9911796707
TMI Blog1984 (11) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... remittances into India. In a report of the Working Group of Foreign Remittances into India by India nationals resident abroad and foreign nationals of Indian origin, a view was expressed that this facility should be extended to companies, partnership firms, trusts, societies and other corporate bodies owned predominately by non-residents of Indian nationality/origin. However, with a view to safeguard the interests of the Indian companies and investors, it was suggested that the criteria for such predominate ownership should be that at least 51% of the ownership of the companies, partnership firms, trusts, societies and other corporate bodies should be with non-resident Indians. Certain other suggestions were also made. Basing on this report and the policy decision indicated in 1982-83 Budget Speech of the Union Finance Minister, the Reserve Bank of India (for shorter referred to as the RBI ), in exercise of the powers conferred on it under s. 73(3) of the Foreign Exchange Regulation Act, 1973 (for shorter the FERA ), issued Circular No. 9, dated April 14, 1982, (Exh. G ), liberalising the policy in respect of investment by non-residents of Indian nationality/origin. The Circular wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Plantations and Investment Ltd. and Assam Frontier Tea Holding Public Ltd. Co., respondents Nos. 5, 6 and 7 herein, to stock exchange brokers, M/s. Rajaram Bhasin Co., respondent No. 20 herein, instructing them to purchase shares in Delhi Cloth Mills (DCM) and in Escorts Ltd. with full repatriation benefits and intimating them that the Punjab National Bank ( PNB for short), respondent No. 3 herein, was been authorised to advance to the extent of Rs. 2 lakhs in each case to cover margins payable to the stock exchange. It also authorised PNB to pay the full purchase price of the share to M/s. Rajaram Bhasin Co., to be adjusted on final delivery of shares. In February, 1983, the PNB granted rupee loan to the Caparo Group Ltd., respondent No. 4 herein, and these amounts were made available to M/s. Rajaram Bhasin Co., for the purchase of shares in India companies with full repatriation benefits. Remittances in all aggregating to Rs. 8.93 crores were received by the PNB from the Caparo Group Ltd., respondent No. 4 between March 9, 1983, and April 28, 1983, for the purpose of purchasing shares in the names of thirteen companies, respondents Nos. 4 to 16. The PNB disbursed these amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., in which it had 98% of ownership stock. It was stated that a certificate of overseas auditors in form OAC had already been submitted along with the application. As regards the details of the purchase of the share in the Indian companies for and on behalf of the Caparo group of companies, the PNB stated that The same would be supplied when the purchases are complete. 5. Pursuant to the policy statement made in Parliament by the Union Finance Minister, the RBI issued Circular No. 12 dated May 16, 1983, subjecting the existing scheme of portfolio investment by non-residents of Indian nationality/origin and by overseas bodies, to an overall ceiling of 5% of the total paid up equity capital of the company concerned. The purchases, subject to overall ceiling of 5% were to be monitored by the RBI Central Office with the assistance of the designated bankers of non-resident Indians. These banks were required to submit to the RBI a daily consolidated statement of total purchases and sales on the next working day. The statement was to include all purchases and sales for which a firm commitment had been made in the form of broker's contract notes irrespective of whether deliveries w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents Nos. 20 and 21, calling for particulars; but in their replies dated May 31, 1983, they declined to furnish the information. The PNB, in its letter dated May 31, 1983, stated that it had been advised by M/s. Rajaram Bhasin and Co. respondent No. 20, that until April 28, 1983, 75,000 equity shares of the petitioner-company had been purchased by it for each of the thirteen companies and that a large number of shares had been lodged from the purpose of transfer only in the name of Harish Bhasin and Bharat Bhushan. In response to its letter dated April 29, 1983, the PNB further informed the RBI by its letter dated May 31, 1983, that it had been advised by the brokers, M/s. Rajaram Bhasin Co., that up to April 28, 1983, they had purchased 80,000 equity shares of DCM and 75,000 shares of the petitioner-company on behalf of and for the benefit of each of the Coparo group companies, Although 5,12,663 shares were purchased by May 14, 1983, only 4,63,000 shares were lodged with the company for registration of transfer. 8. On June 1, 1983, the petitioner-company enquired of the PNB whether any permission had been granted by the RBI to the PNB to purchase shares on behalf of the thirteen r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or approval of the RBI. On June 11, 1983, the RBI wrote to the PNB that prior permission under s. 29(1)(b) of the FERA was required for any NRI investor to purchase shares in India companies and that the provision specifically prohibited ever non-resident from purchasing shares of India companies except under a general or special permission of the RBI and that none of the thirteen respondent-non-resident companies and the PNB had till then been permitted to purchase shares. The RBI called upon the PNB to explain how it had allowed debit to NRI to explain how it had allowed debit to NRI (External) Accounts of Caparo Group Ltd. in contravention of the provisions of paragraph 28B. 9 of the Exchange Control Manual. It also directed the PNB not to make any payments of those accounts until specific permission of the RBI was granted. A copy of that letter dated June 11, 1983, the RBI requested the PNB for further particulars of the purchases stated to have been made by respondents Nos. 4 to 16. A copy of this letter was also forwarded to Dr. Sengupta, Joint Secretary (investments), Ministry of Finance, with reference to his telex dated June 8, 1983. The RBI issued instruction to the PNB o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rejection by preferring appeals under s. 111 of the Companies Act nor did they initiate any other proceedings. The petitioner-company, by its letter dated September 5, 1983, also informed the Governor of the RBI the illegalities committed in the purchase of shares and the action taken by the petitioner-company in rejecting the transfer. These facts were reiterated with full particulars by the petitioner in its letter dated September 17, 1983. The RBI forwarded to the PNB a copy of each of the two letters dated September 5, 1983, and September 17, 1983, addressed by the petitioner-company to the Governor of the RBI and the Union Finance Minister and requested the PNB to submit its detailed report. However, on September 177, 1983, the RBI issued a press release (Ex. A ) at New Delhi stating that the Government of India has since clarified that : It was their original intention that facilities of direct and portfolio investments in shares/debentures of Indian companies and deposits with public limited companies be available to overseas companies, partnership firms, trusts, societies and other bodies in which the ownership/beneficial interest is indirectly but ultimately held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission was to be operative for a period of three years from September 18, 1983, and was subject to conditions (a) to (h) mentioned therein. 15. On receipt of this letter, the PNB communicated by its letter dated September 27, 1983, to the RBI the particulars of the shares purchased by the said thirteen companies. The PNB also informed the RBI that no purchases were made by these companies after May 2, 1983. On October 8, 1983, M/s. Rajaram Bhasin Co. (respondent No. 20) forwarded to the petitioner-company a copy of the PNB's letter dated September 27, 1983, and requested its board of directors to reconsider its refusal to transfer shares in view of the approval given by the RBI under Exh. C . The petitioner-company, by its letter dated October 13, 1983, informed M/s. Rajaram Bhasin Co. that the decision of the board not to register the shares continued to hold good. On December 27, 1983, the PNB wrote to the RBI that the stock brokers, M/s. Rajaram Bhasin Co., had informed it that there was no illegality in the purchase of shares made by them on behalf of the said thirteen companies. While the matter stood thus, in a speech delivered on December 24, 1983, at Calcutta, the Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1983, by the RBI to the PNB are in violation of the provisions of art. 14 and or art. 19(1)(c) and art. 19(1)(g) of the Constitution of India. (d) for a declaration that the purchase of shares made by or on behalf of respondents Nos. 4 to 17 are illegal and violative of the provisions of the FERA, the provisions of the RBI circulars issued from time to time and the provisions of the Securities Contracts (Regulation) Act, 1956, and of the bye-laws of the stock exchange. (e) or a writ of mandamus or in the nature of mandamus or other appropriate writ, order or direction directing respondent No. 2 to cancel and withdraw the impugned Circular dated September 19, 1983 (Exhibit 'B'), and the impugned letter dated September 19, 1983 (Exhibit 'C'), land further directing respondents Nos. 1,2 and 3 to forbear from implementing the said impugned Circular dated September 19, 1983, and the letter dated September 19, 1983. (f) for a writ of mandamus or a writ in the nature of mandamus or other appropriate writ or directions under art. 226 of the Constitution of India directing respondents Nos. 1,2 and 3 not to implement the Circular dated September 19, 1983, or the letter dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany. In the explanatory statement annexed to the requisition notice, it was stated thus : The directors proposed to be removed named in resolutions Nos. 1,3,5,7,9,11,13,15 and 17 are not whole-time directors nor in active management of the company and the requisitionist does not wish them to continue as directors. In the place and stead of the directors whose names are specified in resolutions Nos. 1,3,5,7,9,11,13,15 and 17 who are sought to be removed, the requisitionist proposes to appoint as directors, the following persons whose names are specified in resolution Nos. 2,4,6,8,10,12,14,16 and 18, respectively. 19. Faced with this developments, the petitioners sought leave of the court to amend the writ petition. Pursuant to the permission accorded by the learned single judge at the stage of admission of the writ petition, the petition was amended impleading the LIC as respondent No. 18 and permitting one Kishore Paral Ghia, who had in the meanwhile challenged the order refusing to register the shares before the Company Law Board, to be impleaded as respondent No. 19, M/s. Rajaram Bhasin Co. and Bharat Bhushan Co., the stock brokers, through whose medium the shares in question we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions and later by Punja, Chairman of the IDBI. When the writ petition was filed, D. N. Davar, one of the directors of the petitioner-company representing all the financial institutions, pressed for withdrawal of the writ petition. The Government of India issued a letter dated July 28, 1983, addressed to the executive directors and the presidents of the stock exchanges in the country stating that it had been recently observed that the board of directors of some companies have been rejecting transfer of shares lodged by non-resident Indians and such a move negatived the object of the Government to encourage non-resident Indian investors to invest in Indian companies . The presidents of the stock exchanges were requested to circulate that letter to all the companies. The petitioners aver that though this letter was in general terms, at that particular point of time, the shares of no other company except that of the petitioners were involved. The petitioner-company, therefore, addressed a letter to the Union Finance Minister on September 17, 1983, bringing to his notice the several contraventions committed in the purchase of shares by respondents Nos. 4 to 16 and complaining that dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l clearance was withheld as Punja wished to have some talk with petitioner No. 2. On November 10, 1983, in a telephonic talk between N. K. Sengupta, the then Controller of Capital Issues and Commissioner of Non-resident Investments and petitioner No. 2, Sengupta insisted that some shares at least must be immediately registered. In view of several illegalities in the purchase of these shares, petitioner No. 2 could not agree to this request. Once again, at a meeting of the lawyers of the petitioner-company, Sengupta insisted that the petitioner-company should register at least some shares. The UTI requested petitioner No. 2 through its letter dated November 2, 1983, to immediately induct its nominee, M. S. Shankar, DGM, UTI, as a director of the petitioner-company. As there is no vacancy at present , petitioner No. 2 promised to get him elected at the next annual general meeting. At a meeting of the financial institutions held on December 13, 1983, at Bombay, Punja pressed upon petitioner No. 2 to register some shares. In the meantime, the petitioner company sent a cheque on December 27, 1983, to the IDBI towards prepayment of the IDBI's loan of Rs. 61.50 lakhs and interest. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o and was kept in abeyance. While the matter stood thus, the notice dated January 11, 1984, requisitioning an extraordinary general meeting ( EGM for short) to remove the nine directors and appoint nine full-time employees of the financial institutions was issued by the LIC, respondent No. 18 herein. 22. The petitioners allege that respondent No. 18 took this step in concert with and at the behest of respondents Nos. 1 and 2 to pressurise and compel the petitioner-company to register the transfer of shares of respondents Nos. 4 to 16 and to withdraw the writ petition. The nine part-time directors were sought to be removed because they did not succumb to the pressure and opposed the registration of transfer of shares. The requisition is intended to achieve two objects indirectly, that is, (a) preventing the final hearing of the petition and an adjudication of the various important points raised therein, and (b) to compel the petitioner-company through its intended reconstituted board of directors to register the shares of respondents Nos. 4 to 16 notwithstanding the illegality of the impugned Circular . This is alleged to be a step taken as threatened by the Hon'ble Finance Mini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the action of respondent No. 18 in issuing the requisition notice for convening an extraordinary general body meeting was arbitrary, illegal and violative of the fundamental rights guaranteed to the petitioners and an order, (ii) to restrain the holding of such a meeting in pursuance of the said requisition . They also sought an interim injunction to restrain respondent No. 18 from proceeding with the requisition. 24. In spite of service of notice of the writ petition, respondents Nos. 4 to 16, the non-resident Indian companies which had purchased the shares in questions, and Swraj Paul, the non-resident national of Indian origin who is said to hold controlling interest in these companies, respondent No. 17 herein, have chosen to remain ex parte. Respondents Nos. 22 and 23 have not entered appearance and filed any affidavit-in-reply. Respondents Nos. 1 to 3 and 18 to 21 have filed affidavits in reply. Only respondents Nos. 1 to 3 and 18 have really contested the matter. 25. The pleas taken by these respondents in their affidavits in reply in detail we will refer later. Suffice it to notice at this stage that the contesting respondents contend before the court that the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the shares cannot be place in a disadvantageous position as compared to the other shareholders in the matter requisitioning an EGM of the company. The exercise of that right cannot be construed as exerting undue pressure on the board of directors and that for any collateral purpose. They thus pleased that the impugned Circular, the impugned letter and the requisition for convening an EGM of the company were perfectly in order and no writ, order or direction could issue. 28. We will refer to the factual averments made in the petition and the pleas taken in defence by each of the contesting respondents in detail while dealing with their respective contentions. The above facts would be sufficient to appreciate the submissions made on the several legal issues raised in this case. 29. We may at this stage notice that the learned single judge by his order dated March 15, 1984, directed rule nisi only in so far as prayer cls. (a), (b), (c) and (e) to (k) and permitted inclusion of the prayer cls. (ia) to (id) by way of amendment. Prayer cl. (d) in regard to which rule nisi was refused reads as follows : (d) for a declaration that the purchase of shares made by or on behalf of respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Caparo group of companies, respondents Nos. 4 to 16, commenced on March 2, 1983, and by March 9, 1983, 70,200 shares in DCM and 65,000 shares in Escorts were purchased. These shares were purchased without obtaining the permission of the RBI and in fact even before any application for permission under s. 29 of the FERA was filed by any of these companies. By March 9, 1983, the PNB did not receive any foreign remittance from any of the respondents. None of respondents Nos. 4 to 17 opened NRI (External) Account in India. The first remittance of Rs. 1,35,36,000 was received from Caparo Group Ltd. by the PNB, New Delhi, on March 9, 1983. The NRI (External) Account was opened with the PNB, New Delhi, only in the name of respondent No. 4 company, i.e., Caparo Group Ltd. This amount was released to M/s. Rajaram Bhasin and Co., the stock brokers, respondent No. 20, who purchased shares for and on behalf of respondent No. 4 company. NRI (External) Account was opened in the names of respondents Nos. 5 to 16 companies much later. For the first time, the PNB sent a letter forwarding applications of respondents Nos. 5,6 and 7 companies dated March 4, 1983, in Form RPC seeking permission of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emittance fell short by Rs. 6,77,74,000. 41. The fifth installment of foreign remittance of Rs. 3,13,50,000 came only on April 28, 1983, and further shares of the total value of Rs. 9,61,000 were purchased by that date, leaving a deficit overseas remittance of Rs. 3,73,85,000. According to respondents Nos. 4 to 16, no further shares of DCM or Escorts were purchased after this date. 42. Later, three more foreign remittances were received; a sum of Rs. 1,60,96,579 on June 1, 1983, another sum of Rs. 78,58,541 on June 9, 1983, and a further sum of Rs. 1,07,22,610 on June 15, 1983. None of these remittances were made by respondents Nos. 5 to 16-companies; they were made only by respondent No. 4-company. While all the funds remitted by respondent No. 4-company were credited to the NRI (External) Account opened in the name of respondent No. 4 on March 9, 1983, with the PNB, New Delhi, they were transferred to the NRI (External) Accounts opened in the names of respondents Nos. 5 to 16-companies with the PNB on June 2, 1983, to the extent required for paying the consideration for the purchase of shares in their names. It is the amounts so credited that were drawn and paid to M/s. Rajaram B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion be and is the company including transfer of hereby noted. 2,88,390 equity shares lodged for transfer by Mr. Harish Chander Bhasin and 1,73,947 equity shares lodged for transfer by Mr. Bharat Bhushan. Report dated June 8, 1983, of the Share Scrutiny and Transfer Committee of directors approving transfer of shares specified therein and recommending refusal of registration of transfer of 2,88,390 and 1,73,947 equity shares lodge for registration in the names of Mr. Harish Chander Bhasin and Mr. Bharat Bhushan respectively was placed before the directors in meeting, and its contents were discussed and noted. 5. To consider transfer of The board considered the 2,88,390 equity shares lodged for report of the Share Scru- transfer by Mr. Harish Chander tiny and Transfer Committee Bhasin and 1,73,947 equity shares of directors. The board lodged for transfer by Mr. Bharat further considered exhaustively Bhushan. all aspects of the matter, all the materials which were gathered and paced before the board and all legal opinions and records of legal advice which had been secured by the company on the points in issue. The board further considered whether - having regard to the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present and voting for the resolution excepting Mr. D. N. Davar, who did not take part in the discussion and voting on the resolution. There was no dissent- ing vote. 45. This resolution was communicated to respondents Nos. 20 and 21. These shares, admittedly, were not purchased by respondents Nos. 20 and 21. Again Rs. 3,68,463 shares were lodged with the petitioner-company on August 19 and 22, 1983, for registration of their transfer in the names of the 13 Caparo Group of companies, respondents No. 4 to 16. The sale notes bearing different dates show that some of these shares were purchased in May, 1983, a few in June, 1983, a few more in July, 1983, and the rest in August, 1983. If the case of respondents Nos. 4 to 17 is accepted, then these purchases having been made after May 2, 1983, must conform to the ceiling of 5% imposed under the portfolio investment scheme with full repatriation benefit. They, however, constitute more than 5%; they actually constituted 9%. Either they were purchased between March 2, 1983, and March 25, 1983, as alleged by the petitioners or only firm commitments were made then and they were actually purchased after May 2, 1983, as pleaded by the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the opinion of this Committee, it appears that none of these 13 foreign nonresident companies are eligible to make investment in shares of Indian companies under the non-resident portfolio scheme. No doubt this matter regarding the eligibility or non-eligibility of the 13 foreign non-resident companies under the non-resident portfolio investment scheme is required to be determined by the RBI. In the absence of any approval having been obtained from the RBI, this Committee cannot help but come to the conclusion that the companies are not eligible to make investments in view of the fact that the companies are not eligible to make investments in view of the fact that almost the entire share capital in each of the companies is owned by the foreign companies ... 