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PETITIONER: N.PARTHASARATHY ETC.

       Vs.

RESPONDENT: CONTROLLER OF CAPITAL ISSUES AND ANOTHER ETC.

DATE OF JUDGMENT16/04/1991

BENCH: RAY, B.C. (J) BENCH: RAY, B.C. (J) KASLIWAL, N.M. (J)

CITATION:  1991 SCR  (2) 329        1991 SCC  (3) 153  JT 1991 (2)   218        1991 SCALE  (1)675

ACT:      Constitution of India, 1950: Articles 14, 39(b) and (c) and   298-Shares   of   public   company   held   by   State Instrumentalities  - Sale of - Public interest -  Chance  of creating   business   monopoly  in  private  hands   -   Due consideration to ensure public interest - Need for.      Articles  32  and 226  - Public Interest  Litigation  - Petition  against grant of consent by Controller of  Capital Issues - Alleged violation of Articles 14: 39 (b) and (c)  - Maintainability of.      Capital  Issues (Control) Act, 1947: Section 3 -  Issue of  debentures - Consent of controller of Capital  issues  - Whether  given  after due consideration and  application  of mind - Variation in consent - Whether permissible - Decision as  to  utilisation of the amount received  from  public  or approving  a different consent order - Whether  Courts  have the  power/jurisdiction  - preferential issue  reserved  for share  holders  of inter-connected company - Validity  of  - Public  Interest  - Constitutional directive  under  Article 39(b)  and  (c)  - To be ensured by  Controller  of  Capital issues while granting consent for public issue.      Companies  Act, 1956: Sections 55, 61,62,63,72(1)  (a), 81(1-A),  108  110 and 111 - Special Resolution  at  general meeting Consent for public issue - Granted by the Controller of Capital Issues, after considering the Special  Resolution - Third party acting on it and acquiring rights by  purchase of debentures - Change of consent order in respect of amount and  purpose  of  utilisation - Whether  could  be  effected contrary  to  the Special Resolution adopted  in  a  general meeting   -  Preferential  allotment  to   shareholders   of interconnected  Group Companies - Validity of - Transfer  of shares - Done surreptitiously and with malafide intention  - Effect  of  -  Whether opposed to public  policy  and  hence illegal.      Monopolies  and Restrictive Trade Practices Act,  1969: Sections 2(g), 21 and 22 - " Interconnected undertakings"  - Meaning of - Clearance for capital issue - Approval given to Group  Company  -  Whether valid in respect  of  the  inter- connected company.                                                   330

HEADNOTE:

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    Out  of the Equity Shares of M/s Larsen &  Turbro  Ltd. held  by  public financial institutions viz., UTI,  LIC  and GIC,  39  lakh shares were sold to BOB  Fiscal  Services,  a subsidiary of Bank of Baroda. These shares were purchased by BOB  Fiscal  Services for Rs. 30 Crores which was  given  by four  satellite  companies of  Reliance  Group.  Immediately after   the  purchase,  the  shares  were  transferred   and registered in the name of Trishna Investing and Leasing Ltd. which  was  also a satellite of the Reliance Group.  It  had only  a capital of Rs. 44,000 at that point of time. It  was claimed  that  funds  for the purchase  of  the  shares  was provided  by Reliance Group from out of the amount  received by6 way of debentures issued to public. Two Directors of the Reliance  Group  were  co-opted as Director  of  Larsen  and Toubro Ltd. even though the said shares were not  registered in  their names or in the name of Reliance Group.  Even  the nominee  Director  of  the financial  institutions  did  not question  the  induction  of the  two  Directors.  One  more Director  from  the  Reliance Group  was  later  coopted  as Director,  which  paved the way for the  Chairman,  Reliance Group to become the Chairman of Larsen and Toubro Ltd. also.      Thereafter the Board of Directors of Larsen and  Toubro Ltd.  as its meeting approved a proposal to raise  funds  by issue  of convertible debentures for Rs. 920 crores. In  the said  meeting  it was also resolved to issue  a  notice  for convening  and extraordinary General Meeting to  consider  a special  resolution  for the proposed issue  of  convertible debentures. Applications  were made to  the  Controller  of Capital  Issues  seeking  sanction to the  rights  issue  of debentures  of  Rs.  200  crores and  for  public  issue  of debentures  to  the extent of Rs. 620 crores.  It  was  also stated   in  the  application  that  it  was   proposed   to reserve/preferentially  allot  Rs.  310 crores  out  of  the public  issue, to Larsen and Toubro’s Group Companies  viz., Reliance Industries Ltd. and Reliance Petro Chemicals Ltd.      In its extraordinary General Meeting, the  shareholders of  Larsen  and Toubro passed a resolution  authorising  the Board  of  Directors of the company to issue 12.5  per  cent fully  secured convertible debentures of the total value  of Rs.  820  crores.  Accordingly, the  Controller  of  Capital Issues  conveyed the Central Government’s consent under  the Capital Issues (control) Act, 1947, to the proposed issue of debentures by Larsen and Toubro Ltd.      A  Writ Petition was filed in the High  Court  pleading that  the  divestment by the financial institutions  of  the controlling  shares  in Larsen and Toubro  to  the  Reliance Group was a secret circuitous                                                     331 arrangement  and  hence  such a  divestment  was  arbitrary, illegal,  mala fide and a fraud on the statutory  powers  of the   financial  institutions.  The  High  Court,   however, dismissed  the Writ Petition. Aggrieved by the dismissal  of their  Writ  Petition,  the  petitioners  preferred  Letters Patent  Appeal before the Division Bench of the High  Court. The  Respondents  in  those Writ  Petitions  filed  Transfer Petitions in this Court praying for transfer of the  Letters Patent  Appeal as also the various Writ Petitions  filed  in the different High Courts, to this Court. The Court  allowed the Transfer Petitions.      In  all  these  matters, the  consent  granted  by  the Controller  of  Capital Issues was assailed mainly  on  the ground  that the sanction was issued without application  of mind  and without considering the after effect of it,  viz., the Reliance Group acquiring debentures of the value of  Rs. 310  crores  earmarked  for preferential  allotment  to  the

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shareholders of Reliance Industries Ltd. and Reliance  Petro Chemicals Ltd. which amounted to allowing the Reliance Group to have control of Larsen and Toubro. It was also  contended that the consent was given within 24 hours of the making  of the  application and the hurry with which the  sanction  was granted  showed that it was done with mala  fide  intentions and with a motive to help the Reliance Group.      On behalf of the Respondents, it was contended that the shares  were sold in the interest of their constituents  and for  recycling  the fund for investing in  the  business  by purchasing shares of other companies in public interest  and also in the interest of money market; that there was nothing hanky and panky in it nor was it effected with the motive of diluting  shares  held by public financial  institutions  in order to facilitate the increase in the holding of  Reliance group, a private monopoly house, to get into the  management of  Larsen & Toubro. It has been further contended that  the tranfer of 39 lakh shares of Larsen & Toubro was not made in favour of satellite companies of the Group, but through  BOB Fiscal  Services Ltd. which is a wholly owned subsidiary  of Bank  of  Baroda; that it was not  made  surreptitiously  or discreetly on the basis of any design or secret arrangement. It was also contended that in transferring the equity shares the   financial  institutions  acted  purely   on   business principles  and to earn profit by these transactions and  in the  case  of  LIC and UTI in the  interest  of  the  policy holders and the unit holders as the case may be. Further, it was  contended that the acceptance of the requests  made  by the  subsidiary of Bank of Baroda i.e. BOB  Fiscal  Services for  selling   the shares of L & T to them  at  the  highest market price through the broker was in public interest in as much as if all those 39 lakh shares had been put in the                                                     332 stock  market  for  sale it would have  created  as  adverse effect on the company and would have adversely affected  the interest  of  Larsen and Toubro Ltd., and that  it  was  not possible to know the actual purchasers of these shares  from BOB Fiscal Services Ltd.      Dismissing the matters, the Court,      HELD:      (Per Ray, J).      1.  The  application for consent was submitted  on  Rs. 26.7.89   for   sanction.  On  August  21,   1989   at   the extraordinary  general meeting of share holders of L & T,  a resolution was passed, with only one shareholder dissenting, for  the issue of debentures of Rs. 820 crores. The  company sent a copy of this resolution to the Controller of  Capital Issues  who  after duly considering the  same  accorded  the consent on August 29, 1989. It cannot be said that there has been  complete non-application of mind by the Controller  of Capital  Issues  in  according the  consent  for  the  issue Moreover,  the  Controller of Capital Issues sent  a  letter dated  15 September, 1989 toM/s. Larsen and Toubro asking it to  note amendment of the condition of the consent order  to the  effect  that  fund utilisation shall  be  monitored  by Industrial  Development Bank of India. This will further  go to  show that the consent was given after due  consideration in  accordance  with the provisitions of Section  3  of  the Capital Issues (Control) Act, 1947. [ 355C-E]      2.  In  view of Sections 55, 61, 62, 63 and 72  of  the Companies  Act  the  terms  of  contract  mentioned  in  the prospectus or the statemets in lieu of the prospectus cannot be  varied except with the approval of and on the  authority given by the Company in the general meeting. Therefore,  the

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consent that was given by the Central Government, may by the Controller  of  Capital Issues, on a  consideration  of  the special  resolution  adopted in  the  extraordinary  general meeting  of  the shareholders of the company on  august  28, 1989  cannot be varied, changed or modified both as  regards the  reduction  of the amount of debentures as well  as  the purposes  for  which the fund will be utilised  contrary  to what has been embodied in the prospectus and approved by the Controller  of  Capital Issues on the basis of  the  special resolution   adopted   at  the  general   meeting   of   the shareholders of the company. [363A-C]      3.  On a plain reading of section 3(6) of  the  Capital Issues  (Control)  Act,  1947, it cannot  be  inferred  that consent   order  given  by  the  Central  Government   after consideration  of  the  special  resolution  passed  at  the general  meeting of the company on taking the  no  objection certifi-                                                          333 cation  from  the I.D.B.I. can be changed or varied  in  any manner  whatsoever  by the Central Government.  The  Central Government  can  merely vary all or any  of  the  conditions subject to the consent being given. [363F]      4. There has been no general meeting of the company nor any  special  resolution  was  taken  for  veriation      or reduction  of  the  amount of debentures to  be  issued  as, required  under  Section  81  read with  clause  IA  of  the Companies  Act. It is also evident that no steps  have  been taken  to have the consent already granted by Controller  of Capital  Issues,  varied or modified as required  under  the Capital  Issues (Control) Act, 1947. Merely  because  clause (v)  of  the consent order provides for  monitoring  of  the funds  by I.D.B.I.,it does not mean nor it can  be  inferred automatically that the suggestion of the I.D.B.I. as regards the  funds requirement can be automatically given effect  to without   complying  with  the  statutory  requirements   as provided  in the provisions in the Companies Act as well  as in the Capital Issues (Control) Act.The consent order is one and  indivisible  and as such the same cannot be  varied  or vivisected without taking recourse to the provisions of  the statute.  It  is  also well settled  that  the  contract  to purchase shares or debentures is concluded by  allotment  of shares  issued  under the prospectus and Section 72  of  the Companies Act makes it clear that allotment can only be made after  the propectus is issued. The Company is bound by  the special  resolution, the prospectus and the consent  of  the Controller  of Capital Issues. The power to pass  a  consent order  is a statutory power vested in a statutory  authority under  the Capital Issues Act and the Court has no power  of jurisdiction  to  step  into  the  shoes  of  the  statutory authority and pass or approve a consent order different from the   statutory  consent  order  given  by   the   statutory authority.  Moreover, the consent order cannot be varied  by the Central Government or Controller of Capital Issues after the  said order has been made public and third parties  have acted on it and acquired rights thereon. [363G-H;364-E]      State of Madhya Pradesh and Ors. v. Nandlal Jaiswal and Ors. [1986] 4 SCC 566 and Aaron’s v. Twiss, [1896] A.c.  273 referred to.      Palmer’s Company law, 24th Edition by C.M. Schmitthoff, pp. 332-333, referred to.      5.  In  the prospectus of Larsen & Toubro Ltd.  it  has been  mentioned  that  Larsen and Toubro  Ltd.  is  part  of Reliance  Group. This is in accordance with Section 2(g)  of the Monopolies and Restrictive                                                         334

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Trade  practices  Act, 1969 which defines  "  interconnected undertakings",  which  is  quite  in  accordance  with  this provision  of Section 81(1A) of the Companies Act, 1956.  In the  extraordinary  general  meeting  of L  &  T  a  special resolution was made providing for preferential allotment  of debentures  to the equity shareholders of R.I.L. and  R.P.L. so  the  reservation of debentures of the value of  Rs.  310 crores  of  Public issue for allotment  to  shareholders  of R.I.L. and R.P.L. cannot be questioned. In the prospectus of L & T Ltd. under Business Plants it has been mentioned  that the requirement of funds of the company for the period  from 1st October 1989 to 31st March, 1992 including in respect of Suppliers  credit to be extended to customers under  turnkey projects/  quasi-turnkey projects and for incurring  capital expenditure  on  new  plant and  equipment,  normal  capital expenditure   on  modernisation  and   renovation,   meeting additional working capital requirements and for repayment of existing loan liability, is estimated to be in the region of Rs.  1425  crores. The suppliers’ credits included  Rs.  510 crores  to  be  extended to RIL in respect  of  its  Cracker Project. The funds requirement was intended to be met out of the  present  issue of Debentures to the extent of  Rs.  820 crores and the balance would be met from internal   accruals by way of short term borrowings, and out of the proceeds  of the  previous Debenture Issue (III Series). It is seen  from the letter dated 2.12. 1988 issued by Government of India to M/s.  Reliance Industries Ltd. endorsing a copy  of  Central Government’s  order  dated 25.11.1988 passed  under  Section 22(3) (e) of the Monopolies and Restrictive Trade  Practices Act,  1969  that it gave approval for the proposal  of  M/s. Reliance  Industries Ltd. for setting up a cracker  complex. The  approval of Central Government was made  under  Section 22(3)  (d)  of  the M.R.T.P. Act and  communicated  to  M/s. Reliance  Petrochemicals  Ltd. by  letter  dated  30.5.1989. Consent  was  also  given by the  Central  Government  under Section  22(3)(a) of the M.R.T.P. Act for the  establishment of  a new undertaking for the manufacture of Acrylic  Fibre. Thus  the  consent  given by Controller  of  Capital  Issues cannot  be  challenged  on  the  ground  that  no   M.R.T.P. clearance for the issue of Capital under Section 21 or under Section 22 of the M.R.T.P. Act was not given.  [356D-H;357A- B]      Narendra  Kumar  Maheshwari v. Union of India  &  Ors., J.T. [1989] 2 S.C.338, referred to.      6.1.  The public financial institutions should be  very prudent and cautious in transferring the equity shares  held by  them not only being guided by the sole consideration  of earning  more  profit  by selling them but  by  taking  into account also the factors of controlling the finances in                                                       335 the   market  in  public  interest.  The  public   financial institutions  while transferring or selling bulk  number  of shares  must consider whether such a transfer will  lead  to acquisition of a large proportion of the shares of a  public company  and  thereby  creating  a  monopoly  in  favour  of particular group to have a controlling voice in the  company if  the same is not in public interest and not congenial  to the promotion of business. [351F-G]      6.2. Considering the entire sequence of events and  the manner  in  which the financial institutions sold  those  39 lakh  equity  shares of L & T to BOB  Fiscal  Service  which immediately  after  purchase  of those shares  with  the  30 crores of rupees given by 4 satellites of the Reliance Group transferred those shares to Trishna Investments and  Leasing Ltd., a satellite of Ambani Group though it had a capital of

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only Rs. 44,000 and money required for purchase was at least Rs.  39 crores, leads to the conclusion that such  transfers had been made to help the Ambanis  to acquire the shares  of L & T Company in a circuitous way. In the instant case,  all the  circumstances taken together clearly spell  some  doubt whether the transfer of such a huge number of 39 lakh shares by the Public Financial Institutions was for public interest and  was made on purely business principles. However,  since the financial institutions have already bought back all  the 39 lakh shares from Trishna Investment and Leasing Ltd. with the accretions thereon, nothing turns on it. [350F-H;  351A- F]      L.I.C.  of India v. Escorts Ltd., A.I.R. 1986 SC  1370, distinguished.      7.   The  Writ  Petitions  filed  as  Public   Interest Litigation Challenging the consent issued by the  Controller of Capital Issues, are maintainable.      S.P.Gupta & Ors. v.  Union of India & Ors. [1982] 2 SCR 365; Bandhua Mukti Morcha v. Union of India & Ors. [1984]  2 SCR  67 and LIC of India v. Escorts Ltd., [1986] 1 SCC  264, relied on. (Per Kasliwal, J., Concurring)      1. So far as the relief of a writ of mandamus directing the  respondents to recover 39 lakh shares of L & T and  pay back  the  amounts received therefor, does not  survive   in view  of the shares having been already bought back  by  the financial  institutions from Trishna  Investments.  However, for future guidance it may be worthwhile to note that public financial  institutions while making a deal in respect of  a very                                                        336 large  number  or  bulk of shares worth  several  crores  of rupees  must  also  make  some inquiry as  to  who  was  the purchaser  of such shares. Such transaction should  be  made with circumspection and care to see that the deal may not be to   camouflage  some  illegal  contrivance  or   in   built conspiracy of a private monopoly house in order to usurp the management  of  a  public company and which may  not  be  in public interest. [371E-G]      State of Maharashtra v. Ramdas Shriniwas Nayak &  Anr., [1983] 1 SCR 8, referred to.      2.  It cannot be said that there was nothing  wrong  or illegal  even if the action of Reliance Group was to  corner or purchase all the shares of L& T, and even if done through intermediaries or surreptitiously, cannot become illegal.      Babulal  Chaukhani v. Western India Theatres, AIR  1957 Cal. 709 disapproved.      3.1 No doubt any person or company is lawfully entitled to purchase shares of another company in open market, but if the  transaction is done surresptitiously with a  mala  fide intention   by   making  use  of   some   public   financial institutions as a conduit in a clandestine manner, such deal or  transaction  would  be contrary  to  public  policy  and illegal. [372B]      3.2  In the instant case, all the  circumstances  taken together  clearly spell some doubt whether the  transfer  of such a huge number of 39 lakh shares by the public financial institutions was for public interest and was made  on purely business principles [372H;373A]      4. As regards the preferential issue of Rs. 310  crores in favour of shareholders of the Reliance Group of companies is  concerned,  L & T and Reliance Group of  companies  were interconnected  within  the meaning of Section 2(g)  of  the MRTP Act and it is permissible according to law. The size of the  issue was so large that it was considered necessary  to

