RAY, J.

1. One Mr. Haresh Jagtiani, a practising advocate of the High Court of Bombay and a policy-holder under the Life Insurance Corporation of India and also holder of units issued by the Unit Trust of India and Mr. Shamit Majumdar, a holder of shares and debentures of Larsen & Toubro Ltd. filed a writ petition being No. 2595 of 1989 in the High Court of Judicature at Bombay against the Union of India and others including the financial institutions questioning the legality and validity of the consent given by the Controller of Capital Issues for the proposed issue of convertible secured debentures aggregating Rs. 820 crores by Larsen & Toubro Limited insofar as the said issue seeks to offer such convertible debentures to persons other than the existing shareholders and members and the employees of Larsen & Toubro Limited and praying for quashing the same as well as for a declaration that the transfer of 39 lakh shares of Larsen & Toubro Ltd. held by Unit Trust of India, Life Insurance Corporation of India, General Insurance Company and its subsidiaries to Trishna Investment & Leasing Ltd. through the instrumentality of BOB Fiscal Services Ltd. is arbitrary, illegal, mala fide and a fraud on the statutory powers of the respondents and is clearly ultra vires of Articles 14 and 39(b) and (c) of the Constitution on the allegations that in or around the middle of the year 1988 the respondents entered into a secret agreement by which a large chunk of the equity shares of Larsen & Toubro Ltd., the largest engineering company in India, would stand surreptitiously divested by the respondents in favour of the Ambani Group, the third largest monopoly house in India. This divestment was achieved not directly but, indirectly and with a motive to conceal the real nature of the deal by interpolating BOB Fiscal Services Ltd. : (a wholly owned subsidiary of Bank of Baroda) as the conduit for the transfer of shares from the public financial institutions to the satellite companies of the Ambani Group

2. The petitioners also alleged in the petition that pursuant to this secret agreement, the following events took place in quick succession

In or around August 1988, four satellite companies of Reliance Group, namely Skylab Detergents Limited, Oskar Chemicals Private Limited, Maxwell Dyes and Chemicals Private Limited and Pro-lab Synthetics Private Limited, gave a total deposit of Rs. 30 crores to an investment company associated with Ambanis who, in turn, deposited this amount with BOB Fiscal Services Ltd., a wholly owned subsidiary of Bank of Baroda, a nationalised bank

3. BOB Fiscal Services Ltd., which had been formed only three months earlier acquired either immediately before the above deposit, or immediately subsequent thereto, 33 lakh equity shares of Larsen & Toubro from UTI, LIC, GIC and its subsidiaries. Later, in January 1989 it acquired a further 6 lakh shares from the LIC

4. Within weeks after the deposit by the four companies mentioned above, Trishna Investments and Leasing Limited, another satellite company of the Ambani Group, paid the requisite amounts for the acquisition of the said 33 lakh shares in Larsen & Toubro from BOB Fiscal Services Ltd. to the latter through a stock broking firm and immediately thereafter the money advanced by the above four companies was returned by BOB Fiscal Services Ltd. through the investment company associated with Ambanis, which was earlier used as a conduit for making the deposit from the four satellite companies of Reliance Group

5. The deposit by the four companies was made immediately after the divestment of the shares by the respondents was okayed by the highest level in the government and the deposit was returned immediately after the Ambani Group was able to divert moneys taken by them in the name of Reliance Petrochemicals Ltd. by the issue of convertible debentures of the order of Rs. 594 crores

6. The said 33 lakh shares were registered in the name of BOB Fiscal Services Ltd. in the Register of Members of Larsen & Toubro Ltd. on October 11, 1988 and later, on January 6, 1989, a further 6 lakh shares were registered in the name of BOB Fiscal Services Ltd. on any valuation based on marked values of Larsen & Toubro Ltd. shares at the relevant time, the value of 39 lakh shares would cost not less than Rs. 45 crores

7. On the very day of the registration of the shares in the name of BOB Fiscal Services Ltd., namely, October 11, 1988, two nominees of the Ambani Group, Mr. Mukesh Ambani and Mr. M. Bhakta, a solicitor of Reliance Industries, joined the Board of Larsen & Toubro Ltd. and were co-opted as additional directors

8. Subsequently, on December 30, 1988, Mr. Anil Ambani another nominee of the Ambani Group was also co-opted on the Board of Larsen and Toubro Ltd., as an additional director

9. On January 6, 1989, the entire 39 lakh equity shares of Larsen and Toubro Ltd. registered in the name of BOB Fiscal Services Limited (of which 6 lakh shares transferred to BOB Fiscal Services Ltd. by LIC was registered in the name of BOB Fiscal Services Ltd. only on January 6, 1989) were transferred to Trishna Investments and Leasing Ltd., which is a satellite company of the house of Ambanis

10. Thus, BOB Fiscal Services merely acted as a conduit for funneling shares from the public financial institutions to the Ambani group and this interpolation of BOB Fiscal Services was necessitated to get over the legal impediments in the way of selling any part of the controlling shares held by the public financial institutions to private parties by private deals except to those already in management and at a price equal to two times the market price

11. The Chairman of Bank of Baroda, Mr. Premjit Singh, is closely linked to the house of Ambanis through the business of his son Harinder Singh. BOB Fiscal Services Ltd. is the wholly owned subsidiary of Bank of Baroda and it was incorporated only two months preceding the acquisition of Larsen & Toubro Ltd. shares by BOB Fiscal Services Ltd. In fact, the acquisition of L&T shares for the Ambani Group for which it had acted as a conduit is the first business of BOB Fiscal Services Ltd

12. Subsequently, on April 28, 1989, Mr. Dhirubhai Ambani, the Chairman of Reliance Group, become the Chairman of Larsen & Toubro Ltd., thus completing the process to takeover of the management of Larsen & Toubro by the Ambani Group