49. The Committee has taken note of the fact that Punjab National Bank by its letter of May 31, 1983, had informed the company that they had been advised by M/s. Rajaram Bhasin Co., that they had purchased 75,000 shares for each of the 13 overseas companies up to April 28, 1983. However, up to the closing of the company's books on May 14, 1983, only Rs. 4,62,337 shares were lodged for registration of transfers. Now, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said shares, the company, its management and shareholders may be hampered and the company may be put into a state of confusion and chaos; That all such attempts would hamper the further growth and development of the company and may jeopardizes the various projects under implementation and contracts entered into between the company and third parties and in particular the company's bankers; 8. that it would not be in the interest of the company to register the transfer of shares. For each of the aforesaid reasons, the Committee did not consider it in the interest of the company to register the transfer of shares and is, therefore, placing this matter before the full board of directors for their due consideration. The Committee is placing along with this report the report of the secretary dated August 27, 1983, along with all documents/material and information collected by the company. 51. After this rejection, respondents Nos. 4 to 16, through their power of attorney-holder, respondent No. 20, once again requested the petitioner-company in their letter dated October 8, 1983, to review its earlier decision in view of Ex. B and C . The petitioner-company in its letter dated Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than an activity for the carrying on of which permission of the Reserve Bank has been obtain under section 28; or (b) acquire the whole or any part of any undertaking in India of any person or company carrying on any trade, commerce or industry or purchase the shares in India of any such company. (2) (a) Where any person or company (including its branch) referred to in sub-section (1) carries on any activity referred to in clause (a) of that sub-section at the commencement of this Act or has established a branch, office or other place of business for the carrying on of such activity at such commencement, then such person or company (including its branch) may make an application to the Reserve Bank within a period of six months from such commencement or such further period as the Reserve Bank may allow in this behalf for permission to continue to carry on such activity or to continue the establishment of the branch, office or other place of business for the carrying on of such activity, as the case may be. (b) Every application has been made under clauses (a) shall be in such from and contain such particulars as may be specified by the Reserve Bank. (c) Where any application has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder, from the operation of the provision of sub-section (2) subject to such condition as may be specified in the order : Provided that the Reserve Bank shall not make any order under this sub-section in a case where the activity which is being, or intended to be, I carried on is solely of a trading nature. (4)(a) Where at the commencement of this Act any person or company (including its branch) referred to in sub-section (1) holds any shares in India of any company referred to in clause (b) of that sub-section, the, such person or company (including its branch) shall not be entitled to continue to hold such shares unless before the expiry of a period of six month from such commencement or such further period as the Reserve Bank may allow in this behalf such person or company (including its branch) has made an application to the Reserve Bank in such from and containing such particulars as may be specified by the Reserve Bank for permission to continue to hold such shares. (b) Where an application has been made under clauses (a), the Reserve Bank may, I after making such inquiry as it may deem fit, either allow the application subject to such conditions, if any, as the Reserve Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under s. 73(3) to issue directions for the purpose of securing compliance with the provisions of the Act and of any rules, directions or orders made thereunder. In exercise of these powers, the RBI issued Circular No. 9 dated April 14, 1982 (Exh. G ), addressed to all dealers in foreign exchange to regulate in vestment by non-residents of Indian nationality/origin. Before this circular was issued, certain facilities were available to non-resident individuals of Indian nationality/origin for investment in shares in Indian companies subject to prior approval of the RBI. Those facilities were sought to be liberalised and also simplified under this circular. This circular, among other : (i) lays down the conditions of eligibility of non-resident Indian and other bodies to invest; (ii) requires permission of the RBI; (iii) permits purchases only with foreign remittances; (iv) enjoins opening of Non-Resident (External) Account or ordinary Non-Resident Account in Indian banks; (v) obligates purchases to be made only through designated banks and authorised brokers; (vi) prescribes the limits of such investments. 56. This circular was slightly modified by Circular No. 5 dated August 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, read with the Circular itself constitutes permission envisaged by s. 29(1)(b). According to him, permission could be validly granted even after the purchases were complicated and once such permission is granted, no infirmity attaches to such purchase. 60. The question whether prior permission of the RBI is required for the purchases of shares by a non-resident investor in an Indian company must primarily deepened upon the interpretation so s. 29 of the FERA and, if necessary, in the context of the other provision of the FERA. There is no dispute that purchase of the shares in an Indian company by an NRI investor requires permission of the RBI under s. 29 of the FERA. The controversy is only whether this permission should necessarily be obtained before purchasing the shares, or whether such permission could validly be granted even after the purchases are made. Section 29 in terms does not stipulate prior permission; it speaks of only permission . It is argued by Mr. Nariman, learned counsel for the petitioners, that the language of s. 29 is clear enough to hold that permission contemplated by s. 29 must be obtained before the shares are purchases. On the other hand, the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gthened by the negative from of the language. The prohibition against transfer without company with the provisions of the Act is emphasised by the negative languages. Negative language is worded to emphasize by the negatives language of companies with the provisions of the Act ... Negatives words are clearly prohibition an are ordinarily used as a legislative devise to make a statutory provision imperatives. 63. In Sharif-ud-din v. Abdul Gani Lone [1980] 1 SCR 1177, the Supreme Court, discussing the difference between an mandatory rule and a directly rule, declared that if the object of a law is likely to be deferred a by non-complains with it, it has to be regarded as mandatory, The Supreme Court further observed (p. 306) : Where, however, a provision of law prescribes that a certain act has to be done in a particular manner by a person in order to acquire a right and it is coupled with another provision which covers an immunity on another when such act is not done in that manner, the former has to be regarded as a mandatory one. 64. The Supreme Court concluded (p. 306) : Whenever a statute prescribes that a particular act is to be done in a particular manner and also lays down th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext that the word permission was deemed to be of wide import and can never imply prior permission was deemed to be of wide import and did not necessarily mean previous permission. It was one laid down that word occurred, that would necessarily be of wide import and can never importer permission In fact, the reasoning of the judgment would give an indication that whether permission envisaged by a particular statute meant prior permission or subsequent enforce permission or subsequent permission or could be either prior or subsequent, must be ascertained from the context in which that word occurs. 69. Reliance was also placed upon the decision of the Supreme Court in out in Dhanrajamal Gobindram v. Shamji Kalida Co. [1961] 3 SCR 1029, which arises under the FERA, 1947. Interpreting s. 21 of the Act, the Supreme Court observed that : The effect of the provisions of s. 21 is to prevent the very thing which is claimed here, viz., that the Foreign Exchange Regulation Act, 1947, arms persons against performance of their contracts by setting up the shield of illegality. An implied term is engrafted upon contract of parties by the second part of sub-s. (2), and by sub-s. (3), the responsibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the FERA is declared not entitled to continue to hold such shares unless, before the expiry of the period of six months from such commencement or such further period as the RBI may allow, he has made an application to the RBI is empowered to direct such shares. If permissions is refused, the RBI is empowered to direct such person to sell or procure to sell all such shares. Section 29 itself thou rests intrinsic evidence that permission envisaged by s. 29(1) is one which must be obtained before the shares are purchased and not one which could be obtained after the purchases are completed. 73. That the intention of the Legislature is to require NRI investors to obtain permission of the RBI before the shares are actually purchased is made further clear from other provisions of the FERA as well. A strict compliance of s. 29 is sought to be made mandatory by rendering the act of such purchase liable for enabling in departmental proceedings under s. 50 and also liable for punishment by way of prosecution under s. 56 of the FERA. The Prosecution could be launched without prejudice to any penalty that may be imposed under any other provisions of the Act and in addition thereto. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs little consolation to non-resident Indian investors. Whether a prosecution is launched or not, administrative action could be taken under ss. 50 and 57 of the FERA. In any event, having invested funds, the NRI investor would be at the mercy of the authorities. Parliament could never have intended to permit a transaction under one provision of the FERA and exposes the parties to the transaction to risk of prosecution by another provision of the same enactment. It may also be noticed that the FERA does not contain any provision to apply for granting permission after the shares are purchased; nor is there a provision for validation of the purchases made without prior permission. It would be of interest to note that the scheme of the FERA is substantially the same as that of the Exchange Control Act in force in England, The English enactment which also lays down that shares may be purchased only with permission, made a provision in ss. 8 and 9 for validation of the purchases made without obtaining prior permission. There is no corresponding provision in the FERA. This significant deviation further supports the condition that the Indian Legislature intended that NRI investors should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y itself does not come into conflict with any other provision of the FERA. In Gramophone Co. of India Ltd. v. Birendra Bahadur Pandey 1984 (2) ECC 142, dealing with the purport of the word import occurring in s. 53 of the Copyright Act, 1957, the Supreme Court held : But the same word may mean different thing in different enactment and in different contexts. It may even mean different things at different place in the same state. It all depends of the sense of the provision where it occurs. Refers to dictionaries is hardly of any avail, particularity in the case of word of ordinary parlance with a variety of well Know meanings, Such words take colour from the context. Appeal to the latin root won't help. The appeal must be to the sense of the statute. 78. We have not been shown as to with which other provision s. 29 would conflict if it is interpreted to mean prior permission . In fact, in our view, if the word permission occurring in s. 29 is not construed as meaning prior permission, it would defeat the very purposes for which it was devised. No doubt, the statute has to be read as a whole, but the subject and the context in which the particular word occurs cannot be given a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er comment or elaboration. 80. In fact, s. 47 of the FERA prohibits any contract or agreement being entered into, which directly or indirectly results in evading or avoiding the operation of any provision of the Act or rule, direction or order made thereunder. Sub-s. (2) of S. 47 lays down that even if there is no specific stipulation in any agreement between the parties that prior permission shall be obtained in respect of anything that is prohibited from being done except with the previous permission of the Central Govt. or the RBI, it shall be deemed to be a term of the contract and that it shall not be done unless such permission is granted. Section 47, in so far as it is relevant to the present discussion, reads as follows : 47. Contracts in evasion of the Act. - (1) No person shall enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or of any rule, direction or order made thereunder. (2) Any provision of, or having effect under, this Act that a thing shall not be done without the permission of the Central Government or the Reserve Bank, shall not render invalid any agreement by any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the parties by making obtaining of such permission an implied term of the contract under s. 47(2) of the FERA. The provisions contained in sub-ss. (3) and (4) of s. 47 would further show that parties to an agreement are not prevented from bringing legal proceedings to recover any sum under a contract in respect of anything done which required permission under the provisions of the FERA. It prohibits every non-resident Indian investor from purchasing, but makes an exception in favour of such persons who have a general or special permission of the RBI. Purchase is an act which involves a seller and buyer. Unless the buyer and seller are ad idem in regard to the terms of the agreement, there cannot be a transaction of sale. Section 47(2) makes obtaining of prior permission one of the terms of all such agreements. Even if the parties have not specifically stipulated that permission shall be obtained, it would be deemed to contain the mandatory stipulation envisaged by s. 47(2). This statutory term of the contract obligates the parties that the act of purchase shall not be done unless such permission is granted . Section 47(1) and (2) apply to all such provisions of the FERA that lay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress in the same country or for the purpose of any transaction for which permission has been granted under this section with knowledge that it involves entry of the said address, or (c) transfer any share from register outside India to a register in India. 83. It would be seen that while enacting a prohibition against transfer of any security in favour of a resident outside India except with the general or special permission of the RBI, the companies in which shares have been purchased in contravention of the provisions of the FERA, are themselves prohibited from entering any transfer of securities in any register or book in which securities are registered or inscribed if he has any ground for suspecting that the transfer involves any contravention of the provisions of this section . Thus, while a person purchasing shares without obtaining permission of the RBI so denied the right to obtain the transfer of shares registered in the books of the company and is exposed to departmental penalties and prosecution in court, the companies are also liable to be proceeded against if they were to register these transfers. These provisions operate notwithstanding anything contained in the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and penal, against those contravening it provisions. The object of the Act, to our mind, is not earning foreign exchange for the country at any cost and by any means; much less does it postulate earning it in contravention of the specific provisions of the statute. Merely because non-resident Indian investor would make foreign remittances, it is not the intendment of the FERA that they should be allowed to invest, without any restriction. The fact that such investment is required to be made through designated banks and through registered brokers and only up to a ceiling of 5% of the paid-up capital of the Indian company even after eligibility of such investor is ascertained by the authorities constituted by the FERA, is a sufficient indication of the intention of the Legislature and formulators of the scheme that only those that fulfilled the prescribed criteria and were eligible should be permitted to invest. That object could be achieved only if prior permission is required to be obtained under s. 29. If it were otherwise, then after purchases of shares, on permission being refused, what would be the fate of such investments ? Would not the purchaser be exposed to penal conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal. Dealing with that provision, the court held that this provision applied to sale which are to take place in future and not sales which have already taken . The court went on to observe (p. 418) : It is, at all events, reasonable to presume that the same meaning is implied by the use of the same expression in every part of an Act and from the general presumption that the same expression is presumed to be used in the same sense throughout an Act, or a series of cognate Acts, there follows the further presumption that a change of wording denotes a change in meaning. In the instant case, the same expressions have been introduced, both in section 12(2) and in section 12(3) and if it is clear from section 12(3) that these expressions refer to future transactions, it is safe to presume that they refer to future transactions in section 12(2) as well. Thirdly, if we say that the expression 'no person entitled to sell' includes a person who has already sold, we shall be travelling beyond the plain meaning of the words. This plain meaning can, inter alia, be derived from the association of words in this sub-section, namely, 'entitled to sell or procure the sale of'. Fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof is made penal by the statute. Further, in that decision, the court did not lay down that in all cases wherever sanction is required to be obtained, it can always be obtained subsequent to the act. 90. The decision in Shah Dahyabhai Premchand v. Mohanlal Pitambardas [1977] 18 Guj LR 1018 where the second proviso to s. 35(1) of the Bombay Public Trusts Act, 1950, came up for consideration, as also relied upon in this context. In that case, the learned single judge observed that the investment made by the trustees of public trust funds without the permission of the Charity Commissioner otherwise than as provided by sub-section (1) of section 35 is not invalid or void a initio. That provision is intended to safeguard the trust property. The trustees are empowered to invest the trust funds. In fact, if they do not immediately invest, they are liable to be prosecuted under s. 66 of that Act. Any such act of investment obviously cannot be void for failure to obtain prior permission of the Charity Commissioner. 91. The learned Attorney-General urged that where an enactment merely imposes a penalty without declaring an act to be void or illegal, it does not necessarily imply a prohibiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations of Mukerjee J. in Baleshwar Bagarti v. Bhagirathi Dass ILR [1908] 35 Cal 701, which are as follows (at p. 713) : I do not suggest for a moment that such interpretation has by any means a controlling effect upon the courts; such interpretation may, if occasion arises, have be disregarded for cogent and persuasive reasons, and, in a clear case of error, a court would without hesitation refuse to follow such construction. 94. The learned Attorney-General rightly pointed out that, as laid down by the Supreme Court in Senior Electric Inspector v. Laxminarayan Chopra, [1962] 3 SCR 146, this principle of contemporaneous exposition would not apply to the construction of modern statutes. The maxim, fully stated, reads thus (at p. 159) : Contemporaneous expositio est optima et fortissimo in league (contemporaneous exposition is the best and strongest in law). 