SCA/856919/1998 1/8 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 8569 of 1998 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= RL GANDHI - Petitioner(s) Versus PUNJAB NATIONAL BANK & 4 - Respondent(s) ========================================================= Appearance : M/S TRIVEDI & GUPTA for Petitioner(s) : 1, MR KM PARIKH for Respondent(s) : 1, MR BH CHHATRAPATI for Respondent(s) : 2, RULE SERVED BY DS for Respondent(s) : 3 - 5. ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI Date : 25/11/2008 ORAL JUDGMENT Petition is filed seeking following substantive prayers: SCA/856919/1998 2/8 JUDGMENT “(A) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction directing SEBI to forthwith perform its duty by proceeding against the Respondent Bank under the provisions of SEBI Act, 1992 read with the relevant rules and instructions, for the admitted violation of section 73 of the Companies Act in retaining the trust monies, i.e. monies received in respect of a public issue for making good its own dues, instead of returning the same to the petitioner and other similarly situated investors in full with interest. (B) Your Lordships may be pleased to issue a writ of Declaration or a writ in the nature of Declaration or any other appropriate writ, order or direction declaring the impugned action of the Respondent Bank in initially retaining the trust monies to the extent of Rs.1,20,00,000/- for the purpose of making good its own dues payable by Respondent No.3 company, instead of returning the same to the petitioner and other similarly situated investors, in full with interest and subsequently adopting a “pick and choose” approach by returning full monies along with interest in case of three similarly situated persons to the great disadvantage of the petitioner herein, as erroneous, illegal and violation of section 73 of the Companies Act as well as violation of Article 14, 19(1)(g), 265 and 300A of the Constitution of India; (C) Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, order or direction forthwith directing the respondent Bank to pay to the petitioner his remainder subscription monies alongwith interest at the rate of 15% totaling to the tune of Rs.65,12,219/- (interest calculated till the date of institution of present petition) with running interest at the rate of 15% till payment of the said total amount.” SCA/856919/1998 3/8 JUDGMENT 2. Shortly stated, facts leading to the present petition are as follows:- Petitioner is Director of a Company called Renco Gears Limited, respondent No.3 herein. With the help of respondent No.4, Renco Gears Limited came out with a public-cum-right issue and offered public issue of 26,60,000 equity shares and right issue of 20,00,000 shares and offered the same to the public for subscription between 1.8.95 and 5.8.95. It is the case of the petitioner that he applied for 2 lacs equity shares for which he made payment of Rs.50 lacs by cheque. The public issue of Renco Gears Limited, however, ran into controversies on account of certain incorrect statements having been made by the Company in its prospectus. The money collected towards the public issue was deposited in respondent No.1 bank. Ultimately, the public issue was dropped and respondent No.2, i.e. Securities & Exchange Board of India (SEBI for short) instructed respondent No.3, Renco Gears Ltd. to refund the money received towards subscription. 3. It is the case of the petitioner that respondent No.1 Punjab National Bank instead of returning the entire amount filed suit before the City Civil Court being Civil Suit No.4966 of 1995 seeking permission to appropriate the balance amount of Rs.1,50,00,000/- towards dues of respondent No.3 payable to respondent No.1 Bank. SCA/856919/1998 4/8 JUDGMENT It appears that eventually, the suit was compromised and respondent No.1 Bank withdrew the suit and made certain payments to the petitioner and three other entities, namely, Smrutiben Shreyansh Shah, Aaspass Investment Pvt. Lt and K.Z. Leasing and Finance Company Ltd. The petitioner received a sum of Rs.6,36,987/- towards his claim of Rs.50 lacs with interest whereas other parties received payment ranging from Rs.27 lacs to 54 lacs. It may be noted that while making the said payments, MOU was signed by the officers of respondent No.1 Bank and all the four parties in whose favour different amounts were being released. The MOU dated 11.4.96 is produced at Annexure I to the petition. 4. It is the case of the petitioner that respondent No.1 Bank could not have withheld any amount and respondent No.2 SEBI ought to have taken effective steps to ensure that the amount was released in favour of respondent No.3 Company and in turn to the petitioner. It is contended that the payment of Rs.6,36,987/- to the petitioner and much higher amounts to other similarly persons was also without any rational and wholly unjust. 