13. By this process, the public financial institutions which had virtual ownership and control of Larsen & Toubro Ltd. holding about 40 per cent shares of the company (with no other individual shareholder holding more than 2 per cent), voluntarily diluted their holdings to 33 per cent and parted with approximately 7 per cent to the house of Ambanis and made them the single largest private shareholder. This was done, in the submission of the petitioners, deliberately and by a design to legitimise the eventual takeover of Larsen & Toubro by the Ambanis. While the petitioners challenge the divestment of 7 per cent ownership rights in Larsen & Toubro Ltd. and the management of the company to the Ambani Group, the immediate and proximate provocation for this writ petition is the proposed issue of convertible debentures by Larsen & Toubro Ltd. now under the management of the house of Ambanis to raise Rs. 820 crores from stock market

14. The proposed issue has the effect of aggravating and perpetuating, and irretrievably divesting and transferring the ownership of Larsen & Toubro in favour of the Ambani group. The concealed and convert intent which is manifest in the direct effect of the proposed issue is to make Larsen & Toubro Ltd. a complete family owned and a decisively family controlled Industrial Corporation - whereas the openly declared policy of the government is to force the reverse viz. professionalise the existing family controlled companies. By the proposed issue, the house of Ambanis and the shareholders, debentureholders and employees of Reliance Industries and Reliance Petrochemical Industries Ltd. would collectively hold 35.5 per cent of the ownership rights in Larsen & Toubro and will be single largest block or group in the company. This preferred group which is not in law entitled to any issue of shares from Larsen & Toubro Ltd., has been chosen to be the preferential beneficiaries of the scheme under which they would get shares in Larsen & Toubro Ltd. at Rs. 60 per share when the shareholders of Larsen & Toubro Ltd. themselves (who, by law, are entitled to further issue of shares from Larsen & Toubro Ltd.) would be issued Larsen & Toubro shares under the convertible debentures issued in April 1989 only at Rs. 65 per share. Thus, as against 35.5 per cent holding of Ambani-Reliance Group, the public finance bodies, which held 40 per cent shares before they diluted their holdings in favour of the Ambani group, would have had their holding further diluted to only 22.9 per cent as a result of the present issue. In other words, by approving the terms of the proposed issue the public financial institutions have agreed to a further dilution of their holdings from 32.8 per cent to 22.9 per cent without any consideration whatsoever for agreeing to such reduction and to pass on their vested rights under Section 81 of the Companies Act to preemptive allotment of shares in Larsen & Toubro to the members, debentureholders and employees of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. It is in this background significant that the preferential allotment to the shareholders, debentureholders and employees of the house of Ambanis who have no statutory right, offers to them shares in Larsen & Toubro Ltd. at a premium of only Rs. 50 per share, while in the fully convertible debentures issue made by Larsen & Toubro Ltd. in April/May 1989 the existing shareholders of Larsen & Toubro were given conversion rights at a premium of Rs. 50 per share in the first conversion and Rs. 55 per share in the second conversion i.e. Rs. 5 more than what the Reliance Group is called upon to pay. It means that while the existing shareholders of Larsen & Toubro were paying for their own shares a premium of Rs. 50 or Rs. 55 per share, new group of shareholders, debentureholders and employees of the house of Ambanis would be getting Larsen & Toubro shares at a premium of only Rs. 50. It means that, by making extraordinary favour to a totally different group which is not entitled to Larsen & Toubro shares, the Ambani group is creating a favoured lobby of their own, almost a clan, who are already their shareholders, debentureholders and employees to act as a group to own and control Larsen & Toubro Ltd. This is a device to perpetuate and aggravate their own decisive control over Larsen & Toubro, to which the public financial institutions are willing and enthusiastic parties inside the Boardroom and in the general meeting of Larsen & Toubro Ltd

15. In the facts and circumstances the petitioners pleaded that they are entitled to a declaration that the divestment by the respondents of the controlling shares in Larsen & Toubro to the house of Ambanis in a secret and circuitous arrangement is arbitrary, illegal, mala fide and a fraud on the statutory powers of the respondents. It was further pleaded that pursuant to this secret arrangement the financial institutions such as the UTI, LIC, GIC and its subsidiaries divested themselves of 7 per cent shares of Larsen & Toubro Ltd. in favour of Ambani Group in an illegal and arbitrary manner as a result of which the Ambani Group became the single largest private shareholder. This paved the way for the said private monopoly group and the government to rationalise the takeover of the management of Larsen & Toubro Ltd. by the Ambani Group with the active connivance and support of the Central Government

16. The modus operandi adopted for the transfer was as under

(a) In the month of May 1988, Bank of Baroda of which Mr. Premjit Singh is the Chairman, forms a subsidiary for merchant banking under the name and style of BOB Fiscal Services P. Ltd. This Company became a public company under Section 43-A of the Companies Act, 1956, in June 1988. Mr. Harjit Singh, son of Premjit Singh, owned a company Krystal Poly Fab. Ltd. whose only business is texturising of partially oriented yarn from Reliance Industries Ltd. and the supply of texturised yarn back to Reliance Industries Ltd. or its nominees

(b) On August 5, 1988, four satellite companies of the House of Ambanis, viz. Skylab Detergents Ltd., Oscar Chemicals Pvt. Ltd., Maxwell Dyes & Chemicals Pvt. Ltd. and Pre-Lab Synthetics Pvt. Ltd. gave a total deposit of Rs. 30 crores to an investment company, associated with Reliance who, in turn, deposited the same amount with BOB Fiscal Services(c) Either immediately preceding this deposit or immediately thereafter, BOB Fiscal Services acquired 33 lakh equity shares in Larsen & Toubro Ltd. from the UTI, LIC and GIC and its subsidiaries. Later, it acquired a further 6 lakh shares in Larsen & Toubro Ltd. from the LIC. The manner in which the transfer had been effected by the public financial institutions and the bulk sale amounting to about 7 per cent of the then share capital of Larsen & Toubro Ltd. left no one in doubt about what the financial institutions intended to do, viz. they intended to shed a vital 7 per cent of the ownership rights held by them in Larsen & Toubro Ltd