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reserve  a  substantial  portion  of it  in  favour  of  the shareholders  of  Reliance Group of companies, in  order  to ensure the successful absorption of the entire issue. It may also be noted that the shareholders of the Reliance Group of companies  are numbering about 35 lakhs and  they  represent the  investor base of the entire shareholding  community  of the country. Preferential issue per se is not a novel  idea. The  Controller  of  Capital  Issues  has   been  permitting reservations  for  various categories out  of  public  issue based  on  the  request made by companies  after  passing  a special resolution in the general body meeting and there  is no                                                       337 restriction on the shareholders of a company to offer shares of  their  company  to  any body  after  passing  a  special resolution  as  required  under Section  81(1-A)(a)  of  the Companies  Act. The question of bifurcating  or  vivisecting the  consent order given by CCI does not survive. The  legal controversy thus raised that the consent given by CCI  under the  Capital  Issues  (Control) Act can  be  held  valid  or invalid as a whole but not some part of it as valid and  the rest  invalid, does not require to be decided in  this  case and the same is left open. [385A-F]      State  of  Madhya  Pradesh v. Nandlal  Jaiswal  &  Ors. [1987]  1  SCR 54; Life Insurance Corporation  of  India  v. Escorts  Ltd & Ors., [1985] Suppl. 3 SCR 909: Jai Narain  v. Surajmull,  AIR  1949  F.C. 211 and Anisminic  Ltd.  v.  The Foreign Compensation Commission, [1969] 2 A.C. 147, referred to.      De   Smith’s judicial Review of Administrative  Action, 4th Edition p.285 referred to.      It is bounden duty of the CCI before giving an order of consent  for the issuance of any mega issue to keep in  mind and to carry out the Directive Principles of State Policy as enshrined  in Article 39(b) and (c) of the Constitution.  It is  no doubt correct that the CCI is not required  to  probe indepth  into  the  technical  feasibilities  and  financial soundness  of  the proposed projects or the  sufficiency  or otherwise  of the security offered, but at the same time  it has to see that the capital available for investment at  any given  time has to be sized and allocated according  to  the national  priorities,  and  in  the  changed  socio-economic conditions of the country to secure a balanced investment of the country’s resources in industry, agriculture and  social services. [386D-H; 387A-B]      Narendra Kumar Meheshwari v. Union of India, JT 1989  2 SC 238, explained.      6. It would not be in the interest of general  investor public  to cancel the entire mega issue.  Many  transactions must  have  already taken place on the floor  of  the  stock exchange  regarding the sale and purchase of the  debentures during  this  intervening period. Under the  order  of  this Court dated 9.11.89, no restrictions were placed on L & T in the  matter  of  utilisation of funds. According to  L  &  T against Rs. 410 crores due on application and allotment, the L  &  T  has so far received Rs. 396  crores  out  of  which approximately  Rs.  300 crores have  been  utilised  towards issue expenses, capital expenditure, repayment of loans  and working  capital in terms of the objects of the  issue.  The balance                                                       338 available  with the company is approximately Rs.  96  crores only. There is already a safeguard provided in the order  of the  CCI  dated 15.9.89 that the fund utilisation  shall  be with  the  approval of the IDBI. In any  case,  the  consent

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order  given  by CCI cannot be held invalid on  any  of  the grounds  of  Challenge raised by the petitioners.  In  these proceedings  this  Court  is  neither  called  upon  nor  is entitled  to decide as to how and in what manner the  amount mopped  up  from  the public by this  mega  issue  could  be utilised or spent. Thus, the consent given by CCI is  valid. [388C-D]

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Transferred Case No.  61 of 1989 etc. etc.      (Under Article 139-A of the Constitution of India).      Soli  J.  Sorabjee,  Attorney  General,  Ashok   Desai, Solicitor General, N.Santosh Hegde, Addl. Solicitor General, B.R.L. Iyengar, F.S. Mariman, T.R. Andhiyarujina, I. Chagla, Dr. Y.S. Chitale, Dr. L.M. Singhvi, Tapas Ray,  G.Ramaswamy, S.S. Ray, Ashok Sen, R.K. Garg, K.Parsaram, Ram  Jethmalani, Rajesh   Kumar,  R.Karanjawala,  Mrs.   M.Karanjawala,   Ram Dashandhi,    N.P.   Midha,   F.H.J.   Talayarkhan,    Gopal Subramaniam,  R.F.Nariman, V.B.Trivedi,  S.C.Sharma,  Bharat Sangal, Miss A.Subhashini, Rajan Mahapatra, S.S.Shroof, S.A. Shroff,  N.Roy,  Mrs.  Pallavi  S.Shroff,  A.K.Ghose,   A.M. Singhvi, Sandeep Junakar, Shahid Rizvi, D.K. Singh,  Dalveer Bhandari,  A.K.Sangal, K.Swami, N.D.B. Raju,  Vineet  Kumar, H.Salve,  Ms.  Bina  Gupta  and Ms.  Monika  Mohil  for  the appearing parties.      Onkar Seth appeared in person for the Intervenor.      The Judgment of the court was delivered by      RAY, J. One Mr. Haresh Jagtiani, a practising  advocate of  the High Court of Bombay and a policy-holder  under  the Life  Insurance  Corporation  of India and  also  holder  of units  issued  by  the Unit Trust of India  and  Mr.  Shamit Majumdar,  a  holder of shares and debentures  of  Larsen  & Toubro Ltd. filed a writ petition being No. 2595 of 1989  in the High Court of Judicature at Bombay against the Union  of India  and  others  including  the  financial   institutions questioning the legality and  validity of the consent  given by  the Controller of Capital Issues for the proposed  issue of convertible secured debentures aggregating Rs. 820 crores by  Larsen & Toubro Limited insofar as the said issue  seeks to  offer such convertible debentures to persons other  than the                                                          339 existing  shareholders  and  members and  the  employees  of Larsen & Toubro Limited and praying for quashing the same as well  as  for  a declaration that the transfer  of  39  lakh shares of Larsen & Toubro Ltd. held by Unit Trust of  India, Life  Insurance  Corporation  of  India.  General  Insurance Company and its subsidiaries to Trishna Investment & Leasing Ltd. through the instrumentality of BOB Fiscal Services Ltd. is  arbitrary,  illegal,  mala  fide  and  a  fraud  on  the statutory  powers  of the respondents and is  clearly  ultra vires of Article 14 and 39(b) and (C) of the Constitution on the  allegations  that in or around the middle of  the  year 1988  the  respondents entered into a  secret  agreement  by which a large chunk of the eqquity shares of Larsen & Toubro Ltd., the largest engineering company in India, would  stand surreptitiously divested by the respondents in favour of the Ambani  Group,  the third largest monopoly house  in  India. This  divestment was achieved not directly  but,  indirectly and with a motive to conceal the real nature of the deal  by interpolating  BOB  Fiscal  Services Ltd.  (a  wholly  owned subsidiary  of  Bank  of  Baroda) as  the  conduit  for  the

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transfer of shares from the public financial institutions to the satellite companies of the Ambani Group.      The  petitioners  also  alleged in  the  petition  that pursuant to this secret agreement, the following events took place in quick succession:      In  or around August 1988, four satellite companies  of Reliance  Group,  namely  Skylab Detergents  Limited,  Oskar Chemicals  Private  Limited,  Maxwell  Dyes  and   Chemicals Private  Limited   and Pro-lab Synthetics  Private  Limited, gave  a  total  deposit of Rs.30  crores  to  an  investment company associated with Ambanis who, in turn, deposited this amount  with  BOB  Fiscal Services  Ltd.,   a  wholly  owned subsidiary of Bank of Baroda, a nationalised bank.      BOB  Fiscal Services Ltd., which had been  formed  only three months earlier acquired either immediately before  the above deposite, or immediately  subsequent thereto, 33  lakh equity shares of Larsen & Toubro from UTI, LIC, GIC and  its subsidiaries.  Later, in January, 1989 it acquired a further 6 lakh shares from the LIC.      Within  weeks after the deposit by the  four  companies mentioned  above, Trishna Investments and  Leasing  Limited, another  satellite  company  of the Ambani  Group,  aid  the requisite  amounts for the acquisition of the said 33   lakh shares  in Larsen & Toubro from BOB Fiscal Services Ltd.  to the  latter  through a stock broking  firm  and  immediately thereafter the money advanced by the above four companies                                                      340 was  returned  by  BOB  Fiscal  Services  Ltd.  through  the investment  company  associated  with  Ambanis,  which   was earlier  used as a conduit for making the deposit  from  the four satellite  companies of Reliance Group.      The deposit by the four companies was made  immediately after  the divestment of the shares by the  respondents  was okayed  by  the  highest level in  the  Government  and  the deposit was returned immediately after the Ambani Group  was able to divert moneys taken by them in the name of  Reliance Petrochemicals  Ltd. by the issue of convertible  debentures of the order of Rs.594 crores.      The said 33 lakh shares were registered in the name  of BOB  Fiscal  Services  Ltd. in the Register  of  Members  of Larsen & Toubro Ltd on 11.10.1988 and later, on 6.1.1989,  a further 6 lakh shares were registered in the name of the BOB Fiscal Services Ltd. on any valuation based on market values of  Larsen  & Toubro Ltd. shares at the relevant  time,  the value  of  39  lakh shares would cost not  less  than  Rs.45 crores.      On  the very day of the registration of the  shares  in the  name of BOB  Fiscal Services Ltd., namely,  11.10.1988, two  nominess of the Ambani Group, Mr. Mukesh Ambani and  Mr M.  Bhakta, a solicitor of Reliance Industries, joined  the Board   of  Larsen  &  Toubro Ltd.  and  were   co-opted  as additional directors.      Subsequently,  on 30th December, 1988, Mr. Anil  Ambani another nominee of the Ambani Group was also co-opted on the Board of Larsen and Toubro Ltd., as an additional director.      On 6th January, 1989, the entire 39 lakh equity sharhes of  Larsen  and Toubro Ltd. registered in the naame  of  BOB Fiscal Services Limited (of which 6 lakh  sahres transferred to  BOB  Fiscal Services Ltd. by LIC was registered  in  the name  of  BOB  Fiscal Services Ltd.  only  on  6.1.89)  were transferred  to Trishna Investments and Leasing Ltd.,  which is a satellite company of the house of Ambanis.      Thus, BOB Fiscal Services merely acted as a conduit for funneling  shares from the public financial institutions  to the  Aambani  group  and this interpolation  of  BOB  Fiscal

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Services  was necessitated to get over the legal  impediments in  the way  of selling any part of the  controlling  shares held by public financial institutions to private parties  by private deals except to those already in management and at a price                                                   341 equal to two times the market price.      The  Chairman of Bank of Baroda, Mr. Premjit  Singh, is closely linked to the house of Ambanis through the  business of  his son Harinder Singh. BOB Fiscal Services Ltd. is  the wholly  owned  subsidiary  of Bank of   Baroda  and  it  was incorporated  only two months preceding the  acquisition  of Larsen & Toubro Ltd. shares by BOB Fiscal Services Ltd.   In fact,  the acquisition of L & T shares for the Ambani  Group for which it had acted as a conduit is the first business of BOB Fiscal Services Ltd.      Subsequently,  on  28th  April,  1989,  Mr.   Dhirubhai Ambani, the Chairman of Reliance Group, became the  Chairman of  Larsen  & Toubro Ltd., thus completing  the  process  to take-over  of  the management of Larsen &  Toubro   by   the Ambani Group.      By  this  process, the  public  financial  institutions which  had  virtual  ownership  and  control  of  Larsen   & Toubro Ltd. holding about 40% shares of the company (with no other   individual  shareholder  holding  more   than   2%), voluntarily  diluted their holdings to 33% and  parted  with approximately 7% to the house of Ambanis and made them   the single largest private sharesholder.  This was done, in  the submission of the petitioners, deliberately and by a  design to  legitimise the eventual take-over of Larsen & Toubro  by the Ambanis.  While the petitioners challenge the divestment of  7%  ownership  rights in Larsen  &  Toubro  Ltd.and  the management of the company to the Ambani Group, the immediate and  proximate  provocation for this writ  petition  is  the proposed issue of convertible debentures by Larsen &  Toubro Ltd.now  under  the management of the house  of  Ambanis  to raise Rs.820 crores from stock market.      The  proposed issue has the effect of  aggravating  and perpetuating, and irretrievably divesting and  transferring, the  ownership, of Larsen & Toubro in favour of  the  Ambani Group.  The concealed and covert intent which is manifest in the direct  effect of the proposed issue is to make Larsen & Toubro Ltd. a complete family owned and a decisively  family controlled   Industrial   Corporation-whereas   the   openly declared  policy of the Government is to force  the  reverse viz.   professionalise   the  existing   family   controlled companies.  By the proposed issue, the house of Ambanis  and the shareholders,debenture holders and employees of Reliance Industries and Reliance Petrochemical Industries Ltd.  would collectively  hold 35.5% of the ownership rights  in  Larsen and Toubro and will be single largest block or                                                   342 group in the company.  This preferred group which is not  in law  entitled  to any issue of shares from Larsen  &  Toubro Ltd., has been chosoen to be the preferential  beneficiaries of the scheme under which they would get shares in Larsen  & Toubro  Ltd  at Rs.60 per share when the  share  holders  of Larsen & Toubro Ltd. themselves (who, bylaw, are entitled to further  isue of shares from Larsen & Toubro Ltd.) would  be issued   Larsen  &  Toubro  shares  under  the   convertible debentures  issued  in April 1989 only at Rs.65  per  share. Thus, as against 35.5% holding of Ambani-Reliance Group, the public  finance  bodies, which held 40% shares  before  they diluted their holdings in favour of the Ambani group,  would have  had their holding further diluted to only 22.9%  as  a

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result  of the present issue.  In other words, by  approving the  terms  of  the  proposed  issue  the  public  financial institutions  have  agreed to a further  dilution  of  their holdings  from  32.8%  to 22.9%  without  any  consideration whatsoever  for  agreeing to such reduction and to  pass  on their  vested  rights u/s 81 of the Companies  Act  to  pre- emptive  allotment  of  shares in Larsen  &  Toubro  to  the members,   debentureholders   and  employees   of   Reliance Industries  Ltd.and Reliance Petrochemicals Ltd.  It  is  in this background significant that the preferential  allotment to the shareholders, debentureholderss and employees of  the house of Ambanis who have no statutory right, offers to them shares   in Larsen & Toubro Ltd at a premium of only Rs.  50 per  share, while in the fully convertible debentures  issue made by Larsen & Toubro Ltd.in April/May,  1989 the existing shareholders of Larsen & Toubro were given conversion rights at a premium of Rs.50 per share in the first conversion  and Rs.55 per share in the second conversion i.e. Rs.5 more than what  the  Reliance Group is called upon to pay.   It  means that while the existing shareholders of Larsen & Toubro were paying for their own shares a premium of Rs.50 or Rs.55  per share,  new  group  of  shareholders,  debentureholders  and employees of the house of Ambanis would be getting Larsen  & Toubro shares at a premium of only Rs.50.  It means that, by making  extraordinay  favour to a  totally  different  group which is not entitled to Larsen & Toubro shares, the  Ambani group  is creating a favoured lobby of their own,  almost  a clan,  who are already their shareholders,  debentureholders and employees to act as a group to own and control Larsen  & Toubro  Ltd.  This is a device to perpetuate  and  aggravate their  own decisive control over Larsen & Toubro,  to  which the   public   financial  institutions   are   willing   and enthusiastic  parties  inside  the Board  room  and  in  the general meeting of Larsen & Toubro Ltd.      In the facts and circumstances the petitioners  pleaded that they are entitled to a declaration that the  divestment by the respondents of                                                          343 the  controlling shares in larsen & Toubro to the  house  of Ambanis in a secret and circuitous arrangement is  arbitrary illegal,  mala fide and a fruad on the statutory  powers  of the  respondents.  It was further pleaded that  pursuant  to this  secret arrangement the financial institutions such  as the  UTI, LIC, GIC and its subsidiaries divested  themselves of  7%  shares of Larsen & Toubro Ltd. in favour  of  Ambani Group  in an illegal  and arbitrary manner as a   result  of which  the Ambani Group became the single  largest  private shareholder.  This  paved  the  way  for  the  said  private monopoly  group and the government to rationalise the  take- over of the management of Larsen & Toubro Ltd. by the Ambani Group with the active connivance and support of the  Central Government.      The  modus  operandi adopted for the  transfer  was  as under:     (a)  In the month of May 1988, Bank of Baroda  of  which     Mr. Premjit Singh is the Cahirman, forms a susidiary for     merchant banking under the name and style of BOB  Fiscal     Services P. Ltd. This Compay became a public company u/s     43  A  of  the companies Act 1956, in  June,  1988.  Mr.     Harjit  Singh, son of Premjit owned a  company  ’Krystal     Poly  Fab. Ltd.’ whose only business is  texturising  of     partially  oriented yarn from Reliance  Industries  Ltd.     and  the  supply  of texturised yarn  back  to  Reliance     Industries Ltd. or its nominees.     (b)  On 5th August, 1988, four   satellite companies  of

