and financial  sound- ness  of the proposed projects or the sufficiency or  other- wise  of the security offered and such other details may  be to  burden him with duties for the discharge of which he  is as yet iII-equipped.     Shri Ganesh submitted that the CCI is duty bound to  act in accordance with the guidelines which lay down the princi- ples  regulating  the sanction of capital  issues.  This  is especially so because the guidelines had been published.  It was  submitted  that  the investing  public  is,  therefore,

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entitled  to proceed on the basis that the CCI would act  in conformity with the guidelines and would enforce them  while sanctioning  a  particular capital issue. It  was  submitted that  it is not permissible to deviate from the  guidelines. In this connection, reliance was placed by him as well as by Shri  Haksar,  appearing  for the  petitioner  in  T.C.  No. 161/88,  upon  the  observations of this  Court  in  Ramanna Dayaram Shetty v. International Airport Authority, [1979] 3 94 SCR  10 14, where this Court observed that it must be  taken to be the law that where the Government is dealing with  the public,  whether  by  way of giving jobs  or  entering  into contracts  or  issuing quotas or licence or  granting  other forms  of largess, the government could not act  arbitrarily at its sweet will and, like a private individual, deal  with any persons it please, but its action must be in  conformity with standard or norm which is not arbitrary, irrational  or irrelevant. We accept the position that the power of discre- tion  of  the government in the matter of grant  of  largess including  award of jobs, contracts, quotas,  licences  etc. must  be confirmed and structured by rational, relevant  and nondiscriminatory  standard  or norm and if  the  government departed  from such standard or norm in any particular  case or cases, the action of the government would be liable to be struck down, unless it could not be shown by the  government that  the departure was not arbitrary but was based on  some valid principle which in itself was not irrational,  irrele- vant,  unreasonable or discriminatory. Mr. Haksar  drew  our attention  to the observations of this Court in the case  of Motilal Padampat Sugar Mills v. Uttar Pradesh, [1979] 2  SCR 641,  where  this Court reiterated that claim of  change  of policy  would not be sufficient to exonerate the  government from  the liability; the government would have to show  what precisely  was  the changed policy and also its  reason  and justification so that the Court could judge for itself which way the public interest lay and what the equity of the  case demanded.  It was contended by Shri Haksar that  there  were departures  from the guidelines and there was no  indication as to why such departures had been made.     We  are  unable, however, to accept the  criticism  that there  has  been derivations from the guidelines  which  are substantial.  We have referred to the guidelines. We do  not find that there has been any requirement of such  guidelines which  could  be considered to be mandatory which  have  not been  complied with. We have considered this  carefully  and found  that there have been no deviations from paras  3,  5, 12,  13  and 14 of the guidelines. Nor has  there  been,  as pointed out by the respondents, any infraction of guidelines nos. 2 and 4. The fact that debentures of the face value  of Rs.200  have been approved as against the normal face  value of  Rs. 100 envisaged under para 8 or that the  requirements of  the service of underwriters have been dispensed with  in exercise  of  the  discretion conferred by para  11  do  not constitute arbitrary, substantial or unjustified  deviations from those guidelines. There has been sufficient  compliance with  the  guidelines on the quantum of  issue,  debt-equity ratio,  interest rate and the period of redemption and  also guideline  No.  10 about the security of the  debenture  and there was sufficient security for the debentures in the 95 facts  and  circumstances of this case.  The  preference  in favour  of  shareholders of RIL was justified and  based  on intelligible differentia. Indeed, if we consider the role of the  CCI,  it is primarily concerned to  ensure  a  balanced investment  policy  and  not to guarantee  the  solvency  or

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sufficiency  of  the security. In our opinion, most  of  the criticism  directed against deviation from  guidelines  were misplaced.     It was submitted by Shri Ganesh that there was an  obli- gation cast on the CCI to ensure that the guideline  regard- ing  security for the debentures was fulfilled. Shri  Ganesh took  us through the documents filed before the CCI  includ- ing, in particular, the draft prospectus which, according to him,  clearly showed that there was in reality  no  security for the debentures. We are unable to accept this contention.     Perhaps the most important of the arguments addressed on behalf  of the petitioners was that the scrutiny by the  CCI of  the  prospectus  was so cursory that  the  most  glaring travesty of truth contained therein has passed unnoticed  by him.  Sri Ganesh points out that the guidelines  were  clear that  a company can issue only secured debentures and  draws attention to the fact that the company proclaimed the  issue to  be of "fully secured convertible debentures".  Yet,  the prospectus, on its very face, disclosed that the  debentures were unsecured. Shri Ganesh urges that, if only the CCI  had perused  carefully  the figures and statements made  in  the prospectus he could never have accepted, at face value,  the assertion  of  RPL that the debentures were  "secured"  ones within the meaning of the guidelines or accorded his consent to  the  issue. This argument is in three parts and  may  be dealt with accordingly.     (i)  The first criticism of the petitioners is that,  in certain  brochures and pamphlets issued by RPL,  the  deben- tures  are  described as "fully secured  convertible  deben- tures"       which       they       are       not.       The description but explained that this was due to an oversight; the words "fully secured convertible debentures" were print- ed  in  some brochures instead of the words  "secured  fully convertible  debentures"  without meaning or  intending  any change.  It is submitted that the  company’s  representation was  that  the debentures were "secured  fully  convertible" ones. This is also what had been set out in the  application for  consent. Though the company does claim that the  deben- tures  were  also fully secured, it is  submitted  that  the emphasis  in  the issue was that the debentures  were  fully convertible and secured. We think this explanation is  plau- sible  and do not think that any importance or  significance need be attached 96 to  the different description in some places,  particularly, in view of our discussion below as to the extent and  nature of the security actually provided for the debentures.     (ii) The second contention is that the security offered, on the face of it, falls far short of the face value of  the debentures.  Sri Ganesh analysed before us  some  statements indicating the inadequacy of the security. It was  submitted by  him  that as per page 6 of the  prospectus  issuing  the debentures,  after implementation of the projects  only  the following assets would be available with the company:                                    Rs. in Crores Land and site development            11 Buildings                            26 Plant and Machinery                 305                                    --------------                                    Total      342 The  assets  of Rs.51.25 crores, mentioned  in  the  balance sheet  as at 31.5.88 as per the Auditor’s report,  are  also included  in the above because the above figures are of  the total assets which would come in existence after implementa- tion of the project. This, according to Shri Ganesh, clearly

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showed the inadequacy of the security.     On  behalf  of  RPL, it is submitted that  there  is  no justification  to exclude, from the figures of assets  shown on p. 6 of the prospectus, items such as technical  know-how fees,  expatriation fees and engineering fees  amounting  to Rs.79  crores  and preliminary  and  pre-operative  expenses amounting to Rs. 138 crores as these are capitalised in  the accounts and result in accretion to the value of the  compa- ny’s capital assets. The calculation also ignores  miscella- neous fixed assets of the value of Rs.70 crores shown on the page.  If  these are added, the value of the  investment  in assets would work out to Rs.629 crores which far exceeds the value  of  the debentures after the first  conversion  which comes  to  Rs.563.73 crores. This figure  of  Rs.629  crores takes into account only the investment in assets made out of the  borrowed  funds and not the future profits  and  assets acquired  therefrom. But, even taking this as the basis,  it is clear that, with the escalation in the value of the fixed assets  with  the passage of time on the one  hand  and  the redemption of a good portion of the debentures by the end of three years on the other, the security provided is  complete and,  in  any  event, more than adequate  to  safeguard  the interests  of the debenture holders. There is  substance  in this contention. 97     (iii) The third loophole, according to the  petitioners, is the insecurity created by the terms of clauses 5 and 6 of the prospectus dealing with ’security’ and ’borrowings’. Sri Ganesh  submits  that clauses 5 and 6 severely  qualify  the rights  of the debenture holders under the present issue  in several respects.     (a) There is, in their favour, only a residual charge on all or any of the assets of the company at Hazira and  other places  which shall "rank expressly subject  to  subservient and  subordinate"  to  all existing  and  future  mortgages, charges  and securities as may be hereafter created  by  the company in any manner whatsoever;     (b)  The company need not obtain the consent or  concur- rence  of the debenture holders for creating any such  mort- gages etc. which will have priority over the present  deben- ture  issue  or for disposing of any of the  assets  of  the company;     (c)  Not only is the residential complex of the  company excluded  from the purview of the security, it is also  open to the company and the trustees of the debenture holders  to agree  to the exclusion of any of the assets of the  company from the purview of the security.     (d)  The  current assets or the bankers’ goods  such  as stocks,  inventories,  book  debts,  receivables,  work   in progress,  finished and semi-finished goods etc.  stand  ex- cluded from the security.     (e) Clause 6 again emphasises that the company shall  be at liberty to raise any further loans and secure the same in priority to the present security and/or on such terms as  to security, ranking or otherwise as may be mutually acceptable to  the. company and the trustees of the  debenture  holders without  being required to obtain any further sanction  from the debenture holders. If  these clauses are closely perused, Sri Ganesh urges,  it will be seen (a) that the charge in favour of the  debenture holders has a very poor priority as it can rank  subservient to  any  securities that may be created by  the  company  in future in respect of further borrowings, (b) that the compa- ny and debenture trustees, by mutual agreement, can take any of  the  assets of the company outside the  purview  of  the

