161 165 of 1988
section Ganesh Arun Jaitely Miss Bina Gupta Miss Madhu Khatri AN Haksar Praveen Anand Anip Sachthey BL Pagaria PK Jain Udai Holla and T Sridharan for the petitioners
G Ramaswamy Soli J Sorabjee MH Baig FS Nari man HN Salve R Sasiprabhu SS Shroff Mrs PS Shroff and SA Shroff for the Respondents
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
In these transferred writ peti tions and one suit we are concerned with the powers func tions and the role of the Controller of Capital Issues
By an order dated 9th September 1988 this Court had directed that the four writ petitions and one civil suit ie WP No 179188 pending before the Delhi High court WP No 270888 pending before the Jaipur Bench of the Rajasthan High Court WP No 1217688 pending before the Karnataka High court WP No 438888 pending before the High Court of Bombay and Civil Suit No 117288 pending before the Civil Judge Junior Division Bench Baroda Gujarat be transferred to this Court for disposal
It would be appro priate to deal with the facts of one of these ie WP No 179188 which was filed in Delhi High Court in TC No 16188
The other writ petitions and the suit raise more or less identical problems and issues on more or less same facts
The petitioner in that writ petition is one Narendra Kumar Maheshwari and the respondents are the Union of India the Controller of Capital Issues and Reliance Petro chemi cals Ltd RPL
The case of the petitioner is that he is an individual who is a public spirited 58 person and is an existing shareholder of the Company known as Reliance Industries Ltd RIL which was the promoter of Reliance Petrochemicals Limited being the respondent No 3
The petitioner held at all relevant times 144 shares of RIL and 100 debentures of different categories
The respondent No 3 being RPL was a newly set up public limited company for the purpose of carrying on the business of manufacture of petrochemicals
These petitions were filed in different courts challenging the consent of the Controller of Capital Issues granted for the issue of shares Rs 50 crores and debentures Rs516 crores by the RPL
It was contended in the petition that the respondents Nos 1  2 being the Union of India and the Controller of Capital Issues ought not to have granted consent to respondent No 3 namely RPL to issue share and debenture capital at an aggregate value of approx
Rs600 crores
It may be mentioned that after these writ petitions and suit were filed attempts were made to obtain injunction restraining the issue of share capital and debentures as advertised
By an order dated 19th August 1988 passed by this Court this Court had restrained the issue of such injunctions and directed that the shares and debent ures would be issued irrespective of any order of injunction passed by any court or authority in India
Different cases as mentioned hereinbefore were thereafter transferred to this Court
On the basis of the said consent it was stated that the respondent No 3 had issued prospectus and at the relevant time had intended to open the issue from 22nd August 1988 of about 3 crores debentures of the face value of Rs200 each which was the largest convertible debentures issue in India
It was alleged that the respondents had adopted very sharp methods to collect money from the public and ultimate ly to defraud them
It was stated that under the terms of the prospectus each debenture of the face value of Rs200 would be fully convertible Respondent No 3 would issue one share of Rs 10 at par on the date of allotment
There would thus be an equity capital of about Rs30 crores in all on allotment
Further it was stated that the Company would convert Rs40 of each convertible debentures into share after 3 years and the balance of Rs 150 into share at any time between five and seven years
It was mentioned by the Company that it would convert at the second stage of conversion at such premium to be allowed by the Controller of Capital Issues
The petitioner alleged that it was not clear as to whether the investors would get 2 shares or 3 shares or 4 shares for each debenture at the second conver sion of Rs40
Similarly it was alleged that the last portion of Rs 150 would be converted into shares any time between five and seven years at which time again the Con troller would fix the premium for conversion
The 59 petitioner further stated that it was thus not clear what the equity capital of the Company would be whether it would be Rs 150 crores or Rs600 crores or whether the residual amount would go into reserve account or whether a separate account would be opened in respect of the premium
It was alleged that the respondent No 3 being RPL had been promot ed by RIL and the past history of RIL showed that the share prices of RIL had fluctuated widely leaving lot of scope for manipulations
It was alleged in the petition that there was no explanation from the company or anybody from the share market as to why the share prices fluctuated so widely and it was obvious that there were market operators who prop up or bring down the prices depending on how it suited their convenience
The share value of RIL the promoter company was subjected to wide fluctuations on account of the pur chase and sale operations of certain interested quarters close to the management of the respondent No 3 Company it was alleged
On more than one occasion during the past six months the sale of the share in the stock market was banned in some Stock Exchanges due to fall in price
It was alleged that it indicated the cooperation and support from the authorities for maintaining the fictitious value of the share in the market and thus on an equity capital of Rs 152 crores an amount of Rs800 crores in the premium account has been obtained but there would be no amount in General Reserve account because the Company had not earned anything worthwhile to put in General Reserve
It was further alleged that the lack of bona fide of the Reliance group was well known and that RIL had issued debentures of G  Series and had assured to pay interest up to 5th February 1988
It was alleged that the Company did not keep up this assurance but converted the debentures into equity shares in the month of August 1987 thereby avoiding payment of interest
In this manner it was alleged the Company saved interest of Rs30 crores whereas in fact it incurred a loss
The case of the petitioner was that the Company was obviously trying to repeat the same game through the new Company by maintaining the share price only on an equity capital converted on each debenture
The paramount duty of respondents Nos 1  2 before according permission was it was asserted to ensure that the requirement of the Company in raising such capital was bona fide
It was observed that no public interest was intended to be served by respondent No 1 as it had chosen to allow respondent No 3 to collect such huge amounts in excess of the requirement
It is further the case of the petitioner that the opera tions  of RIL Promoter subsequent to the raising of past issues made by it were subjected to severe criticisms both in the press and in the public
It was 60 pointed out that though the issue proposed was of shares of Rs50 crores and debentures of Rs516 crores the company was allowed to retain over subscription to the tune of 15 amounting to Rs7740 crores
It was alleged that the re spondent No 3 was a new Company and it should not be al lowed 15 retention and if it wanted to raise Rs600 crores it should have come out with an issue of that amount
It was further alleged that the respondent No 2 without considering the propriety of the situation allowed the respondent No 3 to make issue of the capital for the interest of a few people
Hence the sanction of the issue of convertible debentures of respondent No 3 calls for judicial review
It was also alleged that the sanction was approved at exorbitant terms 5 of the face value equal to nothing according to the petitioner would be converted at par on allotment another 20 Rs40 at a premium to be decided by the Controller of Capital Issues after 3 years but before 4 years of allotment and the balance of Rs 150 at such premium as might be permitted by the Controller of Capital Issues after 5 years but before the end of 7 years from the date of allotment
It was stated that the investors would be completely left thrown at the mercy of respondents Nos 3  4 and that till date no convertible debenture had been issued on such vague terms
In those circumstances it was submitted the consent of the Controller of Capital Issues was bad illegal on the ground hereinafter alleged The consent order was hit by arbitrary and capricious exercise of jurisdiction by respondent No 1
It was further alleged that the respondent No 3 s promoters ie RIL had been obtaining from respondent No 12 such Consent Orders on the ground that it was in a position to raise such huge moneys from the public for the purpose of implementation of its projects without recourse to the Financial Institutions
According to the petitioner for the first time in the corporate history of India RIL Promoter was allowed to raise Rs 100 crores by way of issuance of F  Series deben tures
On account of the campaigning through Brokers for attractive returns the public was misled and RIL wooed the public and collected Rs 406 crores
RIL had not made any allotment on a proper basis but made allotments on some basis of Private Placement 
It was further alleged that the management of RIL through its associate companies ob tained huge borrowals from nationalised banks and several bank employees got into trouble due to advancing of loans for the purpose of subscription in the F  Series debentures through the associated companies of respondent No 3RIL which had popularly come to be known as Reliance Loan Mela 
It was alleged that the Controller of Capital Issues and Union of India acted mala fide in issuing the consent order 61 which was designed to benefit respondent No 3 and prejudice the interests of the investing public
It was further al leged that in giving the consent order the respondent No 1 blatantly overlooked the magnitude of the sum of Rs600 crores proposed to be raised from the public through the new issue of debentures
It was alleged that the act of respondent No 12 was vitiated as in issuing the consent order respondent No 2 was influenced by extraneous considerations not germane to the public interest
The Capital Market in India has under gone turbulent changes in the recent years
Small investors such as employees workers and small business community were coming forward according to the petitioner for the purpose of investment in corporate sector
It was further stated that the small investors had no means of verifying the correctness or otherwise of the statements and the sound nessfinancial viability of any company
It was further alleged that the respondents Nos 12 had acted wrongly and illegally in allowing the respondent No 3 to raise share capital on premium for financing new projects
It was con tended in the petition of the petitioner that the consent order was a fraud
In those circumstances it was prayed that the court should exercise its jurisdiction under article 226 and set aside the consent order which was for the public issue on 22nd August 1988
The facts and the circumstances leading to this consent order have been stated in the affidavit on behalf of re spondent No 3 to the writ application
After disputing the locus of the petitioner who challenged the consent order for making the public issue of 125 Secured Convertible Debentures by 3rd respondent the respondent No 3 stated that the petition suffers from laches and delays
On behalf of respondent No 3 it was asserted that the public issues made by the 3rd respondent had been promoted by RIL
The RIL and RPL are inter connected and represented companies in the large industrial house known as Reliance Group 
According to respondent No 3 they represented India s fastest grow ing private sector companies and comprised the world s second largest investor family of over 30 lakhs investors
It was further asserted that the 3rd respondent would have India s largest private sector Petrochemical Complex for the manufacture of critically scarce raw materials
It was stated that the 3rd respondent would manufacture versatile raw material which was behind the plastic revolution par ticulars whereof have been mentioned in the Annexure
It was further stated that the petrochemical complex of the 3rd respondent would come up at Hazira District Surat in the 62 State of Gujarat and the production was planned to start in a phased manner between the next 18 24 months
The 3rd respondent would be setting up a state of art world class plant in collaboration with the world leaders in the respec tive fields ie a Du Pont Canada for HDPE b BF Goodrich  Co for PVC and c Scientific Design Co for MEG
The terms of the issue of debentures of the face value of Rs200 being fully converted into equity shares were the following i A sum of Rs I0 being 5 of the face value of each debentures by way of first conversion immediately into one equity share at par on allotment ii A sum of Rs40 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 Controller of Capital issues iii The balance of Rs 150 representing 75 of the face value of each debenture as third conversion after five years but not later than seven years from the date of allotment at a premium to be fixed by the Controller ofapital Issues
 The premium it was stated on behalf of respondent No 3 that would be charged at the time of conversion into equity shares would be as fixed and decided by the pre scribed statutory authority namely the Controller of Capital issues and the 3rd respondent and its Board of Directors would not have any say in the matter or be enti tled to fix the same on their own
It was further stated that subject to the necessary approvals being obtained in that behalf the shareholders and the convertible debenture holders of the respondent No 3 promoter company would be entitled to participate in all the future issues of the 3rd respondent
The fully convertible debentures of the 3rd respondent would thus be a growth instrument with different rights viz earning a fixed rate of interest from the first day till it was converted into equity and thereafter entitled to dividend that might be declared after conversion into Equity
It is to that extent different from a purely equity share on which investor would earn dividend only when profits are declared
Thus the instrument proposed by the 3rd respondent according to it has the best features of share as well as debenture
Apart from the above in accord ance with the application for listing made by the 3rd re spondent to the Bombay Stock Exchange and 63 Ahmedabad Stock Exchange the 3rd respondent has proposed that all the three components or parts of the instrument namely Part A  representing an equity share on first conversion Part B  being 20 of the face value of the debenture and Part C  being the balance 75 of the face value of the debentures would all be listed separately and independently so that after allotment an investor can sell if he so desires the convertible portion of the debentures being Part B  and C  and just retain the equity share being Part A 
It was intended to ensure both liquidity and appreciation in the hands of the investor
The products which were intended to be manufactured by the 3rd respondent were many namely a High Density Polyethylene HDPE and Poly Vinyl Chloride PVC which are raw materials behind plastic revolution b Mono Ethylne Glycol MEG is a critical polyester raw material HDPE and PVC being vital thermo plastic play an important role in the core sector and are used for manufacture of everything from films to pipes auto parts to cable coatings and containers to furnishings
It is not necessary for the issues involved in these applications to set out in detail the very many particulars given by the respondent No 3 in support of the contention that a petrochemical complex proposed to be set up by the new Company respondent No 3 would be beneficial socially and economically for the country as well as for the investors
The advantages of convertible debentures proposed to be issued at that time by the respondent No 3 were also high lighted
It is stated that debentures are treated as equity
The 3rd respondent s borrowing capacity remains unutilised and this would help it in implementing the future projects expeditiously
The first phase of the project is financed by the proposed issue of debentures and not by large capital borrowings from the public financial institutions except to the extent of foreign currency loans of Rs85 crores from them
The interest which would therefore have been pay able to the financial institutions will be paid to the debenture holders ensuring them a return and simultaneously the convertible clause which would have been applicable to term loans obtained from the financial institutions would be available to the investors thereby ensuring them growth in equity value
It was further stated that since the preferen tial allotment of 50 of the total issue was made to RIL shareholders the shareholding pattern of the 3rd respondent will be the most widely held people s shareholding in the country and it was pleaded that there will be at least 20 lacs shareholders of the 3rd respondent which would be a world market record
64 It was further stated that RIL who are the promoters of the project have one of the best track records for setting up of the Projects such as Polyester Staple Fibre PSF Polyester Filament Yarn PFY Linear Alkyl Benzene LAB and Purified Terphthalic Acid PTA plants at Patalganga in record time
Business records of Reliance s Vimal  and Recorn  were also emphasised
It is however not necessary for the purpose of the issues involved in these applications either to dilate upon these or to consider the correctness or otherwise of these assertions
Reliance s plant at Patal ganga complex in the State of Maharashtra and its beneficial effects to the community and the State as asserted on behalf of respondent No 3 are also not relevant
It was stated that Reliance is privy to the technology of the world leaders such as Du Pont of USA and Imperial Chemical Industries of UK
Mr Pageria learned counsel appearing for one of the petitioners Radhey Shyam Goyal tried to impress upon us that among the world leaders of technology Du Pont of USA and Imperial Chemical Industries of UK cannot claim such high position
Neither is it necessary nor is it possi ble for us to consider these assertions and denials
The industrial licences have been applied for and it was stated that pending the formation and incorporation of RPL on 41 1988 under the  RIL had under taken and performed various acts and deeds particulars whereof have been mentioned in the Statement of Facts
In the Statement of facts filed on behalf of respondent No 3 a list of consents and approvals obtained by the 3rd re spondent has also been indicated
It was further stated that pursuant to the order of this Court dated 19th August 1988 the public issue was made under the prospectus dated 27th July 1988 which opened on 22nd August 1988 and closed on 31st August 1988
There had been an overwhelming response to the issue from all catego ries of investors including nonresidents RIL shareholdersemployees and the issue was heavily oversub scribed
On behalf of the RPL it was stated that the time frame of 10 weeks commencing from 1st September 1988 and ending on th November 1988 had to be strictly adhered to
The provisions of Section 73 and other applicable provisions of the  the provisions of the Securities Contract and Regulation Act 1956 and the listing require ments of the Stock Exchanges were also complied with
It was stated on behalf of the 3rd respondent that for the purpose 65 of finalising the means of finance of HDPE PVC and MEG Projects RIL as the promoters of the 3rd respondent had engaged the services of the Merchant Banking Division of ICICI which is a public financial institution and one of the foremost consultants in the field
During the discussions which were initiated in the second half of 1987 with ICICI the idea of implementing these projects through a new inde pendent Company instead of RIL had taken shape duly taking into account the financial aspects management aspects issues related to management and operation control of set ting up the projects within the existing company vis a vis the setting up of the projects in the new company namely the 3rd respondent company was taken up
The 3rd respondent company and ICICI also considered various alternative means of financing project keeping in view the following criteria a That the project should be financially beneficial to the company
b That it should be financially attractive to the investor
c That it should be operationally easy for the company and the investor
d That it should meet the institutionalstock exchangeMinistry of Finance norms and guidelines as regards financing of projects
e That it should be sustainable and attractive enough in terms of the profitabilityservicing capability of the project
f That it should reduce the dependence of the company on institutional finance
g That it should encourage the capital market activity in India
The various alternative means of issue of security such as equity share andor convertible cumulative preference shares CCP andor partially convertible debentures andor non convertible debentures andor equity linked debenture issue andor fully convertible debentures were all examined by the management and ICICI at length from various aspects including the aforesaid aspect it was asserted on behalf of respondent No 3
It was reiterated that the Controller of Capital Issues had applied his mind and considered all relevant pertinent and proximate matters and the Controller bona fide bestowed painstaking consideration by examining the entire gamut of means of finance the volume of finance needed and types of securities marketability of securities conditions of the capital market and other relevant considerations as are normally and properly to be evaluated by him as an expert authority
A specialised expert statutory authority or agency under a valid and legal enactment has been set up for the purpose of examining on what basis securities such as share andor convertible debenture should be issued 66 and the merits of his conclusions are not open to judicial review
