Ashiwin S. Mehta
& ANR. Vs. Union of India & Others
J U D G M E N T
D.K. JAIN, J.:
appeal under Section 10 of the Special Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992 (for short "the Special Court Act") is directed
against the order dated 30th April, 2003, as corrected vide order dated 2nd May,
2003, passed by the Special Court at Bombay, in Misc. Petition No. 64 of 1998. By
the impugned orders, the Special Court has permitted the Custodian to sell 54,88,850
shares of Apollo Tyres Ltd. (for short "Apollo"), respondent No. 3 in
this appeal, at Rs.90/- per share.
material facts giving rise to the appeal are as follows: The appellants, one late
Harshad S. Mehta, their other family members and the corporate entities belonging
to the family members had purchased more than 90 lakh shares in Apollo. Except
for the holding of two family members, the entire holding came to be attached by
a notification on 6th June, 1992. Under the said notification, 29 entities both
individual and corporate were notified under Section 3(2) of the Special Court Act.
Prior to the issue of
notification about 15 lakh shares of Apollo stood registered in the name of the
notified parties and the balance shares were unregistered. About 39.16 lakh unregistered
shares were disclosed by the late Harshad S. Mehta to the office of the Custodian,
which were subsequently handed over to the Central Bureau of Investigation (hereinafter
referred to as "the CBI"). The CBI seized about 7 to 8 lakh
un-registered shares in 1992, which also were handed over by them to the
Custodian. The Custodian was also authorised to deal with a few lakh shares, identified
as benami shares.
Custodian moved an application before the Special Court seeking orders for effecting
registration of unregistered shares in the name of the Custodian and for recovery
of lapsed benefits that accrued on the said unregistered shares. The management
of Apollo objected to the proposed registration, alleging violation of the takeover
code and raised the question of ownership. However, the Special Court, vide
order dated 19th November, 1999, allowed the registration of the un-registered
shares in the name of the Custodian.
order dated 11th March, 1996, in Civil Appeal No.5225 of 1995, this Court, in a
suo motu action, directed the Custodian to draft a scheme for sale of shares of
the notified parties, which constituted bulk of the attached assets.
Accordingly, a scheme was drafted by the Custodian in consultation with the Government
of India and thereafter, presented to this Court. Vide order dated 13th May,
1998, in Civil Appeal No. 5326 of 1995, this Court directed that the said scheme
may be considered by the Special Court, with further modifications, if any.
In furtherance of the
said direction, the scheme was presented to the Special Court for its approval.
The notified parties strongly opposed the said scheme on several grounds. All the
objections of the notified parties were overruled and the Special Court, vide order
dated 17th August, 2000, categorised the shares into three classes - (i)
routine shares; (ii) bulk shares and (iii) controlling block of shares. The
Special Court constituted a Disposal Committee for disposal of shares as per
the norms laid down in the said order. Norms in respect of sale of controlling block
of shares read as follows:
"NORMS FOR SALE OF
CONTROLLING BLOCK OF SHARES: After completion of demat procedure for registered
shares, the Custodian will give public advertisement in the newspapers inviting
bids for purchase of Controlling Block of shares. The offers should be for the
entire block of registered shares. The offers should be accompanied by a Demand
Draft/Pay Order/Bankers' cheque representing 5% of the offered amount in cases
of thinly traded shares of companies like Killick Nixon whereas in cases of
highly valued shares like Apollo Tyres, the offers shall be accompanied by Demand
Draft/Pay Order/Bankers' cheque representing 2% of the offered amount.
The said Pay Order/Demand
Draft/bankers' cheque should be drawn in favour of the Custodian, A/c - name of
the notified parties say Dhanraj Mills. The offers can be made by individuals as
well as by corporate and other entities. The offerer, whose offer is accepted
by the Court, will be required to make payment within 15 days from the date of
acceptance of the offer by the Court. Here also, the Court reserves its rights
to accept or reject any of the highest offer or bid that may be received by the
Court without assigning any reason whatsoever. Once the highest offer is ascertained,
the management of the company should be given an option to buy the shares.
This is to avoid
destablization of the company. The purchaser(s) shall comply with all
regulations including the Take Over Regulations of SEBI. In cases where the
Custodian finds that as on the relevant date, he does not possess shares of a
company to the extent of 5% or above, but he anticipates that in near future,
the limit is likely to reach with the other shares coming in, then the Custodian
shall submit his report to the Court for keeping aside such shares of a notified
party for future disposal. However, public financial institutions will not be
required to make any deposit along with their offer(s)." (Emphasis supplied)
Special Court approved the scheme, propounded by the Custodian for sale of
Controlling Block of Shares in toto and ordered sale of all registered shares,
except the shares of Apollo because their objection 4 regarding registration of
unregistered shares in the name of Custodian/notified parties, was pending
adjudication by this Court.5. The order of the Special Court was challenged both
by the notified parties and Apollo.
