P MURALIKRISHNA Vs. UNION OF INDIA

JUDGEMENT

(1.) reliance textile industries limited, bombay (reliance for short) is one of the corporate giants of our country. From ordinary beginnings it has grown to its present day heights registering on the way many an achivement for itself and conferring in that process many a benefit on its shareholders. Its significant growth is partly reflected by the number of shareholders on its registers which stands to-day at 18 lakhs. No wonder for many of its share-holders it has become a corporate saint. But for a few of its debenture-holders like the petitioner in this case and possibly may be for some of its share-holders even and certainly for a few outsiders it is a corporate sinner. In this writ petition filed by a small holder of "f" series debentures of the reliance, the petitioner seeks to thwart the pla'n of reliaiice fo raise a large sum of Rs. 500/- crores by issuing ''g" series-debentures with the consent of the controller of capital issues. By obtainin gan in terim order of stay from this court just a day or two before the opening of the issue of "g" series debentures, the petitioner had almost succeeded in preventing the reliance from raising that money. But as the Supreme Court had vacated that order of stay in time the reliance had successfully floated "g" series debentures which were overwhelmingly subscribed by the public. But that operation is subject to the result of this writ petition. Thus the question of legal validity of issuing "g" series of debentures as consented to by the controller of capital issues still remains to be decided in this case.

(2.) before reliance had presently proposed to raise resources from capital market through issue of its "g" series debentures, the company had already issued several series of debentures. They are i, ii, iii, iv and "e" and "f" series. Of these series of debentures it is enough to note that "f" series were offered by the reliance with the consent of controller of capital issues and accepted by the public including the petitioner as non-convertible debentures. A convertible debenture will be entitled to be converted into equity shares of the company within a stipulated period of time whereas a non-convertible debenture would not be so entitled to be converted into equity. It would only be entitled to be redeemed at the end of the stipulated time. However, a non-convertible debenture will be entitled like a convertible debenture to be paid an agreed rate of interest and to be bought back at the instance of the debenture-holder by the company. But many are interested in holding convertible debentures of the reliance. The right of conversion of a debenture would work out an undoubted financial advantage to a" debenture-holder of a company like ths reliance whose equity shares are quoting high on the stock exchanges. But in law a non-convertible debenture holder like the petitioner is not at all entitled to demand conversion of his "f" series debentures into equity shares. An "f" series debenture-holder like the petitioner is no better than a creditor of the company. He takes no risk. He faces no uncertainty. Law, therefore, does not permit him to participate in the profits of the company or in its internal management. Therefore, it should not be the botheration at all of the petitioner who is an "f" series holder how the reliance with the consent of the controller proposed to raise further resources from the market. Yet the petitioner had filed this writ petition raising the question whether the consent given by the controller to the proposal of the reliance to raise Rs. 500/- crores through "g" series debentures is lawful or not.

(3.) at a meeting of the general body of the reliance held on august 28,1986, it was resolved to issue convertible "g" series debentures carrying 13.5% interest at a certain rate of premium to its existing debenture-holders including "f" series holders. Under law that resolution was not self-operative, because bection 3 of the capital issues (control) Act, 1947 forbids a company from making any public offer of securities or debentures for sale except with the consent of the government. The above resolution of the reliance could be acted upon only by obtaining the necessary sanction from the controller of capital issues reliance had, therefore, made an application to the government of india in terms of the above resolution seeking the letter's consent to the above resolution under the capital issues (control) act. If the government of india consented to the proposal of the general body, "f" series holders would have got on right basis "g" series bonds and would have eventually converted "f" series into equity. But the government of india had refused to give its consent to the above resolution. One of the reasons for that rejection was the new guidelines that were in force and were governing the grant of consent. The latest guidelines which had come into force from 10th june, 1986, did not envisage the conversion of non-convertible debentures. Lack of such provision for conversion is taken as amounting to prohibition. As the resolution of the general body on august 28, 1986 envisaged indirect conversion of "f" series debentures through "g" series the controller of capital issues refused his consent. No one challenged that refusal either earlier or in this writ petition. Thereupon the reliance had made a second proposal suggesting the allotment of Rs. 122 crores worth of "g" series debenetures to the existing debenture- holders including the "f" series holders. The government of india did not consent even to this proposal. It may be noted that neither the reliance nor any other person challenged the action of the controller of capital issues in refusing to give his consent. On the other hand, the reliance treating the refusal as final and accepting the refusal as final made a new proposal to the controller to issue "g" series excluding totally the existing debenture holders but guaranteeing rights of Rs. 160/- crores to the existing share-holders and a public issue of Rs. 240/- crores. The government of india consented to this final proposal of the reliance with a few minor modifications. The consent thus obtained from the government of india provided for the issue of Rs. 132 crores worth of "g" series debentures to the Indian public and Rs. 88/- crores for the non-resident indians. The obtaining of the consent for the final proposal of the reliance was widely reported in the press and was known to all the concerned by the end of october, 1986.