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   the House of Ambanis, viz. SKYLAB Detergents Ltd., OSCAR     Chemicals  Pvt. Ltd., MAXWELL Dyes & Chemical Pvt.  ltd.     and PRELAS Synthetics Pvt. ltd. gave a total deposit  of     Rs.30  crores to an investment company, associated  with     Reliance  who, in turn, deposited the same  amount  with     BOB Fiscal Services.     (c)   Either  immediately  preceding  this  deposit   or     immediately thereafter, BOB Fiscal Services acquired  33     lakh equity shares in Larsen & Toubro Ltd. from the UTI,     LIC  and GIC and its subsidiaries. later, it acquired  a     further 6 lakh shares in Larsen & Toubro Ltd. from   the     LIC. The manner in which the transfer had been  effected     by  the public financial institutions and the bulk  sale     amounting  to  about  7% of the then  share  capital  of     Larsen  l& Toubro Ltd. left no one in doubt  about  what     the  financial  institutions intended to  do, viz.  they     intended to shed a vital seven per cent of the ownership     rights held by them in Larsen & Toubro Ltd.                                                          344     (d)   In July, 1988 Reliance Petrochemicals Ltd. of  the     Ambani  Group  had  issued  convertible  debentures  for     Rs.594 crores to public and others and had raised a vast     sum   of   monies  as  subscription.   The   petitioners     understand  that  as  soon as  the  above  funds  became     available to the Ambani group for employment, a part  of     it was diverted for acquisition of Larsen & Toubro  Ltd.     shares  not directly in the name of Reliance  Industries     Ltd. or Reliance Petrochemicals Ltd. but in the name  of     faceless,  benami  concerns  of the  Ambani  group  with     vitrually no financial standing of their own.     (e)  Thereafter on October 11, 1988 the 33  lakh  equity     shares  of Larsen & Toubro Ltd. acquired by  BOB  Fiscal     Services Ltd. were registered in the register of members     of  Larsen  & Toubro ltd. in Folio No.B 69567  at  pages     1851 to 1858. These shares had been transferred by  LIC,     UTI,  GIC  and its subsidiaries to BOB  Fiscal  Services     Ltd.     (f)  On  the same day two nominees of the  Ambani  Group     Mr.Mukesh  Ambani  and  Mr.M.L.Bhakta,  a  Solicitor  of     Reliance  Industires  Ltd., who are  also  directors  of     Reliance  Industries  Ltd. and  Reliance  Petrochemicals     Ltd., were co-opted on the Board of Larsen & Toubro Ltd.     (g) It is evident from the above events that the sale to     BOB  Fiscal Services Ltd. by the financial  institutions     was  accepted by all parties concerned to be a  sale  to     the   Ambani  Group  itself.  Otherwise  there   is   no     provocation   or   justification   for   the   financial     institutions  to  propose or to support  appointment  of     Mr.Mukesh  Ambani and Mr.M.Bhakta, who are the  nominees     of  the Ambani Group, on  the Board of Larsen  &  Toubro     Ltd.  The  date of the transfer to BOB  Fiscal  Services     Ltd.  and  the date of appointment of the  Ambani  Group     nominees  on  the Larsen & Toubro Ltd. Board  being  the     same and not a mere coincidence.     (h)  Again, in December, 1988, Mr.Anil  Ambani,  another     nominee of the Ambani Group was co-opted on the Board of     Larsen & Toubro Ltd. as an Additional Director with  the     support  of  financial institutions even though  the  33     lakh  shares  still  stood in the  name  of  BOB  Fiscal     Services Ltd.      It has been further pleaded that Trishna Investments  & Leasing Ltd. to which the 33 lakh equity shares of Larsen  & Toubro Ltd. were                                                          345 sold   by   the    financial   institutions   through    the

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instrumentality of BOB Fiscal Services Ltd. was incorporated as  a  private limited company on Ist October, 1986  with  a paid up capital of Rs.11,000. It is evident that even  after acquisition of 3,300 equity shares of Rs.10 each to Reliance Industries  Ltd.,  the  paid  up  share  capital  was   only Rs.44,000.      An  affidavit in opposition was filed on behalf of  the respondents  by Mr.S.D.Kulkarni, a whole-time  Director  and Vice-President  (Finance) of Larsen & Toubro Ltd. In para  6 of   the  said  affidavit  it  has  been  stated  that   the shareholders are different and distinct from the company and do  not have any interest whatsoever in the property of  the company  unless  and until the winding up takes  place.  The company  is a distinct legal entity and it does not have  in law  or fact any control over the shareholders in regard  to the dealing with their investment in the new company or  any other   company.  It  has  been  further  stated  that   the Resolution  regarding the issue of the debentures was  taken at a special General Meeting of the Company and the decision is  a near unanimous decision of the 1.5  lakh  shareholders with  only  one dissent among them. It was stated  in  these circumstances  the writ petition under Article 226  was  not maintainable.  It has also been stated that the entirety  of the  consent granted by the CCI under the Act is  legal  and valid.  These  statements  have been made  by  the  deponent without  filing any proper verification or affidavit and  as such  there  was no proper controvertion or  denial  of  the statements  made in the writ petition. The other  affidavits filed on behalf of the respondents are also not affirmed  or verified duly in accordance with the provisions of the rules of  the Supreme Court nor in accordance with the  provisions or Order 19 Rule 3 of the Code of Civil Procedure.      The  High  Court of Bombay by its  judgment  and  order dated September 29, 1989 dismissed the writ petition at  the preliminary hearing.      A Letters Patent Appeal was filed in the High Court  at Bombay  against  the said judgment by the  petitioners.  The respondents  filed  Transfer  Petition  Nos.506-507/89   and Transfer  Petition Nos.571-573 of 1989 in this  Court  under Article  139A of the Constitution of India praying  for  the transfer  of the said Letters Patent Appeal  No.-----/89  as well as writ petition No.13199/89 filed in the High Court at Madras  of  one Mr.N.Parthasarathy, a shareholder of L  &  T Ltd.  against the Controller of Capital Issues and Larsen  & Toubro Ltd. and Writ Petition no. 18399 of 1989 filed in the Karnataka High Court by Prof.S.R.Nayak and Anr. against  the Union of India & Ors. raising the similar questions.                                                          346      This  Court  vide  its order  dated  November  9,  1989 allowed the Transfer Petition Nos.506-507 of 1989 and 571 to 573  of  1989 and directed that the L.P.A. No.----  of  1989 against the judgment passed in Writ Petition No.2595 of 1989 pending  in  the Bombay High Court be  transferred  to  this Court for final disposal. The Writ Petition No.13199 of 1989 filed  in  the Madras High Court and the Writ  petition  No. 18399  of 1989 filed in the Karnataka High Court  were  also transferred to this Court. These matters on transfer to this Court were numbered as Transfer Case No.1 of 1989,  Transfer Case  No.61  of  1989  and  Transfer  Case  No.62  of   1989 respectively.      The  Transfer Petition Nos.458-467 of 1990 praying  for the transfer of cases filed in different High Courts raising the  similar  grounds are allowed and the  Tranferred  Cases arising  out  of  these  are  also  heard  along  with   the Transferred Cases Nos.1 of 1990, 61 of 1989 and 62 of 1989.

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    Two questions that pose themselves for consideration in all  these  above cases are: 1)  whether  the  surreptitious divestment  of  39  lakhs shares of  L&T,  large  Industrial undertaking  by  sale  through the  instrumentality  of  BOB Fiscal  Services Ltd., a subsidiary of a  nationalised  Bank i.e.  Bank  of Baroda by the public  financial  institutions G.I.C.,  L.I.C.,  U.T.I.  and  thereby  helping  a   private monoploy  house  of  the Ambani Group to  acquire  the  said shares and thereby to get into the management of the  Public Company amounts to an arbitrary exercise of statutory  power of  the  State and the respondents.  Secondly,  whether  the consent  accorded  by  Controller  of  Capital  Issues,   to preferential issue of debentures by Larsen & Toubro Ltd.  of Rs.310  crores for being subscribed by the shareholders  and employees  of R.P.L., R.I.L. amounts to immeasurable  injury and prejudice to the public without any application of  mind and  thereby enabling the Ambani group to have  the  largest share holding and thereby to control the L & T Company which is  ultra  vires  of Article 14 and 39(b)  and  (c)  of  the Contitution.      The  Larsen & Toubro Ltd. is a public  limited  company incorporated  under  the Companies Act 8 of 1913 and  it  is recognised  as a Premier Engineering Company in the  country with a pool of highly trained and experienced people. It has been engaged in diverse activities in the engineering filed, cement  manufacturer,  shipping,  switch  gear,   industrial machinery, electrical equipments etc. and various other core Sector  industries  including manufacture  of  sophisticated equipment  for space and defence programmes of the  country. On                                                          347 October  1,  1989, Trishna Investment and  Leasing  Ltd.,  a satellite company of the Ambani group was incorporated  with paid  up capital of Rs.11000 (1,000 shares of  Rs.10  each). This  continued till 29.12.1988 when its capital was  raised to Rs.44,000.      In   May,   1988,  Bob  Fiscal   Services   Ltd.,   was incorporated as a wholly owned subsidiary of Bank of Baroda, a  nationalised bank.The entire share capital of Bob  Fiscal Services Ltd. was contributed by Bank of Baroda  aggregating to  about Rs.10,00,00,000 (Ten Crores) to  undertake  mutual fund  activities.  It  is  to be taken  notice  of  in  this connection that Premjit Singh, was the Chairman of the  Bank of  Baroda aat the relevant time and his son  Harjeet  Singh owned  Kristal  Poly Fab. Ltd. whose only business  is  with R.I.L. Ltd. Premjit Singh is closely linked to the house  of Ambani’s  through the business of his son Mr.Harjeet  Singh. Bob  Fiscal Services Ltd., was incorporated as a  subsidiary of  Bank of Baroda only two months prior to the  acquisition of shares of Larsen & Toubro Ltd., for the Ambani group  for which  it  had  acted  as a conduit and  it  was  the  first business  of Bob Fiscal Services Ltd. On July 15,  1988  Bob Fiscal Services Ltd., approached Life Insurance  Corporation of  India  and  Unit  Trust  of India  to  sell  to  it  two ‘baskets’, of blue chip shares of the value of Rs.25  crores approximately  each. This will be evident from para 6(c)  of the  affidavit  of Unit Trust of India. On  August  1,  1988 U.T.I and L.I.C. each offered to sell to Bob Fiscal Services Ltd.  a basket of shares valued at Rs.25 Crores. The  U.T.I. basket  was  valued  at Rs.23.66 crores  including  10  lakh Larsen  & Toubro Ltd. shares which were sold at  Rs.108  per share.  The L.I.C. Basket was valued at Rs.25.56 crores  and it  included 15 lakh L & T shares. L & T shares  constituted approximately  55% of the value of the two baskets. This  is clear  from  para  6(d) of the affidavit of  Unit  Trust  of

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India.  On 3.8.88 Bob Fiscal Services Ltd. accepted the  two baskets  of shares comprising of 25 lakhs L & T  shares  and shares of 7 other companies valued in total Rs.50.23 crores. On  August 5, 1988 four satellite Companies of the  Reliance Group gave Rs.30 crores to V.B.Desai, Finance Broker, who in turn  gave a short term call deposit of Rs.30 crores to  Bob Fiscal Services Ltd. as is evident from the affidavit  filed by  Bob Fiscal Services Ltd. On August 5, 1988,  Bob  Fiscal Services  Ltd. sold 25 lakhs L & T shares to V.B.Desai,  the Broker.  Thus  Bob Fiscal Services Ltd.  acquired  33  lakhs equity  shares of L & T from U.T.I., L.I.C., G.I.C. and  its subsidiaries. Later in January, 1989 it acquired a further 6 lakh  shares from the L.I.C. within weeks after the  deposit by  the four companies mentioned above.  Trishna  investment and  Leasing Ltd., another satellite company of  the  Ambani Group paid the requisite amounts                                                          348 for the acquisition of the said 33 lakh shares of L & T from Bob  Fiscal  Services  Ltd.  through  the  Finance   Broker, V.B.Desai,  associated  with Ambanis. It  is  convenient  to mention  in this connection that in July, 1988 the  Reliance Petro Chemicals Ltd. of the Ambani Group issued  convertible debentures  for Rs.594 crores to the public and  others  and had raised a vast sum of rupees as subscription. The  Ambani Group diverted a part of it for acquisition of L & T  shares in  the  name  of benami concerns of  their  group  who  had virtually no financial standing.      On October 11, 1988, 33 lakh shares were registered  at a meeting of Board of Directors of L & T in the name of  Bob Fiscal Services Ltd. On the same day two nominees of R.I.L., M.L.Bhakta   and  Mukesh  Ambani,  who  are   directors   of R.I.L./R.P.L.  were  co-opted  as Directors of L  &  T.  The nominee  directors  of U.T.I., L.I.C. and I.D.B.I.  did  not raise  any question as to the induction of Ambani’s  on  the Board of L & T Company even though not a single share of L & T  stood  in  their  names.  On  Dember  30,  1988,  Trishna Investment  &  Leasing Ltd. issued 3, 300 equity  shares  of Rs.10  each to R.I.L and R.P.L. Ltd. The capital of  Trishna Investment was Rs.44,000. On that day the registered  Office of  Trishna Investment was shifted to Maker Chamber IV  i.e. the  office of R.I.L.Ltd. On 30-12-1988 Anil Ambani was  co- opted as Director of L & T without any question being raised by nominee directors of U.T.I, L.I.C. and I.D.B.I. On 6.1.89 the 39 lakh shares sold by U.T.I., L.I.C. and G.I.C. to  Bob Fiscal Services Ltd. were lodged by bob Fiscal Services Ltd. for transfer in favour of Trishna Investment & Leasing  Ltd. whose registered office was located at the office of  R.I.L. Thus  Bob Fiscal Services Ltd. merely acted as  conduit  for funneling  shares from the public financial institutions  to the   Ambani  group.  This  apparent  from  the  fact   that Mr.Premjit  Singh,  the Chairman of Bank of  Baroda  who  is closely  linked to the house of Ambani through the  business of his son Mr.Harjeet Singh and Bob Fiscal Services Ltd.  is the  wholly  owned subsidiary of Bank of Baroda and  it  was incorporated  only two months preceding the  acquisition  of Larsen and Toubro Ltd. shares by it.      On  28th April, 1989 Dhirubhai Ambani, the chairman  of Reliance Group, became the Chairman of Larsen and Toubro. By this  process the public Financial Institutions  which  held 40% of the shares of L & T company voluntarily diluted their holding to 33% and parted with approximately 7% to the house of  Ambani’s  and  made  them  the  single  largest  private shareholder.  This was done as submitted by  the  appellants delibeately  and  with a design to legitimise  the  eventual take

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                                                       349 over of Larsen & Toubro by the Ambanis. It is to be  noticed that  on 26.5.89 the Board of Directors of L & T decided  to convence  an annual General Meeting on 27.7.89.  Board  also resolved  to  recommend  that 8 crores be  invested  in  two specified  companies and that a further sum of Rs.50  crores be  invested in the purchase of equity shares in  any  other company.  On 23.6.1989 Board of Directors of L &  T  further resolved to invest a sum of Rs.76 crores in the purchase  of Equity  shares of R.I.L. On 21.7.89 R.I.L. and R.P.L.  wrote letters  to L & T seeking suppliers credit to the extent  of Rs.635 crores for projects which they planned to entrust  to L  &  T. It is appropriate to note that prior  to  this  the total inter corporate investment of L & T was  approximately Rs.4 crores and investment in the shares of other  companies was less than Rs.50 lakhs. On 22.7.89 the Board of Directors of  Larsen  &  Toubro approved a  proposal  to  raise  funds byissue  of  convertible  debentures  amounting  to   Rs.920 crores.   Board  resolved  that  notice  should  be   issued convening  an  extraordinary general meeting on  21.8.89  to consider   special  Resolution  for  issue  of   convertible debentures of Rs.920 crores.      On 26.7.89 two applications were made to C.C.I. for (1) the  right issue of Rs.200 crores and (ii) the public  issue of Rs.720 crores.The applications states that it is proposed to reserve preferentially allotment of Rs.360 crores out  of public issue (i.e. 50% of the public issue) for L & T  group companies   viz.  Reliance  Industries  Ltd.  and   Reliance Petrochemicals  Ltd. The application further  mentions  that Dhirubhai  Ambani is the Chairman and Mukesh Ambani  is  the Vice-Chairman   of   L  &  T  and  that  Anil   Ambani   and Mr.M.L.Bhakta  are Directors. On 11.8.89 further letter  was addressed  by  L  & T to the  C.C.I.  forwarding  copies  of M.R.T.P. clearance with regard to projects awarded to L &  T made  by  Central  Government  under  Section  22(3)(a)   of M.R.T.P. Act. On 29.8.1989 C.C.I. passed an order  approving the issue of convertible debentures. The prospectus is dated 5.9.89  stating  that the company is part  of  the  Reliance Group.      We  have  heard the arguments of the  respondents.  The public financial institutions tried to justify the  transfer of  blue chip equity shares of Larsen & Toubro Ltd.  On  the ground  that while deciding to sell those shares they  acted purely  on  business principles and sold those shares  at  a very high market price and thereby earned huge profit. These sales  were  made  in  order to earn  much  profit  for  the interest  of their constituents and for recycling  the  fund for investing in the business by purchasing shares of  other companies  in  public  interest and for  interest  of  money market.  There  is nothing hanky and panky in                                                          350 it  nor  it is effected with the motive of  diluting  shares held by public financial institutions in order to facilitate the  increase  in  the holding of Ambani  group,  a  private monopoly  house, to get into the management of  this  public company,  It  has been further contended on  behalf  of  the respondents  Nos.3 to 6 and 9 that the transfer of  39  lakh shares  of  Larsen  &  Toubro were not  made  in  favour  of satellite  companies  of Ambani Group,  through  Bob  Fiscal Services Ltd. which is a whooly owned subsidiary of Bank  of Baroda,  surreptitiously  and discreetly on the basis  of  a design  and a secret arrangement by transferring 7%  out  of 40%  of  the shareholding in L & T and thus  reducing  their shareholding  in  the  Company  to 33%.  It  has  also  been submitted  that  in  transferring those  equity  shares  the

