SABYASACHI MUKHARJI - (1.) IN these transferred writ petitions and one suit, we are concerned with the powers, functions and the role of the Controller of Capital Issues. By an order dated 9/09/1988 this Court had directed that the four writ petitions and one civil suit i.e., W.P. No. 1791/88 pending before the Delhi High Court, W.P. No. 2708/88 pending before the Jaipur Bench of the Rajasthan High Court, W.P. No. 12176/88 pending before the Karnataka High Court. W. P. No. 4388/88 pending before the High Court of Bombay and Civil Suit No. 1172/88 pending before the Civil Judge. Junior Division Bench, Baroda, Gujarat, be transferred to this Court for disposal. It would be appropriate to deal with the facts of one of these, i.e. W. P. No. 1791/88, which was filed in Delhi High Court in T. C. No. 161/88. The other writ petitions and the suit raise more or less identical problems and issues on more or less same facts. 1A. The petitioner in that writ petition is one Narendra Kumar Maheshwari and the respondents are the Union of INdia, the Controller of Capital Issues, and Reliance Petro-chemicals Ltd. (RPL). The case of the petitioner is that he is an individual who is a public spirited person and is an existing shareholder of the Company known as Reliance INdustries Ltd. (RIL), which was the promoter of Reliance Petrochemicals Limited, being the respondent No. 3. The petitioner held at all relevant times 144 shares of RIL and 100 debentures of different categories. The respondent No. 3, being RPL, was a newly set up public limited company for the purpose of carrying on the business of manufacture of petrochemicals. These petitions were filed in different Courts challenging the consent of the Controller of Capital Issues granted for the issue of shares (Rs. 50 crores) and debentures (Rs. 516 crores) by the RPL. It was contended in the petition that the respondents Nos. 1 and 2, being the Union of INdia and the Controller of Capital Issues, ought not to have granted consent to responent No. 3, namely, RPL to issue share and debenture capital at an aggregate value of approx. Rs. 600 crores. It may be mentioned that after these writ petitions and suit were filed, attempts were made to obtain injunctions restraining the issue of sharecapital and debentures as advertised. By an order dated 19/08/1988 passed by this Court, this Court had restrained the issue of such injunctions and directed that the shares and debentures would be issued irrespective of any order of injunction passed by any court or authority in INdia. Different cases, as mentioned hereinbefore, were thereafter transferred to this Court.
(2.) ON the basis of the said consent, it was stated that the respondent No. 3 had issued prospectus and at the relevant time had intended to open the issue from 22/08/1988, of about 3 crores debentures of the face value of Rs. 200 each which was the largest convertible debentures issue in India. It was alleged that the respondents had adopted very sharp methods to collect money from the public and ultimately to defraud them. It was stated that under the terms of the prospectus, each debenture of the face value of Rs. 200 would be fully convertible : Respondent No. 3 would issue one share of Rs. 10.00 at per on the date of allotment. There would, thus, be an equity capital of about Rs. 30 crores, in all on allotment. Further, it was stated that the Company would convert Rs. 40.00 of each convertible debenture into share after 3 years and the balance of Rs. 150 into share at any time between five and seven years. It was mentioned by the Company that it would convert at the second stage of conversion at such premium to be allowed by the Controller of Capital Issues. the petitioner alleged that it was not clear as to whether the investors would get 2 shares or 3 shares or 4 shares for each debenture, at the second conversion of Rs. 40.00. Similarly, it was alleged that the last portion of Rs. 150 would be converted into shares any time between five and seven years at which time again the Controller, would fix the premium for conversion. The petitioner further stated that it was thus not clear what the equity capital of the company would be, whether it would be Rs. 150 crores or Rs. 600 crores or whether the residual amount would go into reserve account or whether a separate account would be opened in respect of the premium. It was alleged that the respondent No. 3 being RPL had been promoted by RIL and the past history of RIL showed that the share prices of RIL had fluctuated widely leaving lot of scope for manipulations. It was alleged in the petition that there was no explanation from the Company or anybody from the share market as to why the share prices fluctuated so widely and it was obvious that there were market operators who prop up or bring down the prices depending on how it suited their convenience. The share value of RIL, the promoter company, was subjected to wide fluctuations on account of the purchase and sale operations of certain interested quarters close to the management of the respondent No. 3 company, it was alleged. ON more than one occasion during the past six months, the sale of the share in the stock market was banned in some Stock-Exchanges due to fall in price. It was alleged that it indicated the co-operation and support from the authorities for maintaining the fictitious value of the share in the market; and thus on an equity capital of Rs. 152 crores an amount of Rs. 800 crores in the premium account has been obtained, but there would be no amount in General Reserve account