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present  security and (c) that the company can  create  such future securities as have a priority over the present  issue or  exclude assets from the purview of the security  without the consent or concurrence of the present debenture holders. 98     We  think, as has been urged on behalf of  the  company, that  these arguments proceed on a mis-apprehension  of  the true nature and scope of clauses 5 and 6 above as well as of the  nature and legal effect of a floating charge--what  has been   described   in  this  prospectus   as   a   ’residual charge’--that is created at the time of issue of such deben- tures.  In the first place, these clauses are only  enabling in nature so as to permit the company, despite the  mortgage in  favour  of debenture holders, to carry on  its  business normally.  It will be appreciated that the company’s  normal business  activities would necessarily involve, inter  alia, alienation of some of the assets of the company from time to time  (such as, for example, the sale of the goods  manufac- tured by the company) as well the procurement and  discharge of loans and accommodation facilities from banks,  financial institutions and others (such as, for example, entering into agreements  for  hire purchase of plant  and  machinery  and making  payments  of instalments towards their  price).  The entire progress of the company would come to a standstill in the absence of such an enabling provision. Such a  provision is not only usual but also essential because the basic  idea is  that  the finances raised by the  debentures  should  be employed  for  running the project  profitably  and  thereby generating more and more funds and assets which will also be available to the debenture holders. Secondly, we  think--and indeed  RPL  also conceded both in arguments as well  in  an affidavit  filed  on its behalf by  Sri  Mohan  Ramachandran dated th January. 1989--that what the two clauses provide is only  that  the  consent and concurrence  of  the  debenture holders need not be obtained by the company before  creating securities that may have priority over the present issue and that, under clauses 5 and 6 read harmoniously together,  the trustees for the debenture holders have to concur before the company can raise any future borrowings and create  therefor a security which will have priority over the security avail- able to the present debenture holders. The Trustees here are not  stooges of the company. The ICICI is not only a  finan- cial institution in the public sector but is also one of the institutions  financing the project and thus having a  stake in  the  success of the project. It can be trusted  to  ade- quately  look after the interests of the debenture  holders. Thirdly, as has been pointed out by the company, the  misap- prehensions of the petitioners are more imaginary than real. The  company,  in its affidavit, has pointed  out  that  the Debenture  Trust Deed dated 7.11.1988, which has since  been executed in the present case, contains a provision by which. at the time of creation of any future charge, the terms  and conditions as to ranking have to be agreed upon between  the RPL  and ICICI. Also clause 16 of the Debenture  Trust  Deed authorises the debenture trustees to intervene 99 and  crystallise the charge in their favour, inter alia,  in the following circumstances:               "If  the Company sells the Mortgaged  Premises               or any part thereof not in the ordinary course               of business except a sale, transfer or  dispo-               sition  allowed  under  the  terms  of   these               presents  to be made with the consent  of  the               Trustees."               (Sub-clause (f))

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             "If  the  Company (except as  hereinafter  ex-               pressly  provided)  creates  or  attempts   or               purports  to create any charge or mortgage  of               the  Mortgaged Premises or any part  of  parts               thereof  prejudicial to the interests  of  the               Debentureholders."               (Sub-Clause (i))               "If,  in  the  opinion of  the  Trustees,  the               security  of the Debentureholders is in  jeop-               ardy."               (Sub-clause (k)) Thus  if  at any time the company proposes  to  create  such higherranking  charges, the trustees for  debenture  holders can stultify the same by taking immediate action.  Fourthly, the impression sought to be created by the petitioners  that the company may go on creating encumbrances, left and right, to  the  detriment and prejudice of the  present  debenture- holders overlooks several restraints imposed on the  company in  this respect under the Companies Act, the CCI‘ Act,  the MRTP  Act  and  involving the consent  of  public  financial institutions, commercial banks, the term lenders, the share- holders, the MRTP Commission, the Central Government and the CCI  before  the creation of such  securities.  Lastly,  the contention of the petitioners completely overlooks the basic principles  underlying the commercial law concept of  deben- tures  secured  by a floating charge as evolved  in  British Jurisprudence over the past two hundred years. Clauses  like clauses 5 and 6 are usually inserted in debenture issues and the company has drawn our attention to two like instances in certain issues approved in December 1988 and January,  1989. It  has also been argued for the company that a  fully  con- vertible  debenture  is not a debenture at all in  the  true sense of the term and is more akin to an issue of equity and -that, therefore, there is no need that it should be covered by adequate security at all. These aspects of the matter are dealt with by us at some length later; it is sufficient here to say that we are unable to accept the contention that  the security in favour of the debenture holders is illu- 100 sory and inadequate because of the wide language of  clauses (5) and (6) of the prospectus. Both these clauses have to be read  together and so read, we have no doubt, do not  permit the creation of any charge ranking in priority to the charge created under these debentures save with the consent of  the trustees of debenture holders.     The  further argument of Sri Ganesh is that the  company law in its application as well as the prospectus,  carefully skirted round the issue by merely stating that security will be  provided  to the satisfaction of the trustees  and  that this is not very helpful as the debenture holders come  into the  picture  only after the funds have  been  raised.  This argument  is untenable. We have already pointed  out,  there was sufficient security as was warranted by the issue.  This was  an issue of 12.5% fully secured convertible  debentures of  Rs.200  each. We have examined the  share  capital,  the present issue and the scheme of conversion. In the premises, it  is not possible to accept the submission of Shri  Ganesh that  the Controller satisfied himself (as stated by him  in his  affidavit)  with the bare statement  of  the  applicant company  (RPL)  that security would be created  as  per  the requirements  of  the  debenture trustees.  There  was  this statement that the debenture trustees were well known finan- cial  instutitions  and they had been  entrusted  with  this obligation.  Learned Additional Solicitor General  drew  our attention  to similar debentures and submitted and,  in  our

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opinion, rightly that this was the usual practice. It is not possible for the CCI to ensure more than that. The  prospec- tus was not misleading to that extent. It, therefore, cannot be  accepted  that the CCI failed to apply its mind  to  the documents  before him. Reliance was placed on the fact  that the  RIL had proposed the issue of shares for  G-series  for more  or  less identical project. It was contended  that  if capital  issues had once been sanctioned for a  project  and the  issue  had been converted for that purpose and  then  a fresh capital issue could not be applied for or granted  for the  same  purpose.  It was urged by Shri  Ganesh  that  the project under those circumstances could not be considered to be a ’new project’ within the meaning oflll para 2(i) of the Guidelines for Issue of Debentures by Public Limited  Compa- nies.  Secondly, it was urged by Shri Ganesh that the  basic object   of  the  Capital  Issues  (Control)  Act   was   to ensure .sufficient and fruitful utilisation of capital would be  completely  defeated if more than one capital  issue  is permitted  for  the same project. In this  connection,  Shri Ganesh referred to the affidavit of the CC1 which, according to him, clearly indicated that CCI was specifically aware of the fact that the scheme of finance for setting up the  very same project had been approved in favour of RIL. Our  atten- tion was drawn to the affidavit filed on behalf of the CCI, 101 where he had stated at p. 203 of the Paper Book of T.C.  No. 164  of 1988, that by a Press Release dated 15th  September, 1984,  certain guidelines which the said deponent  described as  "non-statutory  guidelines"  for approval  of  issue  of secured  convertible  and nonconvertible  debentures.  These guidelines had been subsequently amended by a Press  Release dated  8th March, 1985 and these were released on  19th  Au- gust,  1985 for issue of convertible  cumulative  preference shares and also there are guidelines issued by Press Release dated 1st August, 1985 for employees stock option scheme. In accordance with .these guidelines, according to the deponent on  behalf  of the CCI, the consent of the CCI  for  capital issue for secured fully convertible debentures was issued as the  projects originally to be established in RIL were  per- mitted  by  the Department of Company Affairs to  be  trans- ferred  to RPL and endorsements thereof from RIL to RPL  had already been filed including, inter alia, for endorsement of the  letter  of intent for the MEG Project. The  scheme:  of finance  for setting up of three projects namely  PVC,  HDPE and  MEG  had  already been approved by  the  Department  of Economic  Affairs in favour of RIL. In that context, in  our opinion,  to contend that there was violation of the  guide- lines  because the RPL’s project was not a new  project  was too  narrow and legalistic view. Shri Ganesh tried  to  urge that  the CCI ought to have been aware of the fact  that  he had sanctioned a capital issue of Rs.400 crores (subsequent- ly  enhanced to Rs.500 crores) to RIL for the  same  project and that the said issue had been implemented and capital  of Rs.500 crores had been mopped up from the public by RIL. The CCI  ought to have withheld permission for a  fresh  capital issue in the name of RPL for the very same project. However, the  CC1 did not appear to have applied his mind,  according to Shri Ganesh. Consent Order, therefore, according to  Shri Ganesh,  was  bad. We are, however, unable  to  accept  this submission. The CCI was not performing the role of a  social mentor  taking into account the purpose of RIL. If  RlL  has misutilised  any  of  its funds or the funds  had  not  been utilised for G-series, then RIL would be responsible to  its shareholders or to authorities in accordance with the  rele- vant provisions of the Companies Act, 1956. This aspect does