By order dated 23rd
August, 2001 in Civil Appeal No.7629 of 1999 [connected C.A. Nos. 7630 of 1999 and
5813 to 5814 of 2000], this Court, while approving the basic structure of the scheme
and the directions given by the Special Court for disposal of shares, disposed
of the appeal with the following directions insofar as the sale of controlling
block of shares, was concerned: "In respect of the sale of controlling block
of shares the only method laid down by the Special Court is to offer the sale of
shares in a composite block. It is not known whether such a sale will get the
best price in respect thereof.
We, therefore, direct
that it will be open to the Special Court to decide whether to have the sale of
the controlling block of shares either by inviting bids for purchase of
controlling block as such or by selling the said shares according to the norms fixed
for the sale of bulk shares or by the norms fixed in respect of routine shares.
The object being that the highest price possible should be realised, it is left
to the Court to decide what procedure to adopt.
If the Court thinks
that it is best to adopt the norms laid down by it for sale of controlling block
of shares (the 3rd method) then when highest offer is received and the Management
of the Company is given an option to buy those shares at that price, then if
the Management so desires the Court should give the Company an opportunity to
buy back the shares at the highest price offered by complying with the
provisions of Section 77A of the Companies Act.
In other words, on the
receipt of the offer for the sale of the controlling block, the Court will give
an opportunity, if it chooses to consider the offer, to the Management to buy
or to the Company to buy back under Section 77A of the Companies Act. No other
change in the Scheme as formulated by the Special Court is called for.
It is made clear that
in respect of the controlling block of shares the third method will first be
adopted, namely, the norms for sale of controlling block of shares; and it is
only if the Court is satisfied that by adopting that method the highest price
is not available then it will have an option to follo w the 2nd method relating
to sale of bulk shares.
Further, if the Court
is satisfied that by following any of the above two methods the highest price
is not available, then it will have an option to follow the norms as laid down for
routine shares (the 1st me thod). These appeals are disposed of in the aforesaid
terms." (Emphasis supplied by us)In compliance with the aforesaid
orders/directions, the Custodian drafted the `terms and conditions of sale' for
sale of 54,88,850 shares of Apollo. Some of the terms and conditions, relevant
for this appeal are as follows : "...... .......... ........ .........
......... ......... ...... .......... ........ ......... ......... .........
after acceptance of the offer/identification of the highest bidder by the Disposal
Committee, the approval of sale will be subject to the sanction of Hon'ble
Special Court. ...... .......... ........ ......... ......... .........
7. The Bids are to be
submitted for the entire lot of shares of the said Company viz. 54,88,850
shares. Bids in part (less number of shares than total) shall not be
considered. ...... .......... ........ ......... ......... ......... ...... ..........
........ ......... ......... .........
14. The Custodian will
obtain directions of the Hon'ble Court for approval of the offer of the highest
bidder so identified by the Disposal Committee. The 6 Hon'ble Special Court after
ascertaining the highest offer may give an opportunity to the management of the
said Company to buy or to the Company to buy- back as per provisions of the Companies
Act, 1956, the said "Controlling Block" of shares if it so desires.
15. The sale as
stated herein above is subject to the sanction of Hon'ble Special Court. The Hon'ble
Special Court reserves the right to accept or reject any of the offer or bids
that may be received for purchase of the shares. ...... .......... ........ .........
thereto, the Custodian invited bids from individuals as well as from the
corporate and other entities. The offers were to reach the office of the
Custodian by 3.00 p.m. on or before 25th April 2003. In response, only two bids
were received, the highest being Rs. 80/- per share given by Punjab National Bank.
The Disposal Committee
evaluated the bids so received and vide its minutes dated 25th April 2003,
recommended that in addition to the aforesaid 54,88,850 shares, additional 8,15,485
benami shares also be sold to the highest bidder subject to sanction by the
Special Court. Accordingly, the Custodian submitted a report to the Special Court
for consideration and appropriate orders.