It has to be borne in mind that the writ petitioners were only potential investors in the shares and debentures proposed to be issued at the time when a large part of the averments had been made
It was open to them if they felt that the scheme was not attractive not to subscribe to the issues
It was however not possible for them contend the respondents to prohibit the issue
or prevent the taking of other steps in pursuance thereof
Respondents 3 and 4 have set out various reasons why an interim injunction should not be granted
These are unnecessary to be dealt with now when the matter is being finally disposed of
Two other affidavits are necessary to be referred to
One is the rejoinder affidavit on behalf of the petitioner in writ petition No 1791 of 1988 before the Delhi High Court and the other is on behalf of the Government
So far as the petition of Narendra Kumar Maheshwari is concerned it is necessary to note that he has stated that the capital market had undergone changes in raising issues and the investors had no means of verifying the correctness and soundness of the financial viability of the scheme
It was stated that the Central Govt did not take the responsibili ty for financial soundness of the scheme
It was asserted that a new share of a new company could not be raised at a premium but the Govt
had improperly permitted the issue of shares of a new company at a premium in the instant case
It was stated that the consent order of the Controller of Capital Issues stated that premium would be payable on the shares to be allotted on conversion which according to the deponent amounted to fraud on the investing public and the subterfuge to boost up the market value of shares of RIL
It was reiterated that the RPL had been promoted by RIL whose shares had fluctuated in the share market so widely for which no explanation came forth from the company
These fluctuations in the share market were according to the petitioner on account of purchases sales made by certain interested quarters close to the management
On many occa sions the sale of the share of RIL in the stock market was banned in some stock exchanges due to fall in prices which according to the deponent was a clear indication of cooper ation and support from the authorities
It was further alleged that there was discrimination in respect of time period of conversion of loaninvestment into equity between the shareholders of RIL and the investing public
Immediately on allot 67 ment the conversion of percentage of investment of the rights holders is 5349 whereas that of the investing public is only 5
At the end of 3 years from the debenture allotment date percentage debenture conversion of invest ment of the rights holders is 4651 and that of the invest ing public is nil
Hence after the end of 3 years time the percentage of conversion in investment of rights holders is 100 whereas that of the investment of right holders at the end of 3 years in figures is approx Rs 10750 crores and the investing public is only 2967 crores
Between 3 and 4 years of debenture allotment the percentage of conversion of allotment of rights holders is nil and that of the investing public is 20
Between 5 and 7 years of the debenture allot ment date the percentage of conversion of investment of the rights holders was nil and that of the investing public is 75
Thus the conversion of the debenture allotment between 3 and 7 years of rights holders is nil and that of the investing public is 95 which in figures comes to about Rs56373 crores
In a democratic set up in the country it was asserted on behalf of the petitioners the sanction of the issue amounted to concentration of wealth in one hand which brought danger to the national economy and was against the Directive Principles of State policy enshrined in the Con stitution
It was submitted that the validity of the consent order had to be decided on the merits of the case in the background of the aforesaid
The petitioner had every right to question the validity of the consent order it was stat ed
One consolidated reply to all these writ petitions on behalf of the Union of India through the Secretariat Minis try of Finance Deptt
of Economic Affairs and Controller of Capital Issues was filed by means of an affidavit affirmed by Mr Prabhat Chandra Rastogi who
at the relevant time was the Under Secretary in the Ministry of Finance and Deputy Controller of Capital Issues in the office of Con troller of Capital Issues
He has mentioned that the consent of Capital Issues was granted on 4th July 1988 and the same was amended to a certain extent on 19th  26th July 1988
He has explained in his affidavit the background of the circumstances leading to the consent order
In relation to the 3 projects namely i for manufac ture of 100000 tonnes per annum Polyvinyl Chloride PVC ii 60000 tonnes per annum of MEG Mono Ethylene Glycol and iii 50000 tonnes per annum
of HDPE High Density Polyethylene RPL submitted an application for issue of capital on or about 4th May 1988 in 68 the prescribed form
RPL proposed raising of capital by various instruments like equity shares cumulative con vertible preference shares CCP  partly convertible deben tures intended to be issued to the public to the share holders of RIL debenture holders and deposit holders of RIL
The original proposal for approval related to the following instruments Instrument Amount in Rs Crores Equity Reliance Industries Ltd 4700 Shareholders debentureholders 400 and deposit holders of Reliance Industries Ltd Public 600 Cumulative convertible Preference Shares CCPS Non resident IndiansForeign CollaboratorsIndian Resident Public 8100 Convertible Debentures Sharesholders debentureholders and 214 deposit holders of Reliance Industries Ltd Public 241 The instrument of convertible cumulative preference shares was proposed to be converted at a price to be fixed by the 2nd respondent at premium not exceeding Rs40 per share between the third and fifth year from the date of allotment
The debentures proposed were to be of the face value of Rs500 each and the conversion was to be of Rs200 into 10 shares as follows 6 of the face value Rs30 would be compulsorily converted into equity at par at 1 year from allotment
16 of the face value Rs80 would be compulsorily converted at 2 years from allot ment into equity at a premium to be decided at the time of conversion but not greater than Rs20 per share
69 18 of the face value Rs90 would be compulsorily converted into equity at 3 years from allotment at a premium decided at the time of conversion but not greater than Rs30 per share
60 of the face value Rs300 would be redeemed between 8th and th years from allot ment by draw of lots
 It appears that the Industrial Credit and Investment Corpn
of India Ltd for short ICICI was the lead finan cial institution and lead manager for the issue of capital of RPL and its merchant banking department having the necessary expertise was interacting between the 2nd re spondent namely the Controller of Capital Issues and RPL
Discussions were held with ICICI to evaluate whether the company could proceed with the proposal by respondent No 3 RPL by removing the instrument of cumulative preference shares as also the nonconvertible portion of the debentures
This would have been necessitated by the sluggishness in the capital market the market reactions to non convertible debentures and the discount at which such instruments were traded after they came into existence the complexity of cumulative convertible preference shares and the general reaction anticipated from the public for investment
It was stated that it was necessary to encourage investments and draw out savings from the home saving sector so that invest ments into productive and industrial sectors are promoted
The need to encourage growth of the Capital Market and to provide impetus for investment in a depressed market condi tion through several liberalisation steps were factors in the consideration of the Controller of Capital Issues so that on balance investment in the industrial sector in high priority industries could be encouraged
RPL revised its proposal under which it proposed to raise equity shares of Rs50 crores from RIL its promoter
The fully convertible debenture issue of Rs5 16 crores from public was sought to be subscribed to in a manner that 50 on preferential share basis to be allotted to shareholders debenture holders and fixed deposit holders of RIL
RPL made a suggestion for issue of debentures  of the face value of Rs200 each with the following terms and conditions i 5 of the face value of the debentures at par on allotment ii 20 of the face value inclusive of premium at a premium as may be decided in consultation with the Controller of Capital Issues at the end of the fourth year from the date of allotment
70 iii the residual portion inclusive of premium at a premium as may be decided in consultation with the Controller of Capital Issues at the end of the seventh year from the date of allotment
In view of the revised project cost it was felt that the promoter s contribution of Rs50 crores was less and RIL as promoters were told as asserted in the affidavit to in crease the promoter s contribution to 15 of the total project cost of Rs700 crores
RIL in view of this require ment agreed to bring in Rs 10750 crores as its contribu tion to RPL out of which a sum of Rs50 crores was directed to be kept as interest free unsecured loan at the time of allotment which would be converted into equity at par at the expiry of 36 months from the date of allotment of converti ble debentures
As a practice it is asserted respondent No 2 being the CCI observed that debenture holdersfixed deposit holders of RIL were not eligible for preferential reserva tion in the capital issue of RPL and thus RPL was not permitted to issue capital to these categories on preferen tial basis and only the shareholders of RIL were permitted preferential entitlement in accordance with the practice
By a Press Release dated 15th September 1984 the 2nd respondent had issued certain non statutory guidelines for approval of issue of secured convertible and non convertible debentures
These guidelines had been subsequently amended by Press Release dated 83
Guidelines were also issued by Press Release on 1981985 for issue of converti ble cumulative preference shares
There are guidelines issued by Press Release dated 181985 for employees stock option scheme
In accordance with the guidelines of 1591984 as amended on 83
1985 the consent for capital issue for secured fully convertible debentures was issued as the projects originally to be established in RIL were per mitted by the Deptt
of Company Affairs to be transferred to RPL
The application for industrial licences and endorse ments thereof from RIL to RPL had already been filed includ ing inter alia the endorsement of the letters of intent for the MEG Project
The scheme of finance for setting up of 3 projects namely PVC HDPE and MEG had already been approved by the Deptt
of Economic Affairs in favour of RIL promoter of respondent No 3 and the Deptt
of Company Affairs also approved the transfer of project to RPL and a revised scheme of finance was to be submitted by RPL
It was asserted that it was on the basis of appraisal by the ICICI a public financial institution which had evaluated the project cost for the 3 71 projects for the purpose of implementation of RPL
ICICI had evaluated the estimated project cost at Rs700 crores for setting up 3 undertakings of RPL post transfer from RIL to RPL for implementation
Applications for the endorsement of industrial licences and the Letter of Intent had been filed with the Deptt
of Industrial Development Secretariat for industrial Approvals and these were pending consideration
The object of the issue was setting up of a new project and was within the scope of the guide lines
The proposal contemplated was within the debt equity norms and ratio in accordance with para 4 of the non statu tory guidelines as the debt in the proposal aggregated to Rs47 1 crores
This is because debentures are considered as debt only when they are unredeemed beyond the period of 5 years as per Explanation to Section 5ii of the Capital Issues Exemption Order 1969
In the present case 25 of the face value of the debenture would stand redeemed by the 3rd and 4th year and before the 5th year and it would therefore not be considered as debt for evaluating debt equity ratio as per the guidelines
Similarly the promot er s contribution of Rs 100 crores plus 25 converted debentures at the end of 5 years would be categorised as equity representing share capital and free reserves convert ed from the total investment of Rs516 crores proposed by RPL
It was assumed to aggregate to Rs229 crores and debt equity ratio thus came to 2051 which approximates the ratio of 2 1
It was further asserted that these guidelines being non statutory and not rigid a relaxation in the norm of debt equity ratio of 21 is considered favourably for capi tal intensive projects like petrochemicals which require large investments as would appear from the Note annexed to the guidelines
The guidelines postulate that these deben tures should be secured
The proposal itself contemplated that the security would be in such form and manner as re quired by the trustees for the debenture holders for con vertible debentures
It was asserted that it was not a requirement of the guidelines that the debenture issue be compulsorily under written
The guidelines themselves con templated that the 2nd respondent could satisfy himself that the issue need not be underwritten
An application to this effect had been made by RPL and was granted by the 2nd respondent after carefully examining this issue
The guide lines contemplated simultaneous listing of shares and deben tures
In the present case upon allotment there was simul taneous compulsory conversion of 5 of the face value of the convertible debentures
It was stated that it was not an equity linked debenture as was asserted on behalf of the petitioner
72 However it was further stated that in view of the size of the issues there was a modification dated 19th July 1988 of the consent order which restricted and put a non transferability condition on the preferential entitlement of the shareholders of RPL
It was limited to the corporate shareholders of RIL and relaxed for individual shareholders of RIL
The restrictive condition on their right to sell
transfer and hypothecate their shareholding was thought necessary in order to ensure that they do not disinvest soon after the issue and thus dilute their stake in the Company
On behalf of the Controller it was asserted that the guidelines should not be construed in a manner which would fetter constrict or inhibit statutory discretion vested in the 2nd respondent for taking decisions in the interest of the Capital market and for national purpose of furthering the growth of industrialisation and investment in priority sectors so as to encourage employment and demand in the national economy
The objectives of the control according to the deponent contemplated under the was to prevent wasteful investments and to promote sound methods of corporate finance
It was asserted that the administrative guidelines were only enabling in nature and could not and ought not to be construed as pre venting the statutory authority from adopting or modifying varying norms in operational area of implementing the pur poses of the Act especially when there were no fetters under the Statute
The Controller of Capital Issues had issued it was stated guidelines as a result of the war time needs and controls since the year 1947 and flow from the experience gained under the Defence of India Rules 1939
Hence accord ing to the deponent these controls have been progressively reduced and the Capital Issue Exemption Order 1969 was brought into force so as to reduce the rigours of the Act
In the absence of any control for capital issues for securi ties according to the deponent there would be no fetter or restriction on the part of the Company to borrow or raise capital from the market
It is to check raising of wasteful capital and to avoid investment being made in nonproductive non priority sectors and non commensurate with the needs that the Act in question was brought into force
This is being implemented with the aid of competent bodies
It is further stated that the stipulation for fixation of premium at the time of conversion is not a new practice and had been applied in the year 1986 in the case of Standard Medical Leasing as also in ATV Projects Ltd and the Industrial Credit  Investment Corpn
of India Ltd As regards Convert ible Debenture Issue it was asserted that there is no violation of the provi 73 sions of Section 815 of the as the section contemplates only an optional conversion of Govern ment loan into equities
In the instant casethere is a compulsory conversion of publicly held debentures of the convertible type
In the premises Sec
815 of the said Act has absolutely according to the deponent no applica tion to the facts and circumstances of the case
All these petitions challenge only the grant of sanction by the Controller of Capital Issues though different as pects have been highlighted in the different petitions and we have heard different learned counsel
We have therefore to examine what is the scope of the powers and functions of the Controller of Capital Issues while discharging his statutory functions in according sanctions to capital issues
It is further necessary to examine if that role has in anyway changed or altered due to the present economic and social conditions prevailing in the country
It has also to be considered whether the guidelines or the provisions of law under which the Controller has functioned or has pur ported to function in this case were proper or there had been deviations from these guidelines
If so were such deviations possible or permissible It is further necessary to examine whether the Controller has acted bonafide in law
These are the broad questions which have to be viewed in respect of the challenge to the consent order
It is therefore necessary to examine the broad features as have emerged
Counsel for the petitioners contended that the RPL s application had been entertained even without the company fulfilling the requirements of a proper application and furnishing the necessary consents and approvals processed with undue expedition within a very short time and sanc tioned without any application of mind to the crucial terms of the issue which were detrimental to public interest
This contention when analysed turns on a number of aspects which can be dealt with separately
a It is submitted that the application was made on 4588 and sanctioned on 4788 within hardly a period of two months this reflects undue haste and favouritism particularly if one has regard to the magnitude of the public issue proposed to be made and the various financial and other intricacies involved
We are unable to accept this contention
In the first place an application of this type is intended to be disposed of with great expedition
In particular in a project of the type proposed to be launched by the petitioner passage of time may prejudicially affect the applicant and it is not only desirable but also 74 necessary that the application should be disposed of within as short a time as possible
It is therefore difficult to say that the period of two months taken in granting consent in the present case is so short that an inference of haste must follow
Secondly on behalf of the Union of India a list of various applications received and disposed of by the office of the CCI between September 1987 and September 1988 has been placed before us to show that generally speaking
these applications are disposed of within a month or two
It is true that none of these issues is of the same colossal magnitude as the
present issue
Nevertheless the Control ler of Capital Issues could hardly keep the application pending merely because the amount involved is heavy
It is not possible therefore to say merely from the short span of time that there was a hasty grant of consent in the present case
b Secondly it has been submitted that the RPL was a company which was incorporated only on 11188
RIL had issued a G  series of debentures as recently as 1986 for the same projects
In granting consent to the present issue the Controller of Capital Issues has completely over looked the fact that in respect of the same projects the RIL had been permitted to raise debentures on earlier occasions
We do not think that the petitioners are correct in saying that the Controller of Capital Issues has over looked or was not aware of the debenture issues by the RIL or the purposes for which these debenture issues had been sanctioned
The appli cation for consent makes it clear that the petitioner compa ny is a new company promoted by RIL and that RIL was promot ing this company to manufacture HDPE PVC and MEG at Hazira
The application refers to the fact that the total cost of the project was expected to be Rs650 crores and that this cost had been approved earlier in 1985
Considering that RPL had come into existence only on 1111988 this was clear indication that the projects for which the debenture issue was being proposed were projects which had been mooted even by the RIL as early as 1985
Again in the detailed applica tion form submitted by the RPL it has been mentioned that the RIL had already obtained approval of the Central Govern ment for implementation of the aforesaid projects under the MRTP Act
In part C of the application form it has been mentioned that the promoter company had made necessary applications for endorsement in favour of the company of the Letter of IntentIndustrial Licences already issued by the Central Government under the Industries Development  Regulation Act 195 1 in the name of the holding company the RIL
In the context of these statements it is extremely difficult to agree that the fact of issue of the earlier series of debentures by the RIL or the purposes thereof could have escaped the 75 notice of the CCI particularly when it is remembered that the issue of G series of debentures by the RIL was quite recent and had also attracted a lot of publicity
We have elsewhere discussed the contention raised on behalf of the petitioners that the consent given has contravened the guidelines because finances were being raised for no new project but for the same old projects for which RIL had collected funds
We have there pointed out that MEG project for all practical purposes was a new project that was to be implemented by the RPL and the funds raised by the RIL had been insufficient for even the PAT and LAB projects launched by it