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financial  institutions acted purely on business  principles and to earn profit by these transactions and in the case  of L.I.C.  and U.T.I. in the interst of the policy holders  and the unit holders as the case may be. It has also been  urged that  the acceptance of the requests made by the  subsidiary of  Bank of Baroda i.e. Bob Fiscal Services for selling  the blue  chip  shares of L & T to them at  the  highest  market price  through the broker was in public interest in as  much as  if  all those 39 lakh shares had been put in  the  stock market  for sale it would have crated an adverse  effect  on the  company  and  there would have  been  a  run  affecting adversely  the  interest of the L & T company. It  has  also been  contended that it was not possible to know the  actual purchasers of these shares from respondent No.10, Bob Fiscal Services  Ltd.,  Certain decisions of this court  have  been cited at the Bar.      Considering  the  entire  sequence of  events  and  the manner  in  which the financial institutions sold  those  39 lakh  equity  shares of L & T to Bob Fiscal Service  and  it immediately  after  purchase  of those shares  with  the  30 crores of rupees given by 4 satellites of the Reliance Group transferred  those shares to Trishna Investment and  Leasing Ltd., a satellite of Ambani Group though it had a capital of only Rs.44,000 and money required for purchase was at  least Rs.39 crores leads to the conclusion that such transfers had been made to help the Ambanis to acquire the shares of L & T Company in a circuitous way. Moreover, the fund for purchase of the said shares was provided by Ambani Group from out  of the  money received by issue of convertible  debentures  for Rs.594 crores to public and others. Furthermore, immediately after  acquisition of share of L & T Ltd. Mukesh Ambani  and M.L.Bhakta, who are Directors of R.I.L./R.P.L. were co-opted as  Directors without any question as to their induction  in the  Board  of Directors even by the  nominee  Directors  of financial  institutions  even  though the  shares  were  not registered in their names. Anil Ambani                                                        351 was also co-opted as Director in December, 1988 and in April 1989, Dhirubhai Ambani became Chairman of L & T.  All  these circumstances  taken  together  clearly  spell  some   doubt whether the transfer of such a huge number of 39 lakh shares by the Public Financial Institutions was fro public interest and  was  made on purely business  principles.   The  public financial  institutions should be very prudent and  cautious in  transferring  the equity shares held by  them  not  only being  guided  by  the sole consideration  of  earning  more profit by  selling them but by taking into account also  the factors of controlling the finances in the market in  public interest.   In L.I.C. of India v. Escorts Ltd., A.I.R.  1986 SC 1370 at 1424 it was observed:           "Broadly  speaking,  the Court  will  examine  the           action  of the State if they pertain tothe  public           law domain and refrain from examining them if they           pertain   to   the   private   law   field.    The           difficultywill  be  in  demarcating  the  frontier           betwen  the public law domain and the private  law           field............ The question must be decided  in           each   case   withreference  to   the   particular           action....... When the State or an instrumentality           of the State ventures into the corporate world and           purchases  the shares of a company, it assumes  to           itself  the  ordinary role of a  shareholder,  and           dons  the  robes  of a shareholder  with  all  the           rights available to such a shareholder." This   observation,  in  my  considered  opinion,   has   no

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application  to the facts of the instant case as the  public financial  institutions are not purchasing the shares  of  a company.      However, I do not think it necessary to dilate on  this point as the financial institutions have already bought back all  the 39 lakh shares from Trishna Investment and  Leasing Ltd. with the accretions thereon but at the same time we add a  note  of caution that the public  financial  institutions while  transferring  or selling bulk number of  shares  must consider whether such a transfer will lead to acquisition of a  large  proportion of the shares of a public  company  and thereby creating a monopoly in favour of a particular  group to  have a controlling voice in the company if the  same  is not in public interest and not congenial to the promotion of business.      The  contention  regarding the maintainability  of  the Writ Petition as public interest litigation cannot be  taken into consideration in view of the decisions of this Court in S.A. Gupta & Ors. v. Union of                                                        352 Indian  &  Ors., [1982] 2 SCR 365; Bandhua Mukti  Morcha  v. Union  of India & Ors., [1984] 2 SCR 67.  Even the  case  of LIC of India v. Escorts Ltd., [1986] 1 S.C.C. 264 arose  out of a public interest litigation.      The  nex crucial question that falls for  consideration is  about the legality and validity of the consent given  to the  mega issue of debentures for the right issue of  Rs.200 crores  and  for convertible issue of debentures  of  Rs.620 crores out of which 310 crores of debentures were  earmarked for  issue  to  the  shareholders  and  debentureholders  of Reliance  Industries Ltd. and Reliance  Petrochemicals  Ltd. As  stated hereinbefore that after the purchase of  39  lakh equity  shares  of L & T company from the  public  financial institutions,  Bob FIscal Services, a subsidiary of Bank  of Baroda  transferred  the same on the same day on  which  the transfered  shares  were  registered  in  its  name  in  the Register  of L & T to Trishna Investing and Leasing Ltd.,  s stellite  of  Ambani Group.  It has also been  alleged  that after  Dhirubhai Ambani became the Chairman of the Board  of Directors of L & T Ltd. on April 28, 1989, Mukesh Ambani and M.L. Bhakta, Directors of R.I.L./R.P.L. and Anil Ambani were co-opted as Directors of L & T.  The Board of Directors of L & T at its meeting held on 22.7.1989 approved a proposal  to raise  funds  by issue of convertible debentures  of  Rs.920 crores  and  further resolved that notice should  be  issued convening  an  extraordinary general meeting on  21.8.89  to consider special resolution for issue convertible debentures of  Rs.920 crores.  Immediately thereafter on July 26,  1989 two  applications  were made to the  Controller  of  Capital Issues,  Department of Economic Affairs for sanction to  the Right  issue  of  debentures of Rs.200 crores  and  for  the public  issue  of  debentures  worth  Rs.720  crores.    The application    records    that    it    is    proposed    to reserve/preferentially allot Rs.360 crores out of the public issue  (i.e.  50%  of the public issue) for L  &  T’s  group companies  viz.   Reliance  Industries  Ltd.  and   Reliance Petrochemicals  Ltd.   The application  also  mentions  that Dhirubhai  Ambani is the Chairman and Mukesh Ambani  is  the Vice-Chairman  of  L & T and that Anil Ambani and  Mr.  M.L. Bhakta are Directos.  On 11.8.89 another letter was sent  by L  & T to the Controler of Capital Issues, Respondent No.  2 stating  inter alia that the Company wishes to modify  their proposal by reducing the reservation for the shareholders of R.I.L./R.P.L.  from Rs.360 crores to Rs.310 crores etc.  and the issue of total debentures was reduced to Rs.820  crores.

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On August 21, 1989 at the extraordinary general meeting of L &  T  Ltd. resolution was passed authorising  the  Board  of Directors  of  the  company to  issue  12.5%  fully  secured convertible  debentures of the total value of Rs.820  crores to be subscribed in the manner as                                                        353 stated therein.  The respondent No. 2, Controller of Capital issues, by its letter dated 29.8.89 addressed to M/s  Larsen &  Toubro  Ltd. with reference to its letter  dated  26.7.89 intimated  that  the Central Government in exercise  of  the powers  conferred by the Capital Issues (Control) Act,  1947 gave  their  consent  to the issue by L & T  Ltd.  of  12.5% secured fully convertible debentures of the value of  Rs.820 crores in the manner specified therein.      The  consent given by the Controller of Capital  Issues was  challenged  on the ground that it was  given  in  undue haste  without duly considering the question that  providing the preferential allotment to debentures of Rs.310 crores to the  equity shareholders of R.I.L. and R.P.L. will  increase considerably  the  holding of equity shares  by  the  Ambani group  to control the public limited company.   The  consent order made by the Controller of Capital Issues was  attacked mainly  on the ground that the said order was made  casually without any application of mind and without considering that the  effect  of the same order will be to  help  the  Ambani Group  to acquire debentures of the value of  Rs.310  crores specifically  earmarked  for preferential allotment  to  the shareholders  of  Reliance  Industries  Ltd.  and   Reliance Petrochemicals Ltd and thereby to have the control of the  L &  T,  a public limited company.  It has also  been  alleged that  this consent has been given hurriedly within 24  hours of  the  making  of  the  application  for  consent  to  the Controller of Capital Issues.      An  affidavit  in  reply has been filed  on  behalf  of respondent Nos. 1 & 2, Union of India and the Controller  of Capital  Issues denying all these allegations.  It has  been submitted that the claim made in the Writ Petition that  the undue haste in clearing the application (under the CCI  Act) was  shown by Respondent Nos. 1 & 2 and the application  was cleared in just 24 hours, is not correct.  It is not correct that  the approval was given by the empowered  committee  on 21.8.89  at 4.00 p.m., even before the General body  meeting of  L  &  T  took place.  It has  been  submitted  that  the application  by  M/s L & T Ltd. was dated  26.7.89  and  the consent was given on 29.8.89.  The charge is false, baseless and  mischievous.  It has been stated in paragraph 3 of  the said affidavit that the preferential issue, per-se, is not a novel idea.  It has been stated that CCI has been permitting reservations  for  various categories out  of  public  issue based  on  the requests made by companies  after  passing  a special  resolution  in their general body meeting  to  that effect.  There is no restriction on the shareholders of  the company  to offer shares of their company to  anybody  after passing a special resolution in the General Body meeting  as per Section 81(IA)                                                        354 of  the Companies Act.  Through such resolution resolved  at such  meetings shareholders can also offer shares  of  their company  to  any person or corporate body who  is  not  even connected with the company.  However, CCI would not normally permit  reservations  for  shareholders  of   anyunconnected company  out  of  public  issue, unless  it  is  offered  to shareholders  of  Associate/Group  company  of  the  Issuing Company.   It  is  submitted  that  Larsen  and  Toubro  had indicated  that Reliance Industries Ltd. (RIL) and  Reliance

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Petrochemicals Ltd. (RPL) are their group Companies.  It  is also  submitted that Larsen and Toubro filed a copy  of  the special  resolution passed in the General Body meeting  held on   21.8.89  which  permitted  the  companyto   offer   its convertible   debentures   worth  Rs.   310   crores   tothe shareholders  of RIL and RPL.  It is submitted that the  CCI permitted   similar   reservation   for   shareholders    of Associate/Group companies in the public issue of M/s. Apollo Tyres  Ltd., M/s Essar Gujarat Ltd., M/s Bindal  Agro  Ltd., M/s Chambal Fertilizers and several other companies.  It  is submitted  that  there was noreason for CCI  to  reject  the request  of  Larsen and Toubro for this reservation  as  the shareholder of L & T had approved such reservation.      It  has  beenfurther  submitted  that  the  charge  for favouring   Reliance  Group/Ambani  Groupis  frivolous   and misleading and seeks toconvey a wrong impression and imputes motives  for which there is no basis.  It has  been  further submitted  that  the impugned issue had  been  consented  by Central  Government after due consideration,  including  the need for funds.  It is submitted that the funds are required by  the  company for working capital needs,  normal  capital expenditure and for executing the turn-key contracts of L  & T  Ltd.  It is submitted that L & T indicated  the  Turn-key contracts  including inter alia the Gas Cracker Project  and Acrylic  Fibre  Project  of  Reliance  Industries  Ltd.  and Caustic Chlorine Project of Reliance Petrochemicals Ltd. for Rs.635  crores as projects are to be executed.  CCI has  not permitted    Reliance   Industries   Ltd.    and    Reliance Petrochemicals  Ltd.  to raise funds for these  projects  so far.   Earlier funds raised from capital markets  were  used or/are being used for the following projects:      RIL-PSF,PFY,PTA,LAB and Textile Units;      RPL-HDPE.PVCL MEG. The allegation that for the same projects, CCI permitted L & T  to  raise  funds is baseless.  The  financing  detail  of projects  of RIL and RPL were also examined in  Maheshwari’s case in Supreme Court and no                                                          355 double  financing  of  same  project  was  found.   Reliance Industries Ltd. and Reliance Petrochemicales Ltd. have given undertaking  that these companies will not raise funds  from public  for  financing the cost of projects  to  the  extent suppliers’ credits are extended by L & T.  It is stated that MRTP  approval to Reliance Industries Ltd. for  gas  cracker does  not  provide for suppliers’ Credit from L & T  in  the scheme of finance and it is submitted that this statement is correct.   It  is  also submitted that CCI  will  take  this aspect into account before permitting any further issue,  in future,   to   Reliance   Industries   Ltd.   and   Reliance Petrochemicals  Ltd.  for  these  projects.   However,  this aspect does not affect the consent order of L & T in view of the undertaking of RIL and RPL mentioned above.      The  application  for  consent  was  submitted  to  the respondent  No.  2 on 26.7.89 for sanction.  On  August  21, 1989 at the extraordinary general meeting of shareholders of L  &  T, a resolution was passed with only  one  shareholder dissenting  for the issue of debentures of Rs.820 crores  as provided therein.  A copy of this resolution was sent to the Controller of Capital Issues who after duly considering  the same accorded the consent on August 29, 1989.  The  argument that there has been complete non-application of mind by  the Controller of Capital Issues in according the consent is not sustainable.   Moreover,  the Controller of  Capital  Issues issued   a letter dated 15th September, 1989 to  M/s  Larsen and Toubro to note amendment of the condition of the consent

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order to the effect that fund utilisation shall be monitered by Industrial Development Bank of India.  This will  further go   to   show  that  the  consent  was  given   after   due consideration in accordance with the provisions of Section 3 of the Capital Issues(Control) Act, 1947 (Act 29 of 1947).      Much  arguments have been made as to the  provision  in the   prospectus   reserving   preferential   allotment   of debentures  of Rs.310 crores to the equity  shareholders  of Reliance  Industries Ltd. and Reliance  Petrochemicals  Ltd. mainly on the ground that it will increase the share holding of the Ambani group and thereby add to the monopoly  control of  Ambani  group over this public limited  company.   Under Section  2(g)  of  the  Monopolies  and  Restrictive   Trade Practices  Act, 1969 "interconnected undertakings" mean  two or more undertaking which are interconnected with each other in  any of the manner mentioned therein, Explanation  (1)  - for the purposes of this Act, two bodies Corporate, shall be deemed to be under the same management (II) if one such body corporate holds not less than one fourth of the total equity shares in the other or controls the composition of not less                                                         356 than  one  fourth of the total membership of  the  Board  of Directors  of  the  other.  In the prospectus  of  Larsen  & Toubro Ltd. obviously it has been mentioned that Larsen  and Toubro  Ltd.  is part of Reliance group.  Referring  to  the said  provisions  it  has been  contended  on  behalf of the respondents i.e. the financial institutions that mention  of L  &  T  company as part of the Reliance group is  quite  in accordance  with this provision.  Apropos to this  reference maybe   made  to  the  provisions  of  Sec.  81(IA)  of  the Companies Act, 1956 which are set out hereunder:          "Notwithstanding anything contained in  sub-section          (1), the further shares aforesaid may be offered to          any  persons (whether or not those persons  include          the persons referred to in clause(a) of sub-section          (1) in any manner whatsoever-          (a)  if  a  special resolution to  that  effect  is          passed by the company in general meeting, or"      In the extraordinary general meeting of L & T a special resolution was made providing for preferential allotment  of debentures to the equity shareholder of R.I.L. and R.P.L. so the reservation of debentures of the value of Rs.310  crores of Public issue for allotment to shareholders of R.I.L.  and R.P.L.  cannot be questioned.  In the Prospectus of L  &  T. Ltd  under  Business Plans it has been  mentioned  that  the requirement of funds of the company for the period from  1st October  1989  to 31st March, 1992 including in  respect  of Suppliers  credit to be extended to customers under  turnkey projects/quasiturnkey  projects  and for  incurring  capital expenditure  on  new  plant and  equipment,  normal  capital expenditure   on  modernisation  and   renovation,   meeting additional working capital requirements and for repayment of existing loan liabilityh is estimated to be in the region of Rs. 1425 crores.  The suppliers’ credits, inter alia include Rs.510  crores  to  be extended to RIL  in  respect  of  its Cracker  Project.  The funds requirement is intended  to  be met out of the present issue of Debentures to the extent  of Rs.820  crores  and  the balance  would  met  from  internal accruals  by  way of short term borrowings, and out  of  the proceeds of the previous Debenture Issue (III Series).   The consent  was  challenged  on the  ground  that  no  M.R.T.P. clearance for the issue of capital under Section 21 or under Section 22 of the Monoplies and Restrictive Trade  Practices Act,  1969   was given.  It appears from  the  letter  dated 2.12.1988  issued  by Government of India  to  M/s  Reliance

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Industries  ltd.  endorsing a copy of  Central  Government’s Order dated 25.11.1988 passed under Section 22(3)(e) of  the M.R.T.P. Act 1969                                                         357 that it gave  approval for the  proposal  of  M/s   Reliance Industries  Ltd.  for  setting  up a cracker  complex.   The approval  of  Central  Government  was  made  under  section 22(3)(d)  of  the  M.R.T.P.  Act  and  communicated  to  M/s Reliance  Petrochemicals  Ltd. by  letter  dated  30.5.1989. Consent  was also given by the Central Govt.  under  section 22(3)(a) of the M.R.T.P. Act for the establishment of a  new undertaking for the manufacture of 20,000 of Acrylic  Fibre. Thus challenge to the consent given by Controller of Capital issues is, therefore, meritless and so it is rejected.      It is pertinent torefer in this connection this Court’s judgment  in the case of Narendra Kumar Maheshwari v.  Union of  India & Ors., J.T. 1989 2 S.C. 338 in which  considering the  duties  of the C.C.I. under the Controller  of  Capital Issues Act while giving consent it has been observed:          "That apart, whatever may have been the position at          the time the Act was passed, the present duties  of          the CCI have to be construed in the context of  the          current  situation  in the  country,  particularly,          when  there  is noclear cut  delineation  of  their          scope  in the enactment.  This line of  thought  is          also   reinforced  by the expanding  scope  of  the          guidelines  issued under the Act from time to  time          and  the increasing range of financial  instruments          that  enter  the market.  Looking to all  this,  we          think  that  the  CCI hasalso a  role  to  play  in          ensuring that public interest does not suffer as  a          consequence of the consent granted gy him.  But  as          we  have explained, later, the responsibilities  of          the  CCI  in this direction should not  be  widened          beyond  the range of expeditious implimentation  of          the scheme of the Act and should, at least for  the          present, be restricted and limited to ensuring that          the  issue to which he is granting consent is  not,          patently  and  to  his  knowledge,  so   manifestly          impracticably or financially risky as to amount  to          a  fraud  on  the public.  To go  beyond  this  and          require that the CCI should probe in-depth into the          technical feasibilities and financial soundness  of          the   proposed  projects  or  the  sufficiency   or          otherwise  of the security offered and  such  other          details  may be to burden him with duties  for  the          discharge of which he is as yet illequipped."      Three  applications  for directions being I.A.  No.  1, I.A.  NO. 2 and I.A. No. 3 of 1990 have been filed  in  T.C. Nos. 61 of 1989, T.C.                                                         358 No.62 of 1989 and T.C. No. 1 of 1990 by the L & T. Ltd.   It has  been  stated  therein that  the  Deputy  Controller  of Capital  Issues by a letter dated 15th September,  1989  has intimated  M/S Larsen & ToubroLtd. that condition No.  V  of the  consent  letter provides that the utilisation  of  fund shall  be monitered by Industrial Development Bank of  India Ltd. The representatives of Industrial Credit and Investment Corporation of India Ltd. (instant ICICI) issued a letter to the  L & t stating that it would not be correct for them  as Debenture Trustees to give conversion of those debenturs  of equity shares before a reference was made to the  Controller of  Capital  Issues  and  without  obtaining  prior  written consent  of  the IDBI.  The IDBI  considered  the  unaudited statement  of the utilisation of debenture fund  upto  March