By the impugned order,
dated 30th April, 2003, corrected vide order dated 2nd May, 2003, the Special
Court directed sale of 54,88,850 shares to Apollo and its management at Rs.90/-
per 7 share. Being dissatisfied with and aggrieved by the order indicated hereinbefore,
the appellants have preferred this appeal.
the time of admission of this appeal on 29th May, 2003, the following interim
order was made: "Appeal admitted. Mr. A.D.N. Rao, Ms. Manik Karanjawala and
Ms. Pallavi Shroff, learned counsel accept notice on behalf of respondent Nos.1,
3 and respectively. Learned counsel appearing for the Management - Respondent
No.7 submits that as on date only 4.95% of the shares purchased alone are in
existence. In regard to these existing shares, the learned counsel undertakes
not to further alienate them. We record the said undertaking."
Kamini Jaiswal, learned counsel appearing on behalf of the appellants, while assailing
the impugned orders on several grounds, strenuously urged that the sale of
54,88,850 shares of Apollo ought to be rescinded, particularly because, the said
sale was in conscious breach of the scheme as also the terms and conditions
laid down for the sale of these shares and was also in violation of the
principles of natural justice.
her contention that the sale was in contravention of the scheme framed by the Custodian
and duly approved by the Special Court by order dated 17th August, 2000 and
with modifications by this Court vide order dated 23rd August, 2001, learned
counsel argued that Condition No.14 in the `terms and conditions for sale' had been
violated on three counts: viz.
(i) Apollo and/or its
management could be invited to bid only after the Special Court had ascertained
the highest offer and satisfied itself about the inadequacy of the other bids. But
the Custodian vide letter dated 28th April 2003, invited Apollo to bid for
purchase of the said shares on his own volition, even before the bids received
were placed before the Special Court;
(ii) the offer to bid
was to be made either to Apollo `OR' its management and not to both as was done
in the present case and
(iii) the buy back effected
by Apollo was in complete violation of Section 77A of the Companies Act, 1956 (for
short "the Companies Act") as well as SEBI (Buy back of Securities)
It was also urged that
by accepting the bids of Apollo and respondent Nos.5 to 8, who were the
investment companies of the promoters of Apollo, Condition No.7 of the said
terms and conditions was also violated because each bid had to be for the
entire lot of shares and not for a part of shares.
collusion between the Custodian, Apollo and its management, learned counsel submitted
that, though the appellants and their relatives and corporate entities promoted
by them were together holding approximately one crore shares in Apollo, which were
ready and available for sale, yet, the Custodian proposed sale of only 54,88,850
shares. Further, the Custodian never explained the rationale behind breaking up
the controlling block of shares to only 15.1% of the equity capital when the
total share holdings were easily more than 25% of the capital of the company.
It was asserted that,
the offer for sale of 15.1% shares was deliberately resorted to by the Custodian
only to ensure that no other bid came forward as such a prospective bidder would
have been bound to make a further public offer for purchase of 20% of the capital
under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
It was strenuously urged that the Custodian, with ulterior motive, had made the
conditions very stringent and onerous to restrict and for that matter, practically
deny participation of any other institution or individual in the bidding
was contended that the impugned sale was in complete violation of the order of
this Court dated 23rd August, 2001, wherein it was stated that the object for
laying down the norms was to realise the highest possible price for the shares.
It was urged that in the instant case, instead of maximising the price, the
shares were sold at a discount of 25% of the then prevailing market price, thereby
defeating the very purpose of the scheme.
It was thus, contended
before us that the Disposal Committee and the Custodian ought not to have recommended
the acceptance of the bid at Rs.90/- per share since both the offers received
were way below the then prevailing market price as well as the book value of shares.
Under the given circumstances, according to the learned counsel, the Special
Court should have opted for the 2nd method relating to sale of bulk shares, as
stipulated in the order of this Court dated 23rd August 2001.
It was urged that the
Special Court also failed to follow its past precedents, particularly in the case
of M/s Ranbaxy Laboratories Ltd., when 8,04,777 shares were ordered to be sold
@ Rs.565/- per share. In that case, the bid was received under the Bulk Category
@ Rs.540/- per share but on the insistence of the Special Court, the offer was
improved to bring it at par with the prevailing market price.
In support of the
proposition that the Custodian as also the Special Court having committed material
irregularities, resulting in substantial injury to the appellants, the subject
sale of shares is liable to be set aside, learned counsel placed reliance on
the observations of this Court in Desh Bandhu Gupta Vs. N.L. Anand & Rajinder
Singh1 and Gajadhar Prasad & Ors. Vs. Babu Bhakta Ratan & Ors.
counsel strenuously contended that the impugned order was also arbitrary and in
violation of the principles of natural justice in as 1 (1994) 1 SCC 1312 (1973)
2 SCC 629 1much as the Special Court not only outrightly rejected the prayer
made by the notified parties during the course of proceedings on 30th April,
2003 for grant of 48 hours time to secure a better offer in the same manner as was
done to secure a better offer for the Bulk category shares of M/s Ranbaxy
Laboratories Ltd., it also failed to consider the objections raised by them in their
written submissions filed on 2nd May, 2003.
