DESCON LTD Vs. DPSC LTD

JUDGEMENT

(1.) IN this order, I am considering the interim reliefs sought in C. P. No. 16 (Kol) of 2008 and also C. A. No. 597 of 2008 filed by the second respondent seeking for vacation/stay of the interim order dated November 4, 2008, passed by me and also for stay of the proceeding in/dismissal of the petition.

(2.) The facts of the case : The petitioner-DESCON holds 32.31 per cent. shares in the first respondent-company, viz., DPSCL. The second respondent-Andrew holds 7.12 per cent.; its group companies-respondents Nos. 3 and 4, collectively, hold 8.08 per cent. shares and the financial institutions-respondents Nos. 5, 6 and 7, collectively hold 42.56 per cent. shares. Andrew had become a sick company and in the scheme framed by the BIFR for revival, one of the stipulations is that Andrew should disinvest its investments in other group companies. In view of this stipulation, Andrew has to disinvest its holding of 7.12 per cent. in DPSCL. Accordingly, it had initiated steps for disinvestment of these shares. The financial institutions and the third and fourth respondents have also joined in the exercise of disinvestment. Thus, the total percentage of shares that has come for disinvestment is 57.76 per cent. DESCON has challenged this proposed sale as oppressive to itself on various grounds and has filed this petition seeking for a direction to the company that without first offering the shares to DESCON, the shares should not be sold to anyone ; that directions should be given to these respondents to sell their shares to DESCON at a fair price; that there should be no change in the board of DPSCL without the consent of the petitioner and also for a declaration that all steps taken by these respondents so far for the sale of their shares are null and void. By way of interim reliefs, DESCON has sought for restraining the respondents from going ahead with the disinvestment process and for a direction that the status quo in regard to the shareholding in DPSCL should be maintained.

(3.) SHRI Mookherjee, senior advocate, appearing for DESCON submitted : His client is the single largest shareholder in DPSCL with 32.31 per cent. shares. Even though the BIFR has directed only Andrew to disinvest its shares in DPSCL, even the financial institutions holding over 40 per cent. have joined hands and collectively they have proposed to sell over 57 per cent. shares collectively held by them to an outsider by inviting bids. Being the largest single shareholder, these shares should have been offered to DESCON. It has the legitimate expectation to be offered the shares. Not only the shares have not been offered to DESCON, it was also not consulted about the proposed disinvestment. In addition, with the view to exclude DESCON from participating in the bids, in the memorandum of proposed sale of shares, Andrew has fixed a sum of Rs. 1,000 million as the minimum net worth for participating in the bids. Thus, while denying the right of exercise of legitimate expectation, DESCON has been denied even the opportunity of participating in the bid process. Further, having decided to disinvest its shares, Andrew has also obtained from the High Court an order of injunction against DESCON from disposing of the shares held by DESCON in DPSCL. This injunction would deny DESCON from participating in the open offer which the successful bidder has to make in terms of the SEBI Take Over Code. Since DESCON is the largest single holder in DPSCL, it not only has the legitimate expectation of being offered the shares, even on equity DESCON has such a right. DESCON is willing to purchase the entire 57 per cent. shares on a fair price to be determined by an independent valuer. Therefore, Andrew should be restrained from proceeding with the disinvestment process. Further, Andrew is trying to remove SHRI Radhakrishnan from the position of managing director of DPSCL. He is the nominee of DESCON and has been the managing director of DPSCL from 2003 onwards and his removal would prejudicially affect the interests of DESCON and as such the respondents should be restrained from removing him as the managing director.