LexNARENDRA KUMAR MAHESHWARI versus UNION OF INDIA & ORS.
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( NARENDRA KUMAR MAHESHWARI v. UNION OF INDIA & ORS. MAY 3, 1989 [SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.] Capital Issues (Control) Act, I947/Capital Issues (Exemption) Order, 1969: Sections 2, 3 and 12-Controller of Capital Issues-Scope of power and exercise of function in according sanction-Extent of. Companies Act, 1956: Section 8;](5)-'Compulsorily convertible debentures'-Floating charge-Debt equity ratio-What are-Whether a Company can deal with its property without the permission of debenture holders. Practice and Procedure: Grant of Interim Orders-Regard to be A B c had to principles of comity of courts administering same laws through- D out the country. Reliance Industries Ltd. (RIL) and Reliance Petrochemicals Industries Ltd. (RPL) are inter-connected and represented Companies in the large industrial house known as Reliance Group. RIL had pro- moted RPL. RPL was incorporated on 11.1.1988 and has been a cent E percent subsidiary of RIL. It was claimed that RPL would set up the largest petrochemical complex in India with foreign collaboration. RPL proposed to issue convertible debentures for raising capital for the project. The Controller of Capital Issues (CCI), who functions under the F Capital Issues (Control) Act, 1947 had, on 15th September, 1984 by way of press release issued certain non-statutory guidelines for approval of issue of secured convertible and non-convertible deben- tures. These guidelines were subsequently amended on 8.3.1985. Guidelines were also given by the CCI for issue of convertible cumula- tive preference shares, and for employees stock option scheme. G RPL had, on 4.5.1988, made an application to CCI for issue of debentures of the face value of Rs.200 crores fully convertible into equity shares on the following terms: A sum of Rs. JO being 5% of the face value of each debentures by H 43 44 SUPREME COURT REPORTS [1989] 3 S.C.R. A way of first conversion immediately into one equity share at par on allotment; (ii) A sum of Rs.40 being the 20% of the face value of each debenture by way of second conversion after three years but before four years from the date of allotment at a premium to be fixed by the Con- 8 !roller of Capital Issues; c (iii) The balance of Rs. ISO representing 75% of the face value of each debenture as third conversion after five years1 but not later than seven years from the date of allotment at a premium to be fixed by the Controller of Capital Issues. The CCI accorded his sanction for the issue of debentures on 4. 7. J 988. However, the sanction was amended on 19th July, 1988. The amendment put a non-transferability condition on the preferential share-holders of RPL. It was limited to the corporate sharesliolders of RIL and relaxed for individual share-holders of RIL. The amendment D also stipulated that the Company should obtain prior approval of the Reserve Bank of India, Exchange Control Department, for the allot- ment of debentures to the non-residents as required under the Foreign E · Exchange Regulation Act, 1973. On 26th July 1988, there was another amendment which restricted the transfer of shares allotted to the employees of RPL and RIL. The consent orders issued by the CCI were challenged in various High Courts, by way of writ petitions and a suit. Some High Courts issued injunctions restraining the issue of the debentures. This Court, on 19th August, 1988, restrained the aforesaid F issuance of injunctions by the High Courts, and issued directions for the issue of debentures. The cases pending in various High Courts were transferred to this Court. G In these transferred cases the consent orders of the CCI were challenged mainly on the grounds that: Despite the fact that RPL did not fulfil the requirements of a proper application and the necessary consent and approval, RPL's application was entertained and processed by the CCI with undue expedition and without application of mind; H The guidelines issued by the CCI himself were deviate:! from; NARENDRA KUMAR v. U.0.1. 45 -,, The CCI had processed the application of RPL in a hurry, within A "'\. ,, two months; The CCI did not take into account the fact that RIL had earlier issued debentures for manufacture of identical products; The CCI failed to note that RPL did not have the necessary licences, consents and approvals, from the relevant departments of the Government of India; .....____ The CCI failed to cons
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