because the company had not earned anything worthwhile to put in General Reserve. It was further alleged that the lack of bona fide of the Reliance group was well-known; and that RIL had issued debentures of 'G' Series and had assured to pay interest up to 5/02/1988. It was alleged that the Company did not keep up this assurance, but converted the debentures into equity shares in the month of August, 1987 thereby avoiding payment of interest. In this manner, it was alleged, the company saved interest of Rs. 30 crores whereas in fact it incurred a loss. The case of the petitioner was that the Company was obviously trying to repeat the same game through the new Company by maintaining the share price only on an equity capital converted on each debenture. The paramount duty of respondents Nos. 1 and 2 before according permission was, it was asserted, to ensure that the requirement of the company in raising such capital was bona fide. It was observed that no public interest was intended to be served by respondent No. 1, as it had chosen to allow respondent No. 3 to collect such huge amounts in excess of the requirement. It is further the case of the petitioner that the operations of RIL (Promoter) subsequent to the raising of past issues made by it were subjected to severe criticisms both in the press and in the public. It was pointed out that though the issue proposed was of shares of Rs. 50 crores and debentures of Rs. 516 crores, the company was allowed to retain over-subscription to the tune of 15% amounting to Rs. 77.40 crores. It was alleged that the respondent No. 3 was a new Company and it should not be allowed 15% and if it wanted to raise Rs. 600 crores it should have come out with an issue of that amount. It was further alleged that the respondent No. 2, without considering the propriety of the situation, allowed the respondent No. 3 to make issue of the capital for the interest of a few people. Hence, the sanction of the issue of convertible debentures of respondent No. 3 calls for judicial review. It was also alleged that the sanction was approved at exorbitant terms 5% of the face value (equal to nothing) according to the petitioner, would be converted at par on allotment, another 20% (Rs. 40) at a premium to be decided by the Controller of Capital Issues after 3 years but before 4 years of allotment and the balance of Rs. 150 at such premium as might be permitted by the Controller of Capital Issues after 5 years but before the end of 7 years from the date of allotment. It was stated that the investors would be completely left thrown at the mercy of respondents Nos. 3 and 4; and that till date no convertible debenture had been issued on such vague terms. In those circumstances, it was submitted, the consent of the Controller of Capital Issues was bad, illegal on the grounds hereinafter alleged. The consent order was hit by arbitrary and capricious exercise of jurisdiction by respondent No. 1. It was further alleged that the respondent No. 3's promoters i.e. RIL had been obtaining from respondent No. 1/2 such Consent Orders on the ground that it was in a position to raise such huge moneys from the public tot the purpose of implementation of its projects without recourse to the Financial Institutions. According to the petitioner, for the first time, in the corporate history of India, RIL (Promoter) was allowed to raise Rs. 100 crores by way of issuance of 'F' Series debentures. On account of the campaigning through Brokers for attractive returns, the public was misled and RIL wooed the public and collected Rs. 406 crores. RIL had not made any allotment on a proper basis but made allotments on some basis of 'Private Placement." It was further alleged that the management of RIL through its associate companies obtained huge borrowals from nationalised banks, and several bank employees got into trouble due to advancing of loans for the purpose of subscription in the 'F' Series debentures through the associated companies of respondent No. 3/RIL which had popularly come to be known as 'Reliance Loan Mela'. It was alleged that the Controller of Capital Issues and Union of India acted mala fide in issuing the consent order which was designed to benefit respondent No. 3 and prejudice the interests of the investing public. It was further alleged that in giving the consent order the respondent No. 1 blatantly overlooked the magnitude of the sum of Rs. 600 crores, proposed to be raised from the public through the new issue of debentures.
(3.) IT was alleged that the act of respondent No. 1/2 was vitiated as in issuing the consent order respondent No. 2 was influenced by extraneous considerations not germane to the public interest. The Capital Market in India has undergone turbulent changes in the recent years. Small investors such as employees, workers and small business community were coming forward, according to the petitioner, for the purpose of investment in corporate sector. IT was further stated that the small investors had no means of verifying the correctness or otherwise of the statements and the soundness / financial viability of any company. IT was further alleged that the respondents Nos. 1/2 had acted wrongly and illegally in allowing the respondent No. 3 to raise share-capital on premium for financing new projects. IT was contended in the petition of the petitioner that the consent order was a fraud. In those circumstances it was prayed that the Court should exercise its jurisdiction under Act. 226 and set aside the consent order which was for the public issue on 22/08/1988.;