1991 (4) TMI 294 - SC - Companies Law

Prospectus Registration of, Share capital - Further issue of, Right to obtain copies and inspect trust deed

Issues Involved:
1. Legality of the divestment of shares by public financial institutions.
2. Validity of the consent given by the Controller of Capital Issues for the issue of convertible debentures.
3. Allegations of mala fide actions and fraud on statutory powers.
4. Maintainability of the writ petition as a public interest litigation.
5. Compliance with Articles 14 and 39(b) and (c) of the Constitution.
6. Impact on public interest and economic policy.

Issue-Wise Detailed Analysis:

1. Legality of the Divestment of Shares by Public Financial Institutions:
The petitioners alleged that the transfer of 39 lakh shares of Larsen and Toubro Ltd. (L&T) by public financial institutions (UTI, LIC, GIC) to Trishna Investment and Leasing Ltd., through BOB Fiscal Services Ltd., was arbitrary, illegal, and a fraud on statutory powers. The court examined the sequence of events, noting that BOB Fiscal Services Ltd. acted as a conduit for transferring shares to the Ambani group. The court found that the transfer of shares was conducted in a circuitous manner to benefit the Ambani group, raising doubts about whether the transactions were in the public interest and based on purely business principles.

2. Validity of the Consent Given by the Controller of Capital Issues for the Issue of Convertible Debentures:
The court scrutinized the consent given by the Controller of Capital Issues for the issue of convertible debentures worth Rs. 820 crores by L&T. The petitioners argued that the consent was given in undue haste and without proper consideration of the impact on public interest. The court noted that the Controller of Capital Issues must ensure that public interest does not suffer as a result of the consent granted. However, the court concluded that the consent was given after due consideration and in accordance with the provisions of the Capital Issues (Control) Act, 1947.

3. Allegations of Mala Fide Actions and Fraud on Statutory Powers:
The petitioners alleged that the entire process of share transfer and the subsequent issue of debentures were conducted with mala fide intentions to benefit the Ambani group. The court examined the circumstances and found that the transfer of shares and the issue of debentures raised serious doubts about the propriety and public interest. However, the court did not find sufficient evidence to conclusively establish mala fide actions or fraud on statutory powers.

4. Maintainability of the Writ Petition as a Public Interest Litigation:
The court addressed the maintainability of the writ petition under Article 226 as a public interest litigation. The court referred to previous decisions, including S. P. Gupta v. Union of India and Bandhua Mukti Morcha v. Union of India, to affirm that the writ petition was maintainable as a public interest litigation. The court emphasized the importance of judicial scrutiny in cases involving public interest and economic policy.

5. Compliance with Articles 14 and 39(b) and (c) of the Constitution:
The petitioners argued that the actions of the respondents violated Articles 14 and 39(b) and (c) of the Constitution, which mandate the distribution of material resources to subserve the common good and prevent the concentration of wealth. The court found that the divestment of shares and the issue of debentures were not in violation of these constitutional provisions. The court emphasized the need for public financial institutions to act prudently and in the public interest while making such transactions.

6. Impact on Public Interest and Economic Policy:
The court examined the broader impact of the transactions on public interest and economic policy. The court noted that public financial institutions should consider the implications of their actions on market control and public interest. The court emphasized that the Controller of Capital Issues should ensure that public interest does not suffer as a result of the consent granted for capital issues. The court concluded that while the transactions raised serious concerns, they did not warrant the invalidation of the consent given by the Controller of Capital Issues.

Conclusion:
The court dismissed the writ petitions, finding that the divestment of shares and the issue of debentures, while raising serious concerns, did not constitute arbitrary or illegal actions warranting judicial intervention. The court emphasized the need for public financial institutions to act in the public interest and for the Controller of Capital Issues to ensure that public interest is safeguarded in capital market transactions. The court also dismissed the contempt petitions and interim applications, leaving the parties to bear their own costs.

← Previous Next →