(d) In July 1988 Reliance Petrochemicals Ltd. of the Ambani Group had issued convertible debentures for Rs. 594 crores to public and others and had raised a vast sum of monies as subscription. The petitioners understand that as soon as the above funds became available to the Ambani Group for employment, a part of it was diverted for acquisition of Larsen & Toubro Ltd. shares not directly in the name of Reliance Industries Ltd. or Reliance Petrochemicals Ltd. but in the name of faceless, benami concerns of the Ambani group with virtually no financial standing of their own

(e) Thereafter on October 11, 1988 the 33 lakh equity shares of Larsen & Toubro Ltd. acquired by BOB Fiscal Services Ltd. were registered in the register of members of Larsen & Toubro Ltd. in Folio No. B 69567 at pages 1851 to 1858. These shares had been transferred by LIC, UTI, GIC and its subsidiaries to BOB Fiscal Services Ltd

(f) On the same day two nominees of the Ambani Group Mr. Mukesh Ambani and Mr. M. L. Bhakta, a solicitor of Reliance Industries Ltd., who are also directors of Reliance Industries Ltd. and Reliance Petrochemicals Ltd., were co-opted on the Board of Larsen & Toubro Ltd(g) It is evident from the above events that the sale to BOB Fiscal Services Ltd. by the financial institutions was accepted by all parties concerned to be a sale to the Ambani Group itself. Otherwise there is no provocation or justification for the financial institutions to propose or to support appointment of Mr. Mukesh Ambani and Mr. M. L. Bhakta, who are the nominees of the Ambani Group, on the Board of Larsen & Toubro Ltd. The date of the transfer to BOB Fiscal Services Ltd. and the date of appointment of the Ambani Group nominees on the Larsen & Toubro Ltd. Board being the same and not a mere coincidence

(h) Again, in December 1988, Mr. Anil Ambani, another nominee of the Ambani Group was co-opted on the Board of Larsen & Toubro Ltd. as an Additional Director with the support of financial institutions even though the 33 lakh shares still stood in the name of BOB Fiscal Services Ltd

17. It has been further pleaded that Trishna Investments & Leasing Ltd. to which the 33 lakh equity shares of Larsen & Toubro Ltd. were sold by the financial institutions through the instrumentality of BOB Fiscal Services Ltd. was incorporated as a private limited company on October 1, 1986 with a paid up capital of Rs. 11, 000. It is evident that even after acquisition of 3300 equity shares of Rs. 10 each to Reliance Industries Ltd., the paid up share capital was only Rs. 44, 000

18. An affidavit in opposition was filed on behalf of the respondents by Mr. S. D. Kulkarni, a wholetime Director and Vice-President (Finance) of Larsen & Toubro Ltd. In para 6 of the said affidavit it has been stated that the shareholders are different and distinct from the company and do not have any interest whatsoever in the property of the company unless and until the winding up takes place. The company is a distinct legal entity and it does not have in law or fact any control over the shareholders in regard to the dealing with their investment in the new company or any other company. It has been further stated that the Resolution regarding the issue of the debentures was taken at a special General Meeting of the Company and the decision is a near unanimous decision of the 1.5 lakh shareholders with only one dissent among them. It was stated in these circumstances the writ petition under Article 226 was not maintainable. It has also been stated that the entirety of the consent granted by the CCI under the Act is legal and valid. These statements have been made by the deponent without filing any proper verification or affidavit and as such there was no proper controvertion or denial of the statements made in the writ petition. The other affidavits filed on behalf of the respondents are also not affirmed or verified duly in accordance with the provisions of the rules of the Supreme Court nor in accordance with the provisions of Order 19 Rule 3 of the Code of Civil Procedure

19. The High Court of Bombay by its judgment and order dated September 29, 1989 dismissed the writ petition at the preliminary hearing

20. A Letters Patent appeal was filed in the High Court at Bombay against the said judgment by the petitioners. The respondents filed Transfer Petition Nos. 506-507 of 1989 and Transfer Petition Nos. 571-573 of 1989 in this Court under Article 139-A of the Constitution of India praying for the transfer of the said Letters Patent Appeal No. (sic)/89 as well as Writ Petition No. 13199 of 1989 filed in the High Court at Madras by one Mr. N. Parthasarathy, a shareholder of L&T Ltd. against the Controller of Capital Issues and Larsen & Toubro Ltd. and Writ Petition No. 18399 of 1989 filed in the Karnataka High Court by Prof. S.R. Nayak and another against the Union of India and others raising the similar questions

21. This Court vide its order dated November 9, 1989 allowed the Transfer Petition Nos. 506-507 of 1989 and 571 to 573 of 1989 and directed that the LPA No. (sic) of 1989 against the judgment passed in Writ Petition No. 2595 of 1989 pending in the Bombay High Court be transferred to this Court for final disposal. The Writ Petition No. 13199 of 1989 filed in the Madras High Court and the Writ Petition No. 18399 of 1989 filed in the Karnataka High Court were also transferred to this Court. These matters on transfer to this Court were numbered as Transfer Case No. 1 of 1990, Transfer Case No. 61 of 1989 and Transfer Case No. 62 of 1989 respectively

22. The Transfer Petition Nos. 458-467 of 1990 praying for the transfer of cases filed in different High Courts raising the similar grounds are allowed and the transferred cases arising out of these are also heard along with the Transferred Cases Nos. 1 of 1990, 61 of 1989 and 62 of 1989

23. Two questions that pose themselves for consideration in all these above cases are : (1) whether the surreptitious divestment of 39 lakhs shares of L&T, a large industrial undertaking by sale through the instrumentality of BOB Fiscal Services Ltd., a subsidiary of a nationalised bank i.e. Bank of Baroda by the public financial institutions - GIC, LIC, UTI and thereby helping a private monopoly house of the Ambani Group to acquire the said shares and thereby to get into the management of the Public Company amounts to an arbitrary exercise of statutory power of the State and the respondents. Secondly, whether the consent accorded by Controller of Capital Issues, to preferential issue of debentures by Larsen & Toubro Ltd. of Rs. 310 crores for being subscribed by the shareholders and employees of RPL, RIL amounts to immeasurable injury and prejudice to the public without any application of mind and thereby enabling the Ambani Group to have the largest shareholding and thereby to control the L&T Company which is ultra vires Articles 14 and 39(b) and (c) of the Constitutions