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not  enter  into sanctioning the capital issue for  the  new project in accordance with the guidelines enumerated herein- before.  That apart, even if RIL and RPL have to be  treated as one for this purpose and the grant of consent for earlier debenture  issues  in  favour of RIL are to  be  taken  into account in judging the necessity of the issues, there is  no illegality or irregularity in the impugned grant of  consent to  RPL. As referred to elsewhere, RIL had not been able  to utilise any part of the ’G’ series of debentures on the  MEG project as there had been a cost overrun in 102 the PTA & LAB projects. Eventually, for reasons adverted  to earlier,  it  was  decided to have the  MEG,  PVC  and  HDPE projects undertaken by floating RPL, a wholly-owned subsidi- ary.  In the result, even if we look at the projects not  as new  ones but only as those of the RIL to be implemented  by RPL, the additional finances were needed for the  extention, expansion  and  diversification of the  projects  originally envisaged. This is one of the objects for which a  debenture issue is permissible under the guidelines.     Shri Ganesh then submitted that Guideline No. 3 for  the Issue  of Debentures by Public Limited Companies  laid  down that the CCI would consider an application for capital-issue only after the approval of the financial institutions, banks and Government are received. The statutory application  form prescribed  by the Capital Issues (Application for  Consent) Rules,  1966  requires, according to Shri Ganesh,  that  the consent and clearances of the various authorities and insti- tutions  should be annexed to the application.  Shri  Ganesh submitted  that  in the present case, many of  the  relevant applications  had not even been filed by RIL and RPL  as  on 4th July, 1988 when the CCI passed the Consent Order. It was submitted by Shri Ganesh, also by Shri Haksar and especially by  Shri Pagaria, that RPL’s application had been  processed in unseemly haste and without due and proper application  of mind. It is true that things moved speedily in the case.     This  has caused us certain amount of anxiety. Speed  is good;  haste is bad, and it is always desirable to  bear  in mind  that one should hasten slowly. However, whether  in  a particular  case, there was haste or speed depends upon  the objective situation or on overall appraisement of the situa- tion.  Here, as discussed earlier, the material  shows  that the  details  of the proposals have been examined  and  dis- cussed and that an examination of the merits has not been  a casualty  due  to the speed with which the  application  was processed; and especially in view of the fact that no injury has been caused to the investors and no substantial loss  to their securities have been occasioned, we are of the opinion that  much cannot be made of this criticism.  Learned  Addi- tional  Solicitor General placed before us  other  instances where applications had been sanctioned within shorter times.     Shri  Ganesh tried to urge that RIL had declared  itself as  a  promoter  of RPL and the prospectus  stated  that  no benefit  was  being provided to RIL as  promotor.  But,  the entire  amount  spent by RIL was being reimbursed to  it  by RPL.  In these circumstances, RIL could not be treated  dif- ferently from the general public in the matter of 103 allotments  of  the shares of RPL. However,  the  scheme  of allotment  was  such  that  gross  discrimination   resulted against  the general investing public and in favour of  RIL. The long-term implications, it was urged by Shri Ganesh,  of the said discrimination were highly anomalous and unjust for the investing public who had subscribed to the debentures of RPL.  However, there had been no application of mind by  the

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CCI, according to Shri Ganesh, to the matter of  quantifica- tion of the extent of benefits conferred on RIL and  consid- eration  of whether the same are justified or not. The  CCI, however, had merely mentioned in his affidavit that RIL  was a  promotor and had given an interest free advance of  Rs.50 crores  to RPL for a period of three years. In our  opinion, these  factors were sufficient to justify the  treatment  of RIL  differently  from other investing public and  thus  the treatment  does not amount to any discriminatory benefit  to RIL  in  respect of the debentures of RPL. As  a  matter  of fact,  this  was a known fact and the  shareholders  or  the subscribing  debenture holders would be aware of  the  same. Shri  Ganesh  sought to urge that the CCI had not  made  any attempt  to  appreciate or quantify the extent of  the  said benefits and advantages and go into the question whether the same  are fair, reasonable and just. Consequently, for  this reason  also, there had not been, according to Shri  Ganesh, due application of mind by the CCI before the Consent  Order was issued. We are unable to accept this criticism.     The discrimination alleged is on two grounds. The  first is  that  RIL is entitled straightaway to the  allotment  of shares of the face value of Rs.57.50 crores whereas only  5% of the investment by the debenture-holders can be  converted into shares at par simultaneously with the issue. The second is  that a loan of Rs.50 crores advanced by RIL to RPL  will be converted into shares at par at the end of 3 years where- as the debenture˜holders will have to pay a premium even for converting 20% of their debentures into shares by that time. These allegations do not bear scrutiny. So far as the  first ground  is concerned, there is no justification for  a  com- parison  between these two categories of investors.  RIL  is the  promoter company which has conceived the projects,  got them sanctioned, invested huge amounts of time and money and transferred  the projects for implementation to RPL. It  is, therefore,  in a class by itself and there is nothing  wrong if  it  is  allotted certain shares in  the  company,  quite independently of the debenture issue, in lieu of its invest- ments.  So far as the second ground is concerned,  it  over- looks certain disadvantages attached to RIL in regard to the loan  of Rs.50 crores advanced by RIL as compared  with  the investor in the debentures. Firstly, RIL’s advance is inter- est free 104 for  3 years whereas the debenture holders get  interest  at the rate of 12.5% during the period. Secondly, the debenture loan   is  secured  while  the  RIL’s  are  not.  Thus   the debenture-holders  have certain benefits which RIL does  not have and, if the debenture-holders have the disadvantage  of having to pay a premium, that cannot constitute basis for  a ground of discrimination.     These  considerations  apart, we would like  to  observe that  we are unable to appreciate how any question  of  dis- crimination is at all relevant in the present context. It is a company--not the State or a State instrumentality--that is issuing  the shares and debentures. It is entirely  for  the company to issue the shares and debentures on such terms  as they  may  consider practicable from their  point  of  view. There  is  no reason why they should not  so  structure  the issue  that it confers certain greater advantages and  bene- fits  on the existing shareholders or promoters than on  the new  subscribers to the debentures. We do not think that  it is permissible for the CCI to withhold consent only for this reason or to stipulate that consent can be given only if the shareholders and promoters as well as prospective  debenture holders are all treated alike. The subscribers to the deben-

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tures are only lenders to the company who have an option  to convert  their  debt  into equity on certain  terms.  It  is perfectly  open to the subscribers to balance the  pros  and cons of the issue anti to desist from taking the  debentures if they feel that the dice are loaded unfavourably in favour of the "proprietors" of the company. Shri Pagaria, who appeared in T.C. No. 162/88 in the  matter of  Shri Radheyshyam Goyal v. Union of India &  Ors.,  where the  petitioner  was a Chartered  Accountant,  prefaced  his submission  by submitting that ours is a sovereign,  social- ist,  secular democratic republic governed by the  Constitu- tion  of India. Shri Pagaria drew our attention  to  Article 19(1)(g) of the Constitution. He submitted that the  Capital Issues  (Control) Act, 1947 is a pre-constitutional law  and the  Act was enacted as being expedient to provide for  con- trol of issue of capital. Under Article 14 read with Article 38, it was obligatory to ensure that there was no dispropor- tionate wealth. He drew our attention to MRTP Act and  other Acts  and also to a large number of decisions  to  highlight that the directive principles should be imported for  ensur- ing  that the CCI performs his functions for the welfare  of the  community  and to bring about an  egalitarian  society. That was his first submission and he further submitted  that the  petitioner was really in a position to come  under  the Public  Interest  Litigation propounding the  cause  of  the public. Secondly, he submitted that the concept of com- 105 pany being the property of the Board of Directors had under- gone  a radical change. He submitted that company in  a  new socio-economic set-up is a social institution having  duties and  responsibilities towards community for which  it  func- tions.  According  to him, maximisation  of  social  welfare should  be  the  legitimate goal of the  companies  and  the shareholders. He, therefore, stated that the CCI should take upon  himself a social role and ensure that  Capital  issues are satisfactorily implemented.     One may perhaps concede that, with the vast expansion in recent years of the corporate sector and its constant  tend- ency to have recourse to public funds for securing  finances for its projects (either by way of share capital or borrowed capital),  the scope of the responsibilities of the CCI  can no  longer  be  as limited as before. It may  no  longer  be restricted merely to the task of preventing an imbalance  of investment in various sectors or the diversion of investment to non-essential projects. The petitioners may perhaps  have a point in suggesting that the CCI should be burdened with a duty  also to safeguard the interests of the public who  are invited to participate in such financing on large scale  and at least to satisfy himself that the project for which funds are needed is not in the nature of a "South-sea bubble"  and that the volume, terms and conditions of the issue  proposed by the company are not such as to constitute a fraud on  the public.  But  we  think that the time is not  yet  ripe  for placing on the office of the CCI, as at present constituted, more  than  a  skelital outline of  responsibility  in  this direction;  his shoulders are, as yet, not strong enough  to bear such burden. He does not have the time, the staff,  the powers of enquiry, the benefit of public hearing, the requi- site  background,  or the economic commercial  or  financial skill  or expertise to so assess the  technical,  commercial and financial aspects of the projects as to be able to  give the public investor a guarantee that he is not being led  up the garden path. All that one can say at present is that  th parameters  of his action have to be found within  the  four corners of the Act and the guidelines. May be, he can legit-

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imately  withhold his consent to a project that is ex  facie impracticable  (for instance, as was put to the  parties  in the course of hearing, a project to convert base metal  into gold)  or a project, which in the present state of  finances and scientific knowledge and progress of our country, is  an impossibility--(for example, to have a transport service  to the moon). May be, he also can in a proper case, refuse  his consent to a scheme of finance if, ex facie, and without any detailed investigation, he is satisfied, that it is too  big for the applicant company to handle, or too risky and  oner- ous to be permitted in public interest. But this is a  deci- sion which he will have to 106 venture  upon,  on his own responsibility, in  patent  cases where  the nature of the project or the scheme of  financing is, on its face, startlingly non-feasible, impracticable  or risky. He cannot, however, be compelled to withhold consent. or  found fault with for having granted consent, in  a  case such as this, where the proposed project is in a core indus- trial sector. where there is considerable scope for  foreign currency  savings and the scheme of financing  proposed  has been  developed  in consultation with  and  scrutinised  and approved  by a leading public sector  financial  institution (which has also agreed to be the trustee for the  Debenture- holders).  It is too much to suggest that the CCI should  be held to have failed in his duty by accepting the opinion  of such  institutions  and not investigating for  himself  from various angles and in particular, the adequacy of the  secu- rity offered to the debentureholders under the scheme.     While  we do appreciate that in the changed  atmosphere, the corporate sector, when seeking to attract public  moneys while raising new capital must perform both responsible  and responsive  roles,  it is difficult to enjoin that  the  CCI while  considering the question of consent/sanction  of  the capital  issues  can  fulfil any role  beyond  the  policies prescribed  under which, as noticed before, it was  enjoined to  function. There are other various Acts like the  Income- Tax  Act, Companies Act, MRTP Act to subserve  other  social objectives which are conducive or ancillary to the directive principles.  Nelson, it is reported to have said before  the battle  of Waterloo. that England expected every man  to  do his  duty. It is well to remember that every authority in  a vast developmental society must perform his role keeping  in view  the part he is expected to play in the  background  of the  whole perspective anti should not encroah  upon  others taking  the onus upon himself to do everything.  That  would lead to chaos and confusion.     Shri  Pagaria drew our attention to Section 237  of  the Companies  Act. 1956. If there was any violation of some  of the rights of the parties, they are at liberty to proceed in accordance with law. It was contended that it was an  admit- ted position that RPL is a newly established company  though initially  financed by RIL. No ceiling had been put  on  the allotment of the shares to the business associates of Direc- tors whereas at item 5 page 2 of the Consent Order dated 4th July, 1988, the limit of the shares for the employees of the RPL had been reduced from 200 to only 50, thereby, according to Shri Pagaria, depriving the employees having large share- holding  in the company which discriminated  them  vis-a-vis the  business associates, for whom no such ceiling had  been kept. 107     We find the factual position to be this. The application for consent to the issue had not specifically earmarked  any portion of the issue to the employees of RPL and RIL. In the