It was stressed that the
Special Court rejected the legitimate request of the appellants without any justification
and showed undue haste in ordering the sale of shares, even ignoring the
direction of this Court, i.e., to explore the possibility of selling the shares
either under the Bulk Category or as Routine Shares to secure maximum price for
the shares. On the contrary, the Special Court granted Apollo and its management
two days to bring their proper offer and earnest money on 2nd May, 2003, which
fact is duly recorded in the impugned order dated 30th April, 2003.
In order to bring
home her allegation of discriminatory treatment at the hands of the Custodian
as also by the Special Court, learned counsel referred to the two letters dated
28th April, 2003 and 29th April, 2003, addressed to the notified parties by the
Custodian intimating them about the date when the Special Court would consider
the bids received in response to the advertisement for sale of subject shares.
While letter dated
28th April, 2003 allowed the notified parties to submit offers independently received
by them for purchase of the said shares, letter dated 29th April, 2003, made it
clear that no offers brought by the notified parties to the Court would be considered.
As regards the reasoning
of the Special Court that any delay in finalisation of the bid would have resulted
in a crash in the market price of the shares because of break in the news of
purchase of huge quantity of shares by one party, it was submitted that the
said reasoning was again erroneous in as much as the news of sale of 54,88,850
shares of Apollo was already in public domain when advertisement for sale of
these shares was published.
It was thus, pleaded
that the impugned order be set aside and the entire sale of 54.88 lakhs shares be
rescinded in public interest and to achieve the object of the Special Court
contra, Mr. Joseph Vellapally, learned senior counsel appearing for Apollo, supporting
the order of the Special Court, at the outset, submitted that the said order
had been passed by the Special Court in exercise of wide discretionary powers
conferred on it by the Special Court Act as also by this Court and that such discretion
can be interfered with only if it is shown to have been exercised in violation of
the statutory provisions or contrary to the well established judicial principles.
It was argued that in
the present case the decision of the Special Court was based on the recommendation
of the Disposal Committee, which consisted of experts in the field of securities
and shares, and therefore, it cannot be said to be perverse so as to warrant interference
by this Court. In order to highlight the role of the Disposal Committee and the
probative value of its advice and recommendations, learned senior counsel
commended us to a decision of this Court in Sudhir S. Mehta & Ors. Vs. Custodian
In support of his
submission that the Appellate Court should not lightly interfere with the discretion
exercised by the Trial Court, learned counsel placed heavy reliance on the
decisions of this Court in Ramji Dayawala And Sons (P) Ltd. Vs. Invest Import4 and
Wander Ltd. And Anr. Vs. Antox India P. Ltd.5, wherein it was held that the Appellate
Court would not ordinarily substitute its discretion in the place of the
discretion exercised by the Trial Courts, save and except where the Trial Court
had ignored the relevant evidence, sidetracked the approach to be adopted in the
matter or overlooked various relevant considerations.
The Appellate Court
would normally not be justified in interfering with the exercise of discretion under
appeal solely on the ground that if it had considered the matter at the trial stage
it would have come to a contrary conclusion. It was strenuously urged that the Special
Court having acted reasonably and in a 3 (2008) 12 SCC 844 (1981) 1 SCC 80 at
page 965 1990 (Supp) SCC 727 1 judicious manner, this Court should not
interfere with the decision of the Special Court in approving the sale of
shares to Apollo.
was further contended by Mr. Vellapally that the appellants have no locus standi
to assail the entire sale of 54.88 lakh shares as their shareholding was only
1,49,570 shares, as stated in the affidavit of the Custodian. It was pointed
out that there was no averment in the appeal to the effect that the same was
being filed in a representative capacity on behalf of other members of Harshad Mehta
Group. At best, the appellants could impugn sale of 1,49,570 shares.