24. The Larsen & Toubro Ltd. is a public limited company incorporated under the Companies Act 8 of 1913 and it is recognised as a Premier Engineering Company in the country with a pool of highly trained and experienced people. It has been engaged in diverse activities in the engineering field, cement manufacture, shipping, switchgear, industrial machinery, electrical equipments etc. and various other core sector industries including manufacture of sophisticated equipment for space and defence programmes of the country. On October 1, 1986, Trishna Investment and Leasing Ltd., a satellite company of the Ambani Group was incorporated with paid up capital of Rs. 11, 000 (1100 shares of Rs. 10 each). This continued till December 29, 1988 when its capital was raised to Rs. 44, 000

25. In May 1988, BOB Fiscal Services Ltd., was incorporated as a wholly owned subsidiary of Bank of Baroda, a nationalised bank. The entire share capital of BOB Fiscal Services Ltd. was contributed by Bank of Baroda aggregating to about Rs. 10, 00, 00, 000 (Ten Crores) to undertake mutual fund activities. It is to be taken notice of in this connection that Premjit Singh, was the Chairman of the Bank of Baroda at the relevant time and his son Harjit Singh owned Kristal Poly Fab. Ltd. whose only business is with RIL Ltd. Premjit Singh is closely linked to the house of Ambanis through the business of his son Mr. Harjit Singh. BOB Fiscal Services Ltd., was incorporated as a subsidiary of Bank of Baroda only two months prior to the acquisition of shares of Larsen & Toubro Ltd., for the Ambani Group for which it had acted as a conduit and it was the first business of BOB Fiscal Services Ltd. On July 15, 1988 BOB Fiscal Services Ltd., approached Life Insurance Corporation of India and Unit Trust of India to sell to it two baskets, of blue chip shares of the value of Rs. 25 crores approximately each. This will be evident from para 6(c) of the affidavit of Unit Trust of India. On August 1, 1988 UTI and LIC each offered to sell to BOB Fiscal Services Ltd. a basket of shares valued at Rs. 25 crores. The UTI basket was valued at Rs. 23.66 crores including 10 lakh Larsen & Toubro Ltd. shares which were sold at Rs. 108 per share. The LIC basket was valued at Rs. 25.56 crores and it included 15 lakh L&T shares. L&T shares constituted approximately 55 per cent of the value of the two baskets. This is clear from para 6(d) of the affidavit of Unit Trust of India. On August 3, 1988 BOB Fiscal Services Ltd. accepted the two baskets of shares comprising 25 lakhs L&T shares and shares of 7 other companies valued in total Rs. 50.23 crores. On August 5, 1988 four satellite companies of the Reliance Group gave Rs. 30 crores to V.B. Desai, Finance Broker, who in turn gave a short term call deposit of Rs. 30 crores to BOB Fiscal Services Ltd. as is evident from the affidavit filed by BOB Fiscal Services Ltd. On August 5, 1988, BOB Fiscal Services Ltd. sold 25 lakhs L&T shares to V.B. Desai, the Broker. Thus BOB Fiscal Services Ltd. acquired 33 lakhs equity shares of L&T from UTI, LIC, GIC and its subsidiaries. Later in January 1989 it acquired a further 6 lakh shares from the LIC within weeks after the deposit by the four companies mentioned above. Trishna Investment and Leasing Ltd., another satellite company of the Ambani Group paid the requisite amounts for the acquisition of the said 33 lakh shares of L&T from BOB Fiscal Services Ltd. through the Finance Broker, V. B. Desai, associated with Ambanis. It is convenient to mention in this connection that in July 1988 the Reliance Petrochemicals Ltd. of the Ambani Group issued convertible debentures for Rs. 594 crores to the public and others and had raised a vast sum of rupees as subscription. The Ambani Group diverted a part of it for acquisition of L&T shares in the name of benami concerns of their group who had virtually no financial standing

26. On October 11, 1988, 33 lakh shares were registered at a meeting of Board of Directors of L&T in the name of BOB Fiscal Services Ltd. On the same day two nominees of RIL, M. L. Bhakta and Mukesh Ambani, who are directors of RIL/RPL were co-opted as Directors of L&T. The nominee directors of UTI, LIC and IDBI did not raise any question as to the induction of Ambanis on the Board of L&T Company even though not a single share of L&T stood in their names. On December 30, 1988, Trishna Investment & Leasing Ltd. issued 3300 equity shares of Rs. 10 each to RIL and RPL Ltd. The capital of Trishna Investment was Rs. 44, 000. On that day the registered office of Trishna Investment was shifted to Maker Chamber IV i.e. the office of RIL Ltd. On December 30, 1988 Anil Ambani was co-opted as Director of L&T without any question being raised by nominee directors of UTI, LIC and IDBI. On January 6, 1989 the 39 lakh shares sold by UTI, LIC and GIC to BOB Fiscal Services Ltd. were lodged by BOB Fiscal Services Ltd. for transfer in favour of Trishna Investment & Leasing Ltd. whose registered office was located at the office of RIL. Thus BOB Fiscal Services Ltd. merely acted as a conduit for funnelling shares from the public financial institutions to the Ambani Group. This is apparent from the fact that Mr. Premjit Singh, the Chairman of Bank of Baroda who is closely linked to the house of Ambani through the business of his son Mr. Harjit Singh and BOB Fiscal Services Ltd. is the wholly owned subsidiary of Bank of Baroda and it was incorporated only two months preceding the acquisition of Larsen & Toubro Ltd. shares by it