95. This maxim was applied in construing ancient statutes and not for interpreting Acts which are comparatively modern. In a modern progressive society it would be unreasonable to confine the intention of a Legislature to the meaning attributable to the word used at the time the law was made, for a modern Legislature m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) for purchase of shares by him. Non-resident Indians are, however, permitted to invest freely in securities of Central and State Governments, units of Unit Trust of India and National Savings/Plan Certificates of Government of India (see paragraph 24 B. 2). All other investments require specific permission of Reserve Bank. 98. The above paragraph expressly declares that no NRI investor shall purchase shares of any company without obtaining prior permission under s. 29(1)(b) of the FERA. 99. We agree with the learned Attorney-General that if s. 29 does not enjoin obtaining of prior permission for valid purchase of shares, such a meaning ought not to be given to s. 29 only because regln. 24.1 so provides. However, such a contention hardly befits the RBI which, in exercise of its powers under s. 73(3) of the FERA, has itself declared that such an obligation was imposed by s. 29. 100. The provisions of the FERA which lay down that permission must be obtained should primarily be examined on their own phraseology and, if necessary, understood having regard to the object of the enactment. Having regard to the language of s. 29 and the consequences provided for the contravention of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he standard or norm laid down ....... If there was no acceptable tender from a person who satisfied the condition of eligibility, the first respondent could have rejected the tenders and invited fresh tenders on the basis of a less stringent standard or norm, but it could not depart from the standard or norm prescribed by it and arbitrarily accept the tender of the four respondents. 102. When, even where there is no statutory requirement, a public authority having prescribed certain norms is bound to adhere to them and cannot deviate therefrom as laid down in the above case, it is all the more bound to strictly company with the statutory mandate contained in s. 29 and regln 24.1 issued under s. 73(3) of the FERA. Paragraph 24A.1, which enjoins prior permission and which is calculated to advance the object of the FERA requiring prior permission could also be deemed to be the contemporaneous exposition made by the RBI itself. Without such prior permission, no person is entitled to purchase shares, nor can the RBI, which has itself issued these regulations, grant permission after the purchases are made in contravention of s. 29 of the FERA and in contravention of the regulations frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange Control Manual, and (iii) equity investment with repatriation benefits up to 74 per cent. of the new issues of companies which are engaged in priority industries referred to in paragraph 24B.7 of the Exchange Control Manual. Circular No. 18, dated April 14, 1982, was issued with a view to provide further incentives to residents of Indian nationality/origin for investment in shares of Indian companies. 105. Paragraph 4 of this Circular deals with facilities for investment with repatriation benefits under the portfolio investment scheme as under : 4. Investment with repatriation benefits. (a) Portfolio investment in shares. Under the liberalised policy, non-residents of Indian nationality or origin will be permitted to make portfolio investment in shares quoted on stock exchanges in India with full benefits of repatriation of capital invested and income earned thereon provided, (a) the shares are purchased through a stock exchange, (b) the purchase of shares in any one company by each non-resident investor does not exceed Rs. 1 lakh in face value or 1% of the paid-up equity capital of the company, whichever is lower, and (c) payment of such investments is made either by fresh r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prescribed For OAG from an overseas Auditor/Chartered Accountant/Certified Public Accountant, along with their applications for investment in shares, to the RBI either through the designated banks authorised to deal in foreign exchange or the Indian companies offering new issues, as the case may be. A pro forma of the certificate is enclosed. Applications from these entities for permission to designated banks for purchasing shares through a stock exchange on non-repatriation basis may be made in the enclosed Form NRC to the office of the Reserve bank within whose jurisdiction the bank is functioning, and those for investments with repatriation benefits should be submitted in the attached Form RPC to the Controller, Exchange Control Department, Reserve Bank of India, Central Office (Foreign Investment Division), Bombay 400 023. Similarly, applications for issue of shares to the above entities on no repatriation basis should be made by the Indian company offering shares in Form ISD to the office of the Reserve Bank under whose jurisdiction the head/registered office of the company is situate, and where investments in new issues are to be made on repatriation basis, applications i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'R' returns are submitted by that bank. 10. As authorised dealers are aware, transfer of shares of Indian companies from non-residents to other persons, whether resident in India or not, requires the approval or Reserve Bank under s. 19(5) of the FERA, 1973. In order to facilitate expeditious sale and transfer of shares by shareholders of Indian nationality/origin through a stock exchange in India, a consolidated application may be made to the Reserve Bank by letter furnishing full particulars of their holdings in quoted shares and approvals obtained from the bank for acquiring or holding such shares. Where investment in shares was made on non-repatriation basis, the application may be made to the concerned regional office of the Reserve Bank, where as for sale/transfer of shares which were acquired with repatriation benefits, application should be submitted to the Controller, Exchange Control Department, Reserve Bank of India, Central Office (Foreign Investment Division), Bombay. Permission granted for sale and transfer of shares in such cases will be made valid for a period of one year at a time. If any of the shares covered by the permission originally granted could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the beneficial interest in that trust was held irrevocably by persons of Indian nationality/origin. The particulars required to be given in the application were, apart from the name and address, the total issued and paid-up capital of the company, the paid-up value of shares held by the person of Indian nationality or origin, percentage of holding, details of the corpus in the case of a trust, capital owned by the trust, the extent/percentage of beneficial interest in the corpus. This investment was permitted provided, inter alia : (a) the shares are purchased through a stock exchange, (b) the purchase of shares in any one company by each non-resident investor did not exceed Rs. 1 lakh in face value or 1% of the paid-up equity capital of the company, whichever is lower, and (c) payment for such investment is made either by fresh remittances from abroad or out of the funds held in the investor's Non-Resident (External) Account/FCNR account with a bank in India. If the non-resident investor had already purchased shares in a particular company with repatriation benefits under any other investment scheme referred to in the circular to the full extent or exceeding the value limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mn No. 2 of that application requires the name and address of the bank in India through whom the applicant desires to purchase shares. If permission could be obtained even subsequently, the applicant would have been required to state through whom the applicant had already purchased the shares and not through whom he desires to purchase shares. In column No. 3, the source of funds from which payment for purchase of shares will be made and not the source from which he had already paid is to be stated. Column No. 4 reads : Any shares in Indian company with benefits of repatriation and give particulars thereof and these particulars are to be as on the date of application. The applicant is required to make a further declaration that if the ownership/interest of the person of Indian nationality/origin in the company/firm/society falls below the level of 60% at any time in future, he shall inform such change to the designated bank mentioned in column No. 1 of the application and the RBI promptly . It is on the basis of the particulars so furnished that permission is granted to purchase shares. That form also includes the following further undertaking to be given by the applicant : We unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of the statute cannot be deduced with reference to the forms which are in fact meant to carry out the object and the purposes of the Act and forms cannot control the provisions objects and the purpose of the Act and forms cannot control the provisions of the statute. Any such forms or scheduled must give way to the Act, as held in Muneshwara Nand v. State, AIR 1961 All 24. The forms, referred to above, are forms prescribed under the regulations framed by the RBI in exercise of the power conferred upon it under s. 73(3) of the FERA. The regulations are framed by the RBI For the purpose of securing compliance with s. 29 of the FERA. Regulations could properly prescribe as to when an application for permission under s. 29 may be made whether before or after the purchase. If, in exercise of the powers so vested, the RBI, with a view to better control foreign remittance and better monitor purchase of shares in Indian companies by NRI investors, has laid down that prior permission should be obtained and for this purposes has prescribed the forms in which the applications are to be made, that would certainly be in furtherance of the object of the Act and for ensuring strict complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Further, the fact that all disbursements were directed to be withheld and the and the account of the respondent-companies with PNB was frizzed, established that the RBI was of the view that prior permission was required for purchase of shares. If any doubt was left, it is cleared by the letters dated March 4, 1983, and April 29, 1983, addressed by the RBI to the PNB. 115. We have, therefore no hesitation in holding that obtaining of prior permission of the RBI under s. 29(1) of the FERA is mandatory for any NRI investor to purchase shares under the portfolio investment scheme envisaged by Circular No. 9 dated April 14, 1982. Any purchases made without such prior permission would exposes him to action under ss. 50 and 57 and prosecution under s. 56. Such purchases would be illegal. There in no provision under the FERA to grant permission after the purchases or to validate such purchases. Obtaining prior permission is also made mandatory under raglan. 24.1 issued by the RBI. The shares in question weirs all purchased by the respondent-companies prior to September 19, 1983, before any permission was granted. These purchases contravene s. 29 of the FERA and raglan. 24.1 issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinct bank mentioned in column 2 of the application at the RBI promptly. 119. In the case of a trust, this undertaking would relate to any change in the beneficial interest of persons of Indian nationality/origin as declared under item No. (iv) (b) of column No. 1 of the application. 120. Although the Circular does not expressly state that the ownership or beneficial interest should be held directly or indirectly, form a reading of the Circular (Ex. H ), it would appear that only if such interest is held directly by NRI, could investment under the portfolio scheme be made. The Circular prescribed the form in which the application for permission has to be made. These applications are to be submitted through designated banks supported by a certificate of an overseas auditor. So far as individuals are concerned, their difficult addresses and passport numbers are to be mentioned. No difficulty arises if the individual himself is directly in vesting. However, if a company or other legal entity sought to take advantage of the liberalised portfolio investment scheme, it is required to produce a certificate that interest the extent of 60% or the above is held by a non-resident Indian. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only such companies in which the ownership or beneficial interest was held directly by no-resident Indians were eligible to invest, yet, if on the advice of its own legal adverse of after discussion with the Central Govt. empowered to issue directions under s. 75 of the FERA to the RBI, which it is bound to comply in discharge of its statutory functions, veered round to the view that even those companies in which the non-resident investors held indirect interest up to 60% or above were eligible, it could not be said that it was necessarily vitiated by mala fides, especially when there is divergence of legal opinion commencing highest respect. There could be an honest difference of opinion on such issues. Further, as rightly contended by the learned Attorney-General, this matter pertains not merely to the sphere of legal interpretation but was closely inter linked with the economic policy of the Government and has far-reaching impact on the foreign exchange earning of the county, its trade, commerce and industry both in public and private sectors. The policies of the RBI are calculated not only towards argument on of foreign exchange resources of the county but also to protect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and further to arbitrarily confer ex post facto substantial benefits to a group of foreign non-resident investing companies, being respondents Nos. 4 to 16 hereto which are in effect controlled by one single British National, viz., Swraj Paul, being respondent No. 17 . It is alleged that although the purchases of this lot of shares is in excess of the limit of 5% impose by the Reserve Bank for purchases subsequent to May 2, 1983, permissible to non-residents out of foreign remittances and although a substantial portion of these shares are purchased and shown to the authorities to have been purchased out of substantial Indian rupee funds and not out of any foreign remittance .... yet have been confirmed, repatriation benefits, not envisaged in any of the circulars . It is also the petitioners' case that none of the 13 Caparo group of companies, viz., respondents Nos. 4 to 16, were eligible to make investments in shares of Indian companies under the liberalised non-resident portfolio scheme in view of the fact that in none of these 13 companies were 60% of the equity shares held or owned by non-resident person of Indian origin/nationality . Applications for transfer of registrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly illegal but which were patently advised as illegal that the impugned directions of September 17 and 19, 1983 have come to be issued under the guise of clarificatory circular. 123. Though respondents Nos. 4 to 17 have not chosen to enter appearance, these allegations are stoutly denied by respondents Nos. 1 and 2. In the very first affidavit, file on behalf of respondent No. 1, dated May 16, 1984. It was stated : ........... the entire super structure for the submissions made (by the petitioners) is based on assumption that the transactions of purchase of shares between the parties concerned are illegal. 124. It is asserted : ...... repatriation benefits flow from the portfolio investment shame for the investments covered thereunder ......... the Government of India formulated its policy and issues broad guidelines from time to time. It is not necessarily for respondent No. 1 to comment on the dated of transfer deeds lodged by the share borders concerned with petitioners No. 1. The relevant date is the date when border's contract notes were singed and firm commitment is made. 125. It was asserted that the Government of India had at no stage intended to preclude the companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investor companies were not directly owned by individuals of Indian origin though it was apparent that each of them was indirectly owned to the extent of not less than 60% by individuals of Indian origin. However, this respondent asked for further information and clarification from the third responded regarding the exact percentage of shareholdings of (i) Mr. Swraj Paul and other non-resident individuals of Indian origin, (ii) family trusts, and (iii) other separately in respect of each of respondents Nos. 4 to 16-companies. This respondent also requested the third respondent to state whether any shares of Indian companies had already been purchased by or on behalf of their client and if so their details . After some particulars were furnished, as it appeared that these purchases of shares of the Indian companies had been made without first obtaining permission of this respondent, this respondent by its letter dated June 11, 1983, to the third respondent objected to the same and directed that on further payments for purchase of shares should be made out of the non-respondent accounts unless and until this respondent's specific permission for purchase of the shares on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the above clarification issued ....... this respondent did not feel any need to calls for any information in the new Form OAC-1 as all the requisite information supported by the auditors' certificate was available with this respondent showing of Indian Companies in the light of Government's said clarification ... As the application of respondents Nos. 4 to 16 involving large investment had been pending since March, 1983, and this respondent is obliged under the scheme to clear the applications expeditiously and as the Government's clarifications had been obtained, there was no reason thereafter to hold up consideration of the applications of the 13 companies. 129. The RBI took up the stand : Under s. 29 of the FERA, this respondent is not precluded from giving its permission after a non-resident purchases shares in an Indian company. Accordingly, by this respondent's letter dated September 19, 1983, to the third respondent, this respondent gave its approval to make investments in and hold the shares of the first petitioner to the extent of 1% of the paid-up capital of the company subject, where the purchase had been made after May 2, 1983, to overall ceiling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1 or respondent No. 2 with regard to the positioning under the Circular (Exh. G ) and s. 29 of the FERA. Mr. Nariman, the learned counsel for the petitioners, readily conceded that part of the it was mistake and he would not refer to it. He did not refer to that petitioner's case. At a later stages, however, there was some argument about whether the respondents could justify their action as bona fide on the strength of the legal advice received by them and, if so, whether the petitioner are entitled to call upon them to produce the legal advice tendered to respondents Nos. 1 and 2. We shall to make it very clear even at the outset that legal advice received by either of the parties is confidential professional communication by the legal adviser to their clients. Though it is open to the parties concern to produce the same in support Though it is open to the parties concerned to produce these same in support of their pleas, neither the court nor the opposing parties are entitled to call upon any one to produce in court such written legal advice tenderised to it. If produced, it would certainly be taken into account. But since communication between the parties and their leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, cannot be sufficient to conclude that the clarification. Itself was intended to benefit that individual. That case may have only occasioned the clarification but may not be the object of the clarification. It is not uncommon to find that circulars are issued by various administrative departments, including judicial department, as and when certain issues present themselves. But while acting on such circulars in a particular a case, difference in the circular may come to light requiring immediate clarification on the administrative side. In fact, in some of the systems of administration, for better appreciation of the clarifications issued, the particular case that occasioned the re-examination of the issues in some detail and necessitated the issues of the clarification is specifically stated. 135. Another circumstance that has been pressed before unto hold that the press note (Exh. A ) and the Circular (Exh. B ) are not issued bona fide by the RBI but were issued at the dictated of the Central Govt. is that it was done in great haste. The Government of India, Ministry of Finance, Department of Economic Affairs, wrote to Dr. Manmohan Singh, Governor, Reserve Bank of Indian, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) reads as follows : The permission will remain valid so long as at least 60 per cent. of the beneficial interest in the investor company is held by non-residents of Indian nationality/origin either directly or indirectly. You may, therefore, obtain form each company a certificate form OAC/OAC 1 duly completed and singled by Overseas Auditor/Chartered Accountant/Chattered Public Accountant on an annual basis. 