NARENDRA KUMAR MAHESHWARI Vs. UNION OF INDIA

JUDGEMENT

(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.

(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.

(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.