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course of the discussion with the CCI, it was suggested that 12,90,000  debentures should be offered by way of  preferen- tial  allotment to the employees of the RIL and RPL. Para  5 of the consent order by the CCl conveyed the approval by the Central  Government  under proviso to rule 19(2)(6)  of  the Securities  Contracts (Regulation) Rules, 1957  "subject  to the condition that the allotment to the employees shall  not exceed 200 shares per individual". The Company by its letter of 7th July pointed out that "shares" in the above para  was a mistake for "debentures" and also suggested that a maximum of  200 debentures--which on first conversion  would  become 200  shares--be allotted to each of the employees of RPL  as well as RIL. The CCI, however, modified Para 5 by his letter of the 19th July, 1988 to say that allotment to the  employ- ees  shall not exceed 50 debentures per individual. In  this context,  it  does not appear that the  restriction  of  the allotment to the employees was at the instance of the compa- ny nor does it seem that any discrimination was intended  in respect  of  the allotments to the employees.  Nor  has  our attention  been invited to any legal requirement  or  guide- lines prescribing any fixed or minimum quota of allotment to the  employees of the company. We are, therefore, unable  to see any discrimination. In any case, the petitioner in  this case has no cause for grievance on that score.     It  was submitted that the Consent Order  suffered  from arbitrariness,  mala  fides, unprecedented  hurry  and  with extraneous  considerations.  We are unable to see  any  such discrimination. It was submitted that the Consent Order  had been  passed  without,  satisfying  that  the  pre-requisite condition of the various clearances and no objection certif- icates  and licences under MRTP Act, FERA Act and  Petroleum Act  and the Essential Commodities Act, Securities  Contract (Regulation)  Act, Companies Act, and other allied laws  had been fulfilled. The CCI has given consent for 12.5%  secured redeemable convertible debentures of Rs.200 each for cash at par  to the public. This nomenclautre has not been  changed, but  in  the prospectus, fully convertible  debentures  have been shown. According to Shri Pagaria, the most important is the  concentration of wealth in the hands of  Ambani  family and  this  aspect has not been considered  in  granting  the consent,  which according to him, resulted in  violation  of Article 39(b) & (c) of the Constitution of India and section 22(3)  of  the MRTP Act. It was submitted that  the  consent could  not be given in favour of any applicant  or  company, who had no valid industrial licence nor it pos- 108 sessed  the letter of intent under the provisions of  Indus- tries (Development and Regulation) Act, 1951. It was submit- ted that the CCI did not give judicial consideration to  the application as in this connection reliance was placed on the decision  of  the Gujarat High Court in Navjivan  Mills  Co. Ltd. Kalol, v. In re. Kohinoor Mills Co. Ltd. Bombay, [1972] 42  Co. Cases 265. Some passages of Halsbury’s  Statutes  of England,  4th edn., vol. 8, were referred. It was  submitted that the Directors who had received money without disclosing full facts were bound to refund the same and were  construc- tive  trustees  of  the company. This  proposition,  in  our opinion, is irrelevant in the present context. Shri  Pagaria sought to urge that RIL management had passed an ultra vires resolution in transferring the industrial licence and letter of  intent to RPL and for that act, the office bearers  were personally liable and he referred to certain decisions. Shri Pagaria also submitted that by advertisement on  Television, radio and print media under the caption "Your Family  Khaza- na", without first creating a solid and viable security  for

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the  fully  paid convertible debentures under  the  impugned invalid consent order, the application money had been raised to the tune of more than Rs. 1,200 crores. According to him, the  advertisement given was not only violative  of  section 58A of the Companies Act but also contrary to provisions  of Security  Contract  (Regulation) Act, 1956  and  Rules  made thereunder. Shri Pagaria then submitted that in view of what he  described as improper or insufficient security, no  con- sent  could  have  been granted and even if  the  issue  was over-subscribed, the money was repayable to the persons  who had subscribed to the issue on the basis of the promises and they  were entitled not only to the refund of the money  but to all benefits by way of interest, etc. He drew our  atten- tion to certain decisions, which in our opinion, are irrele- vant. He submitted that the people have a right to know  and this  right had been violated by not telling the people  the full  facts.  It was submitted that RPL did  not  place  any material  before the Central Government to justify the  con- sent.  We are unable to accept this submission. It was  next submitted  that the guidelines were mandatory. It  was  next contended  by Shri Pagaria that there was  nondisclosure  of true  and correct facts not only in respect of the  interest of  Directors  of  RIL in the RPL properties  but  also  the security  and with regard to the approval of  the  financial scheme under MRTP Act, the licence under the Petroleum  Act, Explosive  Act, etc., Shri Pagaria has referred to  the  re- quirements under a large number of enactments and  contended that, until requisite consents, approvals, licences etc. are obtained  under the said enactments, the Company  cannot  be permitted to raise public finances for the projects on hand. In this context, he referred, in addition to the  provisions of the Companies Act, the 109 MRTP Act, CCI Act, rules and guidelines, and the  Industries (Development & Regulation) Act which have been considered by us,  to certain provisions of the Petroleum Act,  1934  (and rules and orders made thereunder); Explosives Act (and rules made  thereunder); Essential Commodities Act, Atomic  Energy Act; Insecticide Act; Air (Prevention and Control of) Pollu- tion  Act, 1981; Indian Standards Institution  Certification (Marks)  Act, 1952 (and rules and  regulations  thereunder); Foreign  Exchange Regulation Act, 1973; Interest Act,  1978; Securities  Regulation Act and Dowry Prohibition Act,  1961. We  have gone through these provisions. They relate to  var- ious  types  of controls and regulations which  have  to  be observed in the actual running of various types of business. We  are  satisfied  that neither these  statutes  nor  those regulating  the grant of consent to the issue of shares  and debentures  intend that clearances thereunder should all  be obtained  before filing an application for consent.  In  our considered  view, such requirement is neither practical  nor feasible  and is not envisaged by the statutes referred  to. Some  of the contentions of Sri Pagaria alleging  misleading statements made by the Company to attract investments,  such as  the one based on the Dowry Prohibition Act and  the  de- scription  of  the issue as the "Family Khazana",  are  far- fetched  and  unrealistic besides being  irrelevant  to  the issue to be considered at the stage of consent for the issue by the CCI.     Sri Pagaria then submitted that the grant of consent was without  lawful authority and on extraneous  considerations. He  referred to certain decisions in support of  that  broad proposition.  If  the basis of his submission  was  correct, undoubtedly,  the  consent was bad but we do  not  find  any merit in the submission. The next submission by Shri Pagaria

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was  that  the  issue had been made public  subject  to  the injunctive relief granted by this Court on 19th August, 1988 without  entering  into the merits of the case  and  it  was submitted that RPL did not possess any industrial licence or letter  of indent and whatever licence it had, had  expired. This  position is not factually correct as noted before.  It was submitted that there had been violation of several laws. No particular violation had been indicated. Furthermore,  it was submitted that the Industries (Development & Regulation) Act,  1951,  Companies Act, 1956, Capital  Issues  (Control) Act,  1947,  MRTP Act, 1969, FERA, 1973 have to be  read  in conjunction  and as such the corporate sector should not  be permitted to accumulate wealth on account of favour from the Government. The factual position being as indicated  before, it is not possible to entertain these bald submissions. On  behalf of the CCI, it was submitted that the  contention that 110 the CCI had not followed his own guidelines relating to  the sanction  of the issue is misconceived. It was further  sub- mitted  that the security for debentures had  been  properly there.  It  was  submitted that the  following  facts  would establish  that there had been no breach of duty or  obliga- tion  cast  on  the CCI either under the Act  or  under  the Guidelines or under Capital Issues (Application for Consent) Rules.  The  relevant guidelines for consideration  of  this question are as follows:               (a)  Guidelines  for Issue  of  Debentures  by               Public Limited Companies--Press Release 1984.     4.  DEBT-EQUITY RATIO: The debt-equity ratio  shall  not normally  exceed 2:1. For this purpose ’debt’ will mean  all term  loans, debentures and bonds with an  initial  maturity period  of  five years or more  including  interest  accrued thereon.  It also includes all deferred payment  liabilities but  it  does  not include short-term  bank  borrowings  and advances, unsecured deposit or loans for the public,  share- holders and employees, and unsecured loans or deposits  from others. ’Equity’ would mean paid up share capital  including preference capital and free reserves.     Guideline No. 11 is also instructive. The Press  Release also was referred to. The trustees to the debenture  holders were enjoined to supervise the implementation of the  condi- tions regarding creation of the security of the debentures.     It  was, therefore, submitted that the trustees  of  the debenture issue who were to supervise the implementation  of the  conditions  regarding the creation  of  security,  were vested with the requisite powers for protecting the interest of debenture holders. Before formulating the guidelines  for protection of the interest of debenture holders considerable deliberations  took place between the concerned  departments in  the Ministry and between the Public  financial  institu- tions,  investment institutions, Department of  Banking  and CCI  and Reserve Bank of India as a large quantum of  deben- tures were coming to the period of maturity in 1989  onwards and  redemption and a need was felt to protect the  interest of  debenture  holders so that no  defaults  endanger  their interests. Consequently,/he question of debenture redemption reserve and the security creation was examined by the finan- cial institutions and the scheme with debenture trustees was formulated with sufficient degree of precision and  urgency. The debenture trustees are normally public financial  insti- tutions and nationalised banks. Public 111 financial  institutions  have the  necessary  expertise  and infrastructure  to examine the aspects of security  creation

