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TMI Blog2011 (11) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultation with the Government of India and thereafter, presented to this Court. Vide order dated 13th May, 1998, in Civil Appeal No. 5326 of 1995, this Court directed that the said scheme may be considered by the Special Court, with further modifications, if any. In furtherance of the said direction, the scheme was presented to the Special Court for its approval. The notified parties strongly opposed the said scheme on several grounds. All the objections of the notified parties were overruled and the Special Court, vide order dated 17th August, 2000, categorised the shares into three classes - (i) routine shares; (ii) bulk shares and (iii) controlling block of shares. The Special Court constituted a Disposal Committee for disposal of shares as per the norms laid down in the said order. Norms in respect of sale of controlling block of shares read as follows: "NORMS FOR SALE OF CONTROLLING BLOCK OF SHARES: After completion of demat procedure for registered shares, the Custodian will give public advertisement in the newspapers inviting bids for purchase of Controlling Block of shares. The offers should be for the entire block of registered shares. The offers should be accompanied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block of shares, was concerned: "In respect of the sale of controlling block of shares the only method laid down by the Special Court is to offer the sale of shares in a composite block. It is not known whether such a sale will get the best price in respect thereof. We, therefore, direct that it will be open to the Special Court to decide whether to have the sale of the controlling block of shares either by inviting bids for purchase of controlling block as such or by selling the said shares according to the norms fixed for the sale of bulk shares or by the norms fixed in respect of routine shares. The object being that the highest price possible should be realised, it is left to the Court to decide what procedure to adopt. If the Court thinks that it is best to adopt the norms laid down by it for sale of controlling block of shares (the 3rd method) then when highest offer is received and the Management of the Company is given an option to buy those shares at that price, then if the Management so desires the Court should give the Company an opportunity to buy back the shares at the highest price offered by complying with the provisions of Section 77A of the Companies Act. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach the office of the Custodian by 3.00 p.m. on or before 25th April 2003. In response, only two bids were received, the highest being Rs. 80/- per share given by Punjab National Bank. The Disposal Committee evaluated the bids so received and vide its minutes dated 25th April 2003, recommended that in addition to the aforesaid 54,88,850 shares, additional 8,15,485 benami shares also be sold to the highest bidder subject to sanction by the Special Court. Accordingly, the Custodian submitted a report to the Special Court for consideration and appropriate orders. By the impugned order, dated 30th April, 2003, corrected vide order dated 2nd May, 2003, the Special Court directed sale of 54,88,850 shares to Apollo and its management at Rs. 90/- per share. Being dissatisfied with and aggrieved by the order indicated hereinbefore, the appellants have preferred this appeal. 7. At the time of admission of this appeal on 29th May, 2003, the following interim order was made: "Appeal admitted. Mr. A.D.N. Rao, Ms. Manik Karanjawala and Ms. Pallavi Shroff, learned counsel accept notice on behalf of respondent Nos. 1, 3 and 7 respectively. Learned counsel appearing for the Management - Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never explained the rationale behind breaking up the controlling block of shares to only 15.1% of the equity capital when the total share holdings were easily more than 25% of the capital of the company. It was asserted that, the offer for sale of 15.1% shares was deliberately resorted to by the Custodian only to ensure that no other bid came forward as such a prospective bidder would have been bound to make a further public offer for purchase of 20% of the capital under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. It was strenuously urged that the Custodian, with ulterior motive, had made the conditions very stringent and onerous to restrict and for that matter, practically deny participation of any other institution or individual in the bidding process. 11. It was contended that the impugned sale was in complete violation of the order of this Court dated 23rd August, 2001, wherein it was stated that the object for laying down the norms was to realise the highest possible price for the shares. It was urged that in the instant case, instead of maximising the price, the shares were sold at a discount of 25% of the then prevailing market price, thereby d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earnest money on 2nd May, 2003, which fact is duly recorded in the impugned order dated 30th April, 2003. In order to bring home her allegation of discriminatory treatment at the hands of the Custodian as also by the Special Court, learned counsel referred to the two letters dated 28th April, 2003 and 29th April, 2003, addressed to the notified parties by the Custodian intimating them about the date when the Special Court would consider the bids received in response to the advertisement for sale of subject shares. While letter dated 28th April, 2003 allowed the notified parties to submit offers independently received by them for purchase of the said shares, letter dated 29th April, 2003, made it clear that no offers brought by the notified parties to the Court would be considered. As regards the reasoning of the Special Court that any delay in finalisation of the bid would have resulted in a crash in the market price of the shares because of break in the news of purchase of huge quantity of shares by one party, it was submitted that the said reasoning was again erroneous in as much as the news of sale of 54,88,850 shares of Apollo was already in public domain when advertisement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vellapally that the appellants have no locus standi to assail the entire sale of 54.88 lakh shares as their shareholding was only 1,49,570 shares, as stated in the affidavit of the Custodian. It was pointed out that there was no averment in the appeal to the effect that the same was being filed in a representative capacity on behalf of other members of Harshad Mehta Group. At best, the appellants could impugn sale of 1,49,570 shares. 