was also contended by Mr. Vellapally that in terms of the order of the Special
Court dated 17th August, 2000 and the order of this Court dated 23rd August,
2001, the management of Apollo had the right to buy and Apollo had the right to
buy back its own shares under Section 77A of the Companies Act, once the highest
offer is received from those entities who participated in the bid. Since the
purchase of shares by Apollo was akin to an auction sale, its interests as a bonafide
purchaser in the shares are saved, having no connection with the underlying
dispute between the Custodian and the notified parties. In support of the
contention, reliance was placed on Ashwin S. Mehta Vs. Custodian6 wherein, according
to the learned counsel, (albeit 6 (2006) 2 SCC 385 at para 67-72 dealing with
sale of commercial properties) in a similar situation, the interests of bona
fide purchasers were protected.
the claim of the appellants that the said sale of shares of Apollo was at a
loss, it was submitted by Mr. Vellapally that it is a matter of common knowledge
that transactions in the stock market are speculative in nature and cannot be
predicted with accuracy. It was submitted that this Court in the matter of Sudhir
S. Mehta (supra), while dealing with the notified parties' objections to a sale
of shares of Reliance Industries Ltd. had observed that the sale of shares
between the period `12.12.2000 to 1.11.2007' (said period covering the sale of shares
of Apollo) could not be said to be at a loss, especially because of the fact that
the said sale had been approved by the Disposal Committee, a committee of
learned senior counsel submitted that pursuant to the buy back of shares and on
due compliance with the provisions of Section 77A read with Section 77A (7) of
the Companies Act, Apollo had already extinguished 36.90 lakh shares so
bought-back and therefore, to that extent, prayer of the appellants to rescind the
purchase of shares is rendered infructuous. It was asserted that any order at
this juncture, setting aside the impugned order, would not result in
resurrection of the extinguished shares but entail a fresh issue of shares under
Sections 79 and 81 of the Companies Act, which is fraught with statutory
restrictions and difficulties, resultantly affecting the rights of third party
shareholders, who are not parties to the present dispute.
Arvind Kumar Tewari, learned counsel appearing on behalf of the Custodian (respondent
No. 2), supporting the impugned order, vehemently argued that the Special Court
had not only followed all the norms settled by this Court, it was also
successful in obtaining a price higher by Rs.10/- per share as compared to what
was offered by the highest bidder, viz. Punjab National Bank. It was alleged
that in spite of being informed by the Custodian in advance, vide letter dated
28th April, 2003, the appellants had failed to arrange for a purchaser who could
bid higher than Apollo and had frivolously sought another two days time to
arrange for a higher bid.
A. M. Singhvi, learned senior counsel appearing for respondents Nos. 3, 6 and 8,
the co-bidders with Apollo, while adopting all the submissions made on behalf of
Apollo, reiterated that the said respondents being bonafide bidders, having no concern
with the procedure adopted by the Custodian for sale of shares, any interference
by this Court with a well reasoned and equitable order passed by the Special
Court would cause extreme hardship to them.
In support of the submission
that having regard to the nature of controversy sought to be raised by the
appellants notified parties under the Special Court Act, this Court will be loath
to interfere with the discretion exercised by the Special Court, learned senior
counsel commended us to the decisions of this Court in Employees' State Insurance
Corpn. & Ors. Vs. Jardine Henderson Staff Association & Ors.7, State of
M.P. & Ors. Vs. Nandlal Jaiswal & Ors.8, Ramana Dayaram Shetty Vs. International
Airport Authority of India & Ors.9;
Limited Vs. Krishna H. Bajaj & Ors.10 and on a decision of the House of
Lords in Susannah Sharp Vs. Wakefield & Ors.11. In the alternative, learned
counsel submitted that if for any reason, this Court was to come to a
conclusion that the price realised for sale of said shares was at a discount
and/or less than the market price then the relief granted to the appellants
ought to be confined to their shareholding and the promoters may be directed to
pay the difference between the price paid by them for the purchase of shares i.e.
Rs. 90/- per share and the then prevailing market price i.e. Rs. 120/- per share.
support of his proposition
that this Court had sufficient powers under Article 142 of the Constitution of India
to balance the equities between the parties and render complete justice by
moulding the relief, learned senior counsel placed reliance on the 7 (2006) 6
SCC 5818 (1986) 4 SCC 5669 (1979) 3 SCC 48910 (2011) 3 SCC 21811 (1891) A.C.
173 1 observations made by this Court in Rajesh D. Darbar Vs. Narasingrao
addressing the contentions advanced on behalf of the parties, it will be necessary
and expedient to notice the overarching considerations behind the enactment of
the Special Court Act, which came into force on 6th June, 1992. It replaced the
Special Court (Trial of Offences Relating to Transactions in Securities)
Ordinance 1992, as promulgated on 6th June 1992, when large scale irregularities
and malpractices pertaining to the transactions in both Government and other securities,
indulged in by some brokers in collusion with the employees of various banks and
financial institutions were noticed.