The learned Addl
Solicitor General states that there was earlier correspondence between the RIL and the CCI regarding the cost over run of the PTA and LAB projects
We have not gone into the details of this corre spondence as it is not our purpose to enquire into the details of the matter
We are referring to it only for indicating that the CCI was fully aware of the earlier series of debentures of the stage of the various projects proposed therein of the actual implementation of the projects of the cost over run of the proposal to transfer to some of those from RIL to RPL and the exact requirements of the present issue
It is not possible to accept the contention that the consent of the CCI was accorded in ignorance of the facts pertaining to the G series of deben tures
c Thirdly it is submitted that having regard to the requirements of the pro forma prescribed under the rules the application for consent could not have at all been considered by the CCI until the RPL produced the industrial licence in its favour the collaboration agreements the approvals of the financial institutions and the approvals under the MRTP Act
It is submitted that the application of the petitioner was cleared hurriedly without insisting upon these clearances and this was done specially to oblige the company
We must first of all point out that the pro forma relied on indicates a general procedure and should not be understood as a rigid requirement
It is of course the duty of the CCI to be satisfied that before the debentures are actually issued the applicant company has all the neces sary licences consents orders approvals etc
in its favour
We are satisfied that in the present case there is no reason to doubt that he had been so satisfied if one remembers that those projects had been initiated by the RIL which had gone through the necessary exercises and all that remained to be done was a formal approval of their transfer for implementation to the RPL
We shall first refer to the steps taken by the RIL in this regard
76 On 10th October 1983 as RIL proposed to engage in manufacture of MEG it filed an application for grant of an Industrial Licence under the Industries Development  Regulation Act 195 1
On 16th August 1984 RIL received a Letter of Intent No 65384 Regn
No 132383 ILSCS issued by the Govt
of India for the manufacture of 40000 TPA of MEG
Thereafter from time to time on the applica tions made by the RIL the Govt
of India by various letters extended the validity of the period ending up to 30th June 1989
The last of such extensions was made by a letter dated 2nd September 1988
On 11th May 1988 pursuant to an appli cation made the Govt
of India permitted expansion of capacity for manufacture of MEG from 40000 TPA to 60000 TPA
From 12th January 1988 to 22nd July 1988 applications were made by RIL for change of Company from RIL to RPL for the MEG Project
It appears that on 11th August 1988 ap provalsanction was granted by the Govt
of India for change in the implementing agency from RIL to RPL
On or about 19th January 1985 a letter from the Govt
of Maharashtra was issued stating that there was no objection to the Company s proposal for change of location for the MEG Project from Maharashtra to Gujarat
It also appears from the various documents which are mentioned in Vol
IV of the present Paper Books at different pages from 22 to 44 that by var ious orders under the MRTP Act sanctions and modifications were approved the latest sanction being dated 11th October 1988 whereby the Govt
approved the proposal of RPL for modified scheme of Finance
It is also significant to men tion that on 25th January 1988 an application was made under Sec
223d of the MRTP Act with the proposal to implement the MEG Project along with other projects of RPL
It may be mentioned that by a letter dated 6th June 1988 RIL had informed that they had originally planned to utilise a sum of Rs85 crores from G  Series debentures for this project
But however they were not able t9 utilise this money as the entire G  Series amount had been utilised for PTA and Lab projects including the working capital on ac count of overrun in the cost of LAB and PTA projects
Hence it applied for permitting a new scheme of finance
By an order dated 2 Ist July 1988 the Govt
accorded approval to the proposal of RIL for modified scheme of finance to be implemented by RIL
Thereafter RPL made an application for modification of the scheme of finance and the same was approved by the Govt s order dated 11th October 1988
It appears that on 9th October 1984 pursuant to an application made by RIL for foreign collaboration with Ms Union Carbide Corporation USA the Govt
of India by its order of that date accorded approval to the terms of the foreign collaboration for a 77 period of six months for this project
It further appears that on 14th March 1986 pursuant to an application made by RIL the Govt
accorded approval for foreign collaboration with Ms Scientific Design Company
It may however be mentioned that there was a letter dated 304
1986 whereby approval was granted by the Reserve Bank of India in respect of foreign collaboration agreement with Ms Scientific Design Co USA
The next aspect of the matter which has to be borne in mind in view of the contentions urged was regarding the licences
It appears that there was an application on 25th March 1987 for licence
On 9th August 1988 the Industrial Licence dated 253
1984 granted to RIL for manufacture of PVC was endorsed to RIL
This is important because one of the contentions that Shri Pagaria during the course of his long submissions made was that there was no valid licence
It also appears that so far as the MRTP Act is con cerned an application was made by RIL on or about 12th October 1984 under Sec
223a for manufacture of PVC
Several other steps were taken and on 29th June 1988 there was an order of the Govt
of India under Sec
223d of the Act according approval to the proposal for modified scheme of finance
There was a further proposal for modification and fur ther orders
Last of such order was dated 11th October 1988
Similarly regarding the foreign collaboration there were approval letters and the last one was dated 12th Au gust 1988 for endorsement of foreign collaboration approval in favour of RPL
So far as HDPE is concerned it appears that there was a valid licence and it may be mentioned that on 24th August 1985 pursuant to an application made by RIL under section 223a of the MRTP Act the Govt
granted approval for the establishment of a new undertaking for manufacture of HDPE
Regarding foreign collaboration an application was made by RIL in 1984 for approval of foreign collaboration with Ms Du Pont Inc Canada for manufacture of HDPE
Such approval was given and the validity was extended and the foreign collaboration approval was endorsed in favour of RPL on 12th October 1988
Similar other consents were there
Mention may be made of letters dated 28th April 11th March 6th December 1986 2nd January 1987 15th July 25th 26th July 19th August 1988 which appear at various pages of Vol
IV of the papers
Finally capital goods clearance was endorsed in favour 78 of RPL for the PVC project on 12th August 1988
Capital goods clearance was also endorsed in favour of RPL for HDPE project on 23rd August 1988
Thus it will be seen that all the basic groundwork had already been done by the RIL
It is in above perspective that one has to examine the events that have happened
The question that has to be considered is whether the CCI could take it for granted that these approvals consents etc
would stand automatically transferred to the RPL
On 16th June 1987 by a Press Note issued by the Deptt
of Industrial Development in the Minis try of Industry the Govt
of India declared that where a transferee Company is a fully owned subsidiary of the Compa ny holding the Letter of Intent or licence the change of the Company implementing the project would be approved
It is in the light of this that the Board of RIL on 30th Decem ber 1987 passed a resolution to incorporate a 100 subsidi ary Company whose main objects were inter alia to imple ment the licencesLetters of Intent received by RIL and the objects of undertaking processing converting manufactur ing formulating using buying dealing acquiring stor ing packing selling transporting distributing and im porting etc
and approved the name of the Company as RPL
On 11th January 1988 the RPL was incorporated and the Certifi cate of Incorporation was issued
Thereafter on 12th Janu ary 1988 letters were written by RIL for endorsement of licencesLetters of Intent in favour of RPL
The certificate of commencement of business was thereafter issued
The Press note earlier referred to makes it clear that the transfers from one company to an allied company were considered unexceptionable except where trafficking in licences is intended
In this situation the change of name from RIL to RPL of the licences letters of intent and other approvals was only a matter of course and much impor tance cannot be attached to the fact that CCI did not insist upon these endorsements being obtained even before the letter of consent is granted
In any event the letter of consent is very clear
Clause h of the conditions attached to the consent letter makes it clear that the consent should not be construed as exempting the company from the operation of the provisions of the Monopolies  Restrictive Trade Practices Act 1969 as amended
Clause e makes it clear that it is a condition of this consent that the company will be subject to any measures of control licensing or acqui sition that may be brought into operation either by the Central or any State Government or any authority therein
Under clause t the approval granted is without prejudice to any other approvalpermission that may be required to be 79 obtained under any other Actslaws in force
Having regard to the above history as well as having regard to the terms and conditions of the consent letter the grant of consent itself being conditioned on the RPL obtaining the necessary approvals consents and permissions before embarking on the project we do not think that there was any impropriety in the CCI granting the consent without waiting for the formal endorsement of the various licences letters and approvals in favour of the RPL
d It is next submitted that under para 3 of the guidelines issued the Government the amount of issue of debentures for project financing and other objects will be considered on the basis of the approvals of the scheme of finance by the financial institutionsbanks Government under the provi sions of the MRTP Act etc
The criticism in this respect is that since no approvals of the scheme of finance by the financial institutionsbanksGovernment under the provisions of the MRTP Act etc had been produced before the Controller of Capital Issues he could not have been satisfied that the amount of issue of debentures was necessary and adequate on the basis of such approvals
This argument proceeds on a misconception of the Government set up for dealing with these matters
The learned Additional Solicitor General points out that the Controller of Capital Issues does not function in isolation sitting at his desk and awaiting the various types of clearances and consents that are necessary to be obtained from various quarters before granting consent to an issue
He points out that the CCI functions in close coordination with all the concerned departments of the Government
He is in close touch with the progress of var ious projects
On references from the Department of Company Affairs the CCI MRTP Section furnishes comments on the scheme of finance relating to the proposals of industrial undertakings covered under the MRTP Act for effecting sub stantial expansion for setting up of new undertakings mergeramalgamations and acquisitiontakeover of other undertakings
The comments are furnished to the Department of Company Affairs with reference to the norms relating to equity debt ratio promoter s contribution dilution of foreign equity listing requirements for shares on Stock Exchanges and on analysis of balance sheets for cash genera tion etc
An officer attends regular meetings of the Adviso ry Committee meetings held in the Department of Company Affairs in terms of the MRTP Act hearing held in Department of Company Affairs under section 29 of the MRTP Act inter departmental meetings held in the Department of Company Affairs to consider specific issues relating to applications received under the MRTP Act Licensing cum MRTP Committee meetings 80 held in the Department of Industrial Development screening committee meetings held in the Administrative Ministries to consider applications from MRTP companies and statutory public hearings held in the MRTP Commission
The submission of the learned Solicitor General in short is that in deal ing with application for consent to an issue of capital the CCI does not act in isolation but the entire Central Govern ment functions with various Departments closely monitoring and coordinating the scrutiny of applications
He there fore submits that the Controller of Capital Issues is aware of the progress of the various applications made by the company
The Controller is also aware that the ICICI had looked into the financial soundness and feasibility of the project and there is material to show that the comments of the ICICI were made available to him
When a project is being appraised by the institution like the ICICI and when the CCI is also aware by reason of the participation of his representatives at the meetings of the Department of Indus try and the Department of Company Affairs about the stage or outcome of the proposals made under the IDR and MRTP Acts it is clear that the CCI did not overlook any crucial aspect and that his grant of consent in anticipation of the neces sary transfers to the RPL was based on a practical appraisal of the situation and fully in order
The assumptions behind the petitioners  arguments that the terms of the issue as proposed by the RPL were approved in toto by the CCI without examination is also unfounded
The record before us indicates that there were frequent discussions leading to alterations in the original proposals from time to time as well as changes in the conditions of consent both before and even after the letter of consent dated 471988
Some aspects of these have been referred to elsewhere and some are referred to below and these will show that consent was not granted as a matter of course
The allegation that consent was accorded without any application of mind is on the materials before us clearly untenable
It is stated in the affidavit that in MarchApril 1988 discussions centered around the concept of cumulative con vertible preference shares CCP which was mooted as an instrument for the means of finance
The instrument offered would have been equity shares to the extent of Rs57 crores cumulative convertible preference shares to the extent of Rs81 crores and convertible debentures to the extent of Rs478 crores with four conversions
In this connection reference may be made to Annexure 1 at page 39 of the reply affidavit filed in these proceedings by RPL
Thereafter on 4th May 1988 RPL made an 81 application to the Controller of Capital Issues seeking permission to make an Issue of Capital on certain condi tions
Specific details thereof are not necessary to be set out here
It also made a proposal for issue of 81 lakhs 10 cumulative convertible preference shares of Rs 100 each for cash at par through prospectus to non resident Indiansresident Indian public 81 crores
It is stated that in accordance with the present guidelines issued by the Govt
of India the Company intended to retain excess sub scription amount to the extent of 15 of Rs566 crores ie a right to retain an additional amount
It was further stated that in accordance with the Guide lines issued by the Government of India the Company had intended to retain excess subscription amount to the extent of 15 of Rs566 crores ie a right to retain an addi tional amount of Rs85 crores
The idea was that the company would in the event of over subscription request the CCI for allotment of such additional amount of Rs85 crores
It was further proposed to issue a part of the cumulative converti ble preference shares to NRIS and a part to the foreign collaborators
Terms of the proposed convertible debentures were a Convertible debentures upto 125 interest taxable Each convertible deben tures of Rs500 would be converted into 10 equity shares of Rs 10 each as per scheme envisaged
The residual portion of each Con vertible Debenture would be redeemable at the end of th year from the date of allotment with an option to the company to repay these amounts in one or more instalments by drawing lots at any time after the end of 5th year from the date of allotment
b Cumulative Convertible Preference Shares 10 dividend taxable
Each CCP would be fully converted into equity share of Rs 10 each at such a premium not exceeding Rs40 per share as might be approved by the CCI at any time between the 3rd andor 5th year from the date of allotment to be decided by the compa ny by draw of lots if necessary
Then there are other conditions regarding securities under writing allotment of equity shares to RIL shareholders
In May 1988 several NRIS also evinced interest in equity participation in RPL
It was stated that though the CCP shares appeared to be most appropriate instrument the computation of reservedpreferential entitle 82 ment resulted in very low entitlement to the existing share holders of RIL
It was then contemplated to increase the preferential entitlement of RIL investors on partially convertible debentures and the ratio of convertible deben tures was altered so as give equal share between RIL inves tors and the members of public
A three stage conversion was contemplated
Thereafter in June 1988 a revised proposal to the CCI was made by RPL
It is not necessary to set out in detail the said revised proposal
After several discus sion on or about 1st June 1988 between the company RPL the Merchant Bankers ICICI and the Office of CCI it was asserted on behalf of the respondent No 3 that serious reservations were expressed that the marketability of CCP shares and the investors resistance was likely to be there
It was in this context and also after considering the reser vations that might be there on the part of the foreign collaborators and NRIs that the CCI required the issue of fully convertible debentures
The institutional proposal of the project cost emerged at Rs700 crores instead of Rs650 crores and it was then felt that RIL should increase its own contribution to the project by way of a promotors  contribu tion at Rs 100 crores thereby increasing its stake to 14 at the suggestion of CCI
It was stated that this was also a requirement of the CCI guidelines and MRTP conditions
At the end of June 1988 there was an amendment of the Order by the Department of Company Affairs in favour of RPL for PVC
Similarly on 21st July 1988 the order for MEG passed for RIL was amended permitting RPL to undertake the new projects for implementation of the MEG Project
It is not necessary to set out in detail these proposals
On 4th July 1988 CCI granted the consent under the to the public issue
There were varia tions between the proposal and the Order of consent of the CCI
It may be necessary at this stage to refer to the Order dated 4th July 1988 which is as follows With reference to your letter No BOKDKG505c dated 861988 I am directed to say that the Central Govt
in exercise of the powers conferred by the  do hereby give their consent to an issue by Ms Reliance Petrochem icals Ltd a company incorporated in the State of Maharashtra of capital of the value of Rs65090 crores inclusive of retainable excess subscription to the extent of Rs8490 crores
A 57500000 Equity shares of Rs 10 each for cash at par  to Ms Reliance Industries Ltd inclusive of retainable excess 83 subscription to the extent of Rs750 crores
B 29670000 125 secured redeemable convertible debentures of Rs200 each for cash at par to public by a prospectus inclusive of retainable excess subscription of 7740 crores
Out of B above reservations for prefer ential allotment will be made as follows i Shareholders of Ms Reliance Industries Ltd 50
ii Employees including Indian working Directors workers of the company and of Ms RIL
5 Unsubscribed portion if any of the reservations will be added to the public offer
The Convertible debentures will carry interest 125 pa
taxable
The Debentures will be fully and compulsorily convertible in the following manner a 5 of the face value at par on allot ment of the debentures
b 20 of the face value at a premium if any as may be decided by this office after three years but before four years from the date of allotment of debentures
c The balance at such a premium if any as may be decided by this office after 5 years but before the end of 7 years from the date of allotment
The consent given as aforesaid is qualified by the conditions mentioned in the Annexure and the company shall comply with the terms of the conditions so imposed
I am to make it quite clear that the grant of consent to the issue of capital represents no commitment of any kind on the part of the Central Govt
to render assistance in the matters
of priorities or licences for sup plies of raw materials machinery steel etc of transport facilities or any other governmental assistance including the provi sion for foreign exchange
This order also conveys the approval of the Central Govt
under proviso to Rule 192b of the Securities Contracts Regulation Rules 1957 subject to the condition that the allotment to the employees shall not exceed 200 shares per individual
This letter is issued in the name and under the authority of the President of India
 There was Annexure to the said Order
In that Annexure certain conditions were laid down and condition a stipulated that in any prospectus or other document referred to in section 4 of the  relating to this issue the statement required by that section must be worded as follows Consent of the Central Government has been obtained to this issue by an order of which a complete copy is open to public inspection at the Head Office of the Company
It must be distinctly understood that in giving this consent the Central Govt
do not take any responsibility for the financial soundness of any scheme or for the correctness of any of the statements made or opinions expressed with regard to them