139. In our view, if, from the wording of Circular No. 9 of April 14, 1982, it was clear that even if a NRI held over 60% interest indirectly in any company, that company was eligible to invest, any such clarification was wholly unnecessary. It is only because the circular does not ex facie discloses that intention that the clarification was necessitated. May be that this was the original intention also but was not clearly expressed it in the circular. It may even be that the Circular No. 9 of April 14, 1982, if correctly read, would not make companies in which 60% interest is held by NRI indirectly eligible to invest. But that cannot preclude either the author of the policy or the author of the circular which was required to be translate to the a Statutory order by the RBI fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1974 and 1981, after the shares were purchased. In the affidavit-in-reply filed by petitioner No. 2, it is stated that these instances do not establish any pattern at all . It was also further placed : Each of the cases now cited show that they relate to permission that ought to have been obtained under s. 29(1)(b), i.e., prior permission and which is given post facto under the impression that it is open to the authorities administrating the Act to condone the breaches of the Act and to regulars the shares purchased in contravention of s. 29(1)(b). 142. Therein it was further emphasised : ... in none of the 9 cases had the question of whether it is at all permissible in law to grant such ex-post facto permission ever arisen or been properly considered. 143. It was also pointed out that in all the nine cases, the capital invested in the shares as well as the dividend income that may accrue thereon would not be allowed to be remitted outside India at any time in the future. In fact, all the nine cases, the applicants were required to furnish an undertaking of non-reorganization in the second respondent's regular rising the proposes ... In none of the nine cases listed were shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of its own policy weighted with the RBI and the RBI issued the clarification, RBI could not be accused do any mala fide action. The RBI is a statutory body required to formulate policies subject to the direction of the Government. When the RBI purported to translate Government policy with regard to the portfolio investment by companies predominantly owned by non-resident Indians, we do not see anything wrong if it subsequently changed its view and issued the circular to translate the avowed intention of the Government as now clarified by it. That is what the press note (Exh. A ) and the circular (Exh. B ) purport to do. A change of opinion on a legal issue or issuing a circular to translate the Government policy by a body such as the RBI, cannot no this ground alone be treated as a mala fide action so as to render the press note, circular and the letter based, thereon wholly illegal and void. 147. Any clarification of the original intention by a subsequent press release such as Exh. A or circular such as. Exh. B , however, cannot have the legal effect of amending the previous circular with retrospective effect even if the original intention was, as is now clarified. If Circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 149. In the affidavit of petitioner No. 2 dated July 5, 1984, it was alleged that the shares of Caparo Group Ltd. were actually held by the Bank Hofmann A.G., Zurich, in the name of the National Bank (Branch Office Nominees) Ltd. and, therefore, 61.6% shares in respondent-companies were not held even indirectly by any non-resident Indian; they were held by a foreign Bank. As such, the respondent-companies were not entitled to purchased any shares under the portfolio investment scheme (Exh. G ). In the affidavit-in-reply filed on behalf of the RBI, objection was taken to the filing of an affidavit by the petitioners at this belated stage and making allegations which required verification of facts. It was also pleaded in the affidavit-in-reply that : ... if the petitioners desire to make any submission as to the consequence of the said disclosure it was incumbent on them to make such a submission and not leave the matter at large to be dealt with by oral arguments. 150. Thereafter, copies of the documents received by them were filed. The RBI and PNB filed copies of the correspondence between them and Swraj Paul and also the correspondence that passed between Swraj Paul, his charte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purchasing shares. They were not, therefore, eligible to purchase share under the said scheme. The subsequent clarification cannot make them eligible retrospectively from the date they purchased the shares. 153. In this view of the matter, we are unable to accept the plea of respondents Nos. 1 and 2 that even in formulating the original policy and issuing the Circular (Exh. G ) it was the intention of either the Government or of the RBI that companies in which NR Indian had more than 60% interest even indirectly should be given the benefit of investment with full reparation benefits. Any such clarification of the intention under Exhs. A , B and C cannot enlarge the scope of the circular (Exh. G ); much less can it enlarge its scope with retrospective effect. It can only operate prospectively from the date of its issue, i.e., September 19, 1983. The letter (Exh. C ) also states : The permission granted hereby will initially be valid for a period of three years form the date of this letter. In case the permission is required to be renewed for further period, you may place make a request in this regard by a letter be behalf of the non-resident investor company to enable up to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases of shares is question of law, the interpretation of which cannot depend upon the view taken either by the Government or by RBI; that must depend on the interpretation of s. 29 by the court. We have already discussed this aspect and held that for any company eligible to make investment under the port-folio scheme promulgated under the circular (Exh. G ) or even under the circular (Exh. B ), the obtaining of prior permission of the RBI under s. 29 of the FERA for purchasing shares in Indian companies is precondition. If without obtaining prior permission by shares are purchased, they would be contravening the provision of s. 29 and would be exposing themselves to administrative action under s. 50 and penal action under s. 56 of the FERA. 157. The letter of the RBI, addressed to the PNB, dated September 19, 1983 (Exh. C ), does not in terms state that permission is granted with effect form the date the shares were purchased or with effect from the date on which the applications were made by respondents Nos. 4 to 16 for grant of permission. It may be recalled that applications were made by respondents Nos. 4 and 8 to 16 on March 12, 1983. The impugned letter (Ex. C ) only decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them to continue as directors. In the place and state of directors whose names are specified in resolutions Nos. 1, 3, 5, 7, 9, 11, 13, 15 and 17 who are sought to removed, the requisitionist proposes to appoint as directors, the following persons whose names are specified in resolutions Nos. 2, 4, 6, 8, 10, 12, 14, 16 and 18 respectively. 160. Pursuant to this notice. as bound in law, notices covering the GEM were issued by the company. 161. It is the contention of the petitioners : (i) that this requisitionist is not in conformity it provisions of the Companies Act and in particular contravenes s. 284 of that Act; (ii) that it is beyond the scope and against the intendment of the provisions of the LIC Act; and (iii) that it is issued for a collateral purpose and it is a mala fide and arbitrary action of the LIC taken at the behest of respondent Nos. 1 and 2. 162. Mr. Nariman, learned counsel for the petitioners, referring to the first ground, drew our attention to the provisions of s. 284 of the Act and contended that whenever a resolution is moved to remove a director, he is entitled to be heard on such resolution at the meeting as laid down therein. he director concerned is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay also make an oral representation at the EGM, He is also entitled to have his written representation read at the meeting. The learned Attorney-General contended that the shareholders have a right to remove a director without any reason whatsoever and what any private shareholder can do, the LIC cannot be prevented from doing. That right, according to the learned Attorney-General, springs from LIC's position as a shareholder and the provisions of the Companies Act and not on account LIC, being a statutory body, constituted under the LIC Act. Merely because the LIC happens to be a statutory body, it cannot be deprived of the right which it is entitled to exercises as a shareholder of the company. This requires us to consider to the question whether the LIC may exercise the same unfettered right which an ordinary shareholder may exercise the same unfettered right a statutory body it must conform to the provision of LIC Act also. To this aspect we would advert after dealing with the question whether in the juxtaposition of the director being given a right make a written representation and also the right to be heard orally against his removal, the shareholders of the company entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be informed of the reasons that prompted the requisitionist to move for his removal before he is required to make a representation. Section 284(3) gives the directors the right to make a written representation even before the meeting is concerned and much before the members are given notice of the meeting. That written representation of the director is required to be sent to the shareholders. Obviously therefore, reasons must be given by the requisitionist before the notice EGM is given If the requisitionist do not state the reasons in there notice of requisitions, the company cannot of its own divine those reason and communicate them to the members. As a corollary to the right of representation give to the detenue by the Preventive Detention Act, Obligation to furnish grounds to detain to enable effective and intelligible representation being made was implied by the Supreme Court in State of Bombay v. Atma Ram Shridhar Vaidya, 1951 CriLJ 373, in the following words (headnote) : The conferment of the right to make a representation necessarily carries with it the obligation on the part of the detaining authority to furnish the grounds, i.e., materials on which the detention order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be in accordance with natural justice, .... 170. Denning L.J. entered a cast against this principle, but came to the conclusion on evidence that the principles of natural justice were not violated and agreed with the ultimate order, The right of the licensee in that case was based on a contract and the power to terminate was not sought to be exercised by any statutory body like the LIC. The question of arbitrariness was to be determined with reference to the contract between the parties and not with reference to any statute. Their Lordships were not concerned with the fundamental right guaranteed under sec. 14 of the Constitution and enjoined upon every statutory authority. If the stewards were performing a statutory duty and not enforcing a contractual right, their Lordships would, in all probability, have improved the principles of natural justice even in that case as well. That decision rests on the terms of the contract and proceeds upon the footing that under the contract, an unfettered discretion was vested in the licensing authority to withdraw the licence. The principle of that case cannot apply to the exercise of any right by the LIC, a body which cannot claim to hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was such that he had in principle the right to make representations before the decision to dismiss was taken, but also that if admitted to state his case, he had a case of substance to make. His appeal was allowed and remitted to the Court of Session with a direction to reduce the resolution for dismissal and the consequent letter of dismissal. 174. It would be seen that in that case the principles of natural justice even though not made applicable by the statute, the court implied an obligation to observe those principles having regard to the per-existing law and the person's right to made a representation against his removal which is the situation in the present case. Section 284 of the Companies Act gives a specific right of representation to a director whose terms was sought to be curtailed by requesting an EGM of the company. The principles of natural justice even in a case governed by the statute were themselves enlarged so as to require reasons to be stated for dismissal. 175. In Gaiman v. National Association for Mental for Mental Health [1970] 2 All ER 362 the Church of Scientology of California, or, more popularly known as the Scientologists, sought to expel some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces were held to be some what limited. But, I were these right to make a representation is conceded to a director under s. 284(4) of the Companies Act, the representation to be effective must be in respect of something put against him for removal. The principles of natural justices cannot be put into a stain jacket. They must be adequate to meet the requirements of the particular situation. Their amplitude must depend upon the requirements of the caused by the non-observance of these principles. In such a case, the wider concept of natural justice requiring reason to be given must be wider concept of natural justice requiring reasons to be given must be implied and held to be obligatory. If the statute itself has laid drawn that reason should be given, there would not be any occasion to invoke any principle of natural justice. Then that would be a statutory requirement of a valid requisition notice and if reasons were not given, the notice would have fields for not complying with that statutory requirement. The necessity to invoke the principles of natural justice arises only because theirs is no such express statutory stipulation. Even in the absence of such a statutory requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act (Supreme Court Act, 1981) had not extended that jurisdiction . Though the court had jurisdiction to issue infection where it was just and convenient to do so, it could not be extended to include the decision of private or domestic tribunals. In view of the that the stawards' authority to suspend the plaintiff's licence was derived solely from the contract between him and the defendants and no public element in their jurisdiction as such was involved, their decision was held to be not reviewable and no complaint of non-observance of the was held to be not reviewable and no complaint of non-observance of the principles of natural justice arose. Lastly, reliance is also places on the decision in Russell v. Duke of Norfolk [1949] 1 All ER 109 that in removing a director it is not a judicial power of expulsion but an administrative power vested in the general body that is invoked and hence the principles of natural justices would not apply. The general principles of natural justice may not be invoked to (sic) in the case every notice requisitioning an EGM is valid. Still, when a direct is sought to be removed and for this purpose a requisition notice is given and s. 284 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kely to have been in the minds of the members of these Council of State when they dealt with the Bill. 178. It is urged that it is not open to the court to question the shareholders as to what prompted them to exercises their vote in a particular manner or to issue a requisition notice for convening a meeting. Here the question is not as to why these shareholders are voting for removal or retraction of the directors; the issue is whether the notice of requisition is in accordance with the requirement and intendment of s. 284 of Companies Act. 179. Reliance is also placed on the decision of a Division Bench of this court in Ramkrushna Gangaram Rathi v. Kisan Zingraji Madke, AIR 1971 Bom 305, wherein it was held that for requisitioning a special meeting for removing president under the Maharashtra Municipalities Act, 1965, the requisition need not state the grounds on which he is sought to be removed. Only signatures of not less than one-fourth councillors are required for a valid requisition. The reasons given for this conclusion are stated thus (at p. 313) : .... the tenure of the office of the president if wholly at the pleasure and the will of the majority of the councillors and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in restraining a meeting of shareholders. I do not mean to say of courses that there could not be a case in which it would be necessary and proper to exercise such a power, I can conceives a case in which a meeting might be called under such a notice that noting legal could be done under it. Possibly in that case an injection to restrain the meeting might be granted. I do one say that it would; that case may be dealt with even it arises. In the present case, it must be observed that the notice is not a notice of particular resolutions-it is a notice stating objects which the requisitionist wish to accomplish by any legal means. That is these only notice which they need give, according to the terms of the Act of Parliament. One of their affidavits is to remove the directors. In my opinion, when we look at section 91 of the Companies clause Act. There can be no doubt that a general meeting has power to do this. 181. It would be observed that even in that case the Lord justice envisaged a situation where a meeting could be restrained through these particular case they were dealing with was not found to be one such. 182. In Andrew Inderwick and Alfred Cowan v. Henry Snell (42 English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the requisition itself was properly made and the meeting was duly converted. In fact, it recognised that while the decision at the meeting itself may not be gone into once it is arrived at by majority, if the meeting itself is not duly covered and regularly held, it would be other wise, Further, when the impugned action is taken by an authority a which is a State within the meaning of art. 12 of the Constitution, whether that authority has requisitioned the meeting arbitrary and without any reasonable causes or for collateral purpose, as discussed hereinafter, would become germane. That the general body has a right to adopt a resolution without disclosing the reasons in support body has a right to adopt a resolution without disclosing the reasons in support of that resolution, cannot clothe an authority such as the LIC to requisition a meeting arbitrary and without any reasonable cause or for collateral purpose. 185. All these decisions deal with the question as to whether a resolution passed at the general body meeting of the company could be invalidated. They do not deal with the validity of a requisition notice and whether if on any of the ground it is vitiated whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a notice and the meeting. 188. In Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd, [1971] 41 Com Cas 377, dealing with the object of an explanatory statement to be appended to the notices sent to the shareholders to set out the nature or concern or interest of the solicitor-director in the matter of the appointment of a private company, on the facts it was held that there was no full land frank disclosure and that the shareholders were not given a full and complete opportunity. As such, the notice of the meeting bad and the resolution passed at that meeting invalid. That was case dealing with s. 301 of the companies Act which prohibited as director from taking part in any discussion of or vote on any contract or arrangement entered into or to be intercede into for and on behalf of the company if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement. The vote of such a director was declared to be void. The attack in this causes is one the validity of the requisition by the LIC, a statutory body, which also happens to be a shareholders. A statutory body like the LIC, as hereinafter discussed, cannot requisition a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluding the opponent from participation in the management and conduct to the business did not form a ground for holding that it was just and equitable that the company should be wound up unless it was shown that power had not been exercises bona fides in the interests of these company or that the grounds for exercising the power were such that no reasonable mind could think that the removal was in the interest of the company, and that these appellant had failed to show that his removal had not been justified and it in the best interest of the company or that no man could have though so. The House of Lords reversal that decision and held the appellant having lost his right to a share in the profits and being in that respect at the mercy of majority share holders and being unable to dispose of his interest without their consent, the proper counsel was to dissolve the association by winding up the company. We are of the opinion that when such a drastic step would be justified under the Company law, as held by these House of Lords, these initial step taken by the LIC in issuing the requisition notice, if found to be arbitrary, could certainly be restrained by way of a writ. 191. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of West Bengal, [1975] 2 SCR 832, no doubt in the context of a case of termination of service of a Government servant, that there is nothing like unfettered discretion immune from judicial review ability. The court further declared : ...... Where a charge of unfair discrimination is leveled with specificity, or improper motive are imputed to the authority making the impugned order of termination of service, it is the duty of the authority to dispel that charges by disclosing to the court the reason or motive which impelled it to take these impugned action .... the authority cannot withhold such information from the Court on the excuse that the impugned order is parallel administrative and not judicial, having been passed in exercise of its administrative discretion under the rules governing the conditions of service. 194. This principle should, in our view, also apply where the directors are sought to be removed and under the statute they are given a right of representation. 195. If that be so in respect of an individual owing majority shares and the resolution adopted could be quashed upon equitable considerations, a statutory authority like the LIC., which is a State within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an EGM, having chosen to give a reason, it is not open to its to contend that the court is barest from examining how far that reason is true and sustainable and how far it is as bona fide act of the LIC. Apart from the reason given, obviously there is not other reason. When that reason is for to be whole entries and untenable, and arbitrary or is for reasons extraneous and collateral which even these LIC is either unreasonable and arbitrary or is for reasons extraneous and collateral which even the LIC did not choose to discloses in its affidavits. It is not now open to the LIC to assert that there are other justifiable reason for requesting the meeting. If, in fact, there were any, they would have been stated at least in the affidavits filed in reply before this court. Any contention that the power to requisition an EGM could have been exercised for many valid reasons which need not have been disclosed and which were suggested at the Bar, cannot really be countenanced in the circumstance of the cases. If those were the real reasons that had prompted the LIC to requisition the EGM, they would have been mentioned in the requisition notice. and, in any case, in the several affidavits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment company. He was a director of several other public limited companies. He was due to retire by rotation at the annual general meeting of 1985. J. M. Shrinagesh is a retired ICS officer who has been a director of the petitioner-company since 1965. He held various positions in the Central Govt. He was the member of the Railway board chairman of Hindustan steel Ltd., a wholly owned Government company, for a number of year and was a director of several companies of the date he was sought to be removed. He was due to retires by rotation at the annual general meeting of 1986. Dr. Bharat Ram has been the director of the petitioner-company since 1964. He was due to retire by rotation at the annual general meeting in June, 1984. On the date he was sought to be removed he was the chairman and managing director, DCM Ltd. and the chairman of Andhra Cement Co. Ltd., Besides being a director in several other public limited companies. S. Ranganathan is another ICS officer who was on the board of directors of the petitioner company since 1973. He held various positions in the Central Govt., and in various financial institutions. He was on the board of IFCI and ICICI. He was the Comptroller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors possessed the qualifications, Status and experience as described above and that they were to retire in the normal course as stated above is not disputed. It should be taken that they had brought to bear their rich and varied experience in managing the affairs of the petitioner-company and in taking policy decisions during their entire term of office principally that accounted for its steady progress and good track record. To exercise the majority vote held by the public financial institutions in this manner to remove person of such stature and proved capability and against whom nothing is alleged even now and no better reason than the LIC does not wish to have them on the board of the petitioner-company is, to say the least, the most arbitrary and naked exercise of brute majority power. They were last elected unanimously, supported by all the financial institution, including the LIC. Although some of them were to retire in the normal course at the annual general meeting as noted above, for reasons best known to it, the LIC though it fit not to wait till then and sought to remove them before the expiry of their term. When a statutory body acts for no reason or on a stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice by a statutory public authority. The complaint is that only on the strength of the decisive majority shareholding, all norms are being thrown to winds to secure the registration of transfer of shares purchased in violation of law. 202. The learned Attorney-General, in sum, pleaded that even where the statute incorporates some principles of natural justice, the court may import some more principles of natural justice by way of necessary implication; but that must be done having regard to the facts and circumstances of the case. Those circumstances do not exist in this case. He pointed out that in the context of the present case, the court has to keep in view : (i) that it is dealing with a matter concerning corporate sector in which the court should not interfere unless it is absolutely necessary for its proper functioning, (ii) that the shareholders have full control of the company and their right to control the management by the exercise of their vote should not be interfered with by the court, (iii) that the corporate sector is engaged in industry and trade and that the court should be reluctant to interfere with its activities, (iv) that wide discretion is vested in the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the LIC Act. Mr. Nariman, the learned counsel for the petitioners, that s. 6 of the LIC Act defines the functions of the Corporation. The function of the LIC is to carry on life insurance business and not to take over the management of other companies. The step taken to remove 9 out of 15 directors of the petitioner-company amounts totaling over its management. This is not authorised by the LIC Act. (Act No. 31 of 1956). 205. Section 6 of the LIC Act, 1956, details the functions of the LIC and in so far as it is relevant for out propose, reads as follows : 6. Functions of the Corporation. - (1) Subject to the rules, if any, made by the Central Government in this behalf it shall be the general duty of the Corporation to carry on life insurance business, whether in or outside India, and the Corporation shall so exercise its powers under the this Act as to secure that life insurance business is developed to the best advantage of the community. (2) Without prejudice to the generality of the provisions contained in sub-section (1) but subject to the other provisions contained in this Act, the Corporation shall have power - (a) to carry on capital redemption business, annuity certain b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry on any other business; The ambit of s. 6(1) extends to the whole gamut of life insurance business and it may take only such steps as are necessary to develop life insurance business to the best advantage of the community. However wide the ambit of section 6(1) may be, it does not extend to carrying on any other business; much less can it extend to taking over the management of other companies. That power is specifically vested to a limited extent under sub-s. (2) of s. 6. Without affecting the generality of the power vested under s. 6(1), the LIC is empowered to take all such steps as may be or expedient for the protection or realisation of any investment including the taking over and administering any property offered as security for the investment until a suitable opportunity arises for its disposal. Clause (g) of sub-s. (2) of s. 6 only authorises the LIC to carry on either by itself or through any subsidiary any other business in any case where such other business has being carried on by a subsidiary of an insurer whose controlled business has been transferred to an vested in the Corporation under this Act . Clause (h) of sub-s. (2) of s. 6 also authorises only the carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as security for investment or any other company except for the purpose of protecting or realising its own investment or for advancing life insurance business. All its activities must be directed to carry on life insurance business and towards advancing that business and for protecting its investment. It must not dissipate its resources and energies to takeover management of any properties or companies for any other purpose. 208. The LIC has not stated before this court in any of its affidavits that removal of the nine directors of the petitioner-company, which virtually amounts to taking over the management of the petitioner-company, was necessary for protecting the investment made by it; nor has it averred that it was necessary to move this resolution to develop its business of the life insurance. 209. The funds of the Corporation may be invested only in accordance with the rules. It is in pursuance of this power that the LIC has invested investment in the petitioner-company. Investment in the petitioner-company has admittedly yielded rich dividends. The LIC may also take all steps as may be necessary and expedient for the protection or realisation of the investment including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LIC that its investment was in jeopardy and that this step was necessitated with a view to safeguard its investment. It is not pleaded by the LIC that the requisition notice convening the EGM to replace nine directors who happened to have opposed the registration of transfer of shares, with the nominees of the financial institutions, was issued with the intention of taking over the management of the petitioner-company. In fact, this allegation of the petitioners the LIC emphatically deadens and stoutly refuse this installation. 211. The petitioners rightly contended that it was the avowed and declared policy of the Government, the directions of which are to be carried out by LIC, that in making the investment, it is not the intention of the LIC or other public financial institutions to take over the management of companies. The petitioners assert that that statement was made on the floor of Parliament. Petitioner No. 2, in his affidavit, filed on February 27, 1984, in reply to the affidavit of Ganesan Chidamber on behalf of respondents No. 18, also specifically admitted that the public policy announced by the Union Government as can be discerned from the Lok Sabha debate was not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner-company far from being in jeopardy has increased manifold and is paying such rich dividends as no other company is so consistently paying. There was, therefore, no justification for removing any of the nine directors managing the affairs of the petitioner-company; much less was there any ground to initiate any step to take over the management of the petitioner-company. 214. The provisions of the LIC Act do not authorise the taking over of other companies only because the LIC by itself or along with other financial institutions, happened to invest considerable sums of money or hold over 50% of the shares in the borrowing company; nor does the policy decision of the Union Government authorise them to take over the management of another company. That can done only for the purpose of safeguarding the investment made by it. Though it is asserted that removal of nine directors does not amount to taking over the management and it is pointed out that the petitioner No. 2 who is the promoter-managing director is allowed to continue as managing director, it is not difficult to see how this would operate in actual practice. Once the nine directors are replaced by the nominees of the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the LIC which was a substantial shareholders in the petitioner-company. In spite of the petitioners alleging that the LIC in concert with the other financial institutions had, for the collateral purpose of punishing petitioner No. 2 and the other nine directors who had opposed the registration of the transfer of shares and with the object of virtually taking over the management had moved this resolution, the LIC was content with merely denying this allegation. It did not choose to give any reason why is sought to move this resolution. None was suggested in the affidavit filed in reply. At the Bar it was argued that no reasons need to be given for moving such a resolution. Just as any other shareholder cannot be compelled to give reasons for moving such a resolution, the LIC too, which was only exercising its right as a shareholder, could not be compelled to give reasons. It is argued that this matter lies in the realm of contract and not of statute and, therefore, even the court could not compel the Corporation to state the reasons for requisitioning an EGM. It is a matter concerning internal management of the company and it has to be decided by the majority of shareholders at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LJ 103 SC, even a society running an Engineering college was held to be an authority and, therefore, State within the meaning of art. 12, from which must follow that it is subject to the constitutional obligation under art. 14. The court also pointed out that the content and each of art. 14 must not be confused with the doctrine of classification and that article has highly activist magnitude and embodies a guarantee against arbitrariness. In what context interfered with approval to the observations in E. P. Royappa v. State of Tamil Nadu, (1974) ILLJ 172 SC The basic principle which, therefore, informs both articles 14 and 16 is equality and inhibition against discrimination ..... From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is, therefore, violative of article 14, and if it affects any matter relating to public employment, it is also violative of article 16. Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justly and fairly; it cannot be permitted to act arbitrarily. Such arbitrary action would be violative of art. 14 of the Constitution and liable to be struck down by the court in exercise of its jurisdiction under art. 226 of the Constitution. 226. The action of respondent No. 18 in issuing the requisition notice has to be judged in the light of these well recognized principles. The LIC, though a shareholder, unlike private individual shareholder is required to function within the four corners of LIC Act. One may not be entitled to question the act of a private individual shareholder; but the same action, if by a statutory body like the LIC can be assailed if it infringes the provisions of the statute by which it is bound. Being a public authority, it cannot act arbitrarily, capriciously or reasonably. If an individual chooses to act arbitrarily, no person may be entitled to move a writ petition against him; if the action of an authority like the LIC is shown to be arbitrary, it cannot be allowed to stand and must be struck down in properly constituted writ petition. 227. The learned Attorney-General contended that merely because the LIC is a statutory corporation and is an authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from contract. 229. That was a case in which the court found that the contracts do not contain any statutory terms and/or obligations which could attract the application of art. 14 of the Constitution. In that decision the court declared that cases of alleged breaches of obligations by the State of its agents could be divided broadly into three categories as follows : (at p. 1500) (i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where one assurance or promises made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of article 299 of the Constitution; (ii) Where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or Rules framed thereunder and the petitioner alleges a breach on the part of the State; and (iii) Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that contention observed in p. 743 : Conceding ... that the authority has the trappings of a State or would be comprehended in 'other authority', for the purpose of article 12, while determining price of flats constructed by it, it acts purely in its executive capacity and 'is bound be the obligations which dealing of the State with the individual citizens import into every transaction entered into in the exercise of its constitutional powers. But after the State or its agents have entered into the field of ordinary contract, the relations are no longer governed by the constitutional provision but by the lawfully valid contract which determines rights and obligations of the parties inter se. No question arises of violation of article 14 or of any other constitutional provision when the State or its agents, purporting to act within this field, perform any act. 234. The decision in Divisional Forest Officer v. Bishwanath Tea Co. Ltd., [1981] 3 SCR 662, where a company tries to enforce through a writ petition the right to remove timber without the liability to pay royalty was relied upon in this context. The Supreme Court held that (head note) the company was not enforc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of its constitution and by virtue if the fact that is had in exercise of the power conferred on it under s. 6(2)(b), invested its funds and became a shareholder in the petitioner-company. The right so acquired through exercisable as a shareholder can be exercised only for the purpose of the LIC Act. 237. In Lekhraj Sathramdas Lalvani v. N. M. Shah, Dy. Custodian [1966] 1 SCR 120, where the action of the Custodian termination of a manager appointed under s. 10(2)(b) of the Administration of Evacuee Property Act, 1950, was question, the court held that the Custodian could lawfully terminate the services of the power of appointment and is exercised as an incident to or in consequence of that power. In that context, the court observed (headnote) : A writ of mandamus may be granted only in a case where there is a statutory duties imposed upon the officer concerned and there is a failure on the parts of that officer to discharge that statutory obligation. The chide function of the writ is to the writ is to compel the performance of public duties prescribed by statute and to keep the limits of their jurisdiction, any duty or obligation falling upon a public servant out of a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms on which may be granted and the other, in regard to the person who may be recipients of such largess. 241. The court held (at p. 1999) : So far as the first limitation is concerned, it flows directly from the thesis that, unlike a private individual, the State cannot act as it pleases in the matter of giving largess. Though ordinarily a private individual would be guided by economic consideration of self-gain in any action taken by him, it is always open to him under the law to act contrary to his self-interest or to oblige another in entering into a contract or dealing with his property. But the Government is not free to act as it like in granting largess such as awarding a contract or selling or leasing out its property. Whatever be its activity, the Government is still the Government and is, subject to restraints inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner; it has to be exercised for the public good. Every activity of the Government has public element in it and it must, therefore, be informed with reason and guided by public interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent incurred expenses, suffered liabilities to set-up a hotel ... Thus, the principle of promissory estoppel would certainly stop the corporation from backing out of its obligation arising from a solemn promise made by it to the respondent. The respondent acting upon the solemn promise made by the appellant incurred huge expenditure, and if the appellant is held to its promise, the respondent would be put in very disadvantages position and, therefore, also the principle of promissory estoppel can be invoked in this case. 245. Then court went on to hold (at p. 852) : Now if appellant entered into a solemn contract in discharge and performance of its statutory duty and the respondent acted upon it, the statutory corporation cannot be allowed to act arbitrarily so as to cause harm and injury, flowing from its unreasonable conduct, to the respondent, In such a situation, the court is not powerless from holding the appellant to its promises and it can be enforced by a writ of mandamus directing it to perform its statutory duty, A petition under article 226 of the Constitution would certainly lie to direct performance of a statutory duty by other authority as envisaged by article 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisely the same rules as directors. But it is clear this is highly misleading, and that the decisions do not support any such rules a general principle. On the contrary, it has been repeatedly laid down that votes are proprietary rights, to the same extent as any other incidents of the shares, which the holder may exercise in this own selfish interests even if these are opposed to those of the company. He may even bind himself by contract to vote or not to vote in a particular way and his contract may be enforced by injunction .... As a result, the activities of general meeting may indirectly extend over the whole sphere of the company's operations, and ultimate control revert to shareholders who are frees from duties of good faith to which the directors are subject. What is more startling still is that the directors themselves, even though personally interested, can note in their capacity of shareholder at that general meeting. Clearly, therefore, some restraint must be put on the power of those able to command a majority vote. And in fact it is clear that, in some circumstance, the court will intervene to annul the resulting resolution and to retrain what is generally describ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes Hughes Beatty v. Henry Beatty [1887] 12 AC 589 where a voidable contract was entered into by a shareholder who had a majority of votes, exercised his voting power as a shareholder in general meeting to ratify such contract, the court held the he was acting oppressively towards the minority. 