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and  the quality of the security offered for protecting  the interest  of debenture holders. The original  guidelines  of 14th January, 1987 were continuously being monitored by  the CCI  and on 25th June, 1987, a further clarificatory  guide- line was published on the concept of security to be  offered for  the  debentures. In the present case,  the  application dated  4th May, 1988 as filed by the RPL with the CCI  cate- gorically mentioned that "the security will be in such  form and  manner as required by the trustees for debenture  hold- ers". These requirements are contained in Part V(E): Partic- ulars of Issues--Particulars of Preference Shares and Deben- tures--(e)  indicate the security to be offered in the  case of debentures. It is in these circumstances that it was  not necessary  for the CCI to evaluate the security or the  ade- quacy thereof at the stage of grant of consent. The CCI  did examine the proposal with reference to the debenture residu- al  value  beyond  the fifth year of its  allotment  and  in relation  to the asset creation and take on record prior  to grant  of  consent the project estimations  and  cash  flows statements of the ICICI for the years 1989 to 1996 which had looked  into the projects and also examined the question  of creation of security and asset creation for RPL in  relation to  the issue for three projects. It was  further  submitted that as per this statement, the debt service coverage  ratio was 1.89 in 1991 and going upto 2.55 in 1995. It was  there- fore  inaccurate to say that the CCI had not satisfied  him- self  on the matter of security or had failed to  apply  his mind to documents before him. It is further stated on behalf of the CCI that the CCI consented to the proposal of RIL for ’G’ series for projects including PTA, LAB, MEG and HDPE and also  for working capital requirement in November, 1986  and not  merely for MEG and HDPE as alleged by  the  petitioner. During the implementation of projects, there was cost  over- run for PTA and LAB which was taken due note of by ICICI  in December, 1987 and CCI was informed of this cost overrun  in 1987 itself by ICICI. Major part of ’G’ Series was  utilised for  PTA  and LAB, CCI was also aware of this  cost  overrun through the proposal of the company to MRTP Commission  much prior  to granting consent to RPL as CCI is  represented  in the  process    of approval for MRTP. CCI’s office  was  in- formed by ICICI of likely deployment of ’G’ Series funds for projects other than MEG and HDPE much prior to the grant  of consent  to  RPL.  It was submitted that  RIL  had  received approval  to its modified scheme on 17th May, 1988  for  its LAB  project  and on 13th July, 1988 for  its  PTA  Project. However,  these formal communications were preceded  by  the awareness  of the CCI in regard to cost overruns in PTA  and LAB projects and consequently the non-implementation of  MEG and HDPE. 112 Learned  Additional Solicitor General, therefore,  submitted that it was incorrect to state that the CCI granted  consent for  issue of debentures for financing the projects  of  RPL which  were  already  given  financing  facilities   earlier against  the  ’G’ Series debentures. It was  submitted  that since  the projects of MEG and HDPE were not implemented  in RIL and were now being implemented in RPL for the first time these  were ’new projects’ within the meaning  of  paragraph 2(a)  of the guidelines dated 15th September,  1984.  There- fore,  it  is incorrect to say that more  than  one  capital issue was permitted by the CCI to finance the same  project. It  is  clear,  according to  learned  Additional  Solicitor General,  that  CCI satisfied himself  before  granting  the consent on 4th July, 1988 to RPL, that the capital raised by RIL was not used for HDPE and MEG and the scheme of  finance

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for  the G-Series of RIL, as modified, and for  the  present issue  of  RPL were different. It was denied  that  the  CCI ought  to  have  withheld permission for a  fresh  issue  of capital in RPL for HDPE and MEG, especially since these  two projects  were not permitted. It was submitted on behalf  of the  CCI  that there was no bar for  receiving  finance  for either a cost overrun, or for an unimplemented portion of  a project. It is a fact that the MEG and HDPE projects had not been implemented in RIL and they were now being  implemented only  in RPL. It is further submitted on behalf of  the  CCI that the public financial institution, namely, ICICI  looked into  the project and reported to the CCI, in  their  letter dated  15th June. 1988 that the estimated cost  of  projects for  which the consent was being sought was  Rs.650  crores. The  consent  order of the CCI clearly  indicated  that  the consent conveyed in the letter shall lapse on the expiry  of 12  months from the date thereof. The consent order  further categorically stated that the approval was without prejudice to  any other approval/permission that might be required  to be  obtained  under  any other Acts and laws  in  force.  It necessarily therefore followed that the obligation to obtain other  permissions continued. There was no  legal  condition that  other approvals should be examined by the  CCI  before grant  of its own consent. This was submitted on  behalf  of the  CCI  and there is substance in the submission.  In  the application  form  prescribed in Schedule A of  the  Capital Issues  (Applications for Consent) Rules,  1956--other  than the Bonus shares, the indications are only directory and not mandatory requirements. The words used are "normally insist- ed".  Therefore, it does not preclude the CCI from  granting its  consent before the grant of other approvals. Through  a chart, it was highlighted before us that there was no  undue haste  and it is the normal time taken in respect of  others also.  It is further stated that the  statutory  information clearly  indicated that no amount had been paid or given  to the companies promoters or 113 officers  or offered to them. The prospectus and  the  terms and  conditions were not approved by the CCI at the time  of granting  of consent. No discrimination had  been  practised against  the existing shareholders of RIL,  while  according consent  to  RPL.  The proposal of the 8th  June,  1988,  as submitted  by  RPL to the CCI, sought  approval  for  equity participation to the extent of Rs.50 crores only. This Rs.50 crores  was by way of unsecured interest-free deposit to  be converted at the end of the 36 months into equity shares  at par.  This substantial addition to the promoter’s  contribu- tion was to ensure an enhanced participation in the  project and  to ensure its stake. The Petrochemical Industry  has  a long  gestation period for yielding high profits.  The  con- vertible  debentures  have a fixed return as  contrasted  to equity  participation which might earn a flexible  dividend. In  the initial period, no dividend ,’night be  earned.  The CCI therefore applied its mind while evaluating this  aspect since  a sum of Rs.50 crores was to be non-interest  bearing and  unsecured  whilst computing the position on  the  debt- equity-ratio.  The  enhanced contribution  sought  from  the promoter  was  a condition imposed on them.  The  long  term implications and the balance capital structure of the compa- ny were placed for consideration of the CCI through the cash flow  analysis of ICICI and the CCI applied its mind to  the scheme of financing and correctly granted the consent  order on  relevant  considerations.  So far as  the  grievance  of alleged  discrimination  is concerned, it  arises  from  the petitioner’s assumption of the possible capital appreciation

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of equity shares of RIL at the second conversion which might be at a premium, if any, at the time of such conversion.  It was  submitted on behalf of the CCI that CCI had  imposed  a condition that any conversion would be at a premium, if any, as might be decided by the CCI’s office, at the time of such conversion. It was further submitted that the computation of premium depends on several factors, such as the net worth of the  company,  the performance of the  company,  the  profit earning capacity value of the company, etc. Since RPL was in the Petrochemical sector, which had ordinarily the gestation period,  at  the time of grant of the consent,  it  was  not possible  for  the CCI to forecast or estimate the  rate  of conversion  on the second and the third stage and  advisedly the  CCI  reserved  to itself the right  to  determine  this premium on factual data available at the time of conversion. Therefore,  this cannot be said to be bad.  The  convertible debentures  would  receive interest @ 12.5% on  the  sum  of Rs.190 (31.5% interest would accrue on this amount). It was, therefore, not necessary for the CCI to quantify the  extent of  benefits and advantages before grant of consent and  had to  enter into computation for evaluating  this.  Naturally, the  RIL,  as a promoter, stood on a different  footing  and there  were  rational  intelligible  critera  distinguishing general 114 members of the public from a promoter proposing the  capital issue and the establishment of new projects. It was  further relevant to notice, it was submitted, that RPL was a 100 per cent subsidiary company of RIL at the time of its conversion and even presently a proposal for a capital issue would have sought  that  the  entire issue of capital  be  allotted  to itself. The CCI had the option to grant the consent in terms of  the  application or to impose such  conditions  as  were necessary for the balanced capital structure of the company. The  consent,  it was submitted, could not be  evaluated  in hindsight, after the issue was closed and subscribed.     It  was  asserted that today RIL is  the  third  largest industrial  house in India. It was stated that  the  present portfolio    of    RIL    spreads    over    2.5     million sharesholders/debenture holders/deposit holders. Till  date, it has made 7 debentures issues besides making three  equity share capital issues (rights) and 2 bonus shares issue.  All the debentures issues were at a premium and over-subscribed. E-Series partly-convertible debentures of Rs.80 crores  were issued  in 1984-85. F-series non-convertible  debentures  of Rs.270  crores were issued in 1985-86.  G-Series  fully-con- vertible  debentures for Rs.500 crores were issued in  1986- 87.  According  to the respondent, the  investment  in  RIL, during this period has proved to be consistently and remark- ably profitable to investors. The RIL commenced business  in the  year 1966 for the manufacture of synthetic  cloth  made from  synthetic yarn and fibre. Their factory was  commenced and  installed  in the vicinity of Ahmedabad at  Naroda.  In order  to  manufacture  synthetic fabric,  the  company  was importing polyester filament yarn and polyester staple fibre and re-exporting fabrics produced from the same. It was  one of the recognised export houses doing business in  textiles. In the year 1977, Reliance Textile Industries merged with  a company,  Minylon  Ltd. and, after the merger,  changed  its name back to Reliance Textile Industries Ltd. Its tradition- al line of business was manufacturing of synthetic  fabrics. However since 1977, through several capital issues, (both of debentures and of equity) it has diversified and backwardin- tegrated.  In  the first instance, the  company  decided  to install  a  plant for the manufacture  of  polyester  staple