 It further imposed the condition b that the consent to lapse on the expiry of twelve months from the date of con sent
Order also stipulated that the consent should not be construed as exempting the company from the operation of the provisions of the Monopolies  Restrictive Trade Practices Act 1969 as amended
The consent also indicated that the company would be subject to any measures of control licens ing or acquisition that might be brought into operation either by the Central or any State Govts
or any authority therein
It also enjoined the company to ensure that the prospectus for the issue of securities consented to should be printed subject to certain conditions
It also enjoined inter alia that the convertible debentures should be allot ted to the employees of the company and of Ms RIL and the shareholders of Ms RIL
On conversion the equity shares so converted should not be transferredsoldhypothecated for a minimum period of three years from the date of allotment of convertible debentures
The other special conditions con tained the following v The equity shares to be allotted to the promoters of the company shall not be soldhypothecatedtransferred for 85 at least three years from the date of allot ment
w It is a condition of this consent order that the proceeds from the issue of debentures should be invested in fixed duration depos itsinstruments with the cooperative nationalised banks UTI Financial Institu tions Public Sector Undertakings other than public sector bonds and be used strictly for the requirements of the projects mentioned in the application and not for any other purpose
x Ms Reliance Industries Limited will bring in additional amount of Rs50 crores as inter est free unsecured loans at the time of allotment of the above convertible debentures as additional promoters contribution which will be converted into equity at par on the expiry of 36 months from the date of allotment of convertible debentures
y i The company shall scrupulously adhere to the time limit of 10 weeks from the date of closure of the subscription list for allotment of all securities and despatch of allotment letterscertificates and refund orders
ii The company shall at the time of filing its application for listing to the regional Stock Exchange furnish an undertak ing for compliance of the above condition along with a scheme incorporating the neces sary details of the arrangements for such compliance
This undertaking shall be signed by the Chief Executive or a person authorised by the Board of the company
iii The company shall file with the Executive Director or Secretary of the region al Stock Exchange within five working days of the expiry of the stipulated period as above a statement signed by the Chief Executive or a person authorised by the Board certifying that the allotment letterssecurities and the refund orders have been despatched within the prescribed time limit as per the condition above
A copy of the statement shall be en dorsed to the office of the CCI quoting this consent order and date
iv Non compliance of conditions above shall be 86 punishable by the Stock Exchange in addition to the action that may be taken by other competent authorities
 The other conditions mentioned therein are not very relevant
These only enjoin certain procedural safeguards
The said consent order was amended on the 19th July 1988 which clarified that the intention for imposing condition w as set out above was not to block all the funds raised out should be invested in terms of the conditions laid down aforesaid
The amendment enjoined that the approval of the Central Government should be subject to the condition that allotment to the employees should not exceed 50 debentures per individual
It was further added that the company should obtain prior approval of the Reserve Bank of India Exchange Control Department for the allotment of debentures to the non residents as required under the Foreign Exchange Regula tion Act 1973
There was a further amendment of the Consent Order on the 26th July 1988 which added condition s to the following effect s The convertible debentures to be allotted to the employees of Ms RPL and Ms RIL and the corporate shareholders of Ms RIL other than individual shareholders of Ms RIL shall not be soldtransferredhypothecated till the end of 3 years from the date of allotment of debentures
On conversion the equity shares so converted shall not be transferredsoldhy pothecated for a minimum period of 3 years from the date of allotment of convertible debentures
 It was stated that between 4th January 1988 to 24th July 1988 news about the formation of RPL and to set up the projects at Hazira Gujarat and the consent granted by CCI for convertible debentures for RPL all these were widely reported in various newspapers and magazines including national dailies such as Times of India Indian Express Financial Express Gujarat Samachar Hindustan Times Bombay Samachar Business Standards and other magazines and news items
Thereafter till mid August 1988 there were de tailed advertisements about the company and nearly 1600 insertions in nearly 200 newspapers and dailies were made advising the opening of the issue
There were from mid July 1988 onwards till August 1988 advertisement campaigns in television and radio to attract investments in Petrochemi cals advising the public about the issue of Rs59340 crores of convertible debentures of RPL
It is asserted on behalf of the respondents that the public issue of these shares was made known 87 since mid July 1988
As mentioned hereinbefore since the words till conversion were capable of wide interpretation and might have rendered the sharesconvertible debentures non transferable for upto 7 years the CCI modified the consent and limited this restriction to a period of 3 years
On July 27 1988 the prospectus of RPL was filed with the Registrar of Companies Gujarat and the Stock Exchanges at Bombay and Ahmedabad
On August 22 1988 the issue of RPL opened for subscription
A letter was addressed to the CCI on August 23 1988 requesting for the lifting of embargo for non transferability for three years for the corporate shareholders of RIL also
It is asserted that by August 31 1988 the issue of RPL was fullyover subscribed and closed
By October 25 1988 the basis of allotment was approved by Ahmedabad Stock Exchange
A resolution of the Board of Directors of RPL was passed on October 27 1988 to allot the debenturesshares
On November 4 1988 lease deed for land at Hazira between RPL and GIDC was executed
There was no objection certificate obtained from GIDC
It is asserted that the Debenture Trust Deed between RPL and ICICI was executed at Surat and was lodged for registration on Novem ber 7 1988
Certificate of Mortgage under Section 132 of the was issued by the Registrar of Companies Gujarat regarding the creation of charge for the Debentures on November 11 1988 itself
In this context on behalf of the respondents Mr Baig drew our attention to certain dates indicating that the writ petitioners were aware of this and it was stated that on July 20 1988 Mr Radheyshyam Goyal the Writ Petitioner in Rajasthan High Court wrote a letter to the Editor of the Financial Express that the premia for the issue of shares upon the second and third conversion had not been fixed and the terms and conditions were vague
Shri Goyal also made certain other allegations
Though of course no complaint was ever made to RIL or RPL on this aspect on August 16 1988 one Mr JP Sharma filed a complaint of Unfair Trade Practices under the MRTP Act before the MRTP Commission seeking injunction against the issue opening on 22nd August 1988 and alleging the same breaches as claimed by the peti tioners in the Transfer cases
On being moved this Court on August 19 1988 passed an order in Transfer Petition No 192 193 of 1988 staying the three pending Writ Petitions in the three High Courts namely Bangalore Delhi and Jaipur and further stayed the proceedings in the suit being Civil Suit No 1172 of 1988 filed in Baroda
It was directed that the issue of deben tures would proceed without hindrance notwithstanding any 88 proceedings instituted or orders passed and that any order or direction or injunction already passed or which might be passed would remain suspended till further orders of this Court
It was mentioned that on August 29 1988 the com plaint filed by Shri Sharma before the MRTP Commission was dismissed
On August 31 1988 one Shri Arvind Kumar Sanga neria issued notice through his Advocate advising that a Writ Petition was being preferred in the Bombay High Court
On September 1 1988 this Court granted an ex parte stay of the proceedings in Writ Petition No 4388 of 1988 pending before the Bombay High Court
As mentioned hereinbefore on September 9 1988 this Court had transferred the four Writ Petitions in the four High Courts and civil suit to this Court
It appears that there was a further writ petition filed by Shri Suni1 Ambani in the High Court of Allabahad on the basis of two articles published in the Indian Express
Shri Ganesh made submissions in Transfer Case No 164 of 1988
Shri Haksar made his submissions in TC No 161 of 1988
Shri Pagaria argued TC 162 of 1988
Shri Udai Holla who was the counsel for the petitioner in Karnataka matters appeared in TC 163 of 1988 and made his submissions
We heard Mr G Ramaswamy Additional Solicitor General
Shri Soli J Sorabjee Shri Baig and Shri Salve argued on behalf of respondents 1 and 2 and Shri FS Nariman for respondent No 3 in TC No 162 of 1988
Inasmuch as the charge is the non evaluation by the CCI in enforcing and applying the principles of guidelines properly it would be appropriate at this stage to refer to the said guidelines
It appears that from time to time in exercise of the powers conferred by section 12 of the Capi tal Issues Control Act 1947 the Central Government had issued rules and guidelines
On or about April 17 1982 guidelines were issued by the Government of India under the said Act for the Issue of Debentures by public Limited Companies
It is not necessary to set out in detail these guidelines but it may be necessary to refer to clauses 4 and 6 of the said guidelines
Clause 4 reads as follows 4
Debt equity  The debt equity ratio shall not normally exceed 2 1
For this purpose Debt will mean all term loans debentures and bonds with an initial maturity period of five years or more including inter est accrued thereon
It also includes all deferred payment liabilities but it does not include short 89 term bank borrowings and advances unsecured deposits or loans from the public sharehold ers and employees and unsecured loans or deposits from others
It should also include the proposed debenture issue
Equity will mean paid up share capital including preference capital and free reserves
Notes 1 The computations under guidelines 3 and 4 mentioned above will be based on the latest available audited balance sheet of the company
2 A relaxation in the norm of debt equity ratio of 21 will be considered favourably for capital intensive projects such as fertiliz ers petro chemicals cement paper shipping etc
 Clause 6 of the said guidelines deals with the period of redemption and is as follows 6
Period of Redemption  Debentures shall not normally be redeemable before the expiry of the period of seven years except in the following cases i A company will have the option of redeeming the debentures from the 5th to the 9th year from the date of issue in such a way that the average period of redemption contin ues to be seven years
While exercising such option the small investors having debentures of the face value not exceeding Rs5000 will have to be paid in one instalment only
ii In case of non convertible debentures or nonconvertible portion of con vertible debentures a company may have the option of getting the debentures converted into equity fully with the approval of and at such
price as may be determined by the Con troller of Capital Issues
The debenture holders will however be free not to exercise this right
 Clause 8 provides for the denomination of debentures
Clause 9 enjoins the listing of debentures on the Stock Exchange
Clause 10 stipulates that only secured deben tures would be permitted for issue to 90 the public
Clause11 enjoins the underwriting of the debentures and clause 12 also provides for listing of the shares of the company proposing debenture issue
Clause 13 permits linked issue of shares and debentures
There were certain amendments to these guidelines which would be noted at the relevant time
While considering the question of the application or non application of mind or infringement of guidelines it is necessary to bear in mind the role of the CCI in this re spect
The CCI functions under the 
This is an Act to provide for control over the issue of capital
Section 2e of the said Act defines securities and states that the securities means any of the following instruments issued or to be issued or created or to be created by or for the benefit of a company name ly i shares stocks and bonds ii debentures iii mortgage deeds etc and iv instruments acknowledging loan or indebt edness
Section 31 of the said Act enjoins that no company incorporated in the States shall except with the consent of the Central Government make an issue of capital outside the States
The other sub sections of Section 3 deal with the modalities of such consent
It may be mentioned that the Statement of Objects and Rea sons of the Act states that the object of this measure is to keep in existence  the control over capital issue which was imposed by Rule 94 A of the Defence of India Rules in May 1943 and continued in force after the expiry of the Defence of India Act by Ordinance No XX of 1946
The State ment further states that although there has been an appre ciable change in the general conditions which constituted the principal reason for the introduction of the control during war time it was thought in the light of experience gained that the control was still necessary to secure a balanced investment of the country s resources in industry agriculture and the social services
See Gazette of India 1947 Part V p 264
In this connection Shri G Ramaswamy learned Addi tional I Solicitor General for the Union of India drew our attention to the 91 Debates of the Lok Sabha and the Rajya Sabha in February March 1956 when the question of continuance of the control of the capital issues came up for consideration
The Minis ter of Finance Shri CD Deshmukh stated that the control of capital issues was first introduced in May 1943 under the Defence of India Rules
It was continued after the termination of the war by an Ordinance thereafter in 1947 by an Act for a term of three years and it was again succes sively extended in 1950 and 1952
The Act as it stood ex pired on the 31st March 1956
The main purpose which the Minister explained was to prevent the diversion of investi ble resources to none essential projects emphasis supplied the control had also been used for many other purposes and the most important of these purposes which might be called ancillary purposes were the regulation of the issue of bonus shares regulation of capital reorganisa tion plans of companies including mergers and amalgamations which involved the use or re issue of capital and the regu lation of the capital structure
Shri Ashok Mehta then a Member of Parliament suggested that the purpose of the Act might be used for evolving a national investment policy
The Minister of Finance further observed that many things might have been done to give a proper form and shape to the na tional investment policy emphasis supplied but the Minis ter expressed his surprise how these could have been secured through a negative piece of control emphasis supplied like the Capital Issue Control Act
He observed that there were other provisions like the Industries Development  Regula tion Act under which licences were given to new indus tries
But this according to the Minister was not the purpose of the negative control of the capital issue
Var ious suggestions were made by the members of the Parliament about the role of the Act for instance to encourage public companies not too much concentration of particular indus tries at particular areas etc
The Minister referred to the various other Acts which control the industry and the Minis ter also referred that there should not be undue delay
Similar statements were made by Mr MC Shah in Rajya Sabha who was then the Minister for Revenue and Civil Expenditure
One Member in Rajya Sabha made it particularly clear that the consent of the Government had been misleading to some investors and thought that by a regulation it was essential that in the prospectus it should be clearly stated that the sanction by the Government did not mean any guaran tee about the suitability or the successful running of the industry
Therefore this sanction of the Government should be stated more clearly and the public should be clearly warned that a sanction of the Government did not imply any sort of guarantee by the Government
92 We have referred to the debates only to highlight that the purpose of the Bill was to secure a balanced investment of the country s resources in the industry and not to ensure so much the soundness of the investment or give any guaran tee to the investors
The section of the Act in question in express terms does not enjoin the CCI to discharge such obligations nor does the background of the Act so encompass
There was considerable discussion before us as to the scope of the powers and responsibilities of the CCI while granting his consent to an issue of shares and debentures proposed by a company
As stated above the learned Addi tional Solicitor General submitted that the restrictions on issue of capital were introduced as part of the control measures found necessary during the period of the first world war and that after the war ended the control was continued as it was thought in the light of experience gained that control is still necessary to secure a balanced investment of the country s resources in industry agricul ture and the social services vide the statement of Ob jects and Reasons of the Act in 1947
He urged relying also upon the speech of the concerned Minister at the time of moving the amendment bill of 1956 in Parliament which placed the measure on a permanent footing that all that the CCI is concerned with is to ensure that the investible resources of the country are properly utilised for priority purposes and are not invested in non essential projects or in a manner which runs counter to the accepted investment policies of the Government
The CCI he submitted has neither the duty nor the staff the facilities or the expertise to enquire about
or investigate into the finan cial soundness or acceptability of the issue proposed to be made
He pointed out that one of the conditions on which all consent is granted is that the Central Government does not take any responsibility for the financial soundness of any scheme or the correctness of any statement made or opinions expressed in the prospectus and the condition is also ex plicitly set out in the prospectus
We are unable to agree fully with this somewhat narrow aspect of the CCI s role
In the very speech in Parliament to which the learned Additional Solicitor General referred the Minister also stated Apart from this main object of the Bill which is thus to prevent the diversion of investible resources of non essential projects the control has also been used for man other purposes
The more important of these purposes which may be called ancillary purposes are the regulation of the 93 issue of bonus shares regulation of capital reorganisation plans of companies including mergers and amalgamations which involved the issue or re issue of capital the regulation of the capital structure of companies with a view to discouraging undesirable practices namely issue of shares with disproportionate voting rights and encouraging the adoption of sound methods and techniques in company flota tion regulation of the terms and conditions of additional issues of capital etc emphasis added 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 delin eation 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
Look ing 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 expedi tious 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 sound ness of the proposed projects or the sufficiency or other wise of the security offered and such other details may be to burden him with duties for the discharge of which he is as yet iII equipped
Shri Ganesh submitted that the CCI is duty bound to act in accordance with the guidelines which lay down the princi ples regulating the sanction of capital issues
This is especially so because the guidelines had been published
It was submitted that the investing public is therefore entitled to proceed on the basis that the CCI would act in conformity with the guidelines and would enforce them while sanctioning a particular capital issue
It was submitted that it is not permissible to deviate from the guidelines
In this connection reliance was placed by him as well as by Shri Haksar appearing for the petitioner in TC No 16188 upon the observations of this Court in Ramanna Dayaram Shetty vs International Airport Authority 1979 3 94 SCR 10 14 where this Court observed that it must be taken to be the law that where the Government is dealing with the public whether by way of giving jobs or entering into contracts or issuing quotas or licence or granting other forms of largess the government could not act arbitrarily at its sweet will and like a private individual deal with any persons it please but its action must be in conformity with standard or norm which is not arbitrary irrational or irrelevant
We accept the position that the power of discre tion of the government in the matter of grant of largess including award of jobs contracts quotas licences etc
must be confirmed and structured by rational relevant and nondiscriminatory standard or norm and if the government departed from such standard or norm in any particular case or cases the action of the government would be liable to be struck down unless it could not be shown by the government that the departure was not arbitrary but was based on some valid principle which in itself was not irrational irrele vant unreasonable or discriminatory