5. Respondent No.1, Punjab National Bank as well as respondent No.2, SEBI have filed affidavits. SEBI has contended that there were some irregularities found on the part of respondent No.1 Bank and after inquiry, action was taken. Respondent No.1, on the SCA/856919/1998 5/8 JUDGMENT other hand, has filed a detailed affidavit opposing the petition, mainly contending that respondent No.1 had filed Civil Suit No.4966 of 1995 against respondent No.3 Company and others including the petitioner. The issues were settled between the parties pursuant to which the suit was withdrawn and an MOU was signed. The petitioner is also a signatory to the said MOU. Certain declarations were made in the MOU which also the petitioner had not objected to. It is further stated that defendant Nos.1 to 3 in the said civil suit had admitted that an amount of Rs.1.20 crores paid by them for the allotment of shares was from the funds received from the Company through the Bank from the public issue of shares and in fact such amounts did not belong to them and an amount of Rs.1.50 crores was transferred from the public issue money received by the Company known as Renco Finance Limited and Renco Finance Limitd had transferred the said funds to its directors and others including the petitioner. It is further stated that the petitioner not only signed the MOU but also received a sum of Rs.6,36,987/- under the same and issued receipt thereof. It is further stated that the petitioner is the Managing Director of Renco Finance Limited and out of the said amount of Renco Finance Limited, the petitioner had promoted Rs.1,20 crores to be paid to K.Z.Investment which in turn paid the said amount to Shri Gautam A. Panchal and Atmaram A. Panchal, the promoters of Renco Gears Limited for subscribing to the Right shares. Therefore, such acts of commission and SCA/856919/1998 6/8 JUDGMENT omission of Renco Gears Limited and Renco Finance Limited, of which the petitioner is a Director and Managing Director respectively, would estop the petitioner from claiming any relief against the bank. It is further stated that even the refund orders issued by Renco Gears Limited to its subscribers are signed by the petitioner. It is further stated that as per the MOU, the bank paid the amounts to the parties out of the funds lying with the bank received from the public issue and thus the bank has refunded the full amount received by it from the public issue. 6. To this detailed affidavit in reply filed by respondent No.1 Bank, though the petitioner has filed rejoinder, he has only stated that the admission of defendant Nos.1 to 3 in Civil Suit No.4966/95 would not bind the petitioner as he was defendant No.6. He has further stated that he received Rs.6,36,987/- without prejudice to the rights to proceed against the concerned persons for his claim. 7. To my mind, the petitioner cannot claim the reliefs sought in the present petition. Primarily, the entire petition is aimed at recovery of an amount of Rs.50 lacs allegedly paid by the petitioner for subscription of public issue. Other reliefs in the guise of direction to SEBI can at best be viewed as an attempt to bring the petition within the scope of writ jurisdiction of this Court. In any case, SEBI has taken steps as found necessary and the issue must SCA/856919/1998 7/8 JUDGMENT end there. 8. With respect to the claim of the petitioner against respondent No.1 Bank, I find that the same cannot be entertained in any form in a writ petition, in the facts of the present case. As noted, respondent No.1 has made detailed allegations as regards source of money which have remained substantially uncontroverted. Even in the statements of other defendants in the suit filed by the Bank, the same averments come forth. In the MOU which the petitioner himself has signed also it is stated that the Chairman and Managing Director of the Company having clearly stated that the right issue money is in fact public issue money of the parties at Sr.No.2 to 5. It is also stated that the Chairman and Managing Director of the Company say that the subscription is made from the funds received by the Company from the Bank. The petitioner raised no objection to the said averments. It is also not disputed that the petitioner is a Director of Renco Gears Limited and the Managing Director of Renco Finance Limited. Thus, from what is stated on record, the petitioner invested in subscription of public issue of Renco Gears Limited of which he was a Director the funds received by Renco Finance Limited for its public issue of which the petitioner was a Managing Director. Further, as stated by respondent No.1 Bank and as recorded in the MOU, respondent No.1 Bank had returned the entire funds received to such public issue. In a writ petition, in such SCA/856919/1998 8/8 JUDGMENT circumstances, for such highly debatable questions, no directions can be given to respondent No.1 Bank which would amount to asking the Bank to pay amount in excess of what the bank received towards the public issue of respondent No.3. In view of the facts which respondent No.1 bank has highlighted which the petitioner has not denied in the rejoinder, it would otherwise also not be proper to exercise writ jurisdiction. 9. Learned counsel for the petitioner, however, submitted that under the MOU as well as the receipt that the petitioner passed to the bank it was clarified that he has not accepted the said amount as full and final settlement reserving his right to pursue his claim, if any. I have not based my order on the petitioner having accepted the payment towards final settlement. This factor, therefore, would make no change so far as the ultimate outcome is concerned. 10. In the result, the petition is dismissed leaving it open for the petitioner to pursue remedy if he has any, in law. Rule is discharged. (Akil Kureshi, J.) (vjn)