27. On April 28, 1989 Dhirubhai Ambani, the Chairman of Reliance Group, became the Chairman of Larsen & Toubro. By this process the public financial institutions which held 40 per cent of the shares of L&T company voluntarily diluted their holding to 33 per cent and parted with approximately 7 per cent to the house of Ambanis and made them the single largest private shareholder. This was done as submitted by the appellants deliberately and with a design to legitimise the eventual take over of Larsen & Toubro by the Ambanis. It is to be noticed that on May 26, 1989 the Board of Directors of L&T decided to convene an Annual General Meeting on July 27, 1989. Board also resolved to recommend that Rs. 8 crores be invested in two specified companies and that a further sum of Rs. 50 crores be invested in the purchase of equity shares in any other company. On June 23, 1989 Board of Directors of L&T further resolved to invest a sum of Rs. 76 crores in the purchase of Equity Shares of RIL. On July 21, 1989 RIL and RPL wrote letters to L&T seeking suppliers credit to the extent of Rs. 635 crores for projects which they planned to entrust to L&T. It is appropriate to note that prior to this the total inter-corporate investment of L&T was approximately Rs. 4 crores and investment in the shares of other companies was less than Rs. 50 lakhs. On July 22, 1989 the Board of Directors of Larsen & Toubro approved a proposal to raise funds by issue of convertible debentures amounting to Rs. 920 crores. Board resolved that notice should be issued convening an Extraordinary General Meeting on August 21, 1989 to consider special resolution for issue of convertible debentures of Rs. 920 crores

28. On July 26, 1989 two applications were made to CCI for (I) the rights issue of Rs. 200 crores and (II) the public issue of Rs. 720 crores. The application states that it is proposed to reserve preferentially allotment of Rs. 360 crores out of public issue (i.e. 50 per cent of the public issue) for L&T group companies viz. Reliance Industries Ltd. and Reliance Petrochemicals Ltd. The application further mentions that Dhirubhai Ambani is the Chairman and Mukesh Ambani is the Vice-Chairman of L&T and that Anil Ambani and Mr. M. L. Bhakta are Directors. On August 11, 1989 further letter was addressed by L&T to the CCI forwarding copies of MRTP clearance with regard to projects awarded to L&T made by Central Government under Section 22(3)(a) of MRTP Act. On August 29, 1989 CCI passed an order approving the issue of convertible debentures. The prospectus is dated September 5, 1989 stating that the company is part of the Reliance Group

29. We have heard the arguments of the respondents. The public financial institutions tried to justify the transfer of blue chip equity shares of Larsen & Toubro Ltd. on the ground that while deciding to sell those shares they acted purely on business principles and sold those shares at a very high market price and thereby earned huge profit. These sales were made in order to earn much profit for the interest of their constituents and for recycling the fund for investing in the business by purchasing shares of other companies in public interest and for interest of money market. There is nothing hanky and panky in it nor it is effected with the motive of diluting shares held by public financial institutions in order to facilitate the increase in the holding of Ambani Group, a private monopoly house, to get into the management of this public company. It has been further contended on behalf of the respondents 3 to 6 and 9 that the transfer of 39 lakh shares of Larsen & Toubro were not made in favour of satellite companies of Ambani Group, through BOB Fiscal Services Ltd. which is a wholly owned subsidiary of Bank of Baroda, surreptitiously and discreetly on the basis of a design and a secret arrangement by transferring 7 per cent out of 40 per cent of the shareholding in L&T and thus reducing their shareholding in the company to 33 per cent. It has also been submitted that in transferring those equity shares the financial institutions acted purely on business principles and to earn profit by these transactions and in the case of LIC and UTI in the interest of the policy holders and the unit holders as the case may be. It has also been urged that the acceptance of the requests made by the subsidiary of Bank of Baroda i.e. BOB Fiscal Services for selling the blue chip shares of L&T to them at the highest market price through the broker was in public interest inasmuch as if all those 39 lakh shares had been put in the stock market for sale it would have created an adverse effect on the company and there would have been a run affecting adversely the interest of the L&T company. It has also been contended that it was not possible to know the actual purchasers of these shares from respondent 10, BOB Fiscal Services Ltd. Certain decisions of this Court have been cited at the bar

30. Considering the entire sequence of events and the manner in which the financial institutions sold those 39 lakh equity shares of L&T to BOB Fiscal Service and it immediately after purchase of those shares with the 30 crores of rupees given by 4 satellites of the Reliance Group transferred those shares to Trishna Investment and Leasing Ltd., a satellite of Ambani Group though it had a capital of only Rs. 44, 000 and money required for purchase was at least Rs. 39 crores leads to the conclusion that such transfers had been made to help the Ambanis to acquire the shares of L&T Company in a circuitous way. Moreover, the fund for purchase of the said shares was provided by Ambani Group from out of the money received by issue of convertible debentures for Rs. 594 crores to public and others. Furthermore, immediately after acquisition of shares of L&T Ltd. Mukesh Ambani and M.L. Bhakta, who are Directors of RIL/RPL were co-opted as Directors without any question as to their induction in the Board of Directors even by the nominee Directors of financial institutions even though the shares were not registered in their names. Anil Ambani was also co-opted as Director in December, 1988 and in April 1989, Dhirubhai Ambani became Chairman of L&T. All these circumstances taken together clearly spell some doubt whether the transfer of such a huge number of 39 lakh shares by the public financial institutions was for public interest and was made on purely business principles. The public financial institutions should be very prudent and cautious in transferring the equity shares held by them not only being guided by the sole consideration of earning more profit by selling them but by taking into account also the factors of controlling the finances in the market in public interest. In L.I.C. of India v. Escorts Ltd. ( 1986 (1) SCC 264 [LQ/SC/1985/371] , 344 : 1986 AIR(SC) 1370, 1424) it was observed : (SCC p. 344, para 102)

"Broadly speaking, the Court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field .... The question must be decided in each case with reference to the particular action .... When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder, with all the rights available to such a shareholder." *