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fibre and polyester staple yarn which item it was previously importing for manufacturing synthetic fabrics. These  plants were established at Patalganga in the State of  Maharashtra. Thereafter,  the company decided to further  backward  inte- grate  and to manufacture PTA (Purified  Teriphthalic  Acid) which is one of the raw materials used in the manufacture of polyester  filament yarn/polyester staple fibre.  Simultane- ously, it also diversified horizontally into the manufacture of Linear Aklyl Benzene (LAB) 115 used in the manufacture of detergents, as this product could also  be  manufactured  from  the  petrochemical  downstream products in which the company was engaged.     RIL’s 3rd stage of backward-integration involved, it was asserted, in the manufacture of Mono Ethylene Glycol  (MEG), used  in the manufacture of polyester staple fibre and  pol- yester  staple yarn. It also decided to diversify  into  the manufacture of critically scarce plastic raw materials  like High Density’ Polyethylene (HDPE), Poly Vinyl Chloride (PVC) and Mono Ethylene Glycol (MEG) a polyester raw material used in the manufacture of polyester fibre, etc. The company  had also applied for Gas Cracker Project, which is said to  have been  cleared recently, whereby (natural) gas oil  would  be cracked  to produce ethylene and other petrochemicals.  Thus right  from the Naphtha stage to the yarn fibre  and  fabric stage,  the  company  has attempted the  complete  range  of products  necessary for the manufacture of fabrics from  the raw material namely, natural gas.     Hazira  has been selected with special reference to  the availability of natural gas oil from South Sea Basin and  it is country’s first ethylene handling port and has  economies of transportation and terminal facility at Hazira etc. It is not  necessary to set out however how the company  developed in  different stages. The application for consent was  filed on 4th May, 1988 as mentioned hereinbefore. The licence  and letter of intent were endorsed in favour of the RIL and  the scheme for finance in favour of the RPL.     Both  Shri  Baig and Shri Salve, appearing for  the  re- spondents  3  and 4, gave us the factual background  of  the business of the RPL. It is not necessary to set out these in greater detail than what has been mentioned hereinbefore. It is  further submitted by both that the CCI had examined  the nature  and quantum of security in cases of the  debentures. It was submitted that the submission of Shri Ganesh that the security  was  inadequate was wrong. It was  submitted  that clauses (5) and (6) of the Prospectus read together indicate how  the power has been exercised. These  clauses  visualise the creation of a residual or floating charge on all or  any of the movable or immovable assets and properties of RPL  at Hazira and/or at any other location. These further postulate future  charge,  superior in priority, might be  created  by RPL. Future charges might be created without the consent  or concurrence of the debenture holders. Nor was their  consent required for purposes of dealing with the assets and proper- ties  of  the company. It was submitted that  the  following properties are excluded from charge, namely, 116               (a)  Residential complex at Hazira or  at  any               other location.               (b) Current assets or Banker’s goods.                  (c)  Any other property that might be  spe-               cifically  excluded  by  agreement  with   the               trustees.     Future charges might be created on such terms  regarding ranking, etc. as might be agreed to by the trustees. It  was

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submitted  that  whereas clause (5)  essentially  visualised creation of a floating charge in favour of debenture-holders without any restrictions or limitation, clause (6)  incorpo- rated a limitation and a safeguard that controls the  normal characteristics of floating charge.    It  has to be borne in mind that convertible debenture is a  new type of instrument introduced in this case and  these appear  to have caught the imagination of the investors.  It has  been asserted before us that subsequent to  RPL  issue, others  have also gone for this type of project. Our  atten- tion was drawn to rule 2(b)(x) of the Companies  (Acceptance of  deposits)  Rules,  1975 which provided  clearly  that  a convertible debenture was not to be included in the  defini- tion of debenture. it was further asserted that the security visualised in clauses (5) and (6) of the Prospectus was  one which was prevalent and customary in corporate practice  and was regarded as valid and adequate. Nothing contrary to this was indicated before us.     Our  attention was drawn to Sec. 2(12) of the  Companies Act  under which a debenture need not be secured at all.  In that light the guidelines should be interpreted.  Therefore, it  was  submitted, Guideline  10,  reasonably  interpreted, means that such security should be provided as is customari- ly  adopted in corporate practice in the matter  of  issuing debentures.  It has to be borne in mind that the  debentures issued  in  the present case are  compulsorily  convertible. Therefore, no repayment of principal is really involved. The question  of  security becomes relevant for the  purpose  of payment  of interest on these debentures and the payment  of principal  only  in the unlikely, event of winding  up.  The debentures need not necessarily be secured.Guidelines do not provide for quantum and nature of the security. A  debenture has  been defined to mean essentially as an  acknowledgement of  debt,  with  a commitment to repay  the  principal  with interest  (Palmer’s  Company  Law; p.  672;  24th  Edition). Reference,  in this connection, may be made to  The  British India  Steam  Navigation Co. v. The Commissioner  of  Inland Revenue. [1881] 7 QBD 165; at pages 172 117 and  173. A debenture may contain charge only on a  part  of the  assets of the company Re. Colonial Trusts  Corporation, [1879] (15) Ch. 465 or it may not contain any charge on  any of  its assets (See Speyer Brothers v. The  Commissioner  of Inland  Revenue, [1907] 1 KB 246 and Lemon v. Austin  Friars Investment  Trust Ltd., [1926] (1) Ch. 15. A debenture  may, therefore, be secured or unsecured (Palmer’s Company Law; p. 675; 24th Edition). An ordinary debenture has to be  distin- guished  from  a  ’mortgage  debenture’  which   necessarily creates a mortgage on the assets of a company (See  Palmer’s Company  Law p, 706). A compulsorily  convertible  debenture does  not postulate any repayment of the  principal.  There- fore,  it does not constitute a ’debenture’ in  its  classic sense. Even a debenture, which is only convertible at option has  been regarded a ’hybrid’ debenture by Palmer’s  Company Law (Para 44.07 at page 676). In this connection,  reference may be made to the guidelines for the ’"Protection of Deben- ture  Holders" issued on the 14th January, 1987  which  have recognised the basic distinction between a convertible and a nonconvertible  debenture.  It is apparent that  these  were issued  for the purpose of ensuring the  serviceability  and repayment of debentures on time. It has been asserted before us that the compulsorily convertible debentures in corporate practice was adopted in India some time after the year 1984. Wherever the concept of compulsorily convertible  debentures is involved, the guidelines treat these as "equity". This is

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clear from Guideline IV(i) read with IV (iii) of the  Guide- lines for Issue of Cumulative Convertible Preference  Shares and  Guidelines No. 8 and 11 of the Employees  Stock  Option Guidelines,  These two sets of Guidelines  clearly  indicate that  any instrument which is compulsorily convertible  into shares,  is  regarded as an "equity" and not as  a  loan  or debt.  Even a non-convertible debenture need not  be  always secured. In fact, modern tendency is to raise loan by  unse- cured stock, which does not create any charge on the  assets of  the Company (The Encyclopaedia of Forms and  Precedents; 4th  Edn. Vol. 6 para 17 at pages 1094, 1095 and para 22  at pages 1097-98). Whenever, however, a security is created, it is  invariably  in the form of a floating charge  (See’  The Encyclopaedia of Forms and Precedents, 4th Edn., Vol. 6 Para 25  at page 1099). It follows, therefore, that  the  secured debenture  almost invariably contains a floating charge.  In addition  to the floating charge, debentures are  frequently secured  by trust deed also as had happened in  the  present case where specific property, land, etc. has been  mortgaged to trustees.     Shri  Ganesh made a submission that under clause (5)  of the  Prospectus, the company could deal with its assets  and properties with- 118 out  the permission of debenture-holders or debenture  trus- tees  and  that it could create future charges  which  would rank  superior in priority. The concept of  floating  charge was,  invented by the Victorian Lawyers only because of  its special  advantages inasmuch as it leaves a company free  to deal with its assets in the ordinary course of business  and does  not  require the permission  of  debenture-holders  or debenture trustees for dealing with them or creating further charges.  It  has been pointed out that the  business  of  a corporation would be paralysed if it could not deal with its assets and create future charges, ranking superior in prior- ity,  and if it would have to obtain the permission  of  the debenture  holders  for  doing so. (See  the  discussion  in Palmer’s Company Law; page 709 and 682) (See also the obser- vations  in Re. Florence Land & Public Works Co., [1878]  10 Ch.  530; Re. Colonial Trust Corporation, (supra). In  fact, in Re. Florence Land’s case (supra), the Court observed that if  the  companies were not allowed to  resort  to  floating charge,  they  would have to call the  meeting  of  existing charge  holders/debenture holders each time they  intend  to create  future charge. The decision in Re. Panama, New  Zea- land,  and Australian Royal Mail Co., as indicated in  Palm- er’s Company Law at page 708 is a landmark because it estab- lished the validity and the utility of a floating charge. In the instant case, if the permission of the debenture holders were required or is insisted upon to create future security, 2.5 million debenture holders would have to be informed  and invited for meeting. The extravagant effects of this  course would be colossal especially when a shareholders’ meeting is also  additionally called for the same body of  persons.  It is,  therefore,  incorrect  to say that  a  floating  charge creates an illusory charge because future securities can  be created  ranking in priority over it. The legal position  is that a floating charge creates a present equitable right  in favour  of  the  debenture holders/trustees.  It  creates  a present charge.in the property/undertaking of a company even before  the  time of payment of the debenture  arrives.  The fact  is that a company can deal with its  property  without the  permission of debenture holders/trustees, before  crys- tallisation by resorting to a floating charge on the  under- taking  (See  the  observations in this  connection  in  Re.