The Special Court Act
provides for establishment of a Special Court for speedy trial of offences relating
to transactions in securities and disposal of properties attached thereunder. Section
3 of the Special Court Act relates to the appointment and functions of the
Custodian. Sub-section (2) thereof clothes the Custodian with the power to
notify in the official gazette, the name of a person, who has been involved in any
offence relating to transactions in securities during the period as mentioned
Sub-sections (3) and
(4) of Section 3 stipulate that with the issue of the aforesaid notification, properties,
movable or immovable or both, belonging to the notified person shall stand 12
(2003) 7 SCC 219 1attached, and such properties are to be dealt with by the
Custodian in such manner as the Special Court may direct. Section 9A of the
Special Court Act deals with the jurisdiction, power, authority and the
procedure to be adopted by the Special Court in civil matters.
In short, on and from
the commencement of the Special Court Act, the Special Court exercises all such
jurisdiction etc. as are exercisable by a Civil Court in relation to any matter
or claim relating to any property that stands attached under sub-section (3) of
Section 3 and it bars all other courts from exercising any jurisdiction in
relation to any matter or claim referred to in the said Section.
Sub-section (4) of
Section 9A of the Special Court Act contemplates that the Special Court shall
not be bound by the procedure laid down by the Code of Civil Procedure, 1908
and shall have the power to regulate its own procedure, but shall be guided by the
principles of natural justice. The other provision, which is relevant for our
purpose is Section 11 of the Special Court Act, which exclusively empowers the
Special Court to give directions in the matter of disposal of the property of a
notified person, under attachment. Sub-section (2) of Section 11 lists the
priorities in which the liabilities of the notified person are required to be paid
is plain that the Special Court Act which is a special statute, is a complete code
in itself. The purpose and object for which it was enacted was not only to
punish the persons who were involved in the act of criminal misconduct by defrauding
the banks and financial institutions but also to see that the properties,
moveable or immovable or both, belonging to the persons notified by the Custodian
were appropriated and disposed of for discharge of liabilities to the banks and
financial institutions, specified government dues and any other liability.
Therefore, a notified
party has an intrinsic interest in the realisations, on the disposal of any
attached property because it would have a direct bearing on the discharge of his
liabilities in terms of Section 11 of the Special Court Act. It is also clear
that the Custodian has to deal with the attached properties only in such manner
as the Special Court may direct. The Custodian is required to assist in the attachment
of the notified person's property and to manage the same thereafter.
The properties of the
notified persons, whether attached or not, do not at any point of time, vest in
him, unlike a Receiver under the Civil Procedure Code or an official Receiver
under the Provincial Insolvency Act or official Assignee under the Presidency
Insolvency Act (See : B.O.I. Finance Ltd. Vs. Custodian & Ors.13). The
statute 13 (1997) 10 SCC 488 2 also mandates that the Special Court shall be
guided by the principles of natural justice.
this juncture, it would also be profitable to briefly note the salient features
of the scheme formulated by the Custodian for sale of shares in terms of the
directions issued by this Court in its order dated 11th March 1996 (CA
No.5225/1995); the norms laid down by the Special Court vide order dated 17th
August 2000 and the modification of these norms by this Court vide order dated 23rd
August, 2001 (CA No.5326/1995).
What clearly emerges
from the scheme/orders is that the underlying object of the procedure/norms
laid down in the scheme is to ensure that highest possible price on sale of
shares is realised. It is manifest that with this end in view, this Court vide
order dated 23rd August, 2001, left it to the Special Court to decide what
procedure to adopt in order to realise the highest price for the shares. The scheme/norms
had been further modified by the Special Court and this Court in a way to
inject flexibility in the scheme in order to secure the highest price for the
examined the impugned order in the light of the Statutory provisions and the
norms laid down for sale of the subject shares, we are of the opinion that
there is substance and merit in the submissions made by learned counsel for the
appellants to the extent that the Special Court failed to make a serious effort
to realise the highest possible price for the said shares. We also feel that
the Special Court overlooked the norms laid down by it in its order dated 17th August
2000; ignored the afore-extracted directions by this Court contained in order dated
23rd August 2001 and glossed over the procedural irregularities committed by
As stated above,
Condition No.14 of the terms and conditions of sale, clearly stipulated that it
was only after the Special Court had ascertained the highest offer that Apollo
or its management was to be given an option to buy back the shares. However,
the letter of the Custodian dated 28th April, 2003, addressed to Apollo clearly
divulges the fact that the Custodian had, without any authority, invited Apollo
and its management `to bid' on 30th April, 2003, the settled date, when the report
of the Disposal Committee was yet to be considered by the Special Court.