This observation, in my considered opinion, has no application to the facts of the instant case as the public financial institutions are not purchasing the shares of a company

31. However, I do not think it necessary to dilate on this point as the financial institutions have already bought back all the 39 lakh shares from Trishna Investment and Leasing Ltd. with the accretions thereon but at the same time we add a note of caution that the public financial institutions while transferring or selling bulk number of shares must consider whether such a transfer will lead to acquisition of a large proportion of the shares of a public company and thereby create a monopoly in favour of a particular group to have a controlling voice in the company if the same is not in public interest and not congenial to the promotion of business

32. The contention regarding the maintainability of the writ petition as a public interest litigation cannot be taken into consideration in view of the decisions of this Court in S.P. Gupta v. Union of India 1981 Supp(SCC) 87 : 1982 (2) SCR 365 [LQ/SC/1981/463] ), Bandhua Mukti Morcha v. Union of India ( 1984 (3) SCC 161 [LQ/SC/1983/375] : 1984 SCC(L&S) 389 : 1984 (2) SCR 67 [LQ/SC/1983/375] ). Even the case of L.I.C. of India v. Escorts Ltd. ( 1986 (1) SCC 264 [LQ/SC/1985/371] , 344 : 1986 AIR(SC) 1370, 1424) arose out of a public interest litigation

33. The next crucial question that falls for consideration is about the legality and validity of the consent given to the mega issue of debentures for the rights issue of Rs. 200 crores and for convertible issue of debentures of Rs. 620 crores out of which 310 crores of debentures were earmarked for issue to the shareholders and debentureholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. As stated hereinbefore that after the purchase of 39 lakh equity shares of L&T company from the public financial institutions, BOB Fiscal Services, a subsidiary of Bank of Baroda transferred the same on the same day on which the transferred shares were registered in its name in the Register of L&T to Trishna Investing and Leasing Ltd., a satellite of Ambani Group. It has also been alleged that after Dhirubhai Ambani became the Chairman of the Board of Directors of L&T Ltd. On April 28, 1989, Mukesh Ambani and M. L. Bhakta, Directors of RIL/RPL and Anil Ambani were co-opted as Directors of L&T. The Board of Directors of L&T at its meeting held on July 22, 1989 approved a proposal to raise funds by issue of convertible debentures of Rs. 920 crores and further resolved that notice should be issued convening an Extraordinary General meeting on August 21, 1989 to consider special resolution for issue of convertible debentures of Rs. 920 crores. Immediately thereafter on July 26, 1989 two applications were made to the Controller of Capital Issues, Department of Economic Affairs for sanction to the rights issue of debentures of Rs. 200 crores and for the public issue of debentures worth Rs. 720 crores. The application records that it is proposed to reserve/preferentially allot Rs. 360 crores out of the public issue (i.e. 50 per cent of the public issue) for L&Ts group companies viz. Reliance Industries Ltd. and Reliance Petrochemicals Ltd. The application also mentions that Dhirubhai Ambani is the Chairman and Mukesh Ambani is the Vice-Chairman of L&T and that Anil Ambani and Mr. M. L. Bhakta are Directors. On August 11, 1989 another letter was sent by L&T to the Controller of Capital Issues, respondent 2 stating inter alia that the Company wishes to modify their proposal by reducing the reservation for the shareholders of RIL/RPL from Rs. 360 crores to Rs. 310 crores etc. and the issue of total debentures was reduced to Rs. 820 crores. On August 21, 1989 at the Extraordinary General Meeting of L&T Ltd. resolution was passed 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 to be subscribed in the manner as stated therein. Respondent 2, Controller of Capital issue, by its letter dated August 29, 1989 addressed to M/s. Larsen & Toubro Ltd. with reference to its letter dated July 26, 1989 intimated that the Central Government in exercise of the powers conferred by the Capital Issues (Control) Act, 1947 gave their consent to the issue by L&T Ltd. of 12.5 per cent secured fully convertible debentures of the value of Rs. 820 crores in the manner specified therein

34. The consent given by the Controller of Capital Issues was challenged on the ground that it was given in undue haste without duly considering the question that providing the preferential allotment of debentures of Rs. 310 crores to the equity shareholders of RIL and RPL will increase considerably the holding of equity shares by the Ambani Group to control the public limited company. The consent order made by the Controller of Capital Issues was attacked mainly on the ground that the said order was made casually without any application of mind and without considering that the effect of the same order will be to help the Ambani Group to acquire debentures of the value of Rs. 310 crores specifically earmarked for preferential allotment to the shareholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. and thereby to have the control of the L&T, a public limited company. It has also been alleged that this consent has been given hurriedly within 24 hours of the making of the application for consent to the Controller of Capital Issues

35. An affidavit in reply has been filed on behalf of respondents 1 and 2, Union of India and the Controller of Capital Issues denying all these allegations. It has been submitted that the claim made in the writ petition that the undue haste in clearing the application (under the CCI Act) was shown by respondents 1 and 2 and the application was cleared in just 24 hours, is not correct. It is not correct that the approval was given by the empowered committee on August 21, 1989 at 4 p.m., even before the general body meeting of L&T took place. It has been submitted that the application by M/s. L&T Ltd. was dated July 26, 1989 and the consent was given on August 29, 1989. The charge is false, baseless and mischievous. It has been stated in paragraph 3 of the said affidavit that the preferential issue, per se, is not a novel idea. It has been stated that CCI has been permitting reservations for various categories out of public issue based on the requests made by companies after passing a special resolution in their general body meeting to that effect. There is no restriction on the shareholders of the company to offer shares of their company to anybody after passing a special resolution in the General Body Meeting as per Section 81(1-A) of the Companies Act. Through such resolution resolved at such meetings shareholders can also offer shares of their company to any person or corporate body who is not even connected with the company. However, CCI would not normally permit reservations for shareholders of any unconnected company out of public issue, unless it is offered to shareholders of associate/group company of the Issuing Company. It is submitted that Larsen & Toubro had indicated that Reliance Industries Ltd. (RIL) and Reliance Petrochemicals Ltd. (RPL) are their group companies. It is also submitted that Larsen & Toubro filed a copy of the special resolution passed in the General Body Meeting held on August 21, 1989 which permitted the company to offer its convertible debentures worth Rs. 310 crores to the shareholders of RIL and RPL. It is submitted that the CCI permitted similar reservation for shareholders of associate/group companies in the public issue of M/s. Apollo Tyres Ltd., M/s. Essar Gujarat Ltd., M/s. Bindal Agro Ltd., M/s. Chambal Fertilizers and several other companies. It is submitted that there was no reason for CCI to reject the request of Larsen & Toubro for this reservation as the shareholders of L&T had approved such reservation