256. In Ngruli Ltd. v. McCann 90 CLR 425, it was held that the action of the majority could be in breach of the fiduciary duty to consider the interest of that company as a whole and the minority shareholders were held entitled to sue in their own names to remedy the breach of trust. 257. In Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268, the defendant who was holding 55% of the share capital of a family company was the aunt of the plaintiff, who held 45% of the share capital. The aunt was a director of the company, while the plaintiff was not. The director proposed to increase the company's share capital from 2,000 to 3,650 by the creation of a further 1,650 ordinary shares all of which were to carry voting rights. There was a difference of opinion on this proposal and notice of extraordinary general meeting to approve the proposal was sent. The plaintiff brought an action against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question posed was whether the majority preference shareholders has acted in the interest of the class as a whole in voting for the reduction of capital so that an effectual sanction had been given to the modification of the class rights, and whether in any event, the company's terms for the reduction were fair, the court held that (at p. 584) : the majority preference shareholders has considered what was best in their own interests based on their large quite shareholding as class; accordingly, there has been no effectual sanction for the modification of class rights . The court observed that it had to determine whether the supporting trustees voted for the reduction in the bona fide belief that they were acting in the interest of the general body of members of that class. The court thus recognised the limitation on the exercise of the right of the majority vote. 263. Clemens v. Clemens Bros. Ltd. [1976] 2 All ER 268, the court clearly held that if the majority seeks to injure the minority and does not keep the interest of the company in view, it may not approves its action. That was case where the majority honestly believed that it was in the interest of the company to act in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough removal or non-relation; this situation he must normally accept, unless he undertakes the burden of proving fraud of mala files. The just and equitable provision nevertheless comes to his assistance if he can point to, and prove, some special underlying obligation business continues he shall be entitled to management participation, an obligation so basic that, if broken, the conclusion must be that the association must be dissolved. 266. In Estmanco (Kilner House) Ltd. v. Greater London Council [1982] 1 All ER 437: [1982] 1 WLR 2, the Vacation Court held : Thus, although a majority shareholder, unlike a director, owed no fiduciary duty to the company and was entitled to vote in this own interest, that did not give him an unrestricted right to pass a resolution depriving a minority shareholder of his right or property merely because the majority shareholder reasonably believed that his actions were in the best interests of the company. 267. The court held (p. 11 of 1 WLR) : Plainly there must be some limit to the power of majority to pass resolutions which they believe to be in the best interests of the company and yet remain immune from interference by the courts. It may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the act of the majority is not in the interest of the company as a whole, it can certainly restrain the majority from acting so. 270. From the cases referred to and relied upon by the learned counsel, it would appear that though the right of an individual shareholder is a right which he may exercise in this discretion, that right is subject to certain limitations and cannot be exercised arbitrarily or unreasonably, on such limitation being that it should be exercised in the interest of the company as a whole, and the other that it should not be exercised so as to constitute an oppression of the majority shareholder. This is given statutory recognition under the Companies Act and applied as a cardinal principle in matters of winding-up. In Clemen's case [1976] 2 All ER 268 (Ch.D.), it was enforced by way of a suit under the English law. If that be the position with respect to exercise of voting rights of an individual shareholder, the action of the LIC which is a State within the meaning of art. 12 and which must conform to are. 14, exercising its right to requisition an extraordinary general meeting to remove the directors must be much more so amenable to the writ jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution to register the transfer of shares in favour of the respondent-companies. We are unable to imagine how the interest of these financial institution or of the petitioner-company are advance by registering these shares or are thwarted by refusing to register the transfer of these shares in the name of the respondent-companies. The profit earned by the petitioner-company or by these financial institution are in no way affected by such refusal. In fact, it is not the case of the LIC or of respondents Nos. 1 and 2 that their own interest is in any way affected by the refuel of the petitioner-company to register the transfer. If that be so, what urgency or even the necessity of requisitioning or extraordinary general meeting on fails to comprehend. The petitioner alleger that the removal of the nine directors is sought for the sole purpose of securing a review of the decisions of the board directors and constitute a majority of nine out of fifteen. As discussed above, the circumstances unmistakably point out only to this and only this conclusion and none else. If this is not the reason, then the respondents must disclose what other reason had promoted this requisition. Their o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner, even respondents Nos. 1 and 2, the Union of Indian and the RBI, were behind these steps. By way of amendment of the original writ partition, the petitioner pleaded that the Union of India, through the Ministry of finance, Department of Economic Affairs, Addressed a letter dated July 28, 1983, to all the stock exchange in the country informing them that it had noticed that the board of Directors of some companies have been rejecting transfer of shares lodged with them particularly, if the transfer is a non-resident Indian. It was pointed out that any impediment on such free negotiability and transferability of shares would shake the confidence of investors in the very functioning of the stock exchange and negative the object of the Government to encourage non-resident Indian investors to invest in Indian companies. The petitioner say that this obviously had reference only to the DCM Ltd. and the petitioner-company, for, at the relevant time, these were of share in favour of respondents Nos. 4 to 16, the NRI investors. After that letter was issued, the representatives of the financial institutions, including the LIC, IDBI, IFCI, GIC and UTI, who have a decisive majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt is Sukhwinder Pal Bipan Kumar v. State of Punjab, [1982] 2 SCR 31, in which the petitioner had verified the affidavit stating that the allegation in para 9 and 12 are correct to the best of my knowledge . The court observed (p. 70) : ... this is no affidavit at all. Under order XIX, rule 3 of the Code of Civil Procedure, 1908, it was incumbent upon the deponent to disclose the nature and source of this knowledge with sufficient particularity. The allegation in the petition are, therefore, not supported by an affidavit as require by law. That being so, the State Government was fully justified in stating in answer 'Denied'. 277. The case of Virendra Kumar Saklecha v. Jagjiwan [1972] 3 SCR 955, on which also reliance was placed, arose out of an election potion filed under the Representation of the People Act, 1951, making allegation of corrupt practice and the verification of that petition was attacked as not being in accordance with law. The Supreme Court held (headnote) : ... the affidavit in support of the election petition is to be modeled on the provisions contained in Order 19 of the Code of Civil Procedure. 278. It was so held because s. 83 of the Representation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Bombay v. Purushottam Jog Naik, 1952 CriLJ 1269 .. as slipshod verifications of affidavits might lead to their rejection, they should be modeled on the lines of O.XIX, r. 3 of the Civil Procedure Code and that where an averments is not based on personal knowledge, the source of information should be clearly disclosed .... in the absence of tangible material, the only answer which the respondents could array against the allegation as to mala fides could be one general denial. 282. At the outset, it must be noticed that all the affidavits filed by the petitioner in this case conform to the rules governing writ petition filed on the Original side of this High Court. When O.XIX of the CPC does not in teams apply to the affidavits filed in writ proceeding and the affidavits filed in this court conform to the rules framed by this court, they cannot be summarily excluded from consideration. The averments verified in accordance with the rules specifically framed to govern writ petition cannot be ignored merely because the verification does not conform to O.XIX, r. 4 of the CPC. An analysis of the affidavits and the verification would show that the averments with respect to each of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be void. It could be quashed. Exercising pressure does not amount to acting mala fide. It was said that what all was alleged in this carefully drafted writ petition was that in view of the mounting pressures on the board of directors of the petitioner-company to revoke their decision not to register the transfer of share and in order not to cause embarrassment to public financial institution which have also invested large sums by way of loan to the petitioner-company, the managing director of the petitioner-company in October, 1983, not only offered to prepay the entire outstanding loan of about Rs. 2 crores to public financial institution but also sent a cheque for Rs. 61,51,000 to the lead financial institution, IDBI, towards total repayment of its outstanding teams loan. The particularly of the so called pressure were not stated. When and by whom and on whom this pressure was mounted is not averred. What embarrassment the petitioners wanted to save the public financial institutions from is not spelled out. In para. 126 of the petition what all is averred is : We are addressing this letter to you as we have been informally informed that pressure will be brought upon this compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, find that what all is stated in that paragraph is that after October, 1983, pressures were exerted. 288. We may first refer to the contention of the learned Attorney-General that the pleading with regard to pressure, undue influence and coercion leading to mala fides is vague; it should have been precise. As laid does by O. VI, r. 4. CPC, it should have been supported with full material particulars. The averments, such as they are, lack material particulars and even if taken to be true do not amount to a plea of coercion. He contend that in any event the material particular not having been pleaded it does not amount to a pleading at all which the respondents could be called upon to controvert. Reliance is placed upon the judgment of the Supreme Court in Varanasaya Sanskrit Vishwavidyalaya v. Rajkishore Tripathi (Dr.), (1977) ILLJ 85 SC, in which it was held that its not enough to state in general terms that there was collusion without more particulars. In Bishundeo v. Narain Seogeni Rai, [1951] 2 SCR 548, the court held that general allegation are insufficient even to amount to an averment of fraud of which any court ought to take notice, however strong the language in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy regarding non-registration of transfer of shares of respondent No. 17's companies . A copy of the letter was filed. It is averred that at the insistence of Punjab to reconsider the decision reducing to register the transfer of shares in the name of the Caparo group of companies, a meeting of the lawyers of the petitioner-company with the legal adverse of financial institutions was fixed on November 1, 1983, at the office of the IFCI, new Delhi. That meeting was held at 11-30 a.m. in the office of IFCI, New Delhi, and was attended by Hariharan, Executive Director, LIC, who is also the nominee on the board of the petitioner-company. At a luncheon meeting on November 9, 1983, at New Delhi, petitioner No. 2 met Punja and requested Punja to expeditiously clear proposals of the petitioner-company at the inter-institutional meeting scheduled to be held later that afternoon. Subsequently, petitioner No. 2 was informed the formal clearance would have to await as Punja desired to have a discussion with petitioner No. 2. On November 10, 1983, petitioner No. 2 was requested to attend a meeting with Punja at the IDBI office at New Delhi. At this meeting, Punja insisted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the board of directors of the petitioner-company had agreed to reconsider registration of transfer of shares and whether petitioner No. 2 would agree to register at least some shares . He also retreated that the company's proposals and registration of shares are interlinked and, therefore, some shares at least be registered. On the same day, petitioner No. 2 addressed a letter to Punja recording the above conversation. With reference to that letter, petitioner No. 2 received a telegram from Punja in Bombay on December 28, 1983, requesting him to be present for a meeting in Bombay on December 29, 1983. When petitioner No. 2 requested to fix the meeting at a subsequent date, he was informed that he must be present on December 29, 1983, at 4 p.m. as another date and time would not be convenient Petitioner No. 2, therefore, attended the meeting whereat the representatives of all financial institutions including the LIC were present. At that meeting, the proposal to get the nominee of the UTI elected on board of the company was made and when it was suggested by the second petitioner that it could be done at the next annual general meeting, he was told that it was totally unacc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the pressure allegedly exerted by it and other financial institutions to register the transfer of shares in favour of respondents Nos. 4 to 17. It also denied that prepayment was refused for ulterior motive of compelling the petitioners to register the transfer of shares. It was pleaded that the security of the several financial institutions, namely, IDBI, IFCI, UTI, GIC, LIC and ICICI and International financial Corporation, Washington (IFC/W), to whom the assets of the petitioner-company were mortgaged, was to be shared pari passu and unless all the joint mortgagees consented, prepayment of loans could neither be made nor accepted. The agreements also provided for ninety days' prior notice to all concerned and for obtaining the consent of the joint mortgagees. The financial institutions has also the right to appoint their nominees on the board of directors of the petitioner-company. Therefore, when a telex message was sent by petitioner No. 2 on October 24, 1983, to IFC/W requesting permission for prepayment, the petitioner had to consider all these aspects of the matter. It was not clear whether prepayment was offered to IFC/W. It was admits that the petitioner wrote a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also on the board of the petitioner-company as a nominee of the IFCI, stating that he was acting on behalf of the financial institutions, requested that as the matter of prepayment was under consideration the petitioner-company must recall cheque given towards prepayment. By a letter dated January 13, 1984, Punja, the chairman of the IDBI, informed the petitioner-company that the financial institutions were accepting prepayment. It was pleaded that the above facts showed that there was no delay on the part of the public financial institutions in accepting prepayment. According to respondent No. 18, petitioner No. 2 was anxious to get rid of the financial institution in order to avoid approaching the financial institutions for clearance of various schemes of the second petitioner, which, ..... would have the effect of reducing the shareholding of some of the financial institutions in the petitioner-company from the position of majority to that of a minority, and also to avoid the continuance or appointment of nominee director of the financial institutions . It was averred that the reason given for effecting prepayment, viz, improve financial position of the company, was also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made clear that prepayment of loans due to all the financial institutions was being offered and that IFC/W had also agreed to accept prepayment. The telex message received from IFC/W was attached to that letter. This is admitted in the affidavit of Ganesan Chidamber filed on behalf of respondent No. 18. It is asserted by the petitioners that in spite of this, the financial institutions, including the LIC, did not accept the prepayment and used it as a lever to pressurise the petitioner. Petitioner No. 2 was told by Punja that in principle, all the financial institutions had agreed to accept prepayment, but before it was accepted, the petitioner-company should agree to register the transfer of at least some shares. Petitioner No. 2 expressed his inability. This allegation made by petitioners with particular reference to Punja when he contacted petitioner No. 2 to meet him at Bombay, was defined in general terms in the affidavit of Ganesan Chidamber fill on behalf of the LIC. Ganesan Chidamber was admittedly not present at any of the meetings. The denial by such a person could not be of any value and was rightly commented upon severally by the petitioners' counsel. To fill u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the managing director of the IDBI, requested petitioner No. 2 register transfer of at least some shears, if not all the shares as alleged by the petitioners. No reason for showing this interest in the transfer of shares purchased by respondents Nos. 4 to 16 is stated. He himself does not suggest in his affidavit the reason why he shoes such showed such interest. So far as these public financial institutions were concerned, it was immaterial whether those shares were held by an India or a non-resident India or respondents Nos. 4 to 16. It did not affect the investments of any of these public financial institutions. By the transfer or non-transfer of the shares, the IDBI or any other financial institution was not to be involved in any legal proceedings. 300. The letter dated December 20, 1983, addressed by the second petitioner to Punja records the above facts. That is a contemporaneous record. If what was stated therein were not true, Punja would I have immediately protested and denied that he had ever made a request for registering transfer of at least some shares or stated that the consideration of the proposals made by the petitioner-company and registration of shares was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs would have resulted in the reduction of equity holding of the financial institutions and acceptance of prepayment would have reduced their claim to the debenture-cum-equity share proposed to be issued by the petitioners. That averment only means that acceptance of prepayment was being postponed to see that the shareholding of the financial institutions was not reduced and for considerations other than those envisaged by the contract itself. The suggestion made by Punja, chairman and the managing director of the lead financial institution, which, in the circumstances almost amounts to a directors, followed by the suggestion of Davar, speaking for all the financial institutions, to withdraw the writ petition, in our view, discloses the purpose behind this move to requisition the meeting and remove the directors. Respondent No. 17 stated that it was now for the financial institutions to see that the transfers of shares are registered. That furnishes the reason for the LIC to requisition an EGM of the petitioner-company. That cannot be a valid reason. In view of the above discussion, the allegation of the petitioners that the refusal to accept prepayment and requisition of the EGM b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the RBI had been asking him all kind of questions about his investment in Delhi Cloth Mills and Escorts Ltd. while it had apparently cleared the investment by 11 companies in Reliance Textiles without asking a single question. Even after it had cleared his investment, the RBI had imposed many conditions . 305. The petitioners' allegation that the Finance Minister administered the thereat is solely based on a press statement. 