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Florence  Land’s  case (supra); Re.  Standard  Manufacturing Co., [1891] 1 Ch. 627; Re. Borax Foster v. Borax Co., [1901] 1  Ch.  326 and Creatnor Maritime Co. Ltd. v.  Irish  Marine Management  Ltd.,  [1978] 1 WLR 966. This however  does  not mean  that the company can keep on creating  future  charges with  superior ranking without any let or hindrance  because the debenture holders/trustees can any time move to crystal- lise the floating security if they felt that the security is in jeopardy. 119     In  the  present case, there is no case  to  suggest  or believe  that  ICICI  (which is one of  the  most  important national  Government financial institutions), will  not  act effectively  and  promptly to ensure that  the  security  in favour  of the debenture-holders is not  rendered  illusory. Even  Guidelines dated 14th January, 1987 has cast  the  re- sponsibility of supervising, creating, monitoring and imple- mentation  of security in favour of debenture-trustees.  The company  cannot  normally create a general  floating  charge ranking  in priority to or pari passu with a prior  floating charge unless the prior floating charge itself permits  such a  course. In this connection, reference may be made to  the observations  in The Encyclopaedia of Forms and  Precedents, 4th Edn., Vol. 6 para 27 at pages 1102-1103.               It, therefore, follows that:               (i) A debenture is usually secured by floating               charge only.                      (ii)  A company which creates  floating               charge  has a right to create future  security               which may rank superior in ranking.                      (iii) However, this right of the compa-               ny may be restricted by agreement.                      (iv) Where no restriction is  provided,               any future specific charge will rank  superior               to the earlier floating charge (Section 123 of               the Companies Act)                      (v) Again, where no specific  provision               is  made in the earlier floating  charge  with               respect  to  the ranking  of  future  floating               charge then any future floating charge will be               inferior  to the earlier floating  charge.  In               this connection, reference may be made to sec.               48  of the Transfer of Property Act. The  risk               of  floating  charges  can  be  controlled  by               creating legal mortgage in favour of debenture               trustees  as has been explained in "All  About               Debentures"  by Sen & Chandrashekhar (pp.  66-               67).     In  the present case, a legal mortgage has been  created by RPL in favour of the trustees in respect of its immovable and  movable assets, except book debts, in respect of  which financial  institutions will hold a first charge on  account of foreign loan. In the present case, RPL does not have  any existing  loans.  Therefore,  the charge in  favour  of  the debenture  holders is presently the first charge. No  future borrowing  is contemplated at this stage except the  foreign currency loan to the 120 extent of Rs. 84 crores. Therefore, the submission that  the security is illusory cannot be accepted and the CCI is right that  the  apprehension is based on  factually  unsound  and unfounded grounds. Even if the value of the foreign currency which  has been sanctioned in principle by the three  finan- cial institutions, is taken into account, the assets  cover- age  goes down at each stage and does not make any  critical

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difference  to the value of the security of  the  debenture- holders  under the Trust Deed. The purposes  of  borrowings, namely,     term-loan    borrowings,    deferred     payment credits/guarantees and borrowing for financing new  projects do not, on analysis, raise any difficulty. There are  suffi- cient  in-built checks and controls. The company,  being  an MRTP  company would have to obtain both MRTP permission  for creating  any security irrespective of its value  and  fresh CCI  consent under the CCI Act. except in case  of  exempted securities.  Therefore, in our opinion, this  submission  is really in the nature of. red-herring. It was submitted  that we  should at least direct that the future  security  should not  rank superior to the floating charge in favour  of  the existing debentures holders.     Having regard to the factors which the investors  should have  taken into consideration, we are of the  opinion  that all relevant factors were borne in mind by the CCI. There is no  substance  also in the ground of discrimination.  It  is reiterated  that  Article 14 of the  Constitution  does  not forbid reasonable classification. RIL is a promoter company. It  had  conceived  the projects, got  them  sanctioned  and invested  huge amounts of time and money in the process.  It was  open to RIL to undertake these projects on its own  and not  to make any public issue at all. The ground that  there was  non-application of mind be. cause the CCI did not  take into  consideration  the issue of G-Series is  also  without substance.  Under Guideline 2(a) of the Guidelines of  1984, capital could be raised only for setting up of new  project. MEG, it was submitted, was not a new project for capital had been  raised  for it by RIL under G-Series. It  was  further submitted  that  the Controller did not ask RPL to  get  the bankers prior clearance certificate under Guideline II(v) of the Guidelines of January 14, 1987. Finally, the CCI did not take note of the fact that the application under Schedule  I of Rule III of the Capital Issues (Application for  Consent) Rules did not contain the relevant information. The position of  cost over-run has been explained. So there was  no  sub- stance  in  the submission that it was not  a  new  project. Secondly, it cannot be accepted that the CCI did not  insist the  bankers prior clearance certificate.  These  guidelines apply to "non-convertible debentures" or "partly convertible debentures". These do not apply to "compulsorily convertible debentures". 121 Even  assuming that these are applied to "compulsorily  con- vertible  debentures", there was no need for the CCI to  ask for the bankers prior clearance certificate because RPL  was not issuing any new set of debentures. All requisite  infor- mation had been furnished.     Shri Ganesh as well as Shri Pagaria tried to submit that in  order to protect the investors, a function,  which  they submitted, the CCI, in changed circumstances, should  deter- mine whether the project is profitable. Where a project  has been appraised by an institution like ICICI, the  Controller can  safely  assume that it is profitable and  he  need  not engage  in separate independent exercise of his own in  this regard. The scope and nature of the Controller’s powers  and jurisdiction  have  to  be determined in the  light  of  the specific  provisions  of the CCI Act, its history,  the  de- bates,  to which we have referred, the capital structure  of the  national economy and its over all direction, in  higher priorities,  are decided by the Government and the  Planning Commission  by  formulating Five Year  Plans.  However,  the capital structure and the direction of a particular industry is  decided  in terms of the provisions of IDR Act.  That  a

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particular industrial house may become a monopoly or  other- wise have a restrictive and detrimental effect on the econo- my  of the country, is the concern of MRTP  Act.  Therefore, the  scope of the CCI under the Act is of a  limited  nature and must be kept in its proper perspective. It is true  that he cannot, as was contended on behalf of the petitioner,  be oblivious of the fact that small scale investors are  coming into operation and there is a social obligation of the State to provide safe guidelines. Yet, each authority must circum- scribe its. work in the proper light. Unless, therefore, CCI acts perversely, irrationally or with procedural  improprie- ty,  his decisions cannot and should not be faulted  on  the ground  that other consequences might follow. Of course,  no other consequences have been indicated before us.     As  a matter of fact, there was no allegation  that  the CCI acted mala fide or on extraneous considerations. The CCI applied  its mind to the facts of this case and the  factors in  general. There was no undue haste. A statement was  pro- duced  indicating that the application for grant of  consent had been disposed after some time, but within the time frame in which such applications are normally disposed of.     It  may, however, be stated that being not statutory  in character,  these  guidelines are not enforceable.  See  the observations of this Court in Fernandez v. State of  Mysore, [1967]  3  SCR 636: Also see R. Abdullah  Rowther  v.  State Transport, etc., AIR 1959 SC 896; Dy. 122 Asst.  Iron  & Steel Controller  v.  Manekchand  Proprietor, [1972] 3 SCR 1; Andhra Industrial Work v. CCI & E, [1975]  1 SCR 321; K.M. Shanmugham v. S.R.V.S. Pvt. Ltd., [1964] 1 SCR 809).  A policy is not law. A statement of policy is  not  a prescription  of  binding  criterion.  In  this  connection, reference may be made to the observations of Sagnata invest- ments  Ltd. v. Norwich Corpn., [1971] 2 QB 614 and  p.  626. Also  the  observations in British Oxygen Co.  v.  Board  of Trade, [1971] AC 6 10. See also Foulkes’ Administrative Law, 6th Ed. at page 18 1-184. In Ex. P. Khan, [1981] 1 All  E.R. page  40, the court held that a circular or self  made  rule can  become enforceable on the application of persons if  it was  shown  that it had created  legitimate  expectation  in their  minds  that  the  authority would  abide  by  such  a policy/guideline. However, the doctrine of legitimate expec- tation  applies only when a person had been given reason  to believe  that the State will abide by the certain policy  or guideline  on the basis of which such applicant  might  have been  led to take certain actions. This doctrine is akin  to the  doctrine of promissory estoppel. See also the  observa- tions  of  Lord Wilberforce in IRC v.  National  Federation, [1982] AC 617). However, it has to be borne in mind that the guidelines  on  which the petitioners have  relied  are  not statutory in character. These guidelines are not  judicially enforceable. The competent authority might depart from these guidelines  where the proper exercise of his  discretion  so warrants.  In  the present case, the statute  provided  that rules  can be made by the Central Government only.  Further- more,  according to Section 6(2) of the Act,  the  competent authority  has  the power and jurisdiction  to  condone  any deviation  from even the statutory  requirements  prescribed under  Sections  3 and 4 of the Act. In  Regina  v.  Preston Supplementary,  [1975] 1 WLR p. 624 at p. 631, it  had  been held  that  the Act should be administered  with  as  little technicality as possible. Judicial review of these  matters, though can always be made where there was arbitrariness  and mala fide and where the purpose of an authority in  exercis- ing  its statutory power and that of legislature in  confer-