36. It has been further submitted that the charge for favouring Reliance Group/Ambani Group is frivolous and misleading and seeks to convey a wrong impression and imputes motives for which there is no basis. It has been further submitted that the impugned issue had been consented by Central Government after due consideration, including the need for funds. It is submitted that the funds are required by the company for working capital needs, normal capital expenditure and for executing the turnkey contracts of L&T Ltd. It is submitted that L&T indicated the turnkey contracts including inter alia the Gas Cracker Project and Acrylic Fibre Project of Reliance Industries Ltd. and Caustic Chlorine Project of Reliance Petrochemicals Ltd., for Rs. 635 crores as projects to be executed. CCI has not permitted Reliance Industries Ltd. and Reliance Petrochemicals Ltd. to raise funds for these projects so far. Earlier funds raised from capital markets were used or/are being used for the following projects

RIL - PSF, PFV, PTA, LAB and Textile Units;

RPL - HDPE, PVCL, MEG

The allegation that for the same projects, CCI permitted L&T to raise funds is baseless. The financing detail of projects of RIL and RPL were also examined in Maheshwari case (Narendra Kumar Maheshwari v. Union of India, 1990 Supp(SCC) 440) in Supreme Court and no double financing of same project was found. Reliance Industries Ltd. and Reliance Petrochemicals Ltd. have given undertaking that these companies will not raise funds from public for financing the cost of projects to the extent suppliers credits are extended by L&T. It is stated that MRTP approval to Reliance Industries Ltd. for gas cracker does not provide for suppliers credit from L&T in the scheme of finance and it is submitted that this statement is correct. It is also submitted that CCI will take this into account before permitting any further issue, in future, to Reliance Industries Ltd. and Reliance Petrochemicals Ltd. for these projects. However, this aspect does not affect the consent order of L&T in view of the undertaking of RIL and RPL mentioned above

37. The application for consent was submitted to respondent 2 on July 26, 1989 for sanction. On August 21, 1989 at the Extraordinary General Meeting of shareholders of L&T, a resolution was passed with only one shareholder dissenting for the issue of debentures of Rs. 820 crores as provided therein. A copy of this resolution was sent to the Controller of Capital Issues who after duly considering the same accorded the consent on August 29, 1989. The argument that there has been complete non-application of mind by the Controller of Capital Issues in according the consent is not sustainable. Moreover, the Controller of Capital Issues issued a letter dated September 15, 1989 to M/s. Larsen & Toubro to note amendment of the condition of the consent order to the effect that fund utilisation shall be monitored by Industrial Development Bank of India. This will further go to show that the consent was given after due consideration in accordance with the provisions of Section 3 of the Capital Issue (Control) Act, 1947 (Act 29 of 1947)

38. Much arguments have been made as to the provision in the prospectus reserving preferential allotment of debentures of Rs. 310 crores to the equity shareholders of Reliance Industries Ltd. and Reliance Petrochemicals Ltd. mainly on the ground that it will increase the shareholding of the Ambani Group and thereby add to the monopoly control of Ambani Group over this public limited company. Under Section 2(g) of the Monopolies and Restrictive Trade Practices Act, 1969 "interconnected undertakings" means two or more undertakings which are interconnected with each other in any of the manners mentioned therein .. Explanation (I) - For the purposes of this Act, two bodies corporate, shall be deemed to be under the same management; .. (III) if one such body corporate holds not less than one-fourth of the total equity shares in the other or controls the composition of not less than one-fourth of the total membership of the Board of Directors of the other. In the prospectus of Larsen & Toubro Ltd. obviously it has been mentioned that Larsen & Toubro Ltd. is part of Reliance Group. Referring to the said provisions it has been contended on behalf of the respondents i.e. the financial institutions that mention of L&T company as part of the Reliance Group is quite in accordance with this provision. Apropos to this reference may be made to the provisions of Section 81(1-A) of the Companies Act, 1956 which are set out hereunder

"81. (1-A) Notwithstanding anything contained in sub-section (1), the further shares aforesaid may be offered to any persons (whether or not those persons include the persons referred to in clause (a) of sub-section (1)) in any manner whatsoever -

(a) if a special resolution to that effect is passed by the company in general meeting, or" *

39. In the Extraordinary General Meeting of L&T a special resolution was made providing for preferential allotment of debentures to the equity shareholder of RIL and RPL. So the reservation of debentures of the value of Rs. 310 crores of public issue for allotment to shareholders of RIL and RPL cannot be questioned. In the prospectus of L&T Ltd. under Business Plans it has been mentioned that the requirement of funds of the company for the period from October 1, 1989 to March 31, 1992 including in respect of suppliers credit to be extended to customers under turnkey projects/quasi-turnkey projects and for incurring capital expenditure on new plant and equipment, normal capital expenditure on modernisation and renovation, meeting additional working capital requirements and for repayment of existing loan liability, is estimated to be in the region of Rs. 1425 crores. The suppliers credits inter alia, include Rs. 510 crores to be extended to RIL in respect of its Cracker Project. The funds requirement is intended to be met out of the present issue of debentures to the extent of Rs. 820 crores and the balance would be met from internal accruals by way of short term borrowings, and out of the proceeds of the previous Debenture Issue (III Series). The consent was challenged on the ground that no MRTP clearance for the issue of capital under Section 21 or under Section 22 of the Monopolies and Restrictive Trade Practices Act, 1969 was given. It appears from the letter dated December 2, 1988 issued by Government of India to M/s. Reliance Industries Ltd. endorsing a copy of Central Governments order dated November 25, 1988 passed under Section 22(3)(e) of the MRTP Act, 1969 that it gave approval for the proposal of M/s. Reliance Industries Ltd. for setting up a cracker complex. The approval of Central Government was made under Section 22(3)(d) of the MRTP Act and communicated to M/s. Reliance Petrochemicals Ltd. by letter dated May 30, 1989. Consent was also given by the Central Government under Section 22(3)(a) of the MRTP Act for the establishment of a new undertaking for the manufacture of 20, 000 (sic) of Acrylic Fibre. Thus challenge to the consent given by Controller of Capital issues is, therefore, meritless and so it is rejected