Mr Haksar drew our attention to the observations of this Court in the case of Motilal Padampat Sugar Mills vs Uttar Pradesh   where this Court reiterated that claim of change of policy would not be sufficient to exonerate the government from the liability the government would have to show what precisely was the changed policy and also its reason and justification so that the Court could judge for itself which way the public interest lay and what the equity of the case demanded
It was contended by Shri Haksar that there were departures from the guidelines and there was no indication as to why such departures had been made
We are unable however to accept the criticism that there has been derivations from the guidelines which are substantial
We have referred to the guidelines
We do not find that there has been any requirement of such guidelines which could be considered to be mandatory which have not been complied with
We have considered this carefully and found that there have been no deviations from paras 3 5 12 13 and 14 of the guidelines
Nor has there been as pointed out by the respondents any infraction of guidelines nos
2 and 4
The fact that debentures of the face value of Rs200 have been approved as against the normal face value of Rs 100 envisaged under para 8 or that the requirements of the service of underwriters have been dispensed with in exercise of the discretion conferred by para 11 do not constitute arbitrary substantial or unjustified deviations from those guidelines
There has been sufficient compliance with the guidelines on the quantum of issue debt equity ratio interest rate and the period of redemption and also guideline No 10 about the security of the debenture and there was sufficient security for the debentures in the 95 facts and circumstances of this case
The preference in favour of shareholders of RIL was justified and based on intelligible differentia
Indeed if we consider the role of the CCI it is primarily concerned to ensure a balanced investment policy and not to guarantee the solvency or sufficiency of the security
In our opinion most of the criticism directed against deviation from guidelines were misplaced
It was submitted by Shri Ganesh that there was an obli gation cast on the CCI to ensure that the guideline regard ing security for the debentures was fulfilled
Shri Ganesh took us through the documents filed before the CCI includ ing in particular the draft prospectus which according to him clearly showed that there was in reality no security for the debentures
We are unable to accept this contention
Perhaps the most important of the arguments addressed on behalf of the petitioners was that the scrutiny by the CCI of the prospectus was so cursory that the most glaring travesty of truth contained therein has passed unnoticed by him
Sri Ganesh points out that the guidelines were clear that a company can issue only secured debentures and draws attention to the fact that the company proclaimed the issue to be of fully secured convertible debentures
Yet the prospectus on its very face disclosed that the debentures were unsecured
Shri Ganesh urges that if only the CCI had perused carefully the figures and statements made in the prospectus he could never have accepted at face value the assertion of RPL that the debentures were secured ones within the meaning of the guidelines or accorded his consent to the issue
This argument is in three parts and may be dealt with accordingly
i The first criticism of the petitioners is that in certain brochures and pamphlets issued by RPL the deben tures are described as fully secured convertible deben tures which they are not
The description but explained that this was due to an oversight the words fully secured convertible debentures were print ed in some brochures instead of the words secured fully convertible debentures without meaning or intending any change
It is submitted that the company s representation was that the debentures were secured fully convertible ones
This is also what had been set out in the application for consent
Though the company does claim that the deben tures were also fully secured it is submitted that the emphasis in the issue was that the debentures were fully convertible and secured
We think this explanation is plau sible and do not think that any importance or significance need be attached 96 to the different description in some places particularly in view of our discussion below as to the extent and nature of the security actually provided for the debentures
ii The second contention is that the security offered on the face of it falls far short of the face value of the debentures
Sri Ganesh analysed before us some statements indicating the inadequacy of the security
It was submitted by him that as per page 6 of the prospectus issuing the debentures after implementation of the projects only the following assets would be available with the company Rs in Crores Land and site development 11 Buildings 26 Plant and Machinery 305 Total 342 The assets of Rs5125 crores mentioned in the balance sheet as at 31588 as per the Auditor s report are also included in the above because the above figures are of the total assets which would come in existence after implementa tion of the project
This according to Shri Ganesh clearly showed the inadequacy of the security
On behalf of RPL it is submitted that there is no justification to exclude from the figures of assets shown on p 6 of the prospectus items such as technical know how fees expatriation fees and engineering fees amounting to Rs79 crores and preliminary and pre operative expenses amounting to Rs 138 crores as these are capitalised in the accounts and result in accretion to the value of the compa ny s capital assets
The calculation also ignores miscella neous fixed assets of the value of Rs70 crores shown on the page
If these are added the value of the investment in assets would work out to Rs629 crores which far exceeds the value of the debentures after the first conversion which comes to Rs56373 crores
This figure of Rs629 crores takes into account only the investment in assets made out of the borrowed funds and not the future profits and assets acquired therefrom
But even taking this as the basis it is clear that with the escalation in the value of the fixed assets with the passage of time on the one hand and the redemption of a good portion of the debentures by the end of three years on the other the security provided is complete and in any event more than adequate to safeguard the interests of the debenture holders
There is substance in this contention
97 iii The third loophole according to the petitioners is the insecurity created by the terms of clauses 5 and 6 of the prospectus dealing with security  and borrowings 
Sri Ganesh submits that clauses 5 and 6 severely qualify the rights of the debenture holders under the present issue in several respects
a There is in their favour only a residual charge on all or any of the assets of the company at Hazira and other places which shall rank expressly subject to subservient and subordinate to all existing and future mortgages charges and securities as may be hereafter created by the company in any manner whatsoever b The company need not obtain the consent or concur rence of the debenture holders for creating any such mort gages etc
which will have priority over the present deben ture issue or for disposing of any of the assets of the company c Not only is the residential complex of the company excluded from the purview of the security it is also open to the company and the trustees of the debenture holders to agree to the exclusion of any of the assets of the company from the purview of the security
d The current assets or the bankers  goods such as stocks inventories book debts receivables work in progress finished and semi finished goods etc
stand ex cluded from the security
e Clause 6 again emphasises that the company shall be at liberty to raise any further loans and secure the same in priority to the present security andor on such terms as to security ranking or otherwise as may be mutually acceptable to the company and the trustees of the debenture holders without being required to obtain any further sanction from the debenture holders
If these clauses are closely perused Sri Ganesh urges it will be seen a that the charge in favour of the debenture holders has a very poor priority as it can rank subservient to any securities that may be created by the company in future in respect of further borrowings b that the compa ny and debenture trustees by mutual agreement can take any of the assets of the company outside the purview of the present security and c that the company can create such future securities as have a priority over the present issue or exclude assets from the purview of the security without the consent or concurrence of the present debenture holders
98 We think as has been urged on behalf of the company that these arguments proceed on a mis apprehension of the true nature and scope of clauses 5 and 6 above as well as of the nature and legal effect of a floating charge what has been described in this prospectus as a residual charge  that is created at the time of issue of such deben tures
In the first place these clauses are only enabling in nature so as to permit the company despite the mortgage in favour of debenture holders to carry on its business normally
It will be appreciated that the company s normal business activities would necessarily involve inter alia alienation of some of the assets of the company from time to time such as for example the sale of the goods manufac tured by the company as well the procurement and discharge of loans and accommodation facilities from banks financial institutions and others such as for example entering into agreements for hire purchase of plant and machinery and making payments of instalments towards their price
The entire progress of the company would come to a standstill in the absence of such an enabling provision
Such a provision is not only usual but also essential because the basic idea is that the finances raised by the debentures should be employed for running the project profitably and thereby generating more and more funds and assets which will also be available to the debenture holders
Secondly we think and indeed RPL also conceded both in arguments as well in an affidavit filed on its behalf by Sri Mohan Ramachandran dated th January
1989 that what the two clauses provide is only that the consent and concurrence of the debenture holders need not be obtained by the company before creating securities that may have priority over the present issue and that under clauses 5 and 6 read harmoniously together the trustees for the debenture holders have to concur before the company can raise any future borrowings and create therefor a security which will have priority over the security avail able to the present debenture holders
The Trustees here are not stooges of the company
The ICICI is not only a finan cial institution in the public sector but is also one of the institutions financing the project and thus having a stake in the success of the project
It can be trusted to ade quately look after the interests of the debenture holders
Thirdly as has been pointed out by the company the misap prehensions of the petitioners are more imaginary than real
The company in its affidavit has pointed out that the Debenture Trust Deed dated 7111988 which has since been executed in the present case contains a provision by which
at the time of creation of any future charge the terms and conditions as to ranking have to be agreed upon between the RPL and ICICI
Also clause 16 of the Debenture Trust Deed authorises the debenture trustees to intervene 99 and crystallise the charge in their favour inter alia in the following circumstances If the Company sells the Mortgaged Premises or any part thereof not in the ordinary course of business except a sale transfer or dispo sition allowed under the terms of these presents to be made with the consent of the Trustees Sub clause f If the Company except as hereinafter ex pressly provided creates or attempts or purports to create any charge or mortgage of the Mortgaged Premises or any part of parts thereof prejudicial to the interests of the Debentureholders Sub Clause i If in the opinion of the Trustees the security of the Debentureholders is in jeop ardy Sub clause k Thus if at any time the company proposes to create such higherranking charges the trustees for debenture holders can stultify the same by taking immediate action
Fourthly the impression sought to be created by the petitioners that the company may go on creating encumbrances left and right to the detriment and prejudice of the present debenture holders overlooks several restraints imposed on the company in this respect under the  the CCI Act the MRTP Act and involving the consent of public financial institutions commercial banks the term lenders the share holders the MRTP Commission the Central Government and the CCI before the creation of such securities
Lastly the contention of the petitioners completely overlooks the basic principles underlying the commercial law concept of deben tures secured by a floating charge as evolved in British Jurisprudence over the past two hundred years
Clauses like clauses 5 and 6 are usually inserted in debenture issues and the company has drawn our attention to two like instances in certain issues approved in December 1988 and January 1989
It has also been argued for the company that a fully con vertible debenture is not a debenture at all in the true sense of the term and is more akin to an issue of equity and that therefore there is no need that it should be covered by adequate security at all
These aspects of the matter are dealt with by us at some length later it is sufficient here to say that we are unable to accept the contention that the security in favour of the debenture holders is illu 100 sory and inadequate because of the wide language of clauses 5 and 6 of the prospectus
Both these clauses have to be read together and so read we have no doubt do not permit the creation of any charge ranking in priority to the charge created under these debentures save with the consent of the trustees of debenture holders
The further argument of Sri Ganesh is that the company law in its application as well as the prospectus carefully skirted round the issue by merely stating that security will be provided to the satisfaction of the trustees and that this is not very helpful as the debenture holders come into the picture only after the funds have been raised
This argument is untenable
We have already pointed out there was sufficient security as was warranted by the issue
This was an issue of 125 fully secured convertible debentures of Rs200 each
We have examined the share capital the present issue and the scheme of conversion
In the premises it is not possible to accept the submission of Shri Ganesh that the Controller satisfied himself as stated by him in his affidavit with the bare statement of the applicant company RPL that security would be created as per the requirements of the debenture trustees
There was this statement that the debenture trustees were well known finan cial instutitions and they had been entrusted with this obligation
Learned Additional Solicitor General drew our attention to similar debentures and submitted and in our opinion rightly that this was the usual practice
It is not possible for the CCI to ensure more than that
The prospec tus was not misleading to that extent
It therefore cannot be accepted that the CCI failed to apply its mind to the documents before him
Reliance was placed on the fact that the RIL had proposed the issue of shares for G series for more or less identical project
It was contended that if capital issues had once been sanctioned for a project and the issue had been converted for that purpose and then a fresh capital issue could not be applied for or granted for the same purpose
It was urged by Shri Ganesh that the project under those circumstances could not be considered to be a new project  within the meaning oflll para 2i of the Guidelines for Issue of Debentures by Public Limited Compa nies
Secondly it was urged by Shri Ganesh that the basic object of the was to ensure sufficient and fruitful utilisation of capital would be completely defeated if more than one capital issue is permitted for the same project
In this connection Shri Ganesh referred to the affidavit of the CC1 which according to him clearly indicated that CCI was specifically aware of the fact that the scheme of finance for setting up the very same project had been approved in favour of RIL
Our atten tion was drawn to the affidavit filed on behalf of the CCI 101 where he had stated at p 203 of the Paper Book of TC No 164 of 1988 that by a Press Release dated 15th September 1984 certain guidelines which the said deponent described as non statutory guidelines for approval of issue of secured convertible and nonconvertible debentures
These guidelines had been subsequently amended by a Press Release dated 8th March 1985 and these were released on 19th Au gust 1985 for issue of convertible cumulative preference shares and also there are guidelines issued by Press Release dated 1st August 1985 for employees stock option scheme
In accordance with these guidelines according to the deponent on behalf of the CCI the consent of the CCI for capital issue for secured fully convertible debentures was issued as the projects originally to be established in RIL were per mitted by the Department of Company Affairs to be trans ferred to RPL and endorsements thereof from RIL to RPL had already been filed including inter alia for endorsement of the letter of intent for the MEG Project
The scheme of finance for setting up of three projects namely PVC HDPE and MEG had already been approved by the Department of Economic Affairs in favour of RIL
In that context in our opinion to contend that there was violation of the guide lines because the RPL s project was not a new project was too narrow and legalistic view
Shri Ganesh tried to urge that the CCI ought to have been aware of the fact that he had sanctioned a capital issue of Rs400 crores subsequent ly enhanced to Rs500 crores to RIL for the same project and that the said issue had been implemented and capital of Rs500 crores had been mopped up from the public by RIL
The CCI ought to have withheld permission for a fresh capital issue in the name of RPL for the very same project
However the CC1 did not appear to have applied his mind according to Shri Ganesh
Consent Order therefore according to Shri Ganesh was bad
We are however unable to accept this submission
The CCI was not performing the role of a social mentor taking into account the purpose of RIL
If RlL has misutilised any of its funds or the funds had not been utilised for G series then RIL would be responsible to its shareholders or to authorities in accordance with the rele vant provisions of the 
This aspect does not enter into sanctioning the capital issue for the new project in accordance with the guidelines enumerated herein before
That apart even if RIL and RPL have to be treated as one for this purpose and the grant of consent for earlier debenture issues in favour of RIL are to be taken into account in judging the necessity of the issues there is no illegality or irregularity in the impugned grant of consent to RPL
As referred to elsewhere RIL had not been able to utilise any part of the G  series of debentures on the MEG project as there had been a cost overrun in 102 the PTA  LAB projects
Eventually for reasons adverted to earlier it was decided to have the MEG PVC and HDPE projects undertaken by floating RPL a wholly owned subsidi ary
In the result even if we look at the projects not as new ones but only as those of the RIL to be implemented by RPL the additional finances were needed for the extention expansion and diversification of the projects originally envisaged
This is one of the objects for which a debenture issue is permissible under the guidelines
Shri Ganesh then submitted that Guideline No 3 for the Issue of Debentures by Public Limited Companies laid down that the CCI would consider an application for capital issue only after the approval of the financial institutions banks and Government are received
The statutory application form prescribed by the Capital Issues Application for Consent Rules 1966 requires according to Shri Ganesh that the consent and clearances of the various authorities and insti tutions should be annexed to the application
Shri Ganesh submitted that in the present case many of the relevant applications had not even been filed by RIL and RPL as on 4th July 1988 when the CCI passed the Consent Order
It was submitted by Shri Ganesh also by Shri Haksar and especially by Shri Pagaria that RPL s application had been processed in unseemly haste and without due and proper application of mind
It is true that things moved speedily in the case
This has caused us certain amount of anxiety
Speed is good haste is bad and it is always desirable to bear in mind that one should hasten slowly
However whether in a particular case there was haste or speed depends upon the objective situation or on overall appraisement of the situa tion
Here as discussed earlier the material shows that the details of the proposals have been examined and dis cussed and that an examination of the merits has not been a casualty due to the speed with which the application was processed and especially in view of the fact that no injury has been caused to the investors and no substantial loss to their securities have been occasioned we are of the opinion that much cannot be made of this criticism
Learned Addi tional Solicitor General placed before us other instances where applications had been sanctioned within shorter times
Shri Ganesh tried to urge that RIL had declared itself as a promoter of RPL and the prospectus stated that no benefit was being provided to RIL as promotor
But the entire amount spent by RIL was being reimbursed to it by RPL
In these circumstances RIL could not be treated dif ferently from the general public in the matter of 103 allotments of the shares of RPL
However the scheme of allotment was such that gross discrimination resulted against the general investing public and in favour of RIL
The long term implications it was urged by Shri Ganesh of the said discrimination were highly anomalous and unjust for the investing public who had subscribed to the debentures of RPL