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ring  the  powers are demonstrably at  variance,  should  be exercised cautiously and soberly.     We  would also like to refer to one more aspect  of  the enforceability of the guidelines by persons in the  position of the petitioners in these cases. Guidelines are issued  by Governments  and statutory authorities in various  types  of situations. Where such guidelines are intended to clarify or implement  the conditions and requirements precedent to  the exercise  of certain rights conferred in favour of  citizens or  persons and a deviation therefrom directly  affects  the rights so vested the persons whose rights are affected  have a clear right to 123 approach the court for relief. Sometimes guidelines  control the  choice  of persons competing with one another  for  the grant  of benefits largesses or favours and, if  the  guide- lines  are departed from without rhyme or reason,  an  arbi- trary discrimination may result which may call for  judicial review.  In some other instances (as in the Ramanna  Shetty, case),  the  guidelines may prescribe certain  standards  or norms for the grant of certain benefits and a relaxation of, or departure from, the norms may affect persons, not direct- ly  but  indirectly, in the sense that though they  did  not seek the benefit or privilege as they were not eligible  for it on the basis of the announced norms, they might also have entered the fray had the relaxed guidelines been made known. In  other words, they would have been potential  competitors in  case any relaxation or departure were to be made.  In  a case of the present type, however, the guidelines operate in a  totally different field. The guidelines do not affect  or regulate  the  right of any person other  than  the  company applying  for  consent. The manner of application  of  these guidelines, whether strict or lax, does not either  directly or indirectly, affect the rights or potential rights of  any others  or  deprive  them, directly or  indirectly,  of  any advantages or benefits to which they were or would have been entitled.  In  this context, there is only  a  very  limited scope for judicial review on the ground that the  guidelines have  not  been  followed or have been  deviated  from.  Any member  of  the public can perhaps claim that  such  of  the guidelines  as  impose controls intended  to  safeguard  the interests of members of the public investing in such  public issues  should  be strictly enforced and not  departed  from departure  therefrom will take away the protection  provided to  them. The scope for such challenge will  necessarily  be very narrow and restricted and will depend to a considerable extent  on the nature and extent of the deviation.  For  in- stance, if debentures were issued which provide no  security at all or if the debt-equity ratio is 6000:1 (as alleged) as against the permissible 2:1 (or thereabouts) a Court may  be persuaded to interfere. A Court, however, would be reluctant to  interfere simply because one or more of  the  guidelines have  not been adhered to even where there  are  substantial deviations, unless such deviations are, by nature and extent such as to prejudice the interests of the public which it is their avowed object to protect. Per contra, the Court  would be  inclined to perhaps overlook or ignore such  deviations, if  the  object of the statute or public  interest  warrant, justify or necessitate such deviations in a particular case. This  is  because guidelines, by their very nature,  do  not fall  into the category of legislation, direct,  subordinate or  ancillary. They have only an advisory role .to play  and non-adherence  to or deviation from them is necessarily  and implicitly permissible if the circumstances of any  particu- lar fact or law

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124 situation  warrants  the same. Judicial control  takes  over only  where the deviation either involves  arbitrariness  or discrimination or is so fundamental as to undermine a  basic public  purpose which the guidelines and the  statute  under which they are issued are intended to achieve.     But in the instant case, in the view we have taken,  it’ is  not  necessary to base our decision on this  aspect.  We find that the CCI has, in fact, acted in substantial compli- ance  with the principles of these guidelines. He has  acted objectively and bona fide. He has not acted in undue  haste. No  substantial prejudice or injury to the petitioners  have been  demonstrated. In the aforesaid view of the matter,  we are,  therefore,  unable to interfere. In  this  connection, furthermore, a common sense view has to be adopted--See  the observations in Council of Civil Service Unions & Others  v. Minister  for  the Civil Service, [1985] AC at  407.  Public interest in this case does not require that we should inter- fere.  In this case, there is no illegality in the  decision of the Controller of Capital Issues. He has not exercised  a power which he does not possess. There is also no  irration- ality.  He  has not acted in any manner that  no  reasonable authority  would  have acted in the decision.  There  is  no procedural impropriety in his decision. He has not failed in his duty to act fairly insofar as fairness was warranted  by the justice of the situation.     In  the  aforesaid  view of the matter, we  are  of  the opinion  that there was no substance in the  writ  petitions and also in the civil suits covered by these transfer appli- cations.     The main question, as mentioned hereinbefore,  canvassed in these transfer petitions is whether the CCI has acted  in the  manner  he  should act in  the  present  atmosphere  of socio-economic  development  in view of  our  constitutional commitments.  The purpose of the Act must be found from  the language  used. The scheme and the language  used,  strictly speaking,  do not indicate any positive role for the CCI  in discharging  his functions in respect of grant of  sanction. But it has to be borne in mind that he is a part of a  State instrumentalities committed to the endeavours of the consti- tutional  aspiration to secure justice, inter  alia,  social and  economic,  and also under Article 39(b) &  (c)  of  the Constitution to ensure that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and that the operation of  the economic  system does not result in concentration of  wealth and means of production to the common detriment. Yet,  every instrumentality and functionary of the State must fulfil its own role and should not trespass or encroach/ 125 entrench upon the field’ of others. Progress is ensured  and development  helped if each performs his role in the  common endeavour.     In  that  light  it is true that  as  was  contended  by learned counsel appearing ’on behalf of the petitioners that in  the changed socioeconomic conditions of the country  one who  is charged to ensure capital-investment has to  perform the  social  role in capital formation and  to  protect  the interest of the capital market, and to oversee the growth of industrialisation  and  investment in such a  manner  as  to ensure  employment  and demand in the  national  economy  to prevent wasteful investment and to promote sound methods  of corporate  finance.  The  guidelines are only  a  guide  and nothing  more.  The application- of mind by the  CCI  before sanction must be in the perspective for which he is enjoined

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by  the Act. He must endeavour to secure a balanced  invest- ment of the country’s resources in industry, agriculture and social  services. The Controller should perform the role  of social control and fulfil the social purpose in  conjunction with  other authorities and functionaries. It  is  necessary for  him in discharge of his functions to ensure that  there is  not too much concentration of particular  industries  in particular areas, and that there is a scientific development and proper investment in key and core projects.     The  present petitions have perhaps brought to the  fore for the first time a public interest aspect of the issue  of shares  and  debentures. In the past decades,  investors  in shares  and equities constituted a very limited  section  of the  public  and  consisted of two  extreme  types  --either persons who could shrewdly appraise the merits of each issue and take a considered decision or persons who just wanted to invest and get a return for their moneys but were  indiffer- ent  to  the terms and conditions of  such  investment.  The position has changed in recent years. There has been a  vast increase  in  the number of members of the public  who  have surplus money to invest; the size of the issues has  assumed macro-proportions;  and  the types of instruments  are  also becoming  more and more sophisticated.  Entrepreneurs,  with legal  and expert assistance at their command, could  easily trap unwary investors and the development of a public inter- est  lobby that can scrutinise issues carefully  and  advise prospective investors on their comparative merits and demer- its  may  not be entirely undesirable. It  is  also  perhaps necessary that the CCI, in considering the grant of  consent to  such  issues, should have these aspects brought  to  his notice.  We  think that it may be too cumbersome to  have  a provision that the details of every proposed application for consent  should be publicised to the maximum extent  by  the CCI, that objections and comments from the public 126 should be called for, that there should be a public  hearing before  the  CCI before grant of consent and  that  the  CCI should  pass a reasoned order granting or  withholding  con- sent.  That would also delay the whole process of  approvals which  should be as expeditious as possible. But we have  no hesitation  in saying that some procedure has to be  evolved to  ensure  that the CCI gets the benefit of  the  comments, suggestions  and objections from the public before  arriving at his decision whether to grant consent or not and, if  so, on what terms and conditions. Perhaps, evolution of  certain rules in this respect could be examined at this juncture  of industrial  growth in our country. But having regard to  the facts  and  the  circumstances of the case in  view  of  the various facts mentioned hereinbefore, we are of the  opinion that there was no undue haste. There was proper  application of mind that the sanction was for a new project.  Sufficient security  for the debentures as was enjoined to  be  ensured before  sanction has been ensured in the facts and the  cir- cumstances  of this case and guidance provided by  means  of guidelines  has been substantially complied with. There  has been  no  infraction  as such of the norms  required  to  be followed  in  granting the sanction. The  challenge  to  the sanction, therefore, must fail.     Before  we  conclude,  we must note that  good  deal  of argument  was adduced that these applications  in  different High  Courts  in civil suits were not genuine  and  properly motivated,  but were mala fide. Even though these might  not have  been to feed fat an innocent object, it  was  apparent that it was to feed fat a grudge in respect of a competitive project by a competitor. Anyway, in the view we have  taken,

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it  is not necessary to decide the bona fides or mala  fides of the applicants. Shri Nariman, when he moved the  applica- tion  initially, had suggested that we should lay down  cer- tain  norms as to how the courts in different parts  of  the country  should grant injunction or  entertain  applications affecting  an  all-India issue or having  remifications  all over  the country. Except that before the courts  grant  any injunction,  they  should have regard to the  principles  of comity  of courts in a federal structure and have regard  to self  restraint and circumspection, we do not at this  stage lay  down any more definite norms. We may also  perhaps  add that it may be impossible to lay down hard and fast rules of general application because of the diverse situations  which give rise to problems of this nature. Each case has its  own special  facts and complications and it will be a  disadvan- tage,  rather  than an advantage, to attempt and  apply  any stereo-typed  formula to all cases. Perhaps in this  sphere, the  High  Courts themselves might be able  to  introduce  a certain amount of discipline having regard to the principles of comity of courts 127 administering the same general laws applicable all over  the country  in  respect of granting interim orders  which  will have  repercussion or effect beyond the jurisdiction of  the particular courts. Such an exercise will be useful contribu- tion  in evolving good conventions in the  federal  judicial system.     On  the 9th September, 1988, when we  transferred  these matters,  we directed respondent no. 3 to deposit a  sum  of Rs.  1 lac to be held if the petitioners were made to  spend unduly. Having considered the facts and circumstances of the case, we do not think that we would be justified in ordering disbursement of this sum to the petitioners whose cases have been  transferred  or the plaintiffs whose cases  have  been transferred.  The sum should, therefore, be refunded to  the respondent no. 3.     All  the writ petitions and the suit fail, and are  dis- missed.  In  the facts and the circumstances  of  the  case, there will be no order as to costs. G.N.                                               Petitions dismissed. 128