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2011 (11) TMI 530 - SC - Companies LawSpecial Court (Trial of Offences Relating to Transactions in Securities) Act - Sale of shares by custodian appellants and their other family members and the corporate entities purchased more than 90 lakh shares in Apollo - Some shares were registered others were unregistered - entire holding came to be attached by a notification on 6th June, 1992 - Special Court allowed registration of unregistered shares in name of Custodian - Pursuant to order of Supreme Court, a scheme was drafted by Custodian for sale of shares of notified parties, which constituted bulk of attached assets - Special Court approved the scheme, propounded by the Custodian for sale of Controlling Block of Shares in toto and ordered sale of all registered shares, except the shares of Apollo because their objection regarding registration of unregistered shares in the name of Custodian/notified parties, was pending adjudication by this Court custodian sold the shares at lesser price which could be realized - Special Court rejected the prayer of the appellants to grant them 48 hours time to secure a better offer - right of the appellants to bring better offer was foreclosed by the Custodian, which evidently was without the permission of the Special Court Held that - Special Court also ignored its past precedents whereby it had granted time to the parties to get better offers for sale of shares of M/s Ranbaxy Laboratories Ltd - appellants have been denied a proper opportunity to bring a better offer for sale of shares, resulting in the realisation of lesser amount by way of sale of the subject shares - Special Court has exercised its discretion in complete disregard to its own scheme and terms and conditions approved by it for sale of shares and above all that the impugned order was passed in violation of the principles of natural justice
Issues Involved:
1. Violation of the Scheme and Terms and Conditions for Sale 2. Alleged Collusion and Procedural Irregularities 3. Principles of Natural Justice 4. Discretion of the Special Court 5. Relief and Practicality of Rescinding Sale Detailed Analysis: 1. Violation of the Scheme and Terms and Conditions for Sale The appellants argued that the sale of 54,88,850 shares of Apollo Tyres Ltd. violated the scheme framed by the Custodian and the terms and conditions laid down for the sale. Specifically, they contended that: - Apollo and/or its management could only be invited to bid after the Special Court had ascertained the highest offer and satisfied itself about the inadequacy of other bids. However, the Custodian invited Apollo to bid before the bids were placed before the Special Court. - The offer to bid was to be made either to Apollo 'OR' its management, not both. - The buyback by Apollo was in violation of Section 77A of the Companies Act, 1956, and SEBI (Buyback of Securities) Regulations, 1998. - Acceptance of bids by Apollo and its associated companies violated Condition No. 7, which required bids for the entire lot of shares. 2. Alleged Collusion and Procedural Irregularities The appellants alleged collusion between the Custodian, Apollo, and its management. They argued that: - The Custodian proposed the sale of only 54,88,850 shares out of approximately one crore shares, ensuring no other bid came forward. - The conditions were made stringent and onerous to restrict participation of other institutions or individuals. - The sale was at a discount of 25% of the then prevailing market price, defeating the purpose of the scheme. 3. Principles of Natural Justice The appellants contended that the sale violated principles of natural justice as: - The Special Court rejected their request for 48 hours to secure a better offer. - The Custodian's letter dated 29th April 2003, foreclosed their right to bring a better offer without the Special Court's permission. - The Special Court ignored its past precedents of granting time for better offers. - The reasoning that delay would result in a market crash was unfounded as the market was already aware of the sale. 4. Discretion of the Special Court The respondents argued that the Special Court's decision was based on the recommendation of the Disposal Committee, consisting of experts, and should not be interfered with. They contended: - The appellants had no locus standi to challenge the entire sale as their shareholding was only 1,49,570 shares. - The management of Apollo had the right to buy back shares under Section 77A of the Companies Act once the highest offer was received. - The sale was not at a loss, and transactions in the stock market are speculative in nature. 5. Relief and Practicality of Rescinding Sale The Court acknowledged that rescinding the entire sale would be impractical as 36.90 lakh shares had already been extinguished. Therefore, the relief was confined to 4.95% of the shares, subject to the interim order dated 29th May 2003. Conclusion: The Supreme Court found merit in the appellants' submissions that the Special Court failed to make a serious effort to realize the highest possible price for the shares and violated the principles of natural justice. The Custodian exceeded his authority by inviting Apollo to bid before the Special Court's decision. The Court set aside the impugned order to the extent of 4.95% of the shares and remitted the case to the Special Court for fresh sale of these shares. The affected shareholders were entitled to reimbursement with simple interest. The parties were left to bear their own costs.
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