However there had been no application of mind by the CCI according to Shri Ganesh to the matter of quantifica tion of the extent of benefits conferred on RIL and consid eration of whether the same are justified or not
The CCI however had merely mentioned in his affidavit that RIL was a promotor and had given an interest free advance of Rs50 crores to RPL for a period of three years
In our opinion these factors were sufficient to justify the treatment of RIL differently from other investing public and thus the treatment does not amount to any discriminatory benefit to RIL in respect of the debentures of RPL
As a matter of fact this was a known fact and the shareholders or the subscribing debenture holders would be aware of the same
Shri Ganesh sought to urge that the CCI had not made any attempt to appreciate or quantify the extent of the said benefits and advantages and go into the question whether the same are fair reasonable and just
Consequently for this reason also there had not been according to Shri Ganesh due application of mind by the CCI before the Consent Order was issued
We are unable to accept this criticism
The discrimination alleged is on two grounds
The first is that RIL is entitled straightaway to the allotment of shares of the face value of Rs5750 crores whereas only 5 of the investment by the debenture holders can be converted into shares at par simultaneously with the issue
The second is that a loan of Rs50 crores advanced by RIL to RPL will be converted into shares at par at the end of 3 years where as the debentureholders will have to pay a premium even for converting 20 of their debentures into shares by that time
These allegations do not bear scrutiny
So far as the first ground is concerned there is no justification for a com parison between these two categories of investors
RIL is the promoter company which has conceived the projects got them sanctioned invested huge amounts of time and money and transferred the projects for implementation to RPL
It is therefore in a class by itself and there is nothing wrong if it is allotted certain shares in the company quite independently of the debenture issue in lieu of its invest ments
So far as the second ground is concerned it over looks certain disadvantages attached to RIL in regard to the loan of Rs50 crores advanced by RIL as compared with the investor in the debentures
Firstly RIL s advance is inter est free 104 for 3 years whereas the debenture holders get interest at the rate of 125 during the period
Secondly the debenture loan is secured while the RIL s are not
Thus the debenture holders have certain benefits which RIL does not have and if the debenture holders have the disadvantage of having to pay a premium that cannot constitute basis for a ground of discrimination
These considerations apart we would like to observe that we are unable to appreciate how any question of dis crimination is at all relevant in the present context
It is a company not the State or a State instrumentality that is issuing the shares and debentures
It is entirely for the company to issue the shares and debentures on such terms as they may consider practicable from their point of view
There is no reason why they should not so structure the issue that it confers certain greater advantages and bene fits on the existing shareholders or promoters than on the new subscribers to the debentures
We do not think that it is permissible for the CCI to withhold consent only for this reason or to stipulate that consent can be given only if the shareholders and promoters as well as prospective debenture holders are all treated alike
The subscribers to the deben tures are only lenders to the company who have an option to convert their debt into equity on certain terms
It is perfectly open to the subscribers to balance the pros and cons of the issue anti to desist from taking the debentures if they feel that the dice are loaded unfavourably in favour of the proprietors of the company
Shri Pagaria who appeared in TC No 16288 in the matter of Shri Radheyshyam Goyal vs Union of India  Ors where the petitioner was a Chartered Accountant prefaced his submission by submitting that ours is a sovereign social ist secular democratic republic governed by the Constitu tion of India
Shri Pagaria drew our attention to Article 191g of the Constitution
He submitted that the is a pre constitutional law and the Act was enacted as being expedient to provide for con trol of issue of capital
Under Article 14 read with Article 38 it was obligatory to ensure that there was no dispropor tionate wealth
He drew our attention to MRTP Act and other Acts and also to a large number of decisions to highlight that the directive principles should be imported for ensur ing that the CCI performs his functions for the welfare of the community and to bring about an egalitarian society
That was his first submission and he further submitted that the petitioner was really in a position to come under the Public Interest Litigation propounding the cause of the public
Secondly he submitted that the concept of com 105 pany being the property of the Board of Directors had under gone a radical change
He submitted that company in a new socio economic set up is a social institution having duties and responsibilities towards community for which it func tions
According to him maximisation of social welfare should be the legitimate goal of the companies and the shareholders
He therefore stated that the CCI should take upon himself a social role and ensure that Capital issues are satisfactorily implemented
One may perhaps concede that with the vast expansion in recent years of the corporate sector and its constant tend ency to have recourse to public funds for securing finances for its projects either by way of share capital or borrowed capital the scope of the responsibilities of the CCI can no longer be as limited as before
It may no longer be restricted merely to the task of preventing an imbalance of investment in various sectors or the diversion of investment to non essential projects
The petitioners may perhaps have a point in suggesting that the CCI should be burdened with a duty also to safeguard the interests of the public who are invited to participate in such financing on large scale and at least to satisfy himself that the project for which funds are needed is not in the nature of a South sea bubble and that the volume terms and conditions of the issue proposed by the company are not such as to constitute a fraud on the public
But we think that the time is not yet ripe for placing on the office of the CCI as at present constituted more than a skelital outline of responsibility in this direction his shoulders are as yet not strong enough to bear such burden
He does not have the time the staff the powers of enquiry the benefit of public hearing the requi site background or the economic commercial or financial skill or expertise to so assess the technical commercial and financial aspects of the projects as to be able to give the public investor a guarantee that he is not being led up the garden path
All that one can say at present is that th parameters of his action have to be found within the four corners of the Act and the guidelines
May be he can legit imately withhold his consent to a project that is ex facie impracticable for instance as was put to the parties in the course of hearing a project to convert base metal into gold or a project which in the present state of finances and scientific knowledge and progress of our country is an impossibility for example to have a transport service to the moon
May be he also can in a proper case refuse his consent to a scheme of finance if ex facie and without any detailed investigation he is satisfied that it is too big for the applicant company to handle or too risky and oner ous to be permitted in public interest
But this is a deci sion which he will have to 106 venture upon on his own responsibility in patent cases where the nature of the project or the scheme of financing is on its face startlingly non feasible impracticable or risky
He cannot however be compelled to withhold consent
or found fault with for having granted consent in a case such as this where the proposed project is in a core indus trial sector
where there is considerable scope for foreign currency savings and the scheme of financing proposed has been developed in consultation with and scrutinised and approved by a leading public sector financial institution which has also agreed to be the trustee for the Debenture holders
It is too much to suggest that the CCI should be held to have failed in his duty by accepting the opinion of such institutions and not investigating for himself from various angles and in particular the adequacy of the secu rity offered to the debentureholders under the scheme
While we do appreciate that in the changed atmosphere the corporate sector when seeking to attract public moneys while raising new capital must perform both responsible and responsive roles it is difficult to enjoin that the CCI while considering the question of consentsanction of the capital issues can fulfil any role beyond the policies prescribed under which as noticed before it was enjoined to function
There are other various Acts like the Income Tax Act  MRTP Act to subserve other social objectives which are conducive or ancillary to the directive principles
Nelson it is reported to have said before the battle of Waterloo
that England expected every man to do his duty
It is well to remember that every authority in a vast developmental society must perform his role keeping in view the part he is expected to play in the background of the whole perspective anti should not encroah upon others taking the onus upon himself to do everything
That would lead to chaos and confusion
Shri Pagaria drew our attention to Section 237 of the 
If there was any violation of some of the rights of the parties they are at liberty to proceed in accordance with law
It was contended that it was an admit ted position that RPL is a newly established company though initially financed by RIL
No ceiling had been put on the allotment of the shares to the business associates of Direc tors whereas at item 5 page 2 of the Consent Order dated 4th July 1988 the limit of the shares for the employees of the RPL had been reduced from 200 to only 50 thereby according to Shri Pagaria depriving the employees having large share holding in the company which discriminated them vis a vis the business associates for whom no such ceiling had been kept
107 We find the factual position to be this
The application for consent to the issue had not specifically earmarked any portion of the issue to the employees of RPL and RIL
In the course of the discussion with the CCI it was suggested that 1290000 debentures should be offered by way of preferen tial allotment to the employees of the RIL and RPL
Para 5 of the consent order by the CCl conveyed the approval by the Central Government under proviso to rule 1926 of the Securities Contracts Regulation Rules 1957 subject to the condition that the allotment to the employees shall not exceed 200 shares per individual
The Company by its letter of 7th July pointed out that shares in the above para was a mistake for debentures and also suggested that a maximum of 200 debentures which on first conversion would become 200 shares be allotted to each of the employees of RPL as well as RIL
The CCI however modified Para 5 by his letter of the 19th July 1988 to say that allotment to the employ ees shall not exceed 50 debentures per individual
In this context it does not appear that the restriction of the allotment to the employees was at the instance of the compa ny nor does it seem that any discrimination was intended in respect of the allotments to the employees
Nor has our attention been invited to any legal requirement or guide lines prescribing any fixed or minimum quota of allotment to the employees of the company
We are therefore unable to see any discrimination
In any case the petitioner in this case has no cause for grievance on that score
It was submitted that the Consent Order suffered from arbitrariness mala fides unprecedented hurry and with extraneous considerations
We are unable to see any such discrimination
It was submitted that the Consent Order had been passed without satisfying that the pre requisite condition of the various clearances and no objection certif icates and licences under MRTP Act FERA Act and Petroleum Act and the Essential Commodities Act Securities Contract Regulation Act  and other allied laws had been fulfilled
The CCI has given consent for 125 secured redeemable convertible debentures of Rs200 each for cash at par to the public
This nomenclautre has not been changed but in the prospectus fully convertible debentures have been shown
According to Shri Pagaria the most important is the concentration of wealth in the hands of Ambani family and this aspect has not been considered in granting the consent which according to him resulted in violation of Article 39b  c of the Constitution of India and section 223 of the MRTP Act
It was submitted that the consent could not be given in favour of any applicant or company who had no valid industrial licence nor it pos 108 sessed the letter of intent under the provisions of Indus tries Development and Regulation Act 1951
It was submit ted that the CCI did not give judicial consideration to the application as in this connection reliance was placed on the decision of the Gujarat High Court in Navjivan Mills Co Ltd Kalol vs In re
Kohinoor Mills Co Ltd Bombay 1972 42 Co Cases 265
Some passages of Halsbury s Statutes of England 4th edn vol 8 were referred
It was submitted that the Directors who had received money without disclosing full facts were bound to refund the same and were construc tive trustees of the company
This proposition in our opinion is irrelevant in the present context
Shri Pagaria sought to urge that RIL management had passed an ultra vires resolution in transferring the industrial licence and letter of intent to RPL and for that act the office bearers were personally liable and he referred to certain decisions
Shri Pagaria also submitted that by advertisement on Television radio and print media under the caption Your Family Khaza na without first creating a solid and viable security for the fully paid convertible debentures under the impugned invalid consent order the application money had been raised to the tune of more than Rs 1200 crores
According to him the advertisement given was not only violative of section 58A of the but also contrary to provisions of Security Contract Regulation Act 1956 and Rules made thereunder
Shri Pagaria then submitted that in view of what he described as improper or insufficient security no con sent could have been granted and even if the issue was over subscribed the money was repayable to the persons who had subscribed to the issue on the basis of the promises and they were entitled not only to the refund of the money but to all benefits by way of interest etc
He drew our atten tion to certain decisions which in our opinion are irrele vant
He submitted that the people have a right to know and this right had been violated by not telling the people the full facts
It was submitted that RPL did not place any material before the Central Government to justify the con sent
We are unable to accept this submission
It was next submitted that the guidelines were mandatory
It was next contended by Shri Pagaria that there was nondisclosure of true and correct facts not only in respect of the interest of Directors of RIL in the RPL properties but also the security and with regard to the approval of the financial scheme under MRTP Act the licence under the Petroleum Act Explosive Act etc Shri Pagaria has referred to the re quirements under a large number of enactments and contended that until requisite consents approvals licences etc
are obtained under the said enactments the Company cannot be permitted to raise public finances for the projects on hand
In this context he referred in addition to the provisions of the  the 109 MRTP Act CCI Act rules and guidelines and the Industries Development  Regulation Act which have been considered by us to certain provisions of the and rules and orders made thereunder Explosives Act and rules made thereunder Essential Commodities Act Atomic Energy Act Insecticide Act Air Prevention and Control of Pollu tion Act 1981 Indian Standards Institution Certification Marks Act 1952 and rules and regulations thereunder Foreign Exchange Regulation Act 1973  Securities Regulation Act and 
We have gone through these provisions
They relate to var ious types of controls and regulations which have to be observed in the actual running of various types of business
We are satisfied that neither these statutes nor those regulating the grant of consent to the issue of shares and debentures intend that clearances thereunder should all be obtained before filing an application for consent
In our considered view such requirement is neither practical nor feasible and is not envisaged by the statutes referred to
Some of the contentions of Sri Pagaria alleging misleading statements made by the Company to attract investments such as the one based on the and the de scription of the issue as the Family Khazana are far fetched and unrealistic besides being irrelevant to the issue to be considered at the stage of consent for the issue by the CCI
Sri Pagaria then submitted that the grant of consent was without lawful authority and on extraneous considerations
He referred to certain decisions in support of that broad proposition
If the basis of his submission was correct undoubtedly the consent was bad but we do not find any merit in the submission
The next submission by Shri Pagaria was that the issue had been made public subject to the injunctive relief granted by this Court on 19th August 1988 without entering into the merits of the case and it was submitted that RPL did not possess any industrial licence or letter of indent and whatever licence it had had expired
This position is not factually correct as noted before
It was submitted that there had been violation of several laws
No particular violation had been indicated
Furthermore it was submitted that the Industries Development  Regulation Act 1951   MRTP Act 1969 FERA 1973 have to be read in conjunction and as such the corporate sector should not be permitted to accumulate wealth on account of favour from the Government
The factual position being as indicated before it is not possible to entertain these bald submissions
On behalf of the CCI it was submitted that the contention that 110 the CCI had not followed his own guidelines relating to the sanction of the issue is misconceived
It was further sub mitted that the security for debentures had been properly there
It was submitted that the following facts would establish that there had been no breach of duty or obliga tion cast on the CCI either under the Act or under the Guidelines or under Capital Issues Application for Consent Rules
The relevant guidelines for consideration of this question are as follows a Guidelines for Issue of Debentures by Public Limited Companies Press Release 1984
DEBT EQUITY RATIO The debt equity ratio shall not normally exceed 21
For this purpose debt  will mean all term loans debentures and bonds with an initial maturity period of five years or more including interest accrued thereon
It also includes all deferred payment liabilities but it does not include short term bank borrowings and advances unsecured deposit or loans for the public share holders and employees and unsecured loans or deposits from others Equity  would mean paid up share capital including preference capital and free reserves
Guideline No 11 is also instructive
The Press Release also was referred to
The trustees to the debenture holders were enjoined to supervise the implementation of the condi tions regarding creation of the security of the debentures
It was therefore submitted that the trustees of the debenture issue who were to supervise the implementation of the conditions regarding the creation of security were vested with the requisite powers for protecting the interest of debenture holders
Before formulating the guidelines for protection of the interest of debenture holders considerable deliberations took place between the concerned departments in the Ministry and between the Public financial institu tions investment institutions Department of Banking and CCI and Reserve Bank of India as a large quantum of deben tures were coming to the period of maturity in 1989 onwards and redemption and a need was felt to protect the interest of debenture holders so that no defaults endanger their interests
Consequentlyhe question of debenture redemption reserve and the security creation was examined by the finan cial institutions and the scheme with debenture trustees was formulated with sufficient degree of precision and urgency
The debenture trustees are normally public financial insti tutions and nationalised banks
Public 111 financial institutions have the necessary expertise and infrastructure to examine the aspects of security creation and the quality of the security offered for protecting the interest of debenture holders
The original guidelines of 14th January 1987 were continuously being monitored by the CCI and on 25th June 1987 a further clarificatory guide line was published on the concept of security to be offered for the debentures
In the present case the application dated 4th May 1988 as filed by the RPL with the CCI cate gorically mentioned that the security will be in such form and manner as required by the trustees for debenture hold ers
These requirements are contained in Part VE Partic ulars of Issues Particulars of Preference Shares and Deben tures e indicate the security to be offered in the case of debentures
It is in these circumstances that it was not necessary for the CCI to evaluate the security or the ade quacy thereof at the stage of grant of consent
The CCI did examine the proposal with reference to the debenture residu al value beyond the fifth year of its allotment and in relation to the asset creation and take on record prior to grant of consent the project estimations and cash flows statements of the ICICI for the years 1989 to 1996 which had looked into the projects and also examined the question of creation of security and asset creation for RPL in relation to the issue for three projects
It was further submitted that as per this statement the debt service coverage ratio was 189 in 1991 and going upto 255 in 1995
