1994 (11) TMI 311 - HC - Companies Law

Issues Involved:

1. Entitlement to automatic approval for raising equity/shareholding.
2. Applicability of revised guidelines versus original guidelines.
3. Quashing of the impugned decision by RBI.
4. Interim relief and its adjournment.
5. Preferential allotment of shares and its approval.
6. Promissory estoppel and legitimate expectation.
7. Impact on public interest and economy.
8. Compliance with Foreign Exchange Regulation Act, 1973.

Detailed Analysis:

1. Entitlement to Automatic Approval for Raising Equity/Shareholding:

The petitioners sought a declaration that their application dated 16-11-1993 was entitled to automatic approval for increasing the shareholding of petitioner No. 3 from 49.98% to 51% at Rs. 105 per share post-amalgamation. They argued that this was in accordance with SEBI guidelines and Press Note 13 (1992 series). The petitioners contended that the automatic approval was a ministerial action and not discretionary.

2. Applicability of Revised Guidelines Versus Original Guidelines:

The petitioners also sought a declaration that their application should be decided under the original guidelines (Press Note 13 of 1992 series) rather than the revised guidelines dated 3-6-1994. They argued that the application was submitted under the old guidelines and should not be subjected to the new ones. The respondents, however, insisted that the revised guidelines applied to all pending applications, including the petitioners'.

3. Quashing of the Impugned Decision by RBI:

The petitioners requested the court to quash and withdraw the RBI's decision contained in the letter dated 17-6-1994, which rejected their application based on the revised guidelines. They argued that the RBI unjustifiably delayed the application and then applied new guidelines retroactively.

4. Interim Relief and Its Adjournment:

The writ petition was admitted on 12-7-1994, but the prayer for interim relief was adjourned multiple times as the Scheme of Amalgamation was pending before the Supreme Court. The interim relief application was eventually fixed for hearing on 15-11-1994.

5. Preferential Allotment of Shares and Its Approval:

The preferential allotment of shares to petitioner No. 3 was an integral part of the Scheme of Amalgamation. The petitioners argued that the scheme would not have been initiated without the assurance of automatic approval from the government. The respondents countered that the shares were not yet allotted to TOMCO, and thus, the shareholding of petitioner No. 3 had not yet reduced to 48%, making the preferential allotment unnecessary at that stage.

6. Promissory Estoppel and Legitimate Expectation:

The petitioners argued that the RBI was barred by the principle of promissory estoppel from rejecting their application, as they had acted on the government's representations and assurances. They cited the case of Motilal Padampat Sugar Mills Co. Ltd v. State of Uttar Pradesh to support their claim. However, the court noted that promissory estoppel would not apply if public interest and economic considerations justified the rejection.

7. Impact on Public Interest and Economy:

The respondents argued that the rejection was justified to preserve foreign exchange resources and maintain economic stability. They cited several cases, including Peerless General Finance & Investment Co. Ltd v. Reserve Bank of India, to support their contention that economic policy decisions should not be interfered with by the courts.

8. Compliance with Foreign Exchange Regulation Act, 1973:

The respondents emphasized that the RBI's decision was in line with the Foreign Exchange Regulation Act, 1973, which mandates considerations for conserving foreign exchange resources and ensuring that foreign exchange is utilized for the common good.

Ad Interim Order:

The court issued an ad interim order to balance the interests of all parties involved:
- The 1st petitioner was directed to issue shares to TOMCO shareholders.
- The 1st petitioner was to file an application with the RBI within 7 days, complying with the new guidelines.
- The price for preferential shares was to be calculated based on the average price over the six months preceding 17-6-1994.
- The RBI was directed to consider the application within 7 days and grant approval if it complied with the guidelines.
- Upon receiving RBI approval, the company was to pass a special resolution for preferential allocation.
- Unilever was to bring in the requisite funds at Rs. 700 per share within 7 days of approval.
- The difference between the new and old premium prices was to be kept in a 'Share Premium Suspense Account' until the final judgment.
- The 1st petitioner could invest the amount in the Share Premium Suspense Account in safe securities.
- The Share Premium Suspense Account would be dealt with according to the final court judgment.
- The petitioners were allowed to issue notices for an Extraordinary General Meeting.
- The petitioners accepted the interim order without prejudice to their rights and contentions in the petition.

The hearing of the writ petition was expedited.

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