It is evident from
Condition No.15 of terms and conditions of sale, that the Special Court has the
discretion to accept or reject any offer or bid that may be received for
purchase of shares. Therefore, the stand of the Custodian that inviting Apollo
to make the bid was necessarily in compliance of the scheme/condition of sale,
cannot be accepted inasmuch as it was for the Special Court to take such a
decision at the appropriate time and not the Custodian. The Custodian could not
have foreseen that the Special Court would not accept the bid of the sole
bidder viz. Punjab National Bank.
As aforesaid, so far
as issue of notification in terms of Section 3(2) is concerned, the Custodian derives
his power and authority from the Special Court Act but his jurisdiction to deal
with property under attachment, flows only from the orders which may be made by
the Special Court constituted under the said Act. It is obligatory upon the
Custodian to perform all the functions assigned to him strictly in accordance with
the directions of the Special Court.
In the present case,
although we do not find any material on record which may suggest any malafides on
the part of the Custodian yet we are convinced that by inviting Apollo to bid,
vide letter dated 28th April, 2003, the Custodian did exceed the directions issued
to him by the Special Court. However, we feel that this being in the nature of a
procedural omission, the alleged violation is not per se sufficient to nullify
the sale of shares.
next question for determination is whether or not the impugned decision of the
Special Court is in breach of the principles of natural justice, thereby vitiating
its decision to sell the subject shares to Apollo and the companies managed by
is true that rules of "natural justice" are not embodied rules. The phrase
"natural justice" is also not capable of a precise definition. The underlying
principle of natural justice, evolved under the common law, is to check arbitrary
exercise of power by any authority, irrespective of whether the power which is conferred
on a statutory body or Tribunal is administrative or quasi judicial. The
concept of "natural justice" implies a duty to act fairly i.e. fair
play in action. As observed in A.K. Kraipak Vs. Union of India14, the aim of
rules of natural justice is to secure justice or to put it negatively to prevent
miscarriage of justice.
Swadeshi Cotton Mills Vs. Union of India15, R.S. Sarkaria, J., speaking for the
majority in a three-Judge Bench, lucidly explained the meaning and scope of the
concept of "natural justice". Referring to several decisions, His
Lordship observed thus: (SCC p. 666) "Rules of natural justice are not embodied
rules. Being means to an end and not an end in themselves, it is not possible
to make an exhaustive catalogue of such rules. But there are two fundamental
maxims of natural justice viz. (i) audi alteram partem (ii) memo judex in re sua.
The audi alteram
partem rule has many facets, two of them being (a) notice of the case to be
met; and (b) opportunity to explain. This rule cannot be sacrificed at the
altar of administrative convenience or celerity. The general principle--as distinguished
from an absolute rule of uniform application-- seems to be that where a statute
does not, in terms, exclude this rule of prior hearing but contemplates a
post-decisional hearing amounting to a full review of the original order on merits,
then such a statute would be construed as excluding the audi alteram partem rule
at the pre-decisional stage.
Conversely if the
statute conferring the power is silent with regard to the giving of a
pre-decisional hearing to the person affected and the administrative decision taken
by the 14 (1969) 2 SCC 26215 (1981) 1 SCC 664 2 authority involves civil
consequences of a grave nature, and no full review or appeal on merits against that
decision is provided, courts will be extremely reluctant to construe such a
statute as excluding the duty of affording even a minimal hearing, shorn of all
its formal trappings and dilatory features at the pre-decisional stage, unless,
viewed pragmatically, it would paralyse the administrative process or frustrate
the need for utmost promptitude. In short, this rule of fair play must not be jettisoned
save in very exceptional circumstances where compulsive necessity so demands.