It was there fore inaccurate to say that the CCI had not satisfied him self on the matter of security or had failed to apply his mind to documents before him
It is further stated on behalf of the CCI that the CCI consented to the proposal of RIL for G  series for projects including PTA LAB MEG and HDPE and also for working capital requirement in November 1986 and not merely for MEG and HDPE as alleged by the petitioner
During the implementation of projects there was cost over run for PTA and LAB which was taken due note of by ICICI in December 1987 and CCI was informed of this cost overrun in 1987 itself by ICICI
Major part of G  Series was utilised for PTA and LAB CCI was also aware of this cost overrun through the proposal of the company to MRTP Commission much prior to granting consent to RPL as CCI is represented in the process of approval for MRTP
CCI s office was in formed by ICICI of likely deployment of G  Series funds for projects other than MEG and HDPE much prior to the grant of consent to RPL
It was submitted that RIL had received approval to its modified scheme on 17th May 1988 for its LAB project and on 13th July 1988 for its PTA Project
However these formal communications were preceded by the awareness of the CCI in regard to cost overruns in PTA and LAB projects and consequently the non implementation of MEG and HDPE
112 Learned Additional Solicitor General therefore submitted that it was incorrect to state that the CCI granted consent for issue of debentures for financing the projects of RPL which were already given financing facilities earlier against the G  Series debentures
It was submitted that since the projects of MEG and HDPE were not implemented in RIL and were now being implemented in RPL for the first time these were new projects  within the meaning of paragraph 2a of the guidelines dated 15th September 1984
There fore it is incorrect to say that more than one capital issue was permitted by the CCI to finance the same project
It is clear according to learned Additional Solicitor General that CCI satisfied himself before granting the consent on 4th July 1988 to RPL that the capital raised by RIL was not used for HDPE and MEG and the scheme of finance for the G Series of RIL as modified and for the present issue of RPL were different
It was denied that the CCI ought to have withheld permission for a fresh issue of capital in RPL for HDPE and MEG especially since these two projects were not permitted
It was submitted on behalf of the CCI that there was no bar for receiving finance for either a cost overrun or for an unimplemented portion of a project
It is a fact that the MEG and HDPE projects had not been implemented in RIL and they were now being implemented only in RPL
It is further submitted on behalf of the CCI that the public financial institution namely ICICI looked into the project and reported to the CCI in their letter dated 15th June
1988 that the estimated cost of projects for which the consent was being sought was Rs650 crores
The consent order of the CCI clearly indicated that the consent conveyed in the letter shall lapse on the expiry of 12 months from the date thereof
The consent order further categorically stated that the approval was without prejudice to any other approvalpermission that might be required to be obtained under any other Acts and laws in force
It necessarily therefore followed that the obligation to obtain other permissions continued
There was no legal condition that other approvals should be examined by the CCI before grant of its own consent
This was submitted on behalf of the CCI and there is substance in the submission
In the application form prescribed in Schedule A of the Capital Issues Applications for Consent Rules 1956 other than the Bonus shares the indications are only directory and not mandatory requirements
The words used are normally insist ed
Therefore it does not preclude the CCI from granting its consent before the grant of other approvals
Through a chart it was highlighted before us that there was no undue haste and it is the normal time taken in respect of others also
It is further stated that the statutory information clearly indicated that no amount had been paid or given to the companies promoters or 113 officers or offered to them
The prospectus and the terms and conditions were not approved by the CCI at the time of granting of consent
No discrimination had been practised against the existing shareholders of RIL while according consent to RPL
The proposal of the 8th June 1988 as submitted by RPL to the CCI sought approval for equity participation to the extent of Rs50 crores only
This Rs50 crores was by way of unsecured interest free deposit to be converted at the end of the 36 months into equity shares at par
This substantial addition to the promoter s contribu tion was to ensure an enhanced participation in the project and to ensure its stake
The Petrochemical Industry has a long gestation period for yielding high profits
The con vertible debentures have a fixed return as contrasted to equity participation which might earn a flexible dividend
In the initial period no dividend  night be earned
The CCI therefore applied its mind while evaluating this aspect since a sum of Rs50 crores was to be non interest bearing and unsecured whilst computing the position on the debt equity ratio
The enhanced contribution sought from the promoter was a condition imposed on them
The long term implications and the balance capital structure of the compa ny were placed for consideration of the CCI through the cash flow analysis of ICICI and the CCI applied its mind to the scheme of financing and correctly granted the consent order on relevant considerations
So far as the grievance of alleged discrimination is concerned it arises from the petitioner s assumption of the possible capital appreciation of equity shares of RIL at the second conversion which might be at a premium if any at the time of such conversion
It was submitted on behalf of the CCI that CCI had imposed a condition that any conversion would be at a premium if any as might be decided by the CCI s office at the time of such conversion
It was further submitted that the computation of premium depends on several factors such as the net worth of the company the performance of the company the profit earning capacity value of the company etc
Since RPL was in the Petrochemical sector which had ordinarily the gestation period at the time of grant of the consent it was not possible for the CCI to forecast or estimate the rate of conversion on the second and the third stage and advisedly the CCI reserved to itself the right to determine this premium on factual data available at the time of conversion
Therefore this cannot be said to be bad
The convertible debentures would receive interest  125 on the sum of Rs190 315 interest would accrue on this amount
It was therefore not necessary for the CCI to quantify the extent of benefits and advantages before grant of consent and had to enter into computation for evaluating this
Naturally the RIL as a promoter stood on a different footing and there were rational intelligible critera distinguishing general 114 members of the public from a promoter proposing the capital issue and the establishment of new projects
It was further relevant to notice it was submitted that RPL was a 100 per cent subsidiary company of RIL at the time of its conversion and even presently a proposal for a capital issue would have sought that the entire issue of capital be allotted to itself
The CCI had the option to grant the consent in terms of the application or to impose such conditions as were necessary for the balanced capital structure of the company
The consent it was submitted could not be evaluated in hindsight after the issue was closed and subscribed
It was asserted that today RIL is the third largest industrial house in India
It was stated that the present portfolio of RIL spreads over 25 million sharesholdersdebenture holdersdeposit holders
Till date it has made 7 debentures issues besides making three equity share capital issues rights and 2 bonus shares issue
All the debentures issues were at a premium and over subscribed
E Series partly convertible debentures of Rs80 crores were issued in 1984 85
F series non convertible debentures of Rs270 crores were issued in 1985 86
G Series fully con vertible debentures for Rs500 crores were issued in 1986 87
According to the respondent the investment in RIL during this period has proved to be consistently and remark ably profitable to investors
The RIL commenced business in the year 1966 for the manufacture of synthetic cloth made from synthetic yarn and fibre
Their factory was commenced and installed in the vicinity of Ahmedabad at Naroda
In order to manufacture synthetic fabric the company was importing polyester filament yarn and polyester staple fibre and re exporting fabrics produced from the same
It was one of the recognised export houses doing business in textiles
In the year 1977 Reliance Textile Industries merged with a company Minylon Ltd and after the merger changed its name back to Reliance Textile Industries Ltd Its tradition al line of business was manufacturing of synthetic fabrics
However since 1977 through several capital issues both of debentures and of equity it has diversified and backwardin tegrated
In the first instance the company decided to install a plant for the manufacture of polyester staple fibre and polyester staple yarn which item it was previously importing for manufacturing synthetic fabrics
These plants were established at Patalganga in the State of Maharashtra
Thereafter the company decided to further backward inte grate and to manufacture PTA Purified Teriphthalic Acid which is one of the raw materials used in the manufacture of polyester filament yarnpolyester staple fibre
Simultane ously it also diversified horizontally into the manufacture of Linear Aklyl Benzene LAB 115 used in the manufacture of detergents as this product could also be manufactured from the petrochemical downstream products in which the company was engaged
RIL s 3rd stage of backward integration involved it was asserted in the manufacture of Mono Ethylene Glycol MEG used in the manufacture of polyester staple fibre and pol yester staple yarn
It also decided to diversify into the manufacture of critically scarce plastic raw materials like High Density  Polyethylene HDPE Poly Vinyl Chloride PVC and Mono Ethylene Glycol MEG a polyester raw material used in the manufacture of polyester fibre etc
The company had also applied for Gas Cracker Project which is said to have been cleared recently whereby natural gas oil would be cracked to produce ethylene and other petrochemicals
Thus right from the Naphtha stage to the yarn fibre and fabric stage the company has attempted the complete range of products necessary for the manufacture of fabrics from the raw material namely natural gas
Hazira has been selected with special reference to the availability of natural gas oil from South Sea Basin and it is country s first ethylene handling port and has economies of transportation and terminal facility at Hazira etc
It is not necessary to set out however how the company developed in different stages
The application for consent was filed on 4th May 1988 as mentioned hereinbefore
The licence and letter of intent were endorsed in favour of the RIL and the scheme for finance in favour of the RPL
Both Shri Baig and Shri Salve appearing for the re spondents 3 and 4 gave us the factual background of the business of the RPL
It is not necessary to set out these in greater detail than what has been mentioned hereinbefore
It is further submitted by both that the CCI had examined the nature and quantum of security in cases of the debentures
It was submitted that the submission of Shri Ganesh that the security was inadequate was wrong
It was submitted that clauses 5 and 6 of the Prospectus read together indicate how the power has been exercised
These clauses visualise the creation of a residual or floating charge on all or any of the movable or immovable assets and properties of RPL at Hazira andor at any other location
These further postulate future charge superior in priority might be created by RPL
Future charges might be created without the consent or concurrence of the debenture holders
Nor was their consent required for purposes of dealing with the assets and proper ties of the company
It was submitted that the following properties are excluded from charge namely 116 a Residential complex at Hazira or at any other location
b Current assets or Banker s goods
c Any other property that might be spe cifically excluded by agreement with the trustees
Future charges might be created on such terms regarding ranking etc
as might be agreed to by the trustees
It was submitted that whereas clause 5 essentially visualised creation of a floating charge in favour of debenture holders without any restrictions or limitation clause 6 incorpo rated a limitation and a safeguard that controls the normal characteristics of floating charge
It has to be borne in mind that convertible debenture is a new type of instrument introduced in this case and these appear to have caught the imagination of the investors
It has been asserted before us that subsequent to RPL issue others have also gone for this type of project
Our atten tion was drawn to rule 2bx of the Companies Acceptance of deposits Rules 1975 which provided clearly that a convertible debenture was not to be included in the defini tion of debenture
it was further asserted that the security visualised in clauses 5 and 6 of the Prospectus was one which was prevalent and customary in corporate practice and was regarded as valid and adequate
Nothing contrary to this was indicated before us
Our attention was drawn to Sec
212 of the under which a debenture need not be secured at all
In that light the guidelines should be interpreted
Therefore it was submitted Guideline 10 reasonably interpreted means that such security should be provided as is customari ly adopted in corporate practice in the matter of issuing debentures
It has to be borne in mind that the debentures issued in the present case are compulsorily convertible
Therefore no repayment of principal is really involved
The question of security becomes relevant for the purpose of payment of interest on these debentures and the payment of principal only in the unlikely event of winding up
The debentures need not necessarily be secured
Guidelines do not provide for quantum and nature of the security
A debenture has been defined to mean essentially as an acknowledgement of debt with a commitment to repay the principal with interest Palmer s Company Law p 672 24th Edition
Reference in this connection may be made to The British India Steam Navigation Co vs The Commissioner of Inland Revenue  at pages 172 117 and 173
A debenture may contain charge only on a part of the assets of the company Re Colonial Trusts Corporation or it may not contain any charge on any of its assets See Speyer Brothers vs The Commissioner of Inland Revenue and Lemon vs Austin Friars Investment Trust Ltd A debenture may therefore be secured or unsecured Palmer s Company Law p 675 24th Edition
An ordinary debenture has to be distin guished from a mortgage debenture  which necessarily creates a mortgage on the assets of a company See Palmer s Company Law p 706
A compulsorily convertible debenture does not postulate any repayment of the principal
There fore it does not constitute a debenture  in its classic sense
Even a debenture which is only convertible at option has been regarded a hybrid  debenture by Palmer s Company Law Para 4407 at page 676
In this connection reference may be made to the guidelines for the Protection of Deben ture Holders issued on the 14th January 1987 which have recognised the basic distinction between a convertible and a nonconvertible debenture
It is apparent that these were issued for the purpose of ensuring the serviceability and repayment of debentures on time
It has been asserted before us that the compulsorily convertible debentures in corporate practice was adopted in India some time after the year 1984
Wherever the concept of compulsorily convertible debentures is involved the guidelines treat these as equity
This is clear from Guideline IVi read with IV iii of the Guide lines for Issue of Cumulative Convertible Preference Shares and Guidelines No 8 and 11 of the Employees Stock Option Guidelines These two sets of Guidelines clearly indicate that any instrument which is compulsorily convertible into shares is regarded as an equity and not as a loan or debt
Even a non convertible debenture need not be always secured
In fact modern tendency is to raise loan by unse cured stock which does not create any charge on the assets of the Company The Encyclopaedia of Forms and Precedents 4th Edn
6 para 17 at pages 1094 1095 and para 22 at pages 1097 98
Whenever however a security is created it is invariably in the form of a floating charge See  The Encyclopaedia of Forms and Precedents 4th Edn Vol
6 Para 25 at page 1099
It follows therefore that the secured debenture almost invariably contains a floating charge
In addition to the floating charge debentures are frequently secured by trust deed also as had happened in the present case where specific property land etc has been mortgaged to trustees
Shri Ganesh made a submission that under clause 5 of the Prospectus the company could deal with its assets and properties with 118 out the permission of debenture holders or debenture trus tees and that it could create future charges which would rank superior in priority
The concept of floating charge was invented by the Victorian Lawyers only because of its special advantages inasmuch as it leaves a company free to deal with its assets in the ordinary course of business and does not require the permission of debenture holders or debenture trustees for dealing with them or creating further charges
It has been pointed out that the business of a corporation would be paralysed if it could not deal with its assets and create future charges ranking superior in prior ity and if it would have to obtain the permission of the debenture holders for doing so
See the discussion in Palmer s Company Law page 709 and 682 See also the obser vations in Re Florence Land  Public Works Co  Re Colonial Trust Corporation supra
In fact in Re Florence Land s case supra the Court observed that if the companies were not allowed to resort to floating charge they would have to call the meeting of existing charge holdersdebenture holders each time they intend to create future charge
The decision in Re Panama New Zea land and Australian Royal Mail Co as indicated in Palm er s Company Law at page 708 is a landmark because it estab lished the validity and the utility of a floating charge
In the instant case if the permission of the debenture holders were required or is insisted upon to create future security 25 million debenture holders would have to be informed and invited for meeting
The extravagant effects of this course would be colossal especially when a shareholders  meeting is also additionally called for the same body of persons
It is therefore incorrect to say that a floating charge creates an illusory charge because future securities can be created ranking in priority over it
The legal position is that a floating charge creates a present equitable right in favour of the debenture holderstrustees
It creates a present chargein the propertyundertaking of a company even before the time of payment of the debenture arrives
The fact is that a company can deal with its property without the permission of debenture holderstrustees before crys tallisation by resorting to a floating charge on the under taking See the observations in this connection in Re Florence Land s case supra Re Standard Manufacturing Co  Re
Borax Foster vs Borax Co and Creatnor Maritime Co Ltd vs Irish Marine Management Ltd This however does not mean that the company can keep on creating future charges with superior ranking without any let or hindrance because the debenture holderstrustees can any time move to crystal lise the floating security if they felt that the security is in jeopardy
119 In the present case there is no case to suggest or believe that ICICI which is one of the most important national Government financial institutions will not act effectively and promptly to ensure that the security in favour of the debenture holders is not rendered illusory
Even Guidelines dated 14th January 1987 has cast the re sponsibility of supervising creating monitoring and imple mentation of security in favour of debenture trustees
The company cannot normally create a general floating charge ranking in priority to or pari passu with a prior floating charge unless the prior floating charge itself permits such a course
In this connection reference may be made to the observations in The Encyclopaedia of Forms and Precedents 4th Edn Vol
6 para 27 at pages 1102 1103
It therefore follows that i A debenture is usually secured by floating charge only
ii A company which creates floating charge has a right to create future security which may rank superior in ranking
iii However this right of the compa ny may be restricted by agreement
iv Where no restriction is provided any future specific charge will rank superior to the earlier floating charge Section 123 of the  v Again where no specific provision is made in the earlier floating charge with respect to the ranking of future floating charge then any future floating charge will be inferior to the earlier floating charge
In this connection reference may be made to sec
48 of the Transfer of Property Act
The risk of floating charges can be controlled by creating legal mortgage in favour of debenture trustees as has been explained in All About Debentures by Sen  Chandrashekhar pp
66 67
In the present case a legal mortgage has been created by RPL in favour of the trustees in respect of its immovable and movable assets except book debts in respect of which financial institutions will hold a first charge on account of foreign loan
In the present case RPL does not have any existing loans
Therefore the charge in favour of the debenture holders is presently the first charge
No future borrowing is contemplated at this stage except the foreign currency loan to the 120 extent of Rs 84 crores
Therefore the submission that the security is illusory cannot be accepted and the CCI is right that the apprehension is based on factually unsound and unfounded grounds