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31, 1990 and were of the opinion that the applicants  should make the first call only  after utilising substantially  the surplus  funds available to the extent of Rs.226  crores  in investments   (after   expenditure)  upto  June   30,   1990 satisfying the IDBI about the need for raising further funds by   way of first  call.   This  was  communicated  to   the applicants by IDBI’s letter dated 7th May, 1990.      The Board of Directors at its meeting held on 11th May, 1990  considered  the  above circumstances as  well  as  the proceedings  pending in this Hon’ble Court and decided  that the Company could not proceed with the conversions of Part A of  the  debentures which was due on 23rd  May,  1990.   The Board authorised the Company Secretary to make the necessary application  to  the Controller of  Capital  Issues  seeking direction  for  the course of action to be followed  by  the Company in regard to the conversion.  The applicant’s letter dated  15th  May, 1990 to the Controller of  Capital  Issues pursuant tothe aforesaid Board Meeting refers to the  letter dated  7th May, 1990 from IDBI as well as to the  objections raised by the ICICI.      The applicants sent a letter dated 15th May, 1990 tothe Controller  of Capital Issues pursuant to the above  Board’s meeting.  After lenghthy detailed discussion by the I.D.B.I.          with the applicant, the IDBi was satisfied that the          amount  of funds that would be  presently  required          would be to the tune of Rs.650 to 700 crores.   The          company  keeping  this in view proposed to  make  a          call  (first and final) of Rs.85 on or before  31st          October,  1990  in place  of  originally  envisaged          first  call of Rs. 75 and the final call of Rs.  75          aggregating  Rs. 150.  The applicants recorded  the          above   discussions  and  intimated  IDBI  of   its          modified proposal by its letter dated 28.6.90.      On  29th  June,  1990 the Board  of  Directors  of  the Company were                                                         359 apprised of the relevant proposals as approved by the  IDBI. In  the meeting of the Directors it was decided (though  not unanimously) that directions of the Supreme Court be  sought on  the  said  proposals and that the  company  should  take necessary  steps  to approach this  Court  and  Madras  High Court  and  implement  the  proposals  after  obtaining  the directions and vacating the order of the Madras High Court.      These  Interim  Applications were filed  for  following      directions:      (a)  (i)  that the size of the issue do  stand  reduced      from Rs.820 crores to Rs.640 crores as followes:      Public issue of debentures of Rs.235 each Rs.485 crores      Rights issue of debentures of Rs.225 each Rs.155 crores                                                -------------                        Total                   Rs.640 crores                                                -------------      (ii)  that in place of the first call of Rs.75 and  the      final  call of Rs.75 as originally provided for in  the      prospectus, a first and final call of Rs.85 in the case      of the public issue and Rs.80 in the case of the rights      issue be made on the debentureholders on or before 31st      October, 1990.      (iii)  That  the  first conversion of  Part  A  of  the      debentures into one equity share of Rs.10 at a  premium      of  Rs.  40  (premium of Rs.30 in the  case  of  rights      issue) be made on 1st December, 1990.      (iv)   that  the  second conversion of Part  B  of  the      debentures  into two equity shares of Rs.10 each  at  a      premium  of  Rs.  50 be made  on  the  date  originally

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    scheduled viz. 23rd May, 1991.      (v)   that the third equity conversion of Part C of the      debentures  be  made on the date  originally  scheduled      viz. 23rd May, 1992 at such premium per equity share as      may  be fixed by the Controller of Capital  Issues  but      not  exceeding Rs.55 per share and such  conversion  be      made  into one or more equity shares of Rs.10  each  as      against  two  or  more  equity  shares  as   originally      provided in the prospectus.      (b)   that in case of any debentureholder not  agreeing      to  the  modifications,  in prayer  (a)  above  and  on      intimation  being received by the applicant company  as      mentioned in prayer (c) below                                                          360      the  applicants  do  refund  to  such  debentureholders      their/its application and allotment money with interest      thereon at such rate as may be directed by this Court;     (c)  that this Court be pleased to direct the applicants      to give notice to all debentureholders individually and      by  publication  in national newspapers  of  the  order      passed  in terms of prayers (a) and (b) above  that  in      case  of  any  debentureholder  not  agreeing  to   the      modifications  in prayer (a) such  debentureholders  do      give intimation to the applicant companywithin 30  days      of  such  notice in which case  the  applicant  company      would  refund  the application/  allotment  money  with      interest.      (d)   for further orders ands directions  consequential      to the orders passed by this Court;      (e)   for costs of the applications.’      Larsen & Toubro Ltd. respondent No. 2 in T.C. No. 61 of 1989  filed  a  rejoinder  affidavit  to  the  statement  of objections   filed  by  N.  Parthasarathy  to  the   interim application No. 1 of 1990 in T.C. No. 61 of 1989.  In para 2 of the said rejoinder affidavit it has been stated that:               "By  his  order dated November  9,  1989  this          Court specifically directed Larsen & Toubro Ltd. to          make  allotment  subject to the  decision  of  this          Court  in  the said matters.   This  Hon’ble  Court          therefore allowed the issue to proceed on the basis          of the original consent purported to be impugned by          the  petitioner in the Madras High Court  Petition.          I,  therefore, submit that Larsen & Toubro  Limited          was  fully justified in seeking the  directions  of          this  Hon’ble  Court as prayed for in  the  Interim          Application.   I  deny that the directions  in  the          Interim  Application,  if  granted,  would   render          nugatory  the Petition filed by the  Petitioner  or          that  the same would amount to a  determination  of          the  issue  in the Petitioner’s  writ  petition  as          erroneously  contended by the petitioner.   I  deny          that Larsen & Toubro Limited are at all  misleading          this  Hon’ble  Court or that it committed  any  act          which  is  at all illegal, as  falsely  allged.   I          submit that a decision of this Hon’ble Court on the          legality  of  the  original consent  order  is  not          necessary  for the issue of interim  directions  of          the nature prayed for by Larsen & Toubro Limited in          the above Interim Application.’                                                          361      It has also been stated in para 3 of the said affidavit that this Court does not have jurisdiction to entertain  the said  interim application either for the reasons alleged  or otherwise.  The said application, it is submitted, does  not amount  to  performance of any executive  function  by  this

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Court as erroneously alleged by the petitioner.      The statement that the Controller of Capital Issues has no  power  to modify or vary a consent as alleged  has  been denied. It has been submitted that the Controller of Capital Issues has not varied his consent nor is any such  variation of  the consent order per-se being sought by the  Respondent No.  2.  It has also been stated that under sub section  (6) of Secftion 3 of the Capital Issues (Control) Act, 1947, the Central  Government has the power to vary all or any of  the conditions qualifying a consent.      It has been denied in para 8 of the said affidavit that the consent order of the Controller of Capital Issues is  at all illegal or improper as alleged.  It has been denied that it  is  not  open for this Court or for  the  Controller  of Capital  Issues  to  modify the terms of  the  said  consent order.      It is to be noted that the Industrial Development  Bank of  India by its letter dated June 28, 1990  tothe  Managing Director, Larsen & Toubro Ltd. stated that;           ".... From a quick review of the status of the new           proposal  mentioned in your letter dated June  22,           1990,  we feel that the net requirements of  funds           to  be met out of debenture funds would be in  the           region of Rs.600 to Rs.650 crores as indicated  by           you.                We  further note that from your letter  dated          June  28, 1990 that you propose to make  first  and          final  call  Rs.85 on the debentures on  or  before          31st October and to effect the first conversion  by          the  end  of November, 1990 and  second  and  third          conversion   according   to  the   original   dates          mentioned in the prospectus.                The  L & T Board will have to take a view  on          the size of the debenture issue in the light of the          requirements of funds indicated in your letter  and          other  modifications suggested in the terms of  the          debentures.   The  company  will  no  doubt  obtain          necessary  approvals from CCI, debenture-                                                         362          holders/shareholders, etc. in consultation with its          Legal Advisers."      A meeting of the Board of Directors of the Company  was held  on  June  29,  1990  and  it  was  resolved  that  the directions  of the Supreme Court of India be sought  on  the said proposals and necessary steps the taken to approach the Hon’ble High Court at Madras to vacate the said order and/of modify  the same suitably and implement the  proposals  only after  the directions from the Supreme Court  were  obtained and the Order passed by the Hon’ble High Court at Madras was vacated and/of modified suitably.      It  appears that Section 55 of The Companies Act,  1956 enjoins that:           "The  prospectus  issued  by or  on  behalf  of  a           company  or  in relation to  an  intended  company           shall  be dated, and that date shall,  unless  the           contrary  is  proved,  be taken  as  the  date  of           publication of the prospectus."      Under   Section   61  of  The  Companies  Act   it   is specifically provided that:           "A company shall not, at any time, vary the  terms           of  a  contract referred to in the  prospectus  or           statement  in lieu of prospectus,  except  subject           tothe  approval of, or except on authority,  given           by, the company in general meeting."      Section  62  of the said Act provides  for  payment  of

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compensation  to every person who subscribes for any  shares or debentures on the faith of the prospectus for any loss or damage  he  may  have  sustained by  reason  of  any  untrue statement included in the prospectus.  Similarly, Section 63 of  the  said Act provides for criminal liability  for  mis- statements  made  in  the prospectus.   Section  72  of  The Companies Act provides that:          "No  allotment  shall be made of any shares  in  or          debentures   of  a  company  in  pursuance   of   a          prospectus  issued  generally, and  no  proceedings          shall  be taken on applications made  in  pursuance          of  a prospectus so issued, until the beginning  of          the fifth day after that on which the prospectus is          first so issued or such later time, if any, as  may          be specified in the prospectus."                                                         363      Thus,  it is evident from a consideration of the  above provisions  of The companies Act that the terms of  contract mentioned in the prospectus or the statements in lieu of the prospectus cannot be varied except with the approval of  and on  the  authority  given  by the  Company  in  the  general meeting.   Therefore,  the  consent that was  given  by  the Central Government nay by the Controller of Capital  Issues, on a consideration of the special resolution adopted in  the extra-ordinary  general meeting of the shareholders  of  the company  on  August 28, 1989 cannot be  varied,  changed  or modified  both  as regards the reduction of  the  amount  of debentures  as well as the purposes for which the fund  will be  utilised  contrary  to what has  been  embodied  in  the prospectus and approved by the Controller of Capital  Issues on  the  basis  of the special  resolution  adopted  at  the general  meeting of the shareholders of the  company.   Sub- section  (6)  of Section 3 of The Capital  Issues  (Control) Act, 1947 states that:           "The Central Government may by order at any time -           (a)   revoke the consent or  recognition  accorded           under  any of the provisions of this  section;  or           (b)   where such consent or recognition  has  been           qualified with any conditions, vary all or any  of           those conditions:           Provided  that  before an order  under  this  sub-           section  is  made, the company shall  be  given  a           reasonable  opportunity of showing cause why  such           order shall not be made."      On  a  plain reading of this provision,  it  cannot  be inferred that consent order given by the Central  Government after consideration of the special resolution passed at  the general  meeting of the company on taking the  no  objection certification from the I.D.B.I. can be changed or varied  in any  manner  whatsoever  by  the  Central  Government.   The Central  Government  can  merely  vary all  or  any  of  the conditions subject to the consent being given.      It  is appropriate to mention in this  connection  that the  I.D.B.I. also asked the Larsen & Toubro Ltd. to  obtain the  necessary  approval  from  the  Controller  of  Capital Issues, debentureholders/shareholders etc. in respect of the reduction  in  requirement  of funds.   There  has  been  no general  meeting of the company nor any  special  resolution was  taken  for  variation or reduction  of  the  amount  of debentures  to be issued  as required under Section 81  read with clause 1A of The Com-                                                          364 panies   Act.   It is also evident that no steps  have  been taken  to have the consent already granted by Controller  of Capital  issues,  varied or modified as required  under  The

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Capital  Issues ( Control) Act, 1947.  Merely because clause (v)  of  the consent order provides for  monitoring  of  the funds  by I.D.B.I., it does not mean nor it can be  inferred automatically that the suggestion of the I.D.B.I. as regards the  funds requirement can be automatically given effect  to without   complying  with  the  statutory  requirements   as provided  in the provisions in The Companies Act as well  as in  The Capital Issues (Control) Act.  The consent order  is one and indivisible and as such the same cannot be varied or vivisected without taking recourse to the provisions of  the statute.   It  is  also well settled that  the  contract  to purchase  shares or debentures is concluded by allotment  of shares  issued  under the prospectus and Section 72  of  the Companies Act makes it clear that allotment can only be made after the prospectus is issued.  The company is bound by the special   resolution, the prospectus and the consent of  the Controller  of Capital Issues.  The power to pass a  consent order  is a statutory power vested in a statutory  authority under  the Capital Issues Act and the Court has no power  or jurisdiction  to  step  into  the  shoes  of  the  statutory authority and pass or approve a consent order different from the   statutory  consent  order  given  by   the   statutory authority.  Moreover, the consent order cannot be varied  by the Central Government or Controller of Capital Issues after the  said order has been made public and third parties  have acted on it and acquired rights thereon.      In   Palmer’s  Company  Law  (24th  Edition)  by   C.M. Schmitthoff  under  the  caption The  "golden  rule"  as  to framing prospectuses at page 332-333 it is stated that:               "Those who issue a prospectus, holding out  to          the     public    the great advantages  which  will          accrue  to  persons  who  will  take  shares  in  a          proposed  undertaking,  and inviting them  to  take          shares on the faith of the representations  therein          contained,  are  bound  to  state  everything  with          strict  and  scrupulous accuracy, and not  only  to          abstain from stating as fact that which is not  so,          but to omit no one fact within their knowledge, the          existence  of which might in any degree affect  the          nature,  or extent, or quality, of the   privileges          and  advantages which the prospectus holds  out  as          inducements to take shares."      Reference  may  also  be made to  the  observations  in Aaron’s v.                                                          365 Twiss, [1896] A.C. 273 in which Lord Watson said:          "It  was argued for the company that, inasmuch  its          contracts  for the purchase of the  concession  are          generally  referred  to  towards  the  end  of  the          prospectus, the respondent must be held to have had          notice of their contents.  This appears to me to be          one  on the most audacious pleas that ever was  put          forward  in  answer  to  a  charge  of   fraudulent          misrepresentation.   When analysed it means  simply          that a person who has induced another to act upon a          statement  made  with  intent to  deceive  must  be          relieved from the consequences of his deceit if  he          has  given  his  victim constructive  notice  of  a          decument,  the  perusal of which would  expose  the          fraud." In  the case of State of Madhya Pradesh and Ors. v.  Nandlal Jaiswal and Ors., [1986] 4 SCC 566 this Court while  dealing with the laches and delay held that:          "The  High  Court  does  not  ordinarily  permit  a          belated  resort to the extraordinary  remedy  under

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        the writ jurisdiction because it is likely to cause          confusion and public inconvenience and bring in its          train new injustices.  The rights of third  parties          may  intervene  and  if the  writ  jurisdiction  is          exercised   on   a  writ   petition   filed   after          unreasonable  delay,  it  may have  the  effect  of          inflicting not only hardship and inconvenience  but          also injustice on third parties."      For   the  reasons  aforesaid  I  dismiss   all   these Transferred Cases.  There will no be order as to costs.  All the  interim applications filed in these  Transferred  Cases stand   disposed  of  in  view  of  the  observations   made hereinbefore.      The Special Leave Petition (C) No. 13801 of 1989  filed against  the  order of the  Bombay High  Court  in  Contempt Petition No. 1 of 1989 in writ petition No. 2595 of 1989  is dismissed.      The Contempt Petition Nos. 121 and 130 of 1989 are also dismissed without costs.      KASLIWAL,J.   I  have gone through the judgment  of  my learned brother B.C. Ray,J. and I agree with the conclusions drawn by him.  But, I would like to express my own views.                                                          366      Writ  Petition  No. 2595 of 1989 was  filed  by  Haresh Jagtiani  and  Shamit  Majumdar  (hereinafter  called   ’the petitioners’)  in  the  Bombay High  Court  challenging  the validity  of the consent given by the Controller of  Capital Issues (CCI) dated 29.8.89 and subsequently amended by Order dated   15.9.89  for  the  issuance  of  Fully   Convertible Debentures  of  Rs.820 crores by Larsen & Toubro,  a  Public Limited company (in short L & T ).  Challenge was also  made in  respect  of transfer of 39 lac shares of L & T  held  by Unit  Trust  of India (UTI), Life Insurance  Corporation  of India  (LIC),  General  Insurance  Company  (GIC)  and   its subsidiaries to Trishna Investments and Leasing Limited  (in short  Trishna Investments) through the  instrumentality  of Bob Fiscal Services Limited (in short Bob Fiscal).  The Writ petition  was dismissed on 29.9.89 byu learned Single  Judge of the bombay High Court.  Letters Patent Appeal against the said  judgment was filed in the Bombay High Court.   Several other  writ petitions and suits were filed in various  other High  Courts.  Some Contempt Petitions were also  filed  and all the above matters were transferred to this Court.   Some Interim  Applications were also filed by L & T  before  this Court.  The issues raised in these cases are of far reaching impact on the affirmatory public duty and public obligations on  the government  of India and its  instrumentalities,  to preserve  and to refrain from squandering away the  property and economic power of the State and to prevent  illegitimate growth  of private monopoly power and to ensure honesty  and probity  in public life and in industry and business.   This is  a  largest mega issue so far as India is  concerned  and involves  to a great extent the investment of the  country’s bulk economic resources to be invested for industrial growth or  development of the country to a public limited  company. The  matter  has to be looked into on the  basis  of  larger public  interest  which  can  be  fulfilled  by  a  balanced investment of country’s resources.      My  learned  brother  has  already  given  the  details regarding  the  manner  and circumstances in  which  39  lac shares  of  L  &  T were  transferred  by  public  financial institutions   to  Trishna  Investments,  a  subsidiary   of Reliance  Group  of  Industries  i.e.   Reliance  Industries Limited  (RIL) and Reliance Petro-chemicals  Limited  (RPL), through the conduit of Bob Fiscal, as such I need not repeat