306. In Samant N. Balkrishna v. George Fernandez, [1969] 3 SCR 603, the Supreme Court ruled that a new item without further proof of what had actually happened through witnesses is of no value. It is at best a second hand secondary evidence . The press reports, therefore, by themselves do not constitute evidence and without any further proof cannot be acted upon in a court of law. The Finance Minister is not impleaded as a party to the petition. The Union of India and the RBI which have been impleaded have specifically dinned the allegation that any such threat was held out either by the Finance Minister or by them or on their behalf. The petitioners' allegation is supported only by petitioner No. 2's solitary affidavit. It is not the cause of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list, has accused 'high-ups' in the Reserve Bank of India of approving investments by no-resident India in Reliance Textiles without standard investigations. In a statement issued here, Mr. Paul said the RBI had adopted 'double standards' - one towards the Reliance and the other towards his Caparo group of companies. He said he supported the Union Finance Minister, Mr. Pranab Mukherjee, in the current controversy over non-resident Indian investments in Reliance. Mr. Paul alleged that, while the RBI had asked him and Caparo 'all sorts of questions' before clearing his investments in Delhi cloth Mills and Escorts, it okayed the massive investments by 11 companies in the Bombay-based Reliance Textiles 'without shooting a single query'. He also alleged that the RBI Governor and the Deputy Governor must have fed 'wrong information' to Mr. Pranab Mukherjee. There was no way RBI could have gone about such simple facts like the names of the companies of the companies or the companies or the place of their incorporation. He also alleged that there was 'clique of bureaucrats operating to discredit and defame the Finance Minister and the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for achieving the above object. 311. It was argued that RBI also acted in concert with the LIC in requisitioning an EGM and that is evidenced by the letter addressed by the RBI to the several banks with which the shares of the petitioner-company were pledged against advances. It is true the LIC, after requisitioning the EGM, had addressed a letter to the RBI to instruct all banks to support the resolution moved by it. The RBI addressed letters to the Grindlays Bank Ltd., the PNB and other banks with reference to the D.O. letter No. LD. No. 580/84 dated May 23, 1984, addressed by the chairman, IDBI, requesting the banks to exercise voting rights in respect of the shares of Escorts Ltd., held by the respective banks along with the LIC and other public financial institutions at the EGM and the annual general meeting to be held on 9th and 30th June, 1984, respectively. But, as pleaded by the RBI, this letter was addressed in accordance with and in discharge of its statutory obligations imposed upon it under direction issued under s. 35A of the Banking Regulation Act, 1949. Under these directions, every bank which grants or renews an advance limit over Rs. 50,000 against the security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to secure the removal of the nine directors of the petitioner-company by exercise of their majority vote. The RBI itself in issuing the statutory instructions, however, cannot be said to have acted mala fide or for any collateral purpose. 313. The petitioner-company moved for merger of Goetze India Ltd. with Escorts Ltd. some time in January, 1983. Goetze India Ltd, was a company promoted by petitioner No. 2. Under that proposal, assets, liabilities and the undertaking of Goetze India Ltd. were sought to be transferred under a scheme of merger with Escorts Ltd. In exchange for such transfer, the shareholders of Goetze India Ltd. were to be allotted certain shares of Escorts Ltd. That scheme was to be in accordance with s. 391 to 394 of the Companies Act. The petitioners were pressing for clearance of this proposal. The IFCI, which was the lead financial institution for Goetze India Ltd., accepted in principle this scheme of merger even on January 29, 1983. It is the allegation of the petitioners that although the merger scheme was accepted in principle as early as in January, 1983, and some particulars were called for to finalise it, only because the question of registration of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner No. 2 proposed to drop the merger proposal as prior approval of the lending institutions was no longer necessary. In the agenda circulated for the meeting of the board of directors on May 8, 1984, it was stated that the merger proposal was to be dropped. At the meeting itself, instead of dropping the proposal, the directors resolved to defer this issue. In views of these facts, it is urged that the petitioners themselves were not serious about pushing through this merger proposal. They were only anxious to reduce the majority shareholding of the financial institutions to a minority. 315. In our view, if it is not true that the proposal for merger was sought to be linked up by respondent No. 18 and other financial institutions with the question of registration of transfer of shares, no question of mala fides would arise. But, as discussed above, as the decision on the long pending issued of merger was sought to be linked up with the issue of registration of transfer of shares, it would take a different colour and it would amount to exercising the power vested in the financial institutions or a collateral purpose arbitrarily. The fact remains that this issue of merger of Goet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutions to the tune of Rs. 20 lakhs. 317. The case of respondent No. 18 is that whereas in the debenture issue proposed by the other companies named by the petitioners, the financial institutions did not own more than 25% shares and any slight reduction in the shareholding would not have had any real effect at all in the case of the petitioner-company, it would have reduced its shareholding from 52.90% to below 30%. Further, while the other companies offered convertible debentures either on right basis or through prospects, the petitioner-company proposed by only a portion 20% of the debenture-cum-equity share issue to be of converted into debenture issue at a later date. That justified the clearance of those proposals. Respondent No. 18 suggests that if Escorts Ltd. had also issued similar debentures, it would have received good response and that it was not at all necessary for the company to raise 50% capital by borrowing. The respondents allege that the principal purpose of this issue was to disturb the minority. It was pointed out that even this proposal was not made by the petitioners in accordance with the guidelines indicated by the Controller of Capital Issues. It was put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l institutions have grown in number and in strength. Some of these are constituted by an Act of Parliament and their power and functions are defined by the stature. Some others are constituted by a Government notification under an Act of Parliament or the State Legislature. Some others just constituted by the Government without reference to any particular enactment. Funds flow to these institutions from the Government. They also acquire large funds from the public in general through the activities permitted by or under the statute or the notifications governing the constitution of these institutions. They are mainly intended to attract and conserve funds for the purpose of investment and for advancing loans required for accelerated growth of the trade, commerce and industry and for all round development of the country. Institutional finance is a recognised method of fostering industrial growth in all development countries. The Government cannot exercises control over such institutions with a view to secure to the industry the necessary funds and to save t it from the clutches of unscrupulous money-lenders. Strict discipline on the financial institutions is sought to be enforced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urs of one company or confer favour on another company at their sweet will and pleasure. That could never have been the intention of the LIC Act. Corporate bodies such as the petitioner company, their board of directors and their shareholders are entitle to see that this vast controlling power of the public financial institutions which are a State within the meaning of art 12, is not used as commercial duress to make a borrowing company tow their line and register the transfer of shares purchased in contravention of law, like the FERA. The LIC and the public financial institutions, though acting a shareholders, are still duty bound to act within the four corners of the law under which they re constituted. The LIC Act permits the power to take over to be exercised only for the purpose of protecting its investment and to advance the interest of the company as a whole in which it holds shares. It is the duty of the managing director s and the board of directors of the petitioner-company to contravene any law and also to oppose all steps taken towards that end an frustrate it. The company and its shareholders have a right to request the court to restrain the other shareholders, such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretionary jurisdiction and leave the matter to be agitated by the parties in appropriate forums for such reliefs as they are entitled to. 324. In the rejoinder affidavit by filed by petitioner No. 2, it was specifically pleaded that the petitioners do not want adjudication on the other grounds of refusal of registration of shares, and, as such, failure to obtain prior permission under s. 29 of the FERA remained the sole ground for rejection. The respondents urge that since the other grounds of refusal to register the shares are not now pressed and are not require to be adjudicated in this writ petition, the court should refuse to go into this question. That would amount to piecemeal adjudication on the validity of the purchase and refusal to register, which is not permissible even in the case of a suit, which principle, according to the leaned Attorney-General, also applies to writ petitions mutates merchandise. 325. Whether there is a live issue for adjudication and whether the petitioners have locus standi cannot be viewed in isolation or in the abstract, divorced from the facts and circumstances of the case. 326. In our view, in rising this condition, certain relevant facts ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject. 327. Thus, the matter was under reference to the Government of India and the question whether registration of transfer of shares should be affected or not and who would be entitled to receive dividend on these shares was a live issue even on 17, 1983, and was not decided even by the time the writ petition was filed. None of the respondents has been take back the shares lodges with the petitioner-company of transfer. Upon the a sale of the shares and lodging of applications for their transfer with the petitioner-company, it had to the a decision. The company has rejected the request for registration on grounds which, according to the well considered opinion of their legal advisers, are valid and justified. The RBI as well as the other respondents and their legal advisers seem to hold a different view. Of courses, as discussed above, that legal opinion had not been placed before the court; nor is the court entitled to a require them to disclose it. It must be recorded that the petitioners' learned counsel, Mr. Nariman, fairly conceded that it was an error on the part of the petitioners to have referred in the petitioner No. 2's affidavit to the legal advice tendered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 20) by his letter dated October 8, 1983, addressed to the petitioner-company, and sent by Registered by Post A.D., had requested that the decision of the board of directors dated August 29, 1983, refusing to register the shares be reviewed. In reply, the petitioner company conveyed through its letter dated October 13, 1983, that notwithstanding the impugned Circular and the letter of the RBI, the refusal to register continued to hold good for various other reasons. In that letter, the petitioner-company also disputed the claim that the 13 non-respondent companies had purchased the shares prior to May 2, 1983. The petitioner-company thus maintained that the permission granted subsequently is not valid and that the refusal to register the shares for other reasons still holds good. Of course, at the hearing of the writ petition, having regard to there decision of the Supreme Court in Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Com Cas 1, the learned counsel Mr. Nariman conceded that the other grounds for not registering the shares were not being pressed in support of the refusal of registration. It was, therefore, argued for the respondents that this letter would indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Apart from petitioner No. 2, each of the other nine directors filed an affidavit in this supporting the filing of the writ petition. It is also the allegation of the petitioners that the financial institutions, finding that notwithstanding the a unanimous request made on their behalf by D. N. Davar, at the meeting of the board of directors, the company and its managing director were refusing to withdraw the writ petition and effect the transfer of shares, requisitioned an EGM of the petitioner-company, so that they may secure a controlling majority in the board of directors. The petitioners allege that this action of the LIC (respondent No. 18) which by itself holds 30% of the shares and along with the other financial institutions, collectively represented by Davar, holds 52% shares, is mala fide an is calculated to secure the registration of the shares which were purchased in contravention of the FERA. In the circumstances referred to above, it cannot be said that the company and its managing director had no cause of action to file this writ petition or that there was no longer any live issue to be adjudicated. 328. The learned Attorney-General next contended that even under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese requirements. The duty of respondent No. 2 is all the more. The financial institutions which are public authorities and the LIC, which is statutory body, are obliged even as shareholders, to see that no shares are purchased in contravention of the FERA. The observance of the provisions of the FERA is as much the responsibility of these a statutory bodies and public authorities as that of the petitioners. When such provisions are contravened by any of the respondents and the petitioners are advised under the impugned letter by a statutory authority such as the RBI that the respondent-companies are entitled to hold the shares already purchased by them, they have clearly locus standi, as enunciated by the Supreme Court in the Judges' transfer case, to file this writ petition. In the Judges case, the court observed that any member of the public having sufficient interest can maintain an action for judicial redress for public injury arising from breach of public duty or from violation of some provision of the Constitution or the law and seek enforcement of such public duties and observance of such constitutional or legal position. Applying this dicta, it must be held that the RB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that while along the RBI took the stand that for purchase of shares under the portfolio investment scheme, prior permission was necessary, which is the stand taken by the petitioners, it proceeded to issue Exhs. 'B' and 'C'. Based on that the respondents Nos. 4 to 18 are insisting upon registration of shares which according to the petitioners, they are not entitled to. The conflict of opinion on the question whether permission envisaged by s. 29 is only prior permission or whether such permission could be granted even subsequent to the purchase is a matter of acute legal controversy. Legal opinion on this issue obtained by the petitioners is clearly in their favour. A contrary opinion, which is said to have weight with respondent No. 2 and the other respondent financial institution has been disclosed to the court. Of course, neither the petitioners not the court is entitled to know what legal advice the respondents have received. But presumably they have acted on the opinion of high legal authority. If armed with that opinion, the financial institutions insist the petitioner-company should register the shares, it cannot be said that the petitioner-company and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bare declaration in the air Lord Denning in fact recognised that declaratory relief per could be granted and Lord Justice or positively held (at p. 348) : I accept that this court would have jurisdiction to grant relief by way of a bare declaration, but agree with Lord Denning M.R. that the circumstances which would justify the grant of such relief in the context of an investigation under s. 165 would have to be of a very exceptional Kind. 333. Lord Justice Lawton opined that declaratory relief should be refused in that case only because he was of the view that report in this case itself neither produced, nor could id directly produce, any legal consequences . Evidently, if there was a threat of any legal consequence, Lord Justice Lawton to appears to be of the view the declaratory relief should not be refused. 334. In Throne Rural District Council v. Bunting [1972] ALL 439: [1972] 2 WLR 517, the court found that what the plaintiff council the in was seeking may not in any real sense of the word' relief', that is, something which will relieve the council from any real liability or disadvantage or difficult which affects the council. In my judgment, the council's In my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd lasses of a zamindari, that separate registration and sub-assessment of the appellant's village situate therein be made under Regulation XXV of 1802, section 8, Act I of 1876. The plaintiff asked for no further specific relief. Their Lordships summarised the contention that a mere declaratory relief should not be granted thus : It is said the plaint sins against the Specific Relief Act which forbids the court to entertain a suit for a declaratory which may be followed by consequential relief, unless that relief be asked for specifically - and so it was held by the High Court. 336. Their Lordships of the Privy Council, however, examined the facts of the case and pronounced : It is an substance a suit to have the true construction of a statute declared, and to have an act done in contravention of the statue rightly understood pronounced void and of no effect. That is not the sort of declaratory decree which the farmers of the Act had in their mind. But even assuming that the Specific Relief Act applies to such a suit as this, what is the result ? What further relief can be required ? If the so called cancellation is pronounced void, the order of the Government falls to the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the declaration specifically prayed for. So is the position with regard to the declaration prayed for with respect to the requisition notice issued by the LIC. If it is held that the requisition made by the LIC is invalid in law, as has been hold by us, the threat of removal of the nine directors who have supported refusal of registration of transfer of shares would abate. David Foulkes on Administrative Law, 5th Edition, at page 320, has this to say : .... although the person seeking a declaration need have no cause of action, he must be claiming relief. So that if what he is seeking will not relieve him from any real liability, disadvantage or difficulty, a declaration will not be granted. 339. It was also recognised that a declaration may be refused as of no practical use, even thought the question is not academic. In the circumstances, we can hardly say the same about the declaratory relief sought by the petitioner. The apprehension of the petitioner is not imaginary. If thee declaration is not sought, it will materials into removal of the directors and, in all probability, registering the transfer of shares. 340. Another aspect stressed by the learned Attorney-General is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the transferor is aggrieved by the refusal to register the transfer of shares; if at all, it is the purchase of the shares who claim to be entitled to be registry as the shareholder that would have preferred an appeal. They have not chosen to prefer any appeal. Curiously enough, they have not even chose to appear before this court and dispute the correctness of that decision. The pendency of such an appeal, in our view, would not be a bar to the filing of this writ petition. That would only be one of the favour to be considered by the court in exercising its extraordinary jurisdiction and the judicial discretion vested in it. 342. It was also urged that by virtue of s. 637 read with the notification of the Central Government No GSR 443 (E) dated October 18, 1972, the power to hear an appeal against the order refusing registration of shares is delegated by the Government to be Board and the rules framed in this behalf render the decision of the Board final and, hence, no declaratory relief as prayed of should be granted. No doubt the company Law Board in hearing the appeal under s. 111 acts as a quasi-judicial body; its decision is not subject to the administrative control of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to adjudicate upon the validity of the transfer and rejection of the registration raised by respondent No. 20, could not be expected to take a different view. It was, however, sought to be argued that the control of the Central Government envisaged by the aforesaid provisions is only administrative; it does not extend to any quasi-judicial matters required to be adjudicated upon by it. Even conceding this position in the light of the decision of the Supreme Court in Orient Paper Mills v. Union of India, 1973 ECR 1 (SC) ; Rajagopala Naidu v. State Transport Appellate Tribunal, [1964] 7 SCR 1, it would no be proper for the High Court to decline to exercise its jurisdiction and deny the relief to the petitioner even after finding that the stand taken by the Central Government and the RBI and the other financial institution as regards the validity of the purchases of shares without prior permission of the RBI and the liability of the petitioner-company to register the shares is not correct in law. The fact the some of the issues raised in this writ petition would also be decided by the Company Law Board is not valid and sufficient circumstance to refuse relief to the petitioners. 343. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave complied with the provisions of the Act in purchasing the shares and applying for permission. For granting or refusing relief to the petitioners, the principal question whether prior permission of the Reserve Bank was necessary or not for the valid purchase of the shares by the respondent-companies, had to be gone into. In this context, the role of the PNB has necessarily to be considered. It was obligatory on the NIR investor purchasing shares to obtain prior permission of the RBI and it was the duty of the designated bank, in this case, the PNB, to see that such permission was obtained before foreign remittance of investor was released from the NRI (External) Account. The stand taken by the PNB in this behalf is the same as the same as the one taken by the learned Attorney-General on behalf of respondents Nos. 1 and 2, namely, that such permission could be obtained even after the purchase of the shares. That contention, after elaborate consideration has been already rejected. 345. It was further urged By Mr. Shah, the learned counsel for the PNB, that the Company Law Board was competent to decide all the questions relating to the validity of purchases or refusal to transfer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. B ) and letter (Exh. C ) are valid as contended by the petitioner and prior permission is not required, then the action of the petitioner-company and the decision of the board of Director refusing to register the shares would obviously be unsustainable and the writ petition would fail. Than no further question would arise. After the rules nisi was issued in the writ petition so framed, respondents No. 18 sent notice requisitioning an EGM of the company to remove nine part-time directors and to elect in their place nine whole-time employees of the financial institutions as directors. It was alleged by the petitioner that this requisitions was mala fide and was calculated review and reverse the easier decisions of the board of directors not to register the transfer of shares in favour of respondents Nos. 4 to 17. The requisition was for an ulterior purpose. The decision to reject registration of the shares which was dependent upon the question whether prior permission was necessary thus got interlinked with the validity of the requisition notice. The point that the requisition notice is issued mala fide is a question of fact and how far that affects the validity of the requisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling a single writ petition for the reliefs claimed. In fact, if separate proceeding were to be initiated by them, common question of law and fact would have arisen for consideration necessitation questions of law and fact would have arise for consideration necessitating hearing of all those writ petitions together. The company and the managing director joining as petitioner in filing a single writ has avoided such a situation. 349. As regards the persons who may be joined as defendants under O.I. r. 3 of the CPC, it is provided as under : All person may be joined in one suit as defendants where - (a) any right to relief in respect of, or arising out of, the same act or transaction or series of act or transactions is alleged to exist against such persons, whether jointly, severally or in the alternative; and (b) if separate suit were brought against such persons, any common question of law fact would arise. 350. It is well settled that each of the defendants that are joined in a suit may not be interested in all the relief claimed by the plaintiffs and each of the defendants may be interested in only denying certain facts and raising certain issues. Rules 5 of O. I of the CPC spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of reversing the earlier decision of the board of directors refusing registration of transfer of shares. The cause of action for claiming the relief against respondent No. 18 arose after the filing of the writ petition. Filing of a separate writ petition in this regard would have necessitated court to go into some of the questions which were required to be gone into in the writ petition as originally filed. Even if a separate writ petition were to be filed questioning the requisition notice, it would have been more convenient to hear that writ petition along with this writ petition. In fact much of the confusion has been avoided by respondents Nos. 1 and 2 and the LIC (respondent No. 18) being represented by the learned Attorney-General himself. It has facilitated all the parties concerned. In our view, the petition could not be rejected on any ground of misjoinder of parties causes of action or multifariousness. 352. It is argued on behalf of the respondents that since the learned single judge has refused rule nisi in regard to prayer clause (d), this court is precluded from granting even the other relief prayed for in the writ petition as originally framed. Prayer clause (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, on which reliance was placed for contending that refusal to grant rule nisi in respect of prayer clause (d) operates as res judicata, the court declined to exercise jurisdiction on a construction of the terms of the award. The court held that it is the decision as to lack of jurisdiction which operates as res indicator and not the reason for that decision. It must be noticed that in refusing rule nisi with respect to prayer clause (d), the learned single judge did not give any decision whether for valid purchase of shares, prior permission under s. 29 of the FERA is necessary or not. Hence, that question is open for consideration in this writ petition. Further, the learned single judge specifically observed : What is sought for by prayer (d) must be regarded as ordinarily beyond the function of the writ court. But, this should not be taken to imply that there is no warrant in various complaints made by the Escorts and petitioner No. 2 in connection with this aspect of the matter. If it were the intention of the learned single judge that no aspect of the matter, which impinges upon the validity of the purchases of shares, including whether prior permission is necessary for valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matters agitated in a subsequently filed writ petition were either explicit or implicit decided. The court observed that the technical rule of re judicata, although a whole some rule, cannot be stretched too far to bar the trial identical issues in a separate proceeding merely on an uncertain assumption that the issues must have been decided. It is not safe to extend the principle of res judicata to such an extent so as to found it one mere guess-work. In Daryao v. State of U.P., [1962] 1 SCR 574, it was observed that the point to be considered would always be : what is the nature of the decision pronounced by a court of competent jurisdiction and what is its effect. The Supreme Court, referring to the above observation, held that the dismissal of a writ petition in limine with a reasoned order may or may not constitute a bar. If the petition is dismissed in limine says Gajendragedkar J. (headnote) : .... without passing a speaking order, such dismissal cannot be treated as creating a bar of res judicata. It is true that, prima facie, dismissal in limine even without passing a speaking order in that behalf may strongly suggest that the court took the view that there was no subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of directors who are meaning the affairs of the petitioner-company and who appear to be now representing the minority shareholder and the financial institution who virtually have a decide and controlling majority shareholding in the petitioner-company. The order refusing registration of transfer of share is no doubt appealable before the Company Law Board under s. 111 of the Companies Act, but the Companies Law Board, which is itself a body constituted under the Companies Act, cannot adjudicate upon the varsity of the permission granted by another statutory body. In any case, it is the High Court that is the proper forum for adjudication of such disputes so as to be binding on all the statutory bodies constituted by or under any law. In all such cases, even though the decision refusing registration of shares is taken by the board of directors, that being a corporate act, it is the company that is primarily interested in upholding that decision. The corporate body acts through its board of directors. The day-to-day management of the company especially vests in the managing director. Petitioner No. 2, as the managing director of the petitioner-company, has been vested with such po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority, whether acting as directors or shareholder. 359. We have already discussed above and held that there was a live issue in regard to the validity of the purchase of shares by respondents-NRI investors and the refusal to register the shares. On the facts and in the circumstance of the case, it was very necessary in the interest of the company itself to get an authoritative adjudication on this issue by the highest court in the State. The company could, therefore, properly move this could under art. 226 of the Constitution. The board of directors as presently constituted having taken a decision in exercise of its authority, which constitutes a decision of the company itself, is competent to file the writ petition not only on their own behalf but on behalf of the company, especially when question is inextricably interlinked with the question of payment of dividend. If the issues are left to be decided by a mere trial of strength at the EGM, one cannot be sure that what is legally right would necessarily be supported by the majority. With the stand taken earlier by the financial institutions, which hold 52% shares of the company which stand continued to be pressed by the LIC e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding decision including decision concerning the withdrawal of the writ petition or registration of transfers of shares. It will be open to the new board of rectors to apply to this court for further directions as may be necessary. It would be clear from the above that it was never the intention of the Supreme Court that the resolution of the EGM should prevail and be given effect to irrespective of the finding reached by this court on the several substantial legal issues raised before it. The Supreme Court was obviously of the view that any resolution of the EGM should be subject to the decision of the High Court on these issues. Now that this court has held that the impugned requisition notice was invalid, it must necessarily follow that upon such a requisition, the EGM could not have been held and, consequently, the resolutions adopted at such a meeting ought not to given effect. The subsequent events must stand nullified if the requisition which is the foundation for this meeting itself is declared illegal. We, therefore, declare that the resolutions adopted at the EGM held pursuant to the impugned cannot have any legal effect and in particular cannot have the effect of removing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the board of directors, vested with the authority to manage the affairs of the company, filed this writ petition after obtaining independent legal advice. In a matter such as this, irrespective of the result of the writ petition, an individual shareholders or even a managing director cannot be saddled with costs. The action having taken for and on behalf of the corporate body, even if that decision were to be ultimately held to be erroneous, so long as it is not for a collateral and is not taken tightly or negligently and without keeping the interest of the company in view, the managing director be individually made liable to bear the costs. The costs must be born by the corporate body. In Wallersteiner v. Moir [1975] 1 QB 373 the Court of Appeal even in the case of minority shareholder declared : .... it was open to the court in a minority shareholder's action to order that the company indemnify the plaintiff against the costs of the action. 363. In that view, M, the plaintiff therein, was indemnified for the costs incurred by him on behalf of the companies up to and including discovery when he was required to obtain further directions from the court. It is presumably, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, without obtaining prior permission of the RBI under s. 29(1)(b). Any purchases made without such prior permission would expose him to action under ss. 50 and 57 and prosecution under s. 56. Such purchases would be illegal. Obtaining prior permission is also made mandatory under raglan. 24.1 issued by the RBI. The shares in question were all purchased by the respondent-companies prior to September 19, 1989, before any permission was granted. These purchases contravene s. 29 of the FERA and raglan. 24.1 issued by the RBI as also the conditions stipulated by Circular No. 9 dated April 14, 1982. The petitioner-company was, therefore, statutorily prohibited from registering the transfer of these shares and it was justified in law in refusing registration of transfer of shares. Neither the Union of India nor the RBI is empowered to order otherwise, either by issuing directions under s. 75 or under s. 73(3) of the FERA. There is no provision under the FERA authorising the RBI to grant permission after the shares are purchased so as to validate such purchases or to permit holding of the shares purchased without obtaining prior permission. Under the portfolio investment scheme, enunciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng shares. They were not, therefore, eligible to purchase shares under the said scheme. The subsequent clarification cannot make them eligible retrospectively from the date they purchased the shares. Exhs. A , B and C do not have the legal effect of validating the purchases of shares in the petitioner-company made respondents Nos. 4 to 16, firstly, because the NIR did not directly hold interest up or above 60% in these companies and, secondly, because they did not obtain prior permission of the RBI under s. 29(1)(b) of the FEAR. The clarification (Exhs. A ), the circular (Exhs. B ) and the letter (Exh. C ) are, however, valid prospectively and on their strength respondent-company may validly purchase shares under the portfolio investment scheme with full repatriation so long as the NIR of Indian nationality/origin continue to hold at least 60% interest and the permission subsists. In so far as they have the effect of permitting shares purchased without obtaining prior permission of the RBI, they ultra vires of s. 29(1)(b) of the FERA and the powers vested in the Union of India under s. 75 and the RBI under s, 73(3) of the FERA; to that extent they are void and inoperative both pros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That action of the LIC, however, cannot be a ground to attribute any mala fides to respondents Nos. 1 and 2. The Union of India and the RBI, respondents Nos. 1 and 2, are in no way responsible for the action of the LIC in this regard. 367. The impugned requisition notice does not conform to the provisions of s. 284 of the Companies Act, inasmuch as it does not disclose any reasons or grounds for moving a resolution to remove in out of fifteen directors of the petitioner-company. Section 284 of the Companies Act by its necessary intendment requires the requisitionists to state reasons in the notice requisitioning an EGM to consider a resolution to remove the directors. In any event, such an obligation must be enjoined on principles of natural justice. The notice offends the principle of natural justice. If the reason given in the notice on the face of it is either not true or is invalid, it amounts to not giving any reason at all. When such a notice a challenged in court and if even then no plausible reason is suggested, it amounts to arbitrary exercise of the rights by the shareholder. The LIC in requisitioning the EGM has not given any reason except that it does not wish the nin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or hold over 50% of the share in the borrowing company; nor does the policy decision of the Union Government authorise them to take over the management or do any act which virtually amounts to taking over the management of another company. That can be done only for the purpose of safeguarding the investment made by it. As the investments of the LIC and other financial institutions are not in jeopardy, it amounts to taking a step not authorised by the LIC Act. The resolution proposed in the requisition notice, with the support of all the financial institutions is certain of being adopted. That would logically result in virtually taking over the management of the petitioner-company. To requisition an EGM calculated to achieve this object is the exercise of power for a collateral purpose and is a mala fide and arbitrary action. It is violative of art. 14 of the Constitution. A statutory corporation such as the LIC cannot be permitted to take any step for taking over the management of another company like the petitioner-company. If that is the logical consequence, It must necessary be restrained by the issue of a writ. 369. The power exercisable by the LIC is not pure contractual but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay constitute substantive relief and having regard to the declaration granted, the respondents may be also restrained from taking any action contrary to the said declaration. Such declaratory relief not be denied where the party applying for that relief is not a position or is not required to seek any further consequential relief. The present case is one such. In any even, the petitioners have sought not merely a declaration but also prayed for consequential relief of writ mandamus to restrain the respondents from giving effect to the impugned press release dated September 19, 1983 (Exh. B ), and the letter dated September 19, 1983 (Exh. C ) from giving effect to the requisition notice and the resolutions, if any, passed in pursuance thereof. 373. The questions raised in the writ petition were live issues and the petitioner had locus standi to file writ petition. Petitioner No. 2, apart from being the managing director of the petitioner-company, is a shareholder and is entitled to file the writ petition questioning Exhs. A , B and C and the requisition notice and to pray for writ of mandamus and interim relief both on his own behalf and own behalf of the petitioner-company. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity of the action, if any, sought to be taken a pursuance thereof. There could be no better forum than the High Court to agitate the vexed questions of law raised in this writ petition. The issues raised are very much live and High Court is the proper forum before which they could be agitated. 374. Irrespective of the ultimate result, the costs of such a writ petition which has been filed bona fide and with due care and caution expected of a prudent person, must come out of the funds of the petitioner-company. The shareholders, the managing director or the board of directors cannot be mulcted with costs of the writ petition or other expenses which were necessarily required to be incurred in this behalf. The writ petition does not suffer from multifariousness or misjoinder of parties or causes of action; the LIC was properly misplaced as a party. The petition could not be rejected on any ground of misjoinder of parties, causes of action or multifariousness. 375. In view of the findings reached by us, the petitioners are entitled to the declaratory relief and also to a writ of mandamus and costs, as herein after detailed. 376. Rule nisi is made absolute as under : Section 29(1) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the LIC under s. 6 of the LIC Act and contrary to the intendment of the provisions of the LIC Act. The impugned requisition notice offends the principles of the natural justice. The action of the LIC in issuing the impugned requisition notice is an arbitrate and mala fide action taken for a collateral purpose; it is violation of art. 14 of the Constitution. The Union of the India and the RBI, respondents Nos. 1 and 2, are in no way responsible for the action of the LIC in this regard. The allegation mala fides made against them and the Union Finance Minister are unsubstantiated. The requisition notice and the resolutions passed at the meeting held in pursuance of the said notice are quashed. A writ of mandamus shall issue restraining the respondents from taking any steps or action in pursuance of the impugned requisition notice and/or in pursuance of the resolutions passed at may meeting held pursuant to that notice or any step or action on or under or in furtherance of the impugned requisition notice. 378. In the result, the writ petition is allowed and the rule is made absolute to the extent indicated above. The petitioners shall be entitled to costs, which are fixed at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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