Even if the value of the foreign currency which has been sanctioned in principle by the three finan cial institutions is taken into account the assets cover age goes down at each stage and does not make any critical difference to the value of the security of the debenture holders under the Trust Deed
The purposes of borrowings namely term loan borrowings deferred payment creditsguarantees and borrowing for financing new projects do not on analysis raise any difficulty
There are suffi cient in built checks and controls
The company being an MRTP company would have to obtain both MRTP permission for creating any security irrespective of its value and fresh CCI consent under the CCI Act
except in case of exempted securities
Therefore in our opinion this submission is really in the nature of
red herring
It was submitted that we should at least direct that the future security should not rank superior to the floating charge in favour of the existing debentures holders
Having regard to the factors which the investors should have taken into consideration we are of the opinion that all relevant factors were borne in mind by the CCI
There is no substance also in the ground of discrimination
It is reiterated that Article 14 of the Constitution does not forbid reasonable classification
RIL is a promoter company
It had conceived the projects got them sanctioned and invested huge amounts of time and money in the process
It was open to RIL to undertake these projects on its own and not to make any public issue at all
The ground that there was non application of mind be
cause the CCI did not take into consideration the issue of G Series is also without substance
Under Guideline 2a of the Guidelines of 1984 capital could be raised only for setting up of new project
MEG it was submitted was not a new project for capital had been raised for it by RIL under G Series
It was further submitted that the Controller did not ask RPL to get the bankers prior clearance certificate under Guideline IIv of the Guidelines of January 14 1987
Finally the CCI did not take note of the fact that the application under Schedule I of Rule III of the Capital Issues Application for Consent Rules did not contain the relevant information
The position of cost over run has been explained
So there was no sub stance in the submission that it was not a new project
Secondly it cannot be accepted that the CCI did not insist the bankers prior clearance certificate
These guidelines apply to non convertible debentures or partly convertible debentures
These do not apply to compulsorily convertible debentures
121 Even assuming that these are applied to compulsorily con vertible debentures there was no need for the CCI to ask for the bankers prior clearance certificate because RPL was not issuing any new set of debentures
All requisite infor mation had been furnished
Shri Ganesh as well as Shri Pagaria tried to submit that in order to protect the investors a function which they submitted the CCI in changed circumstances should deter mine whether the project is profitable
Where a project has been appraised by an institution like ICICI the Controller can safely assume that it is profitable and he need not engage in separate independent exercise of his own in this regard
The scope and nature of the Controller s powers and jurisdiction have to be determined in the light of the specific provisions of the CCI Act its history the de bates to which we have referred the capital structure of the national economy and its over all direction in higher priorities are decided by the Government and the Planning Commission by formulating Five Year Plans
However the capital structure and the direction of a particular industry is decided in terms of the provisions of IDR Act
That a particular industrial house may become a monopoly or other wise have a restrictive and detrimental effect on the econo my of the country is the concern of MRTP Act
Therefore the scope of the CCI under the Act is of a limited nature and must be kept in its proper perspective
It is true that he cannot as was contended on behalf of the petitioner be oblivious of the fact that small scale investors are coming into operation and there is a social obligation of the State to provide safe guidelines
Yet each authority must circum scribe its
work in the proper light
Unless therefore CCI acts perversely irrationally or with procedural improprie ty his decisions cannot and should not be faulted on the ground that other consequences might follow
Of course no other consequences have been indicated before us
As a matter of fact there was no allegation that the CCI acted mala fide or on extraneous considerations
The CCI applied its mind to the facts of this case and the factors in general
There was no undue haste
A statement was pro duced indicating that the application for grant of consent had been disposed after some time but within the time frame in which such applications are normally disposed of
It may however be stated that being not statutory in character these guidelines are not enforceable
See the observations of this Court in Fernandez vs State of Mysore  Also see R Abdullah Rowther vs State Transport etc AIR 1959 SC 896 Dy
122 Asst
Iron  Steel Controller vs Manekchand Proprietor   Andhra Industrial Work vs CCI  E   KM Shanmugham vs SRVS Pvt Ltd  A policy is not law
A statement of policy is not a prescription of binding criterion
In this connection reference may be made to the observations of Sagnata invest ments Ltd vs Norwich Corpn and p 626
Also the observations in British Oxygen Co vs Board of Trade 10
See also Foulkes  Administrative Law 6th Ed
at page 18 1 184
In exhibit P Khan 1981 1 All ER page 40 the court held that a circular or self made rule can become enforceable on the application of persons if it was shown that it had created legitimate expectation in their minds that the authority would abide by such a policyguideline
However the doctrine of legitimate expec tation applies only when a person had been given reason to believe that the State will abide by the certain policy or guideline on the basis of which such applicant might have been led to take certain actions
This doctrine is akin to the doctrine of promissory estoppel
See also the observa tions of Lord Wilberforce in IRC vs National Federation  However it has to be borne in mind that the guidelines on which the petitioners have relied are not statutory in character
These guidelines are not judicially enforceable
The competent authority might depart from these guidelines where the proper exercise of his discretion so warrants
In the present case the statute provided that rules can be made by the Central Government only
Further more according to Section 62 of the Act the competent authority has the power and jurisdiction to condone any deviation from even the statutory requirements prescribed under Sections 3 and 4 of the Act
In Regina vs Preston Supplementary 1975 1 WLR p 624 at p 631 it had been held that the Act should be administered with as little technicality as possible
Judicial review of these matters though can always be made where there was arbitrariness and mala fide and where the purpose of an authority in exercis ing its statutory power and that of legislature in confer ring the powers are demonstrably at variance should be exercised cautiously and soberly
We would also like to refer to one more aspect of the enforceability of the guidelines by persons in the position of the petitioners in these cases
Guidelines are issued by Governments and statutory authorities in various types of situations
Where such guidelines are intended to clarify or implement the conditions and requirements precedent to the exercise of certain rights conferred in favour of citizens or persons and a deviation therefrom directly affects the rights so vested the persons whose rights are affected have a clear right to 123 approach the court for relief
Sometimes guidelines control the choice of persons competing with one another for the grant of benefits largesses or favours and if the guide lines are departed from without rhyme or reason an arbi trary discrimination may result which may call for judicial review
In some other instances as in the Ramanna Shetty case the guidelines may prescribe certain standards or norms for the grant of certain benefits and a relaxation of or departure from the norms may affect persons not direct ly but indirectly in the sense that though they did not seek the benefit or privilege as they were not eligible for it on the basis of the announced norms they might also have entered the fray had the relaxed guidelines been made known
In other words they would have been potential competitors in case any relaxation or departure were to be made
In a case of the present type however the guidelines operate in a totally different field
The guidelines do not affect or regulate the right of any person other than the company applying for consent
The manner of application of these guidelines whether strict or lax does not either directly or indirectly affect the rights or potential rights of any others or deprive them directly or indirectly of any advantages or benefits to which they were or would have been entitled
In this context there is only a very limited scope for judicial review on the ground that the guidelines have not been followed or have been deviated from
Any member of the public can perhaps claim that such of the guidelines as impose controls intended to safeguard the interests of members of the public investing in such public issues should be strictly enforced and not departed from departure therefrom will take away the protection provided to them
The scope for such challenge will necessarily be very narrow and restricted and will depend to a considerable extent on the nature and extent of the deviation
For in stance if debentures were issued which provide no security at all or if the debt equity ratio is 60001 as alleged as against the permissible 21 or thereabouts a Court may be persuaded to interfere
A Court however would be reluctant to interfere simply because one or more of the guidelines have not been adhered to even where there are substantial deviations unless such deviations are by nature and extent such as to prejudice the interests of the public which it is their avowed object to protect
Per contra the Court would be inclined to perhaps overlook or ignore such deviations if the object of the statute or public interest warrant justify or necessitate such deviations in a particular case
This is because guidelines by their very nature do not fall into the category of legislation direct subordinate or ancillary
They have only an advisory role to play and non adherence to or deviation from them is necessarily and implicitly permissible if the circumstances of any particu lar fact or law 124 situation warrants the same
Judicial control takes over only where the deviation either involves arbitrariness or discrimination or is so fundamental as to undermine a basic public purpose which the guidelines and the statute under which they are issued are intended to achieve
But in the instant case in the view we have taken it  is not necessary to base our decision on this aspect
We find that the CCI has in fact acted in substantial compli ance with the principles of these guidelines
He has acted objectively and bona fide
He has not acted in undue haste
No substantial prejudice or injury to the petitioners have been demonstrated
In the aforesaid view of the matter we are therefore unable to interfere
In this connection furthermore a common sense view has to be adopted See the observations in Council of Civil Service Unions  Others vs Minister for the Civil Service 1985 AC at 407
Public interest in this case does not require that we should inter fere
In this case there is no illegality in the decision of the Controller of Capital Issues
He has not exercised a power which he does not possess
There is also no irration ality
He has not acted in any manner that no reasonable authority would have acted in the decision
There is no procedural impropriety in his decision
He has not failed in his duty to act fairly insofar as fairness was warranted by the justice of the situation
In the aforesaid view of the matter we are of the opinion that there was no substance in the writ petitions and also in the civil suits covered by these transfer appli cations
The main question as mentioned hereinbefore canvassed in these transfer petitions is whether the CCI has acted in the manner he should act in the present atmosphere of socio economic development in view of our constitutional commitments
The purpose of the Act must be found from the language used
The scheme and the language used strictly speaking do not indicate any positive role for the CCI in discharging his functions in respect of grant of sanction
But it has to be borne in mind that he is a part of a State instrumentalities committed to the endeavours of the consti tutional aspiration to secure justice inter alia social and economic and also under Article 39b  c of the Constitution to ensure that the ownership and control of the material resources of the community are so distributed as to best subserve the common good and that the operation of the economic system does not result in concentration of wealth and means of production to the common detriment
Yet every instrumentality and functionary of the State must fulfil its own role and should not trespass or encroach 125 entrench upon the field  of others
Progress is ensured and development helped if each performs his role in the common endeavour
In that light it is true that as was contended by learned counsel appearing on behalf of the petitioners that in the changed socioeconomic conditions of the country one who is charged to ensure capital investment has to perform the social role in capital formation and to protect the interest of the capital market and to oversee the growth of industrialisation and investment in such a manner as to ensure employment and demand in the national economy to prevent wasteful investment and to promote sound methods of corporate finance
The guidelines are only a guide and nothing more
The application of mind by the CCI before sanction must be in the perspective for which he is enjoined by the Act
He must endeavour to secure a balanced invest ment of the country s resources in industry agriculture and social services
The Controller should perform the role of social control and fulfil the social purpose in conjunction with other authorities and functionaries
It is necessary for him in discharge of his functions to ensure that there is not too much concentration of particular industries in particular areas and that there is a scientific development and proper investment in key and core projects
The present petitions have perhaps brought to the fore for the first time a public interest aspect of the issue of shares and debentures
In the past decades investors in shares and equities constituted a very limited section of the public and consisted of two extreme types either persons who could shrewdly appraise the merits of each issue and take a considered decision or persons who just wanted to invest and get a return for their moneys but were indiffer ent to the terms and conditions of such investment
The position has changed in recent years
There has been a vast increase in the number of members of the public who have surplus money to invest the size of the issues has assumed macro proportions and the types of instruments are also becoming more and more sophisticated
Entrepreneurs with legal and expert assistance at their command could easily trap unwary investors and the development of a public inter est lobby that can scrutinise issues carefully and advise prospective investors on their comparative merits and demer its may not be entirely undesirable
It is also perhaps necessary that the CCI in considering the grant of consent to such issues should have these aspects brought to his notice
We think that it may be too cumbersome to have a provision that the details of every proposed application for consent should be publicised to the maximum extent by the CCI that objections and comments from the public 126 should be called for that there should be a public hearing before the CCI before grant of consent and that the CCI should pass a reasoned order granting or withholding con sent
That would also delay the whole process of approvals which should be as expeditious as possible
But we have no hesitation in saying that some procedure has to be evolved to ensure that the CCI gets the benefit of the comments suggestions and objections from the public before arriving at his decision whether to grant consent or not and if so on what terms and conditions
Perhaps evolution of certain rules in this respect could be examined at this juncture of industrial growth in our country
But having regard to the facts and the circumstances of the case in view of the various facts mentioned hereinbefore we are of the opinion that there was no undue haste
There was proper application of mind that the sanction was for a new project
Sufficient security for the debentures as was enjoined to be ensured before sanction has been ensured in the facts and the cir cumstances of this case and guidance provided by means of guidelines has been substantially complied with
There has been no infraction as such of the norms required to be followed in granting the sanction
The challenge to the sanction therefore must fail
Before we conclude we must note that good deal of argument was adduced that these applications in different High Courts in civil suits were not genuine and properly motivated but were mala fide
Even though these might not have been to feed fat an innocent object it was apparent that it was to feed fat a grudge in respect of a competitive project by a competitor
Anyway in the view we have taken it is not necessary to decide the bona fides or mala fides of the applicants
Shri Nariman when he moved the applica tion initially had suggested that we should lay down cer tain norms as to how the courts in different parts of the country should grant injunction or entertain applications affecting an all India issue or having remifications all over the country
Except that before the courts grant any injunction they should have regard to the principles of comity of courts in a federal structure and have regard to self restraint and circumspection we do not at this stage lay down any more definite norms
We may also perhaps add that it may be impossible to lay down hard and fast rules of general application because of the diverse situations which give rise to problems of this nature
Each case has its own special facts and complications and it will be a disadvan tage rather than an advantage to attempt and apply any stereo typed formula to all cases
Perhaps in this sphere the High Courts themselves might be able to introduce a certain amount of discipline having regard to the principles of comity of courts 127 administering the same general laws applicable all over the country in respect of granting interim orders which will have repercussion or effect beyond the jurisdiction of the particular courts
Such an exercise will be useful contribu tion in evolving good conventions in the federal judicial system
On the 9th September 1988 when we transferred these matters we directed respondent No 3 to deposit a sum of Rs 1 lac to be held if the petitioners were made to spend unduly
Having considered the facts and circumstances of the case we do not think that we would be justified in ordering disbursement of this sum to the petitioners whose cases have been transferred or the plaintiffs whose cases have been transferred
The sum should therefore be refunded to the respondent No 3
All the writ petitions and the suit fail and are dis missed
In the facts and the circumstances of the case there will be no order as to costs
GN Petitions dismissed


Summary:
The appellant company was manufacturing and selling black and galvanised steel tubes and pipes
In the assess ment proceedings for the years 1982 83 and 1983 84 under the Kerala General Sales Tax Act 1963 the appellant contended that since the galvanised pipes manufactured by it were declared goods they were not liable to additional sales tax as well as surcharge
Rejecting the contention the assessing authority taxed the turnover of galvanized iron pipes at four per cent and also assessed an additional tax and surcharge treating the galvanized iron pipes as goods  falling under Entry 46 of the First Schedule to the Kerala Sales Tax Act
Demands were raised from the Appellant compa ny accordingly
The Company filed a writ petition in the High Court
The High Court held that as a result of the process of galvani sation the galvanised iron pipes had acquired different commercial identity and therefore could not be identified with steel tubes mentioned in Section 14ivxi of the 
In these appeals on the question whether galvanised iron pipes and tubes are a commercially different commodity from steel tubes mentioned in Section 14ivxi of the 
Allowing the appeals and setting aside the judgment and order of the High Court this Court 211 HELD 1
Galvanised pipes are steel tubes within the meaning of Section 14ivxi of the 
The view taken by the High Court to the contrary was errone ous
213E 2
Galvanisation is done on steel tubes or pipes as a protective measure only ie to make it weather proof
Merely because the steel tube has been galvanised does not mean that it ceases to be a steel tube
It still remains a steel tube and neither its structure nor function is al tered
Galvanisation does not bring a new commodity into existence and as a commercial item it is not different from a steel tube
212H 213A C Commissioner of Sales Tax vs Mitra Industries 1988 69 STC Note No 55 at p 16 applied
Associated Mechanical Industries vs Commissioner of Commercial Taxes Bangalore 1986 61 STC 225 Commis sioner of Sales Tax vs Om Engineering Works 1986 UPTC 55 State of Gujarat vs Shah Veljibhai Motichand Lunawada 1969 23 STC 288 and Sales Tax Commissioner and Ors
vs Jammu Iron and Steel Syndicate 1980 45 STC 99 ap proved
Apollo Tubes Limited vs State of Kerala 1986 61 STC 275
overruled
Deputy Commissioner of Commercial Taxes Tiruchirapalli vs PC Mohammed Ibrahim Marakayar Sons 1980 46 STC 22
Not approved
Deputy Commissioner of Sales Tax Law Board of Revenue vs GS Pai  Co   Distinguished