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the same.      On the  date of the filing of the writ6 petition in the Bombay  High  Court  a prayer was made  in  this  regard  to declare that the transfer of 39 lac shares of L & T held  by UTI,  LIC, GIC and its subsidiaries to  Trishna  Investments through  the  instrumentality of Bob  Fiscal  is  arbitrary, illegal,  mala fide and a fraud on the statutory  powers  of the                                                          367 respondents and is clearly ultra vires Articles 14, 39(b)  & (c)  of  the Constitution and to issue a  writ  of  mandamus directing the respondents to recover the shares of L & T and pay back the amount received there for.  This later part  of the  prayer for writ of mandamus has now become  infructuous in view of the changed circumstances that the 39 lac  shares of  L  &  T have already been returned back  to  the  public financial  institutions,  but Mr. Chinoy,  counsel  for  the petitioners  has prayed that it would be very  necessary  to declare that such  transfer of 39 lac shares at the relevant time was arbitrary, illegal, mala fide and a fraud in  order to  further hold that the consent given by the CCI  for  the proposed  issue of convertible debentures of Rs. 820  crores by  L  &  T was not only arbitrary but based  on  mala  fide exercise  of  power based on extraneous  grounds.   In  this regard it would be necessary to state some more facts  which happened   after the dismissal of the writ petition  by  the learned   Single  Judge  of  the  Bombay  High  Court  dated 29.9.1989.   The petitioners aggrieved against the  judgment of  the learned Single Judge filed a Letters  Patent  Appeal before   the  Division  Bench  of  the  High  Court.    Some shareholders filed writ petitions and suits in several  High Courts and this Court in the above circumstances thought  it proper to transfer all the cases to this Court.  Pursuant to the  order  of this Court dated October  27,  1989  learned Additional  Solicitor  General appearing on  behalf  of  the financial  institutions  submitted  a  memorandum.   It  was stated in the memorandum that the financial institutions had already  bought back 39 lac shares of L & T  with  accretion thereto  from  Trishna Investments.  It was  farther  stated that  by   buying  back  the  said  shares,  the   financial institutions  were  in no way either remotely  or  impliedly acceding  the  position that the  original  transactions  of sales  were  illegal or void.   The  financial  institutions stood  by  their contentions which had been  upheld  by  the Bombay High Court in its Judgment dated September 29,  1989. It  was  further  stated  that  the  Transactions  had  been completed  on  the expectation that  the  petitioners  would withdraw  the proceedings as even otherwise a basic  portion of  the  petitions  filed  in  the  High  Court  had  become infructuous.      Mr. Jethmalani, Learned counsel appearing on behalf  of Haresh  Jagtiani also filed a draft of consent terms  to  be recorded  in the transfer petition.  On 9.11.89  this  Court after  considering  all  the  circumstances  of  the  matter thought it just and fair to pass an order that the allotment of debentures will made by the Petitioner company i.e. L & T and  such  allotment will abide by  the   decision  of  this Court  in the said matters.  It was  further  directed  that the  L  &   T   will also affix  a  similar  notice  at  its Registered  Office for the information of the share-                                                         368 holders  as well as the original allottees.  The Court  also indicated in the above order as under:           "The  Court  will  further make it clear  that  no           equities  will be pleaded in respect of  allotment

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         of shares." After  the  passing  of  the  above  order  debentures  were released  and several lacs of persons have  purchased  these debentures.      Trishna  Investments had not filed any counter  to  the writ  petition before the Bombay High Court, but have  filed counter affidavit and written submissions before this Court. Dr.  L.M. Singhvi, learned Sr. advocate appearing on  behalf of  Trishna Investments contended that  Trishna  Investments had  agreed  to  the  retransfer of 39  lac  shares  to  the financial institutions and it was agreed by learned  counsel for  the petitioners that it would form the basis for  fully comprehensive   and  wholistic  settlemtn  of  the   matter. Indeed,  Shri Ram Jethmalani learned counsel  appearing  for the  petitioners so stated that this Hon’ble Court was  also pleased  to  record  the same in its   order  dated  9.11.89 Since   the   petitioners  have  now  resiled   from   their categorical  offer, Trishna Investments also cannot be  made to agree to a settlement upon de novo terms and  conditions. It  has been submitted that in its affidavit  dated  7.11.90 filed  by Trishna Investments, it has been stated  that  the retransfer of shares resulted in a loss of Rs. 10 crores  to Trishna Investments.  It has also been submitted that though Trishna Investments is a company wholly owned and subsidiary of  RIL  but contracts made by Trishna  Investments  in  the present  case  should  not be construed to  mean  that  this Hon’ble Court may hear and adjudicate all other  allegations against  Reliance group without making the  later  uyjhnb7as party  to  the  present  proceedings.   Trishna  Investments cannot  be  treated as a substitutable  alter   ego  without making RIL/RPL  as parties.      It  was contended by Dr. Singhvi, learned  counsel  for Trishna  Investments that the present proceedings  have  now become infructuous in view of the admitted retransfer of  39 lac    shares   by   Trishna   Investments   to    financial institutions.  It is well settled that the Court should  not decide  merely  academic  points.   In  this  regard  it  is submitted that the principal relief as sought in prayers (a) and  (c), no longer exist and the aforesaid  transaction  of retransfer  of 39 lac shares was on the  expectation.   That the  petitioners will withdraw the proceedings.  In  support of  the  above  contention reliance is placed  on  State  of Maharashtra v. ramdas Shriniwas Nayak & Anr., [(1983) 1 SCR, 8 at                                                          369 p.  12].   It  has  been  further  submitted  that  in   the alternative Trishna Investments must be put in the identical status quo ante position by retransfer of its 39 lac  shares back  to it, alongwith all accretions.  It was  also   urged that  there are large number of disputed questions  of  fact which  cannot  be  decided  in  exercise  of   extraordinary jurisdiction contained in Art. 226 of the Constitution.      Dr.  Singhvi also urged that even if the action of  the Reliance  group was to corner or purchase all shares of L  & T, there is nothing wrong or illegal about it.  There was no law or rule prohibiting the purchase of shares of a company. Thus  there was nothing wrong or illegal in  purchasing  the shares  by Trishna Investments.   Apart from that the  total shareholding  vested  in Trishna Investments was only  about 6.5%  and the representation of Ambanis including Mr. bhakta on the Board of Directors of L & T was only 4 out of 20.  It was   wholly   misleading,  deliberately   mischievous   and erroneous to suggest on the part of the petitioners that the value   of   the  shares   transferred/sold   by   financial institutions was far more than the market value.  There  are

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no  guidelines, rules, regulations, directions or  documents prescribing  any method of sale of shares where such  shares are  sold individually or in chunk.  No control can be  said to have been transferred on the basis of 6.42%  shareholding and representation of Board of Directors after the  transfer to  Trishna Investments.  Reliance is support of  the  above contention  is placed on Babulal Chaukhani v. Western  India Theatres,  AIR 1957 Cal. 709 at p. 715 on the passage  which reads as under:           "It  is in evidence that Modi has been  purchasing           large  blocks  of  shares  of  this  company,  but           cornering  as such or purchase of large  block  of           shares  as such, so long as they are   permissible           by  law is not unjustified.  That by  itself  does           not  prove mala fides or bad faith either in  fact           or  in  law.  To acquire a control which  the  law           permits cannot be illegel."      It  was  further  submitted  in  this  regard  that  if purchase  or  cornering, per se and by  itself,  is  neither illegal  nor  impermissible,  then  purchase  or   cornering through  intermediaries  or  even  if  done  surreptitiously cannot  become  illegal  merely by  the  existence  of  such intermediaries  or by the allegedly surreptitious nature  of the  transactions.  The aforesaid decision of the   Calcutta High  Court has been applied in a large number of  decisions of  statutory authorities dealing with allegations of  chunk purchase of cornering of shares.      Dr.  Chitale appearing on behalf of Bob Fiscal  pointed out that                                                          370 the members of the Bob Fiscal Services Private Limited at an extraordinary  general meeting held on 24th September,  1990 have passed a special resolution for voluntary winding up of the  company  in  accordance  with  etc.  484(i)(b)  of  the Companies  Act,  1956.   By the  said  resolution  Chartered Accountant  has  also been appointed as liquidator  for  the beneficial  winding up of the Bob Fiscal Services Pvt.  Ltd. It  was  further  submitted by Dr.  Chitale  that  essential grievance of the writ petitioners related to the transfer of 39  lac shares of L & T by the investment  institutions  and its  subsidiaries  to M/s Trishna  Investments  and  Leasing through  the  alleged  conduit  or  instrumentality  of  Bob Fiscal.   It  has  been alleged by the  petitioners  that  a conspiracy  was hatched between investment institutions  and Ambani group represented by Trishna and Bob Fiscal in  order to camouflage the transactions and to prove the transfer  of shares  to  Bob Fiscal in order to avoid compliance  of  the alleged guidelines and policy of the financial  institutions to  charge  at two times the market price for such  sale  of shares.  The allegations were denied by various  respondents which were upheld by Bombay High Court by its judgment dated 29th September, 1989.  It was further submitted that  during the  course  of the proceedings before this  Court  on  18th October,  1989 Trishna Investments made offer in open  Court to  sell  back or retransfer the 39 lac shares  in  question together  with accretions to the investment institutions  on no  loss  no  profit  basis.   On  27th  October,  1989  the institutions agreed to buy back the said 39 lac shares  with accretions   thereon.   It  was  expressly   submitted   and clarified  by Trishna Investments and the institutions  that Trishna Investments was selling back the said shares and the institutions were buying back the same without in any manner admitting any of the allegations in the writ petitions,  nor were they admitting the position that the original  transfer of  shares by investment institutions to Bob Fiscal were  in

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any   manner  arbitrary  or  unlawful.    Subsequently,   it transpired that on or about 8th November, 1989  institutions has purchased the said 39 lac shares on full payment.  As  a sequel  to  the  above,  the  main  relief  sought  by   the petitioners  have become infructuous and do not  survive  at all.  The entire challenge of the writ petitions in   regard to  the  actions of the financial institutions for  sale  of shares to Trishna Investments through Bob Fiscal had  become merely  academic  and  any trial of the  issue  in  relation thereto  would  only be an abuse of the process of  law  and wholly unnecessary and waste of time of this Hon’ble  Court. Bob  Fiscal   is  not concerned with the  challenge  of  the petitioners  in  regard to the order of CCI.   It  was  thus submitted   that the entire petition has become  infructuous but  it  for  any  reasons this  Hon’ble  Court  desires  to continue  with the case in respect of the challenge  to  the consent of the CCI then Bob Fiscal                                                          371 and  its  Chairman  should  be dropped  from  the  array  of parties.      The stand taken by the public financial institutions in this regard is that while deciding to sell those shares they acted purely on business principles and sold those shares at a  very  high market price and thereby earned  huge  profit. There was no basis in the allegation made by the petitioners that  the investment institutions ought to have charged  and recovered substantially higher price (which according to the petitioners  should  have been at least 2005 of  the  market price)  for the transfer of such shares had the shares  been transferred directly to Trishna Investments being a company, representing  a  group/persons  other  than  those  in   the management.  The investment institutions had transferred  39 lac shares to Bob Fiscal as part of a ’basket’ of securities purely    on    commercial    considerations.     Investment institutions  were in no way concerned with  any  subsequent dealings  of  the  said shares by Bob  Fiscal.   The  entire challenge  of  the writ petitioners to the  actions  of  the financial  institutions  w2as now merely  academic  and  any decision  in this regard would be a waste of  judicial  time and  totally  unnecessary.  It was also submitted  that  all allegations    of   conspiracy   between    the    financial institutions and any others party are denied.  It is  denied that  investment institutions at any time were aware of  the fact  that 39 lac shares which were sold to Bob Fiscal  were at  any  time intended or destined for the Ambani  group  as alleged.      I  agree  with  the observations  made  and  conclusion arrived  at  by my learned brother B.C. Ray in   respect  of transfer  of 39 lac shares.  I may, further add that so  far as   the  relief  of  a  writ  of  mandamus  directing   the respondents  to recover 39 lac shares of L & T and pay  back the amounts received there for, does not survive in view  of the  shares  having  already bought back  by  the  financial institutions  from Trishna Investments.  However for  future guidance  it  may   be  worth  while  to  note  that  public financial institutions while making a deal ins respect of  a very large number of bulk of shares worth several crores  of rupees  must  also  make  some inquiry as  to  who  was  the purchaser of such shares.  Such transactions should be  made with circumspection and care to see that the deal may not be to   comouflage  some  illegal  contrivance  or   in   built conspiracy of a private monopoly house in order to usurp the management of a public company and which in its opinion  may not be in public interest.      We  cannot  subscribe to the contention raised  by  Dr.

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Singhvi that there was nothing wrong or illegal even if  the action  of Reliance Group was to corner or purchase all  the shares of L & t, and even if done                                                          372 through  intermediaries  or  surreptitiously  cannot  become illegal.   If,  that is the law laid down by  Calcutta  High Court  in  Babulal  Chaukhani  v.  Western  India  Theatres, (supra), we disapprove it.      It  is no doubt correct that any person or  company  is lawfully entitled to purchase shares of another company   in open market, but if the transaction is done  surreptitiously with  a  mala fide intention by making use  of  some  public financial institutions as a conduit in a clandestine manner, such deal or transactions would be contrary to public policy and illegal.  If the, matter was so simple as propounded  by Dr.  Singhvi, why Trishna Investments did not  come  forward directly  to  purchase 39 lac shares from  public  financial institutions  and why entered in a deal through the  conduit of  Bob  Fiscal  in a clandestine manner.   That  apart  why Trishna  Investments  readily  agreed to  sell  back  these shares  to public financial institutions even at a  loss  of Rs.  10  crores  as suggested, after  the  filing  of  these petitions.   This itself speaks volumes against the  conduct of  Trishna  Investments who was a  subsidiary  of  Reliance Group.   There  is  no  force in  the  contention  that  the propriety   of  such  deal  cannot  be  considered   without implading  RIL/RPL as parties to these proceedings.  It  may be  stated that the entire  transactions have been  made  by Bob Fiscal and Trishna Investments who are already  parties. It  may  ber noted that Bob Fiscal and  Trishna  Investments were  made parties to the writ petition filed in the  Bombay High  Court and serious allegations were made  against  them but they did not choose to refute any allegations by  filing any  counter  affidavit in the High Court.  In any  case  we have derived our conclusions on the basis of admitted  facts and  not  otherwise.  It may be worth  mentioning  that  Bob Fiscal was formed in June. 1988 and soon thereafter  entered into  transactions of purchase of 39 lac shares of L & T  on the  strength  of  deposit  of  Rs.30  crores  by  the  four satellite companies of the Ambani Group and soon  thereafter transferred the shares in favour of Trishna Investments.  It has  now, been stated before us by Dr. Chitale appearing  on behalf  of  Bob  Fiscal that  in  an  Extraordinary  General Meeting held on 24.9.90 a special resolution has been passed for  voluntary winding up of Bob Fiscal.  This leads one  to draw a legitimate inference that Bob Fiscal was brought into existence   merelyh  to act as a conduit and was  merely  an interloper to affect the transfer of 39 lac shares of public financial institutions in favour of Ambani   Group and their satellite firms.  it came into existence like a rainy insect and lived out its utility after acting as a conduit for  the transfer of 39 lac shares in favour of Trishna  Investments. I  do  not consider it necessary to further dilate  on  this point and fully agree with  my learned brother that all  the circumstances taken together clearly                                                          373 spell some doubt whether the transfer of such a huge  number of  39 lac shares by the public financial  institutions  was for  public  interest  and  was  made  on  purely   business principles.      Another  important  question  is  with  regard  to  the consent  given by CCI. L & T had filed two  applications  to CCI  on 26.7.89.  One for the Rights Issue of Rs.200  crores and   another  for  the  Public  Issue  of   Rs.720   crores (subsequently  reduced to Rs.620 crores).  It may  be  noted