The court must make
every effort to salvage this cardinal rule to the maximum extent possible, with
situational modifications. But, the core of it must, however, remain, namely,
that the person affected must have reasonable opportunity of being heard and the
hearing must be a genuine hearing and not an empty public relations
exercise." (emphasis supplied by us)
is thus, trite that requirement of giving reasonable opportunity of being heard
before an order is made by an administrative, quasi judicial or judicial authority,
particularly when such an order entails adverse civil consequences, which would
include infraction of property, personal rights and material deprivation for the
party affected, cannot be sacrificed at the alter of administrative exigency or
can be exceptions to the said doctrine and as aforesaid the extent and its application
cannot be put in a strait-jacket formula. The question whether the principle has
to be applied or not is to be considered bearing in mind the express language
and the basic scheme of the provision conferring the power; the nature of the
power conferred; the purpose for which the power is conferred and the final effect
of the exercise of that power on the rights of the person affected.
the backdrop of the aforenoted legal principles and the requirement of
sub-section 4 of Section 9A of the Special Court Act, we are of the opinion that
in the present case the Special Court failed to comply with the principles of natural
justice. As noted above, the Special Court rejected the prayer of the appellants
to grant them 48 hours' time to secure a better offer. In fact, by his letter
dated 29th April, 2003 addressed by the Custodian to the notified parties, including
the appellants, the right of the appellants to bring better offer was foreclosed
by the Custodian, which evidently was without the permission of the Special
Special Court also ignored its past precedents whereby it had granted time to
the parties to get better offers for sale of shares of M/s Ranbaxy Laboratories
Ltd. There is also force in the plea of learned counsel appearing for the appellants
that the reason assigned by the Special Court in its order dated 30th April,
2003, for declining further time to the appellants, that deferment of decision on
the sale of shares would have resulted in the share market falling down is
unsound and unfounded.
As stated above, the share
market was already aware of the sale of a big chunk of shares of Apollo in view
of the advertisement published by the 2 Custodian and therefore, there was hardly
any possibility of further volatility in the price of said shares. We are thus,
convinced that the appellants have been denied a proper opportunity to bring a
better offer for sale of shares, resulting in the realisation of lesser amount by
way of sale of the subject shares, to the detriment of the appellants and other
notified parties. Therefore, the decision of the Special Court deserves to be
set aside on that short ground.
shall now advert to the plea strenuously canvassed on behalf of the respondents
that the Special Court having exercised the discretion vested in it under the Special
Court Act, keeping in view all the parameters relevant for disposal of the shares,
this Court may not interfere with the impugned order.
There is no quarrel with
the general proposition that an Appellate Court will not ordinarily substitute
its discretion in the place of the discretion exercised by the Trial Court unless
it is shown to have been exercised under a mistake of law or fact or in
disregard of a settled principle or by taking into consideration irrelevant material.
A `discretion', when applied to a court of justice means discretion guided by law.
It must not be arbitrary, vague and fanciful but legal and regular. (See : R. Vs.
Wilkes16 ).16 (1770) 4 Burr 2527
have therefore, no hesitation in agreeing with Mr. Vellapally to the extent
that same principle would govern an appeal preferred under Section 10 of the
Special Court Act. However, since we have come to the conclusion that the Special
Court has exercised its discretion in complete disregard to its own scheme and `terms
and conditions' approved by it for sale of shares and above all that the impugned
order was passed in violation of the principles of natural justice, we think that
the facts in hand call for our interference, to correct the wrong committed by
the Special Court.
the view we have taken above, we deem it unnecessary to deal with the other
contentions urged on behalf of the parties on the merits of the impugned order.
brings us to the question of relief. In view of our finding that the decision
of the Special Court is vitiated on the afore-stated grounds, it must follow as
a necessary consequence that in the normal course, the impugned order must be
struck down in its entirety.
However, bearing in
mind the fact that the sale of 54,88,850 shares was approved and all procedural
modalities are stated to have been carried out in the year 2003, we are inclined
to agree with Mr. Vellapally and Dr. Singhvi that at this stage, when 36.90
lakh shares of Apollo are claimed to have been extinguished, the relief sought for
by the appellants to 2 rescind the entire sale of 54,88,850 shares will be
impracticable and fraught with grave difficulties.
In our opinion,
therefore, the relief in this appeal should be confined to 4.95% of the shares,
subject matter of interim order, dated 29th May, 2003, extracted above.
the result, we allow the appeal partly; set aside the impugned order to the
extent indicated above and remit the case to the Special Court for taking necessary
steps to recover the said 4.95% shares from Apollo or its management, as the
case may be, and put them to fresh sale strictly in terms of the aforenoted norms
as approved by this Court vide order dated 23rd August, 2001. The shareholders
who will be affected by this order shall be entitled to the sale consideration
paid by them to the Custodian alongwith simple interest @6% p.a. from the date
of payment by them upto the date of actual reimbursement by the Custodian in
terms of this order.
in the facts and circumstances of the case, the parties are left to bear their
(ASOK KUMAR GANGULY)