40. It is pertinent to refer in this connection this Courts judgment in the case of Narendra Kumar Maheshwari v. Union of India (Narendra Kumar Maheshwari v. Union of India, 1990 Supp(SCC) 440) in which considering the duties of the CCI under the Controller of Capital Issues Act while giving consent it has been observed : (SCC pp. 481-82, para 68)

"That apart, whatever may have been the position at the time the Act was passed, the present duties of the CCI have to be construed in the context of the current situation in the country, particularly, when there is no clear-cut delineation of their scope in the enactment. This line of thought is also reinforced by the expanding scope of the guidelines issued under the Act from time to time and the increasing range of financial instruments that enter the market. Looking to all this, we think that the CCI has also a role to play in ensuring that public interest does not suffer as a consequence of the consent granted by him. But, as we have explained later, the responsibilities of the CCI in this direction should not be widened beyond the range of expeditious implementation of the scheme of the Act and should, at least for the present, be restricted and limited to ensuring that the issue to which he is granting consent is not, patently and to his knowledge, so manifestly impracticable or financially risky as to amount to a fraud on the public. To go beyond this and require that the CCI should probe in depth into the technical feasibilities and financial soundness of the proposed projects or the sufficiency or otherwise of the security offered and such other details may be to burden him with duties for the discharge of which he is as yet ill-equipped." *

41. Three applications for directions being I.A. No. 1, I.A. No. 2 and I.A. No. 3 of 1990 have been filed in T.C. Nos. 61 of 1989, T.C. No. 62 of 1989 and in T.C. 1 of 1990 by the L&T. Ltd. It has been stated therein that the Deputy Controller of Capital Issues by a letter dated September 15, 1989 has intimated M/s. Larsen and Toubro Ltd. that condition No. V of the consent letter provides that the utilisation of fund shall be monitored by Industrial Development Bank of India Ltd. The representatives of Industrial Credit and Investment Corporation of India Ltd. (ICICI) issued a letter to the L&T stating that it would not be correct for them as Debenture Trustees to give conversion of those debentures to equity shares before a reference was made to the Controller of Capital Issues and without obtaining prior written consent of the IDBI. The IDBI considered the unaudited statement of the utilisation of debenture fund up to March 31, 1990 and were of the opinion that the applicants should make the first call only after utilising substantially the surplus funds available to the extent of Rs. 226 crores in investments (after expenditure) up to June 30, 1990 satisfying the IDBI about the need for raising further funds by way of first call. This was communicated to the applicants by IDBIs letter dated May 7, 1990

42. The Board of Directors at its meeting held on May 11, 1990 considered the above circumstances as well as the proceedings pending in this Honble Court and decided that the Company could not proceed with the conversion of Part A of the debentures which was due on May 23, 1990. The Board authorised the Company Secretary to make the necessary application to the Controller of Capital Issues seeking directions for the course of action to be followed by the Company in regard to the conversion. The applicants letter dated May 15, 1990 to the Controller of Capital Issues pursuant to the aforesaid Board Meeting refers to the letter dated May 7, 1990 from IDBI as well as to the objections raised by the ICICI

43. The applicants sent a letter dated May 15, 1990 to the Controller of Capital Issues pursuant to the above Boards meeting. After lengthy and detailed discussion by the IDBI with the applicant, the IDBI was satisfied that the amount of funds that would be presently required would be to the tune of Rs. 650 to 700 crores. The company keeping this in view proposed to make a call (first and final) of Rs. 85 on or before October 31, 1990 in place of originally envisaged first call of Rs. 75 and the final call of Rs. 75 aggregating Rs. 150. The applicants recorded the above discussions and intimated IDBI of its modified proposal by its letter dated June 28, 1990

44. On June 29, 1990 the Board of Directors of the company were apprised of the relevant proposals as approved as approved by the IDBI. In the meeting of the Directors it was decided (though not unanimously) that directions of the Supreme Court be sought on the said proposals and that the company should take necessary steps to approach this Court and Madras High Court and implement the proposals after obtaining the directions and vacating the order of the Madras High Court

45. These interim applications were filed for following directions

(a)(i) that the size of the issue do stand reduced from Rs. 820 crores to Rs. 640 crores as follows

Public issue of debentures of Rs. 235 each Rs. 485 crores

Rights issue of debentures of Rs. 225 each Rs. 155 crores

Total Rs. 640 crores

(ii) that in place of the first call of Rs. 75 and the final call of Rs. 75 as originally provided for in the prospectus, a first and final call of Rs. 85 in the case of public issue and Rs. 80 in the case of the rights issue be made on the debentureholders on or before October 31, 1990

(iii) that the first conversion of Part A of the debentures into one equity share of Rs. 10 at a premium of Rs. 40 (premium of Rs. 30 in the case of rights issue) be made on December 1, 1990

(iv) that the second conversion of Part B of the debentures into two equity shares of Rs. 10 each at a premium of Rs. 50 be made on the date originally scheduled viz. May 23, 1991

(v) that the third equity conversion of Part C of the debentures be made on the date origina.