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that  upto  this  time 39 lac shares of L & T  had  come  to Trishna Investment and M.L. Bhakta.  Mukesh Ambani and  Anil Ambani  had been coopted as Directors  of L & T  and  lastly Dhirubhai  Ambani  had  become  the Chairman of  L  &  T  on 28.4.89.   On  23.6.89  Board  of Directors of  L  &  T  had resolved to invest a sum of Rs. 76 crores in the purchase of Equity  Shares of RIL.  On 21.7.89 RIL and RPL  had  written letters  to L & T seeking suppliers credit to the extent  of Rs.635  crores  for turnkey projects which they  planned  to entrust  to L & T.  Out of the above public issue of  Rs.820 crores it was  proposed to reserve preferential allotment of Rs.310   crores  (50%  of the issue  after  deducting  Right Issue) for the shareholders of RIL and RPL treating them  as group  companies of L & T.  On 29.8.89 CCI passed  an  order approving  the above issue of Convertible  Debentures.   The Prospectus was issued on 5.9.89 in which it was stated  that L  &  T was part of the Reliance Group.  CCI  by  a  further order dated 15.9.89 amended the earlier consent order  dated 29.8.89   to  the  effect that  fund  utilisation  shall  be monitored   by  Industrial  Development   Bank    of   India (IDBI).CCI in another letter of the same date namely 15.9.89 also  stated that 50% to be raised in calls would  be  based upon the monitoring by IDBI  for utilisation.  This Court on 9.11.89 allowed the L & T  to open the issue subject to  the condition that allotment will abide by the decision of  this Court.   The   issue  was  then  opened  and  it  was   over subscribed  and more than 11 lac applicants applied for  the allotment  of the debentures.  On the ground that by  virtue of  the  conditions  in the consent Order,  IDBI  being  the monitoring  agency required the L & T to furnish  its  funds requirement  before  making  calls  and  since  considerable details  had  to  be  worked out by the L  &  T,  it  became necessary  to postpone the first call originally due on 30th April.  Accordingly the Board of Directors of L & T resolved that the date of payment of the first call money payable  by the debenture holders on or before 30th April, 1990 would be postponed till such time as may be decided by the Directors. Meanwhile  the Industrial Credit Investment  Corporation  of India  (ICICI) who are the debenture trustees in respect  of Series IV debentures issued a letter dated 30th April,  1990 to  L & T stating that it would not be correct for  them  as debenture trustees to give conver-                                                         374 sion  of  these  debentures  into  equity  shares  before  a reference  was made to the CCI and without  obtaining  prior written  consent  of  the IDBI.  IDBI  then  considered  the unaudited  statement  giving details of the  utilisation  of debenture  funds upto 30th March, 1990 and were of the  view that  the  applicants ( L & T) should make  the  first  call only   after  utilising  substantially  the  surplus   funds available  to  the extent of Rs.226  crores  in  investments (after expenditure) upto June 30, 1990 and after  satisfying IDBI  about  the need for raising further funds  by  way  of first call.  After a prolonged discussion and correspondence with all the concerned authorities L & T proposed to make  a call  (first  & final) of Rs.85 on or before  31st  october, 1990 in place of the originally envisaged first call of  Rs. 75 and the final call of Rs. 75  aggregating to Rs. 150.   L &  T thus proposed to affect the first equity conversion  by end  of November, 1990.  IDBI approved the  above  proposal. In view of the fact that the postponement of the first  call upon  the debenture holders to be  made on 30th April,  1990 and  the postponement of the first conversion of  Part-A  of the debentures into equity shares as originally scheduled to be on 23rd May, 1990 was occasioned by IDBi requiring L &  T

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to first satisfy IDBI as to its requirement of funds and  an objection  raised  by ICICI for giving its  consent  to  the conversion  of  Part-A of the debentures, L  &  T  submitted interim applications before this Court for directions  which have been mentioned in extenso in the judgment of my learned brother.      Mr.  Nariman, learned Sr. advocate appearing on  behalf of  L  & t in the changed circumstances submitted  that  the impugned  issue  of convertible debentures was passed  by  a special resolution in the Extraordinary General Meeting   of the shareholders of L & t dated 21.8.89 and the said special resolution   had   not  been  challenged  by  any   of   the petitioners.   Only  consent  order  of  the  CCI  had  been challenged and thus the debentures which had been issued  on the authority of a special resolution remained unchallenged. It was further argued that as regards the authority of CCI’s consent order the scope and parameters of the Court’s  power to scrutinise the consent order have already been laid  down in  a  recent decision of this Court in N.k.  Maheshwari  v. Union of India, [1989] 3 SCR 43.  It was submitted that  the limits  as laid down in N.K. Maheshwari’s case (supra)  have not been transgressed so as to call for any interference  in the   consent  order.   Mr.  Nariman  thus   justified   the sanctioning of preferential allotment of shares worth Rs.300 crores for the shareholders of Reliance Group as well as the consent  order for the entire issue of Rs. 820  crores.   It may  be  further noted that initially L & T  had  taken  the stand  to  reduce the total amount of the issue to  Rs.  640 crores instead of                                                          375 Rs.  820 crores, but finally took the stand that  the  issue may  be  proceeded to the  full extent of Rs.820  crores  in view of the fact that the IDBI had itself in an affidavit in reply to  their application before this Court had taken  the stand  that it was not IDBi’s view to curtail the amount  of issue and that it was L & T’s own decision.  The L & T  thus in  its affidavit dated 11th September, 1990 make  it  clear that the issue may be proceeded to the full extend of Rs.820 crores  and  only a postponement of the dates of  the  first call,  first  equity conversion and the second call  may  be permitted.      Mr.   Chinoy,   learned  counsel  appearing   for   the petitioners  vehemently submitted that the  petitioners  had not come forward with a grievance regarding the validity  of issue  of  debentures  only.  His contention  was  that  the petitioners had come forward raising larger issues affecting the  entire  economy  of  the country  and  the  under  hand practice  adopted by the financial institutions and the  big private  industrialists.  It was submitted that there was  a limited  financial  capacity of the investor public  in  the shares and CCI as a controller ought to see that such public investment   should   not  go  in  the  hands   of   a   few industrialists  which  would be contrary  to  the  Directive Principles   enshrined  in  Article  39(b)  &  (c)  of   the Constitution of India.  It should adhere to the above  State Policy  enshrined  in  the  Directive  Principles  that  the ownership  and  control  of the material  resources  of  the community are so distributed as best to subserve the  common good and that the operation of the economic system does  not result in concentration of wealth and means of production to the  common detriment.  It was submitted that the  facts  on record clearly establish that the mega issue was  conceived, proposed  and  implemented  with the intent  and  object  of utilising  the  reputation and goodwill of L &  T  to  raise funds to the extent of Rs.636 crores for funding projects of

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Reliance  Group of Industries.  The consent so given by  CCI was  vitiated on account of the non application of mind  and its  failure to consider the facts of the case in the  light of  its  application  to  act  in  public  interest  and  in consonance with the principles embodied in Article 39 (b)  & (c).      Dr.  Singhvi, learned Sr. advocate appearing on  behalf of Trishna Investments submitted that economic and corporate issues can never be a subject matter of judicial review,  as already  laid  down in State of Madhya  Pradesh  v.  Nandlal Jaiswal  &  Ors.,  [1987]  1  SCR,  54  and  Life  Insurance Corporation  of India v. Excorts Ltd. & Ors., [1985] Supp  3 SCR,  909 at p. 1017 & 1018.  It was submitted that CCI  had given consent after thoroughly applying its mind in any case the   impugned   consent  order  is  a   single,   composite indivisible order which cannot be                                                         376 appropriately bisected or bifurcated.  Even if for arguments sake  it may be considered that the consent was  not  proper then the whole consent must go and it cannot be  selectively upheld and selectively quashed.  As regards suppliers credit it  has been urged that provision of suppliers credit is  an extremely  common  and well known  commercial  modality  and indeed,  construes and alternative scheme and  mechanism  of finance.   In  deed,  the concept  of  suppliers  credit  is integrally  connected and inextricably intertwined with  the concept  of  a turnkey project.  In sum  and  substance  the concept  of  suppliers credit simply means that  the  entire turnkey project is the property of L & T who executes it and then hands  it over to the purchaser (in this case  RIL/RPL) and  extends credit for payment to RIL/RPL with effect  from the  date when the project is handed over as a running  unit by  L  & T.  The suppliers/workers contractor(L &  T)  gives credit  in  the sense that the purchaser  promises  to  pay, inter  alia by bills of exchange or other customary  payment organised  with  the price of the project would be  paid  in installment  inclusive of further running interest from  the date of handing over till the date of payment.  It has  been submitted that all official documents and other materials in the  present  case specifically stipulate  and  specify  the precise particular projects for which the moneys were sought to  be raised by L & T.  Thus it is  uncontrovertibly  clear that the sole and only purpose for raising of funds and  the sole and only requirement of funds by   L & T related to the extension of suppliers credit to RIL, inter alia in  respect of its cracker project which has also been shown on pages 10 and  11  of the prospectus.  Similarly, reference  has  been made to other turnkey projects of RIL/RPL in the prospectus. It has thus been argued that if the consent of CCI was given taking  note  of all these circumstances then L & T  has  no right  to  change the same and utilise the funds  for  other purposes.  The issue was only of RS.820 crores for  specific projects  of RIL/RPL worth 635 crores and the  entire  issue would  be subject to the fulfillment of the above  contracts made  with RIL/RPL.  The original consent of the  Controller was  given  on  29.8.89 and the same cannot  be  changed  by subsequent  letters of the Controller dated 15.9.89.   Those letters can only be construed harmoniously and in conjuction with the sanction of 29.8.89.  They can only be construed as nominating IDBI to monitor the sanction of 29.8.89 which  is based  on  the proposal and the special  resolution  of  the company.   It  was  argued that the issue  was  carried  out according  to the prospectus filed on 6th September,   1989. The two letters of 15th September, 1989 cannot be  construed as  authorising  IDBI or L & T to redraw the consent  or  to

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override  the special resolution or the prospectus for  that would  be  completely  violative of the  provisions  of  the Companies  Act.   Capital Issues Control Act and  the  Rules made thereunder.                                                         377      Mr. Ashok Sen, learned Sr. advocate appearing on behalf of  K.B.J. Tilak opposed the interim applications  submitted on  behalf  of L & T.  It was contended that L &  T  had  no right to change the conditions of the consent order as  well as  the  terms and conditions mentioned in  the  prospectus. Mr. Sen also placed reliance on the principles set out in De Smith’s  Judicial  Review of Administrative Action  4th  Ed. page  285  which  sets  out  the  principles  governing  the exercise of discretionary powers as under:          "The  relevant principles formulated by the  courts          may   be  broadly  summarised  as   follows.    The          authority  in which a discretion is vested  can  be          complelled to exercise that discretion, but not  to          exercise it in any particular manner.  In  general,          a   discretion  must  be  exercised  only  by   the          authority to which it is committed.  That authority          must genuinely address itself to the matter  before          it: it must not act under the dictation of  another          body or disable itself from exercising a discretion          in each individual case.  In the purported exercise          of  its discretion it must not do what it has  been          forbidden  to  do, nor must it do what it  has  not          been authorised to do.  It must act in good  faith,          must have regard to all relevant considerations and          must  not be swayed by  irrelevant  considerations,          must  not  seek to promote purposes  alien  to  the          letter  or  to the spirit of the  legislation  that          gives it power to act, and must not act arbitrarily          or  capriciously.    Nor where a judgment  must  be          made  that certain facts exist can a discretion  be          validly  exercised  on the basis  of  an  erroneous          assumption   about  those  facts.   These   several          principles can conveniently be grouped in two  main          categories:  failure to exercise a discretion,  and          excess  or abuse of discretionary power.   The  two          classes  are  not,  however,  mutually   exclusive.          Thus, discretion may be improperly fettered because          irrelevant   considerations  have been  taken  into          account;  and  where an authority  hands  over  its          discretion  to  another body it acts  ultra  vires.          Nor,   as  will  be  shown,  is  it   possible   to          differentiate   with  precision  the   grounds   of          invalidity contained within each category."      When  such order is passed without regard  to  relevant consideration  or  irrelevant  grounds or  for  an  improper purpose  or in bad faith then the order becomes  void.   Mr. Sen also cited a passage of House of Lords in Anisminic Ltd. v. The Foreign Compensation Com-                                                         378 mission,  [1969]  2 A.C. 147 which has been  quoted  by  the Supreme  Court  in [(1971) 3 SCR p. 557] at page  570  which reads as under:            "It has sometimes been said that it is only where          a  tribunal  acts  without  jurisdiction  that  its          decision  is  a  nullity.  But in  such  cases  the          word"jurisdiction"  has  been used in a  very  wide          sense and I have come to the conclusion that it  is          better not to use the term except in the narrow and          original  sense of the tribunal being  entitled  to          enter  on the enquiry in question.  But  there  are

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        many   cases  where,  although  the  tribunal   had          jurisdiction  to enter on the enquiry, it has  done          or  failed  to do something in the  course  of  the          enquiry which is of such a nature that its decision          is  a nullity.  It may have given its  decision  in          bad  faith.  It may have made a decision  which  it          had  no power to make.  It may have failed  in  the          course   of   the  enquiry  to  comply   with   the          requirements of natural justice.  It may in perfect          good faith have misconstrued the provisions  giving          it  power to act sothat it failed to deal with  the          question  remitted to it and decided some  question          which  was not remitted to it. It may have  refused          to  take  into  account  something  which  it   was          required  to  take into account.  Or  it  may  have          based its decision on some matter which, under  the          provisions setting it up, it had not right to  take          into  account.   I do not intend this  list  to  be          exhaustive.  But if it decides a question  remitted          to it for decision without committing any of  these          errors  it  is  as much  entitled  to  decide  that          question wrongly as it is to decide it rightly." It  was  also  submitted  that  the  consent  order  of  the Controller  is  an  integrated and composite  order  and  it cannot  be  vivisected  either by the IDBI or  by  the  High Court.   It  is a statutory order which has been made  by  a statutory  authority in accordance with the Capital   Issues (Control) Act and Rules, approved by the Controller and  the issue was subscribed on the basis of such consent order  and prospectus and on other functionaries can change this order. It  was  submitted that the prospectus did not  specify  any contract apart from the turnkey contract of RIL and also did not mention anything except  the supply credit necessary for financing these turnkey projects which would require Rs. 635 crores  out  of 820 crores.  In other words,  the  principal purpose  of  the  issue was the  financing  of  the  turnkey projects  of the value of Rs. 635 crores.  It is  fallacious to argue that the issue was for Rs. 1425 crores as is sought to be argued on behalf of L & T.  The propectus                                                          379 mentions  at  page 45 of the interim application  under  the head ’business plans’ that for the period 1st October,  1989 to  31st  March,  1992 funds requirement  was  estimated  at Rs.1425   crores.  It was further specifically  stated  that the  suppliers credit, inter alia included Rs.510 crores  to be extended to RIL in respect of its Naptha Cracker project. It   was   further  specifically  stated  that   the   funds requirement  was intended to be met out of the present issue of  the  debentures to the extent of Rs.820 crores  and  the balance would be met from internal accruals, in other  words from  the  internal  resources  of  the  company  and   not borrowing or debenture proceeds.      Mr. Parasarn, learned Sr. advocate appearing on  behalf of  the  petitioners in writ petitions Nos.  11112-11113  of 1990 filed in the High Court of Madras and subject matter of Transfer   Petitions   in  this  Court  argued   that   each compulsorily convertible debenture holder has rights accrued in  his  favour pursuant to the allotment.   Each  debenture holder  has his own perception of the rights accrued in  his favour  which he may seek to enforce.  Such  enforcement  of right  accrued in his favour will necessarily result in  his taking  up a legal position which may agree with  the  stand taken by one or other of the parties.  It has been submitted that  the  consent order passed by CCI is  either  valid  or invalid.   There  is  no third position  possible.   It  was

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further submitted that prospectus is an invitation for offer from  the  public for the subscription or  purchase  of  any shares  or debentures.  The invitation is accepted  and  the offer  is made when an application is made for allotment  of debentures.Once the debentures are allotted, the contract is concluded.   It  was further contended that each  and  every allottee  of  the  debenture  is  entitled  to  specifically enforce  the contract for specific performance.   The  Court will enforce specific performance in favour of the  allottee debenture  holder and maintain consent as a whole  and  bind other  allottees on grounds of equity as all have  acted  on the  basis   of  the consent.  It was  contended  that  with regard  to  the shares, specific performance  is  the  rule. Reliance  in  support of this contention is  placed  on  Jai Narian v. Surajmull, AIR 1949 F.C., 211.  It was pointed out by  the Federal Court that  shares of a company are  limited in number and are not ordinarily available in the market, it is  quite proper to grant a decree fro specific  performance of  a contract for sale of such shares.  The IDBI  can  only monitor   the  utilisation of funds by L & T   as  they  are collected  in  terms  of  the clause  as  specified  in  the prospectus  to ensure that the funds are  actually  utilised for  the specific predetermined projects for which they  are raised and this condition cannot be so interpreted to confer right  on  IDBI  to decide as to the  mode  and  manner  and collection of funds itself.                                                          380      Mr.  S.S.  Ray,  learned Sr.  advocate  contended  that consent  order dated 29.8.89 was perfectly lawful and  valid and the judgment of the Bombay High Court in this regard was correct.   It  was not possible for the Court to  bisect  or vivisect  the  consent order or to apply  the  ’blue  pencil theory’ thereto and also to hold that a part of it is  valid while  the  rest  is  invalid.  The  consent  order  was  an integral part of a single scheme having a single purpose and had  to  be considered in total conjunction of a  series  of documents  and  happenings.  Mr. Ray drew attention  of  the Court to the correspondence which took place from 26.7.89 to 25.9.89 between the L & T and the CCI.      Mr.  Ray  also brought to the notice of the  Court  two events happened thereafter namely order of this Court  dated 9.11.89  by  which allotment of the debentures  was  allowed without claiming any equity by the allottee and allotment of the  debentures to the palaintiff on 23.11.89.  Mr. Ray also brought  to the notice of this Hon’ble Court further  events relevant for the purpose of this case.  Notice given by  LIC to L & T on 2.4.90 to call an Extraordinary General  Meeting to  remove Ambanis from the board but no meeting  was  held. On 19.4.90 Mr. Dhirubhai Ambani stepped down as Chairman  of L  & T.  Various correspondence between L & T and IDBI  vide two letters dated 22.6.90 and one dated 28.6.90.  IDBI  also sent  a reply on 28.6.90 to both the letters  dated  22.6.90 and 28.6.90 sent by L & T.  In this reply letter IDBI stated as under:          "From  a  quick  review of the status  of  the  new          proposal mentioned in your letter dated 22.6.90  we          feel  that the net requirement of funds to  be  met          out  of debenture funds would be in the  region  of          Rs.   600  to  Rs.  650  crores  as  indicated   by          you............ The L & T Board will have to take a          view  on  the size of the debenture  issue  in  the          light of the requirement of funds indicated in your          letter  and  other modifications suggested  in  the          series  of  the debentures.  The  company  will  no          doubt   obtain   necessary  approvals   from   CCI,