15. It was also contended by Mr. Vellapally that in terms of the order of the Special Court dated 17th August, 2000 and the order of this Court dated 23rd August, 2001, the management of Apollo had the right to buy and Apollo had the right to buy back its own shares under Section 77A of the Companies Act, once the highest offer is received from those entities who participated in the bid. Since the purchase of shares by Apollo was akin to an auction sale, its interests as a bona fide purchaser in the shares are saved, having no connection with the underlying dispute between the Custodian and the notified parties. In support of the contention, reliance was placed on Ashwin S. Mehta v. Custodian [2006] 65 SCL 261 (SC) wherein, according to the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bidders with Apollo, while adopting all the submissions made on behalf of Apollo, reiterated that the said respondents being bona fide bidders, having no concern with the procedure adopted by the Custodian for sale of shares, any interference by this Court with a well reasoned and equitable order passed by the Special Court would cause extreme hardship to them. In support of the submission that having regard to the nature of controversy sought to be raised by the appellants notified parties under the Special Court Act, this Court will be loath to interfere with the discretion exercised by the Special Court, learned senior counsel commended us to the decisions of this Court in Employees' State Insurance Corpn. v. Jardine Henderson Staff Association [2006] 6 SCC 581, State of M.P. v. Nandlal Jaiswal [1986] 4 SCC 566, Ramana Dayaram Shetty v. International Airport Authority of India [1979] 3 SCC 489; Sesa Industries Ltd. v. Krishna H. Bajaj [2011] 3 SCC 218 and on a decision of the House of Lords in Susannah Sharp v. Wakefield [1891] A.C. 173. In the alternative, learned counsel submitted that if for any reason, this Court was to come to a conclusion that the price realised for sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction etc. as are exercisable by a Civil Court in relation to any matter or claim relating to any property that stands attached under sub-section (3) of Section 3 and it bars all other courts from exercising any jurisdiction in relation to any matter or claim referred to in the said Section. Sub-section (4) of Section 9A of the Special Court Act contemplates that the Special Court shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 and shall have the power to regulate its own procedure, but shall be guided by the principles of natural justice. The other provision, which is relevant for our purpose is Section 11 of the Special Court Act, which exclusively empowers the Special Court to give directions in the matter of disposal of the property of a notified person, under attachment. Sub-section (2) of Section 11 lists the priorities in which the liabilities of the notified person are required to be paid or discharged. 21. It is plain that the Special Court Act which is a special statute, is a complete code in itself. The purpose and object for which it was enacted was not only to punish the persons who were involved in the act of criminal misconduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, we are of the opinion that there is substance and merit in the submissions made by learned counsel for the appellants to the extent that the Special Court failed to make a serious effort to realise the highest possible price for the said shares. We also feel that the Special Court overlooked the norms laid down by it in its order dated 17th August 2000; ignored the afore-extracted directions by this Court contained in order dated 23rd August 2001 and glossed over the procedural irregularities committed by the Custodian. As stated above, Condition No. 14 of the terms and conditions of sale, clearly stipulated that it was only after the Special Court had ascertained the highest offer that Apollo or its management was to be given an option to buy back the shares. However, the letter of the Custodian dated 28th April, 2003, addressed to Apollo clearly divulges the fact that the Custodian had, without any authority, invited Apollo and its management 'to bid' on 30th April, 2003, the settled date, when the report of the Disposal Committee was yet to be considered by the Special Court. It is evident from Condition No. 15 of terms and conditions of sale, that the Special Court has the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , R.S. Sarkaria, J., speaking for the majority in a three-Judge Bench, lucidly explained the meaning and scope of the concept of "natural justice". Referring to several decisions, His Lordship observed thus: (SCC p. 666) "Rules of natural justice are not embodied rules. Being means to an end and not an end in themselves, it is not possible to make an exhaustive catalogue of such rules. But there are two fundamental maxims of natural justice viz. (i) audi alteram partem (ii) memo judex in re sua. The audi alteram partem rule has many facets, two of them being (a) notice of the case to be met; and (b) opportunity to explain. This rule cannot be sacrificed at the altar of administrative convenience or celerity. The general principle--as distinguished from an absolute rule of uniform application-seems to be that where a statute does not, in terms, exclude this rule of prior hearing but contemplates a post-decisional hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely if the statute conferring the power is silent with regard to the giving of a pre-dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Custodian to the notified parties, including the appellants, the right of the appellants to bring better offer was foreclosed by the Custodian, which evidently was without the permission of the Special Court. Furthermore, the 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. There is also force in the plea of learned counsel appearing for the appellants that the reason assigned by the Special Court in its order dated 30th April, 2003, for declining further time to the appellants, that deferment of decision on the sale of shares would have resulted in the share market falling down is unsound and unfounded. As stated above, the share market was already aware of the sale of a big chunk of shares of Apollo in view of the advertisement published by the Custodian and therefore, there was hardly any possibility of further volatility in the price of said shares. We are thus, convinced that the 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, to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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