2008 (5) TMI 418 - SC - Companies Law

What would be the appropriate time to be given to the bidders for submitting bids after publication of the notice inviting bids? Whether it will be admissible to break up the shares into appropriate groups and to give options to the bidders to bid either for whole lot or for a limited number of groups? Held that - Appeal dismissed. One thing is certain that the sale as well as the decision to make the sale at a particular time stand frustrated because of the lapse of time. The whole procedure for sale of shares will have to be repeated now meaning thereby that the Disposal Committee would have to take a fresh decision in the light of the directions given by the Special Court which are the correct directions. That shall be done at the opportune time. If the appellants so feel they would be at liberty to put their objections subject to what has already been said in this judgment. The appeals are dismissed with the above observations under the circumstances. The cost is quantified at Rs. 2 lakhs.

Issues Involved:
1. Appropriate time for bidders to submit bids after notice publication.
2. Admissibility of breaking up shares into groups for bidding.
3. Timing of share sale considering market conditions.
4. Capital Gains Tax liability on private sale of shares.
5. Examination of involvement and liabilities of appellants with late Sh. Harshad S. Mehta.
6. Validity of clubbing assets and liabilities of individuals as Harshad Mehta Group.
7. Adherence to directions from previous Supreme Court judgments.

Detailed Analysis:

1. Appropriate Time for Bidders to Submit Bids:
The Special Court directed the Custodian to consult the Disposal Committee regarding the appropriate time for bidders to submit offers. It was noted that the Custodian had not initially sought the Committee's opinion on this matter. The Court emphasized the necessity of consulting the Disposal Committee to ensure the best possible price for the shares.

2. Admissibility of Breaking Up Shares into Groups:
The Special Court also directed the Custodian to seek the Disposal Committee's opinion on whether breaking up the shares into smaller groups would fetch a better price. The Court highlighted that there was no provision for breaking up bulk shares into groups for separate sales, and the opinion of the Disposal Committee was crucial for this decision.

3. Timing of Share Sale Considering Market Conditions:
The appellants argued that the prevailing market conditions were not favorable for the sale of shares. However, the Special Court overruled this objection, stating that the Disposal Committee had already opined that it was an opportune time for selling the shares. The Court held that the Disposal Committee's opinion on the timing of the sale would be final.

4. Capital Gains Tax Liability on Private Sale of Shares:
The Special Court acknowledged the need for legal and professional advice regarding the capital gains tax liability on the private sale of shares. The Custodian was directed to obtain such advice and proceed accordingly. The Court noted that the LIC of India was not willing to keep its offer open until the tax liability opinion was obtained, leading to the decision not to accept the Disposal Committee's report recommending the sale to LIC of India.

5. Examination of Involvement and Liabilities of Appellants with Late Sh. Harshad S. Mehta:
The appellants contended that the Special Court and Custodian had not examined their involvement with late Sh. Harshad S. Mehta or the inter se claims within the group. They argued that the sale of their assets was premature without establishing their liabilities. The Court noted that the appellants' objections were not raised earlier and that the Custodian had already addressed these issues in previous affidavits.

6. Validity of Clubbing Assets and Liabilities of Individuals as Harshad Mehta Group:
The appellants challenged the concept of clubbing their assets and liabilities as part of the Harshad Mehta Group. The Court referred to previous judgments where the group concept was accepted and noted that the appellants themselves had argued as a group in earlier proceedings. The Court held that the group concept was valid and necessary for addressing the liabilities arising from the scam.

7. Adherence to Directions from Previous Supreme Court Judgments:
The appellants heavily relied on the Supreme Court judgment in Ashwin S. Mehta's case, arguing non-compliance with its directions. The Court noted that the Custodian had complied with the directions, including allowing inspection of documents and addressing individual liabilities. The Court emphasized that the decision to sell the shares had been confirmed by the Supreme Court in previous judgments, and the appellants' objections were not raised at that time.

Conclusion:
The Supreme Court dismissed the appeals, stating that the objections raised by the appellants were either already addressed or not raised at the appropriate time. The Court upheld the directions of the Special Court regarding the consultation with the Disposal Committee and obtaining legal advice on tax liability. The Court emphasized the need for a fresh decision by the Disposal Committee on the timing and manner of the share sale, considering the lapse of time and market conditions. The appeals were dismissed with costs quantified at Rs. 2 lakhs.

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