1997 (3) TMI 450 - HC - Companies Law

Summary

Issues Involved:
1. Restraint on Bank of India from issuing shares and collecting money from the public.
2. Evolution of standard rules to replace Government's power to write off bank losses.
3. Enquiry into damage to records of Bank of India due to a fire.
4. SEBI's failure to discharge statutory obligations.
5. RBI's non-compliance with provisions of the Reserve Bank Act.
6. Allegations of misleading advertisement and fraudulent practices by Bank of India.
7. Jurisdictional issues and timing of the petition.
8. Approvals from SEBI, RBI, and other authorities for the public issue.

Detailed Analysis:

1. Restraint on Bank of India from issuing shares and collecting money from the public:
The petitioners sought a restraint on Bank of India (respondent No. 5) from issuing 15 crore equity shares at Rs. 10 each with a premium of Rs. 35 per share. They argued that the bank had been incurring losses, making the public issue misleading and deceptive. The court found that the bank had disclosed its losses in the issue documents, including the prospectus and advertisements. The court held that the prospective investors were adequately informed about the risks and the financial status of the bank, and thus, there was no misrepresentation.

2. Evolution of standard rules to replace Government's power to write off bank losses:
The petitioners sought to replace the Government's absolute power to write off bank losses with standard rules. The court did not find merit in this argument, emphasizing that it is not within the court's purview to question the Government's decision to infuse capital into the bank to wipe out losses reflected due to revised accounting norms.

3. Enquiry into damage to records of Bank of India due to a fire:
The petitioners sought an enquiry into the damage to the bank's records due to a fire. The court noted the petitioners' claim but did not find sufficient grounds to mandate an enquiry, especially since the petition was primarily focused on the issue of the public offering.

4. SEBI's failure to discharge statutory obligations:
The petitioners accused SEBI (respondent No. 2) of failing to discharge its statutory obligations under Section 11 of the SEBI Act by not prohibiting the public issue despite the bank's losses. The court found that SEBI had granted approval for the public issue and listing of shares on the stock exchanges. The disclaimer clause in the issue documents, indicating that SEBI had not vetted the draft, was a standard clause and did not negate the fact that SEBI's approval was obtained.

5. RBI's non-compliance with provisions of the Reserve Bank Act:
The petitioners alleged that RBI failed to comply with Sections 58B and 58C of the Reserve Bank Act by allowing the bank to issue shares without disclosing material facts about its losses. The court found that the RBI had granted the necessary approvals for the public issue and that the losses were disclosed in the issue documents.

6. Allegations of misleading advertisement and fraudulent practices by Bank of India:
The petitioners claimed that the bank's advertisement was misleading and fraudulent as it did not disclose the losses accurately. The court held that the bank had made adequate disclosures about its financial status, including losses and pending litigations, in the issue documents. The court did not find any wilful misrepresentation of facts.

7. Jurisdictional issues and timing of the petition:
The respondent's counsel argued that the petition was an abuse of legal process, filed to harm the public issue, and that the court lacked territorial jurisdiction as the bank's head office was in Bombay. The court noted that the petition was filed on the day the public issue opened and found merit in the respondent's argument that the petition should have been filed earlier. The court emphasized the need for timely filing to avoid causing damage through interim orders.

8. Approvals from SEBI, RBI, and other authorities for the public issue:
The court reviewed the various approvals obtained by the bank from SEBI, RBI, and the Ministry of Finance. The court found that all requisite approvals were in place, including those for the public issue, premium pricing, and listing of shares. The court dismissed the petitioners' argument that the public issue lacked necessary approvals.

Conclusion:
The court dismissed the petition, finding no merit in the petitioners' claims. The court held that the bank had adequately disclosed its financial status and obtained all necessary approvals for the public issue. The court emphasized that matters of financial policy and accounting practices fall within the domain of expert bodies like SEBI and RBI, and it is not the court's role to interfere unless there is clear evidence of abuse of power or statutory violations.