N. PARTHASARATHY ETC. versus CONTROLLER OF CAPITAL ISSUES AND ANOTHER ETC.

Citation: [1991] 2 S.C.R. 329 · Decided: 16-04-1991 · Supreme Court of India · Bench: B.C. RAY · Disposal: Dismissed

Cited by 1 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

• 
N. PARTHASARATHY ETC. 
v. 
CONTROLLER OF CAPITAL ISSUES AND ANOTHER ETC. 
APRIL 16, 1991 
[B.C. RAY AND N.M. KASLIWAL, J.) 
Constitution of India, 1950: Articles 14, 39(b) and (c) and 298---
Shares of public company held by State Instrumentalities-Sale of-
Public interest-Chance of creating business monopoly in private 
hands-Due consideration to ensure public interest-Need for. 
A 
B 
Articles 32 and 226---Public Interest Litigation-Petition against C 
grant of consent by Controller of Capital Issues-Alleged violation of 
Articles 14, 39(b) and ( c )-Maintainability of. 
Capital Issues (Control) Act, 1947: Section 3-Issue of deben-
tures-Consent of Controller of Capital issues-Whether given after due 
D 
consideration and application of mind-Variation in consent-Whether 
permissible-Decision as to utilisation of the amount received from 
public or approving a different consent order-Whether Courts have the 
power/jurisdiction-Preferential issue reserved for shareholders of 
inter-connected company-Validity of-Public interest-Constitutional 
directive under Article 39(b) and (c)-To be ensured by Controller of E 
Capital Issues while granting consent for public issue. 
Companies Act, 1956: Sections 55, 61, 62, 63, 72(l)(a), 81(1-A}, 
108, 110 and I I I-Special Resolution at general meeting-Consent for 
public issue-Granted by the Control/er of Capital Issues, after consi-
dering the Special Resolution-Third party acting on it and acquiring F 
rights by purchase of debentures-Change of consent order in respect of 
amount and purpose of utilisation-Whether could be effected contrary 
to the Special Resolution adopted in a general meeting-Preferential 
allotment to shareholders of interconnected Group Companies-
Validity of-Transfer of shares-Done surreptitiously and with mala-
fide intention-Effect of-Whether opposed to public policy and hence G 
illegal. 
Monopolies and Restrictive Trade Practices Act, 1969: Sections 
2(g), 21 and 22-"Interconnected undertakings"-Meaning of-
Clearance for capital issue-Approval given to Group Company-
Whether valid in respect of the inter-conneCted company. 
H 
329 
330 
SUPREME COURT REPORTS 
[ 1991] 2 S.C.R. 
A 
Out of the Equity Shares of M/s Larsen & Toubro Ltd. held by 
public financial institutions viz., UTI, LIC and GIC, 39 lakb shares 
were sold to BOB Fiscal Services, a subsidiary of Bank of Baroda. 
These shares were purchased by BOB Fiscal Services for Rs.30 crores 
.._ -
which was given by four satellite companies of Reliance Group. 
Immediately after the purchase, the shares were transferred and 
B 
registered in the name of Trishna Investing and Leasing Ltd. which was 
also a satellite of the Reliance Group. It had only a capital of Rs.44,000 
at that point of time. It was claimed that funds for the purchase of the 
shares was provided by Reliance Group from out of the amount 
received by way of debentures issued to public. Two Directors of the 
' 
Reliance Group were coopted as Director of Larsen and Toubro Ltd. 
,-
c 
even though the said shares were not registered in their names or in the 
name of Reliance Group. Even the nominee Director of the financial 
institutions did not question the induction of the two Directors. One 
more Director from the Reliance Group was later coopted as Director, 
which paved the way for the Chairman, Reliance Group to become the 
Chairman of Larsen and Toubro Ltd. also. 
D 
Thereafter the Board of Directors of Larsen and Toubro Ltd. at its 
meeting approved a proposal to raise funds by issue of convertible 
.--
debentures for Rs.920 crores. In the said meeting it was also resolved to 
issue a notice for convening an extraordinary General Meeting to con-
sider a special resolution for the proposed issue of convertible debeu-
E 
lures. Applications were made to the Controller of Capital Issues seeking 
sanction to the rights issue of debentures of Rs.200 crores and for public 
issue of debentures to the extent of Rs.620 crores. It was also stated in 
the application that it was proposed to reserve/preferentially allot 
-~ 
Rs.310 crores out of the public issue, to Larsen and Toubro's Group 
Companies viz., Reliance Industries Ltd. and Reliance Petro Chemicals 
F 
Ltd. 
In its extraordinary General Meeting, the shareholders of Larsen 
and Toubro passed a resolution authorising the Board of Directors of 
the company to issue 12.5 per cent fully secured convertible debentures 
of the total value of Rs.820 crores. Accordingly, the Controlle

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