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        debenture     holders/shareholders,     etc.     in          consultation with its legal advisors."      It  is  clear  that IDBI  also  realised  that  further approvals  from CCI was necessary and also of the  debenture holders, but this was never done.      A  meeting by the Board of Directors of L & T was  held on 26.9.90 in which the mega issue was reduced from Rs.  820 crores  to  Rs.  640  crores.  The  date  of  conversion  of debentures were varied and the suppliers credit for Rs.  545 crores in respect of turnkey projects of RIL were cancelled. It was pointed out by Sh. Ray that taking note of                                                        381 the above documents and the happenings even if a part of the consent order dated 29.8.89 is found to be bad or  unlawful, nothing can remain of the consent order and it has to go  in its entirety.      Mr.   Hegde,  learned  Additional   Solicitor   General appearing on behalf of the Financial Institutions  submitted that  it  was  wrong that the Ambani holding in L  &  T  has increased  from  12% to 35.3% it is based  on  a  completely erroneous  hypothesis that the shareholdings in RIL/RPL  are only  of Ambanis.  35 lac shareholders comprised of  50  per cent of the investing public of India are in fact the public at  large.   200 crores worth of debentures were  under  the rights  issue and it was mandatory under the guidelines  for subscribing  any  issue.   Out  of  remaining  620   crores, approximately  320  crores  debentures  were  reserved   for preferential entitlement to equity shareholders of  RIL/RPL. The prospectus itself mention that any unsubscribed  portion in the public offered by prospectus would go to the category of  public.   The  claim of any loss  as  suggested  in  the statement  given by the petitioners is completely wrong  and baseless.  The allegation that an illegal benefit is made by the Ambanis from the 7% transfer of shares does not  survive as  the entire shares with accretions have been handed  over back to the public financial institutions.      Mr. R.K. Garg, learned Sr. advocate appearing on behalf of  respondent Nos. 1 and 5 in Transfer Petitions Nos.  458- 467/90 contended that the sole question involved in all  the cases is whether the Controller of Capital Issues was acting illegally or constitutionally in giving consent to L & T for coming out with mega issue of Rs. 820 crores, primarily  and substantially   for  execution  of  turnkey  cantracts   for Reliance  projects, with a stipulation in the contract  that the  cost  of  construction. would be  Rs.  510  crores  and suppliers  credit will be extended on mutually agreed  terms and conditions.  The CCI after application of mind  insisted on an undertaking to be given by Reliance that on  extension of  supliers  credit they would be precluded to  raise  this amount from the market.  It was further submitted that L & T themselves had applied for sanction in order to compete  for these lucrative contractrs with foreign business rivals  who were  extending suppliers credit as a matter of routine  and Indian  companies were loosing business to them  because  of their  superior financial strength though  without  superior special  skills  or  experience.   According  to  Mr.   Garg construction  of Hajira project sponsored by RIL would  have gone to foreign business rivals who were required to be paid in foreign exchange with considerable detriment to  national economy  and  as such RIL did a good turn  to  the  national economy by giving contract of                                                         382 turnkey  projects to L & T.  It was further  submitted  that after  the  allotment  of debentures  a  concluded  contract between  the  debenture  holders and L &  T  has  come  into

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existence and the rights and liabilities as contained in the prospectus cannot be varied by this Hon’ble Court.  The  CCI has  no power to defeat, destroy or vary the contracts  made between the investor and the company concerned.      On  the other hand, Mr. Harish Salve,  learned  counsel appearing  on behalf of petitioners in transferred case  No. 61/89  submitted that the order granting permission  by  the CCI  is  alleged  to be illegal as the  CCI  overlooked  the implications of the MRTP Act vis a vis the suppliers credit. The  dominant  and real object underlying the issue  was  to make  available funds for application to the Reliance  Group projects  and  also to provide a tool by which  Ambanis  and Reliance  Group  shareholders could increase  their  control over  L  &  T   and dilute  the  control  of  the  financial institutions.   The  issue was brought about directly  as  a result  of  the illegal takeover of L & T  by  the  Ambanis. Thus  the  entire  issue is tainted by  fraud  and  void  ab initio.      It  has  been  further submitted that  in  reality  and substance,  the entire issue is tainted since the issue  was an  attempt of the Ambanis  who had by means fair  and  foul garnered the control of L & T to raise moneys using the fair name  of  L & T for their own purposes.   The  money  raised admittedly  was  not even required except  for  projects  of Reliance Group.      Mr.  B.R.L. Iyengar, learned Sr. advocate appearing  on behalf  of  petitioners  S.R. Nayak and  Ors.  in  the  writ petition  filed in the Karnataka High Court and  transferred to this Court, supported the contentions of the  petitioners in the writ petitions filed in the Bombay  High Court.   Mr. Iyengar  further  submitted that the capital  available  for investment  at any given time has to be sized and  allocated according   to  national  priorities  by  laying   down   an investment policy which should inform and govern the  action of  the  different departments of the  Govt.  including  the Controller  of Capital Issues, who is a functionary  in  the Finance Ministry.  At the given time that is in 1988-89  the capital market had according to available economic  reports, about Rs.5000 crores public investment funds, limited as  it was   by  poor savings and high inflation.   There  were  so called  mega  issues  four or five in  number  who  had  the resources  to  exploit the media  including  the  electronic media.   None  of  these  mega  issues  had  anything   like suppliers   credit  from  their  associates,  companies   or otherwise.    The  reliance  Petro  Chemicals  had   already appropriated Rs.560 crores thus                                                          383 nearly 3000 crores of rupees had been appropriated by  large issues  when the impugned issue was presented.   After  that the  capital  available  for wage  goods  industries,  other labour  intensive industries critical industries, sought  to be  set  up  by hundreds of professionals  who  had  neither political influence nor the means to exploit the media would have  been  left  with a very meagre  amount  available  for allocation.   Thus  Articles  38 and 39(b)  &  (c)   of  the Constitution  were  not kept in mind by the  authorities  in making capital allocation.  They addressed themselves to the so  called requirement of L & T in isolation and  admittedly did not have material priorities on the investment policy in mind.      It  was  further contended that the Reliance  Group  of Industries had in about one year established access to about 1500 crores of rupees, including suppliers credit of  Rs.635 crores and had thereby become India’s largest  conglomerate, with  three  different kinds of industries and that  by  its

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very  nature a conglomerate unlike a linear monopoly  defies control and regulation was a glaring factor quite apart from the technicalities of the Monopolies Act. Sec 22 (3) (b) and (d)   of   the  Monopolies  Act  required   indepth   policy examination  at the highest policy levels  and  consultation with the Monopolies Commission and the Planning  Commission. The  record  does  not disclose any  such  consideration  or consultation, on the other hand the so called  consideration can  be seen to be casual, perfunctory and biased.  Even  in the  case of transfer of shares of an ordinary company,  the directors  have  discretion to refuse the transfer  if  they feel  that the person is undesirable or his shareholding  is not in the best interests of the company and repeatedly  the Courts have upheld such bonafide refusal to transfer.   Such being the case, it was  notorious in the present cases  that the Ambanis’ high ambitions were out to takeover L & T.   It was  thus  contended  that the  nominees  of  the  financial institutions  were at the very outset put on inquiry,   when without  any shareholding the first two Ambanis sat  on  the Board of Directors and, thereafter Dhirubhai Ambani  usurped the Chairmnan’s  seat.  The CCI failed to perform its duties in  a proper manner and such action of granting  consent  in the  prevailing  circumstances was not done in  good  faith. The sale of shares by the financial institutions itself  was a  grave breach of trust.  For Reliance Group of  industries it  was not possible to further increase their capital  base by releasing any mega issues and they have tried to  succeed in doing indirectly what they could not have done  directly. The  first step in the execution of this nefarious plan  was to transfer of 39 lac shares from the financial institutions to  Bob Fiscal.  The second step was the transfer  of  these shares by Bob Fiscal to Trishna Invest-                                                          384 ments  a  subsidiary of Ambanis.  The  third  step  was  the induction of Ambanis into the board of management of L&T and fourth  step  was  of  convening  an  Extraordinary  General Meeting  of the shareholders and to get a resolution  passed in such meeting for execution of certain projects of RIL and RPL cornering more than 3/4th amount out of the entire  mega issue  of  Rs.820  crores. This could  not  have  been  done without  the active connivance and support of CCI and  other financial institutions. The question raised in this case  is not  one of legality but of propriety and resonableness  and bonafide of the action of the financial institutions in  the course  of  execution  of  this  plan  which  has  virtually resulted in not merely transfer of professionalised  managed company  with  a reputation built over the  years  into  the hands  of  a private group but also the said  company  being used by the said private group to raise enormous capital  in the capital market for the execution of its projects. It was further  submitted by Mr.Iyengar that the whole  consent  is liable to be quashed and the same cannot be bifurcated.      The  petitioners  and the group of  lawyers  supporting them  have argued that the consent given by CCI is  bad  and should  be  struck down on the ground that it was  given  in undue   haste,  without  proper  application  of  mind,   in violation of the provisions of the MRTP Act and mollified in order  to benefit Reliance Group. In the alternative it  has been  contended that no preferential reservation could  have been made of Rs.310 crores of Convertible Debentures for the shareholders of Reliance Group of Companies. In this  regard it  has been contended that in case this Hon’ble Court  does not hold the entire consent as invalid, then the part giving preferential  reservation  of Rs.310 crores  of  Convertible Debentures  for  the shareholders of the Reliance  group  of

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companies may be declared invalid but the remaining part  of the issue of Rs.510 crores be declared valid, as the consent can be legally bifurcated in valid and invalid portions.      The  other  group of lawyers have  contended  that  the consent  given by CCI did not suffer from any infirmity  and in any case it cannot be bisected or bifurcated in valid and invalid portions. The consent order was an integral part  of a single scheme and shall be valid or invalid as a whole and it does not lie within the judicial review of the Courts  to declare one part of the consent order as valid and the other part as invalid.      As  already  mentioned  above  this  is  a  mega  issue amounting  to Rs.820 crores, out of which Rs.200  crores  is the Right Issue for the shareholders and employees of L &  T itself. Issue of Rs.310 crores                                                          385 being reserved as preferential issue for the shareholders of Reliance group of companies being an associate/group of L  & T  itself. The balance issue of Rs.510 crores is  meant  for the  general  public. So far as the Rights Issue  of  Rs.200 crores is concerned, the same is perfectly valid and  nobody has  come  forward  to challenge the same.  As  regards  the preferential   issue   of  Rs.310  crores   in   favour   of shareholders   of  the  Reliance  group  of   companies   is concerned,  L  &  T and Reliance  group  of  companies  were interconnected  within the meaning of Sec.2(g) of  the  MRTP Act and it is permissible according to law. The size of  the issue  was  so  large that it was  considered  necessary  to reserve  a  substantial  portion  of it  in  favour  of  the shareholders  of  Reliance group of companies, in  order  to ensure the successful absorption of the entire issue. It may also be noted that the shareholders of the Reliance group of companies are numbering about 35 lacs and they represent the investor  base of the entire shareholding community  of  the country.  My  learned brother B.C.Ray has  dealt  with  this matter  in detail and has found that preferential issue  per se is not a novel idea. CCI has been permitting reservations for  various  categories out of public issue  based  on  the Request made by companies after passing a special resolution in  the general body meeting and there is no restriction  on the  shareholders  of  a company to offer  shares  of  their company  to  anybody after passing a special  resolution  as required  under Sec.81 (I-A) (a) of the Companies Act. I  am fully  in agreement with the above view taken by my  learned brother  B.C.Ray, J. After the aforesaid view taken  by  us, the question of bifurcating or vivisecting the consent order given  by CCI does not survive. The legal  controversy  thus raised  that  the  consent given by CCI  under  the  Capital Issues (Control) Act can be held valid or invalid as a whole but  not some part of it as valid and the rest invalid  does not require to be decided in this case and the same is  left open.      The  next  question which calls  for  consideration  is whether  the  consent  order for the mega  issue  of  Rs.820 crores  as a whole given by the CCI can be declared  illegal or not on the grounds raised by the petitioners. This  Court in  N.K.Maheshwari’s  case  (supra)  while  considering  the duties  of  the CCI under the Control of Capital  Issue  Act while giving consent has observed under:          "The apart, whatever may have been the position  at          the time the Act was passed, the present duties  of          the CCI have to be construed in the context of  the          current  situation  in the  country,  particularly,          when  there  is no clear cut delineation  of  their          scope  in  the enactment. This line of  thought  is

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        also                                                          386          reinforced by the expanding scope of the guidelines          issued  under  the Act from time to  time  and  the          increasing  range  of  financial  instruments  that          enter  the  market. Looking to all this,  we  think          that  the CCI has also a role to play  in  ensuring          that   public  interest  does  not  suffer   as   a          consequence  of the consent granted by him. But  as          we  have explained later, the  responsibilities  of          the  CCI  in this direction should not  be  widened          beyond  the range of expeditious implementation  of          the scheme of the Act and should, at least for  the          present, be restricted and limited to ensuring that          the  issue to which he is granting consent  is  not          patently  and  to  his  knowledge,  so   manifestly          impracticable or financially risky as to amount  to          a  fraud  on  the public. To  go  beyond  this  and          require that the CCI should probe in-depth into the          technical feasibilities and financial soundness  of          the   proposed  projects  of  the  sufficiency   or          otherwise  of the security offered and  such  other          details  may be to burden him with duties  for  the          discharge of which he is as yet ill-equipped."      In the above paragraph this Court has clearly laid down that the CCI has also a role to play in ensuring that public interest  does  not suffer as a consequence of  the  consent granted by him. The CCI connot be permitted to take an alibi and a policy of hands off on the ground that this Court  had said  in the above case that it may be "to burden  him  with duties for the discharge of which he is as yet illequipped". It  was  never the intention in the above case to  lay  down that the CCI was not even required to see whether any public interest  suffers  or not as a consequence  of  the  consent granted  by  him. It is the bounden duty of the  CCI  before giving  an  order of consent for the issuance  of  any  mega issue  to  keep  in  mind and to  carry  out  the  Directive Principles  of State Policy as enshrined in Article 39(b)  & (c) of the Constitution which provide as under:           39(b):           "That  the ownership and control of  the  material           resources  of the community are so distributed  as           best to subserve the common good:           39(c):           That the operation of the economic system does not           result in the concentration of wealth and means of           production to the common detriment."                                                          387 It is no doubt correct that the CCI is not required to probe in-depth  into  the technical  feasibilities  and  financial soundness  of  the proposed projects or the  sufficiency  or otherwise  of the security offered, but at the same time  it has to see that the capital available for investment at  any given  time has to be sized and allocated according  to  the national  priorities,  and  in  the  changed  socio-economic conditions of the country to secure a balanced investment of the country’s resources in industry, agriculture and  social services.      It  has been agrued  by Mr.Iyengar that in 1988-89  the capital market, according to available economic reports, had about Rs.5000 crores public investment funds, limited as  it was by poor savings and high inflation. There were so called mega  issues  4  or 5 in number who  had  the  resources  to exploit  the media including the electronic media.  None  of these  mega issues had anything like suppliers  credit  from

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their associates, companies or otherwise. The Reliance Petro Chemicals had already appropriated Rs.560 crores and  nearly 3000 crores of rupees had been appropriated by large  issues when  the  impugned  issue was  presented.  After  that  the capital  available for wage goods industries,  other  labour intensive industries critical industries sought to be set up by  hundreds  of  professionals who  had  neither  political influence nor the means to exploit the media would have been left with a very meagre amount available for allocation.  It has  been  further  contended that  the  Reliance  Group  of companies had in about one year established access to  about 1500 crores of rupees, including suppliers credit of  Rs.635 crores  and had thereby become India’s largest  conglomerate with  three  different kinds of industries and that  by  its very  nature a conglomerate unlike a linear monopoly  defies control and regulation was a glaring factor quite apart from the  technicalities  of the Monopolies Act, which  ought  to have been considered by the CCI.      In N.K.Maheshwari’s case challenge was made to an order of consent of the CCI granted for the issue of shares (Rs.50 crores)  and debentures (Rs.516 crores) by the RPL.  It  was pointed out that though the issue proposed was of shares  of Rs.50  crores and Debentures of Rs.516 crores,  the  company was  allowed to retain over subscription to the tune of  15% amounting  to Rs.77.40 crores. RIL was the promoter of  RPL. Though  mega issues had already been issued byRIL/RPL and  a substantial amount of about Rs.1060 crores had already  been mopped up from the public for the projects of Reliance group of companies and they were not entitled to raise any further public  issue in this regard, a devise of  suppliers  credit and turnkey projects to the                                                          388 extent of Rs.635 crores was made for funding the projects of Reliance Group of industries by L & T. It was proposed  from the  side of L&T at the time when Dhirubhai Ambani  was  the Chairman  and  his two sons and M.L.Bhakta  their  Solicitor were on the Board of Directors of L & T. Thus the  intention was to syphon an amount of Rs.635 crores out of the issue of Rs.820  crores  in  utilising and funding  for  the  turnkey projects  of the Reliance group. These facts were  known  to the CCI and were certainly relevant at the time of  granting consent of the impugned issue of Rs.820 crores. Though  this point  has lost its force now in the  changed  circumstances but  certainly it was worth noticing by the CCI at the  time of  granting consent. This Court on 9.11.89 had allowed  the allotment of the debentures and thereafter approximately  11 lac  debenture holders have bought the debentures. It  would not be in the interest of general investor public to  cancel the  entire mega issue. Many transactions must have  already taken place on the floor of the stock exchange regarding the sale and purchase of the debentures during this  intervening period.  Under  the order of this Court  dated  9.11.89,  no restrictions  were  placed  on  L  &  T  in  the  matter  of utilisation  and  allotment, the L & T has so  far  received Rs.396 crores out of which approximately Rs.300 crores  have been  utilised towards issue expenses, capital  expenditure, repayment  of  loans  and working capital in  terms  of  the objects of the issue. The balance available with the company is  approximately  Rs.96  crores only. There  is  already  a safeguard  provided  in the order of the CCI  dated  15.9.89 that the fund utilisation shall be with the approval of  the IDBI. In any case, the consent order given by CCI cannot  be held  invalid on any of the grounds of challenge  raised  by the petitioners. In these proceedings this Court is  neither called upon nor is entitled to decide as to how and in  what

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manner  the  amount mopped up from the public by  this  mega issue  could  be utilised or spent. Thus, I  agree  with  my learned brother B.C.Ray, J. that the consent given by CCI is valid.      All the above cases including the interim  applications stand  disposed  of by the above order.The judgment  of  the Bombay  High  Court dated 29.9.89 also  stands  modified  in accordance with the findings and observations recorded by us as mentioned above. The Contempt applications are dismissed. The parties are left to bear their own costs. G.N.                                Applications dismissed.                                                        389