Case: Ashiwin S. Mehta  Vs. Union Of India

The appellants, one late Harshad S. Mehta, their other family members and the corporate entities belonging to the family members had purchased more than 90 lakh shares in Apollo. Except for the holding of two family members, the entire holding came to be attached by a notification on 6th June, 1992. Under the said notification, 29 entities both individual and corporate were notified under Section 3(2) of the Special Court Act. Prior to the issue of notification about 15 lakh shares of Apollo stood registered in the name of the notified parties and the balance shares were unregistered. About 39.16 lakh unregistered shares were disclosed by the late Harshad S. Mehta to the office of the Custodian, which were subsequently handed over to the Central Bureau of Investigation (hereinafter referred to as. The CBI seized about 7 to 8 lakh un-registered shares in 1992, which also were handed over by them to the Custodian. The Custodian was also authorised to deal with a few lakh shares, identified as benami shares. Thereafter, the Custodian moved an application before the Special Court seeking orders for effecting registration of unregistered shares in the name of the Custodian and for recovery of lapsed benefits that accrued on the said unregistered shares. The management of Apollo objected to the proposed registration, alleging violation of the takeover code and raised the question of ownership. However, the Special Court, vide order dated 19th November, 1999, allowed the registration of the un-registered shares in the name of the Custodian.3. By order dated 11th March, 1996, in Civil Appeal No.5225 of 1995, this Court, in a suo motu action, directed the Custodian to draft a scheme for sale of shares of the notified parties, which constituted bulk of the attached assets. Accordingly, a scheme was drafted by the Custodian in consultation with the Government of India and thereafter, presented to this Court. Vide order dated 13th May, 1998, in Civil Appeal No. 5326 of 1995, this Court directed that the said scheme may be considered by the Special Court, with further modifications, if any. In furtherance of the said direction, the scheme was presented to the Special Court for its approval. The notified parties strongly opposed the said scheme on several grounds. All the objections of the notified parties were overruled and the Special Court, vide order dated 17th August, 2000, categorised the shares into three classes - (i) routine shares; (ii) bulk shares and (iii) controlling block of shares. The Special Court constituted a Disposal Committee for disposal of shares as per the norms laid down in the said order. Norms in respect of sale of controlling block of shares read asFOR SALE OF CONTROLLING BLOCK OF SHARES:After completion of demat procedure for registered shares, the Custodian will give public advertisement in the newspapers inviting bids for purchase of Controlling Block of shares. The offers should be for the entire block of registered shares. The offers should be accompanied by a Demand Draft/Pay Order/Bankers cheque representing 5% of the offered amount in cases of thinly traded shares of companies like Killick Nixon whereas in cases of highly valued shares like Apollo Tyres, the offers shall be accompanied by Demand Draft/Pay Order/Bankers cheque representing 2% of the offered amount. The said Pay Order/Demand Draft/bankers cheque should be drawn in favour of the Custodian, A/c - name of the notified parties say Dhanraj Mills. The offers can be made by individuals as well as by corporate and other entities. The offerer, whose offer is accepted by the Court, will be required to make payment within 15 days from the date of acceptance of the offer by the Court. Here also, the Court reserves its rights to accept or reject any of the highest offer or bid that may be received by the Court without assigning any reason whatsoever. Once the highest offer is ascertained, the management of the company should be given an option to buy the shares. This is to avoid destablization of the company. The purchaser(s) shall comply with all regulations including the Take Over Regulations of SEBI. In cases where the Custodian finds that as on the relevant date, he does not possess shares of a company to the extent of 5% or above, but he anticipates that in near future, the limit is likely to reach with the other shares coming in, then the Custodian shall submit his report to the Court for keeping aside such shares of a notified party for future disposal. However, public financial institutions will not be required to make any deposit along with their4. The Special Court approved the scheme, propounded by the Custodian for sale of Controlling Block of Shares in toto and ordered sale of all registered shares, except the shares of Apollo because their objection regarding registration of unregistered shares in the name of Custodian/notified parties, was pending adjudication by this Court.5. The order of the Special Court was challenged both by the notified parties and Apollo. By order dated 23rd August, 2001 in Civil Appeal No.7629 of 1999 [connected C.A. Nos. 7630 of 1999 and 5813 to 5814 of 2000], this Court, while approving the basic structure of the scheme and the directions given by the Special Court for disposal of shares, disposed of the appeal with the following directions insofar as the sale of controlling block of shares, was concerned:respect of the sale of controlling block of shares the only method laid down by the Special Court is to offer the sale of shares in a composite block. It is not known whether such a sale will get the best price in respect thereof. We, therefore, direct that it will be open to the Special Court to decide whether to have the sale of the controlling block of shares either by inviting bids for purchase of controlling block as such or by selling the said shares according to the norms fixed for the sale of bulk shares or by the norms fixed in respect of routine shares. The object being that the highest price possible should be realised, it is left to the Court to decide what procedure to adopt.If the Court thinks that it is best to adopt the norms laid down by it for sale of controlling block of shares (the 3rd method) then when highest offer is received and the Management of the Company is given an option to buy those shares at that price, then if the Management so desires the Court should give the Company an opportunity to buy back the shares at the highest price offered by complying with the provisions of Section 77A of the Companies Act. In other words, on the receipt of the offer for the sale of the controlling block, the Court will give an opportunity, if it chooses to consider the offer, to the Management to buy or to the Company to buy back under Section 77A of the Companies Act. No other change in the Scheme as formulated by the Special Court is called for. It is made clear that in respect of the controlling block of shares the third method will first be adopted, namely, the norms for sale of controlling block of shares; and it is only if the Court is satisfied that by adopting that method the highest price is not available then it will have an option to follow the 2nd method relating to sale of bulk shares. Further, if the Court is satisfied that by following any of the above two methods the highest price is not available, then it will have an option to follow the norms as laid down for routine shares (the 1st method).These appeals are disposed of in the aforesaid(Emphasis supplied by us)In compliance with the aforesaid orders/directions, the Custodian drafted the `terms and conditions of sale for sale of 54,88,850 shares of Apollo. Some of the terms and conditions, relevant for this appeal are as follows.......... ........ ......... ......... ......... ...... .......... ........ ......... ......... .........5. Even after acceptance of the offer/identification of the highest bidder by the Disposal Committee, the approval of sale will be subject to the sanction of Honble Special Court....... .......... ........ ......... ......... .........7. The Bids are to be submitted for the entire lot of shares of the said Company viz. 54,88,850 shares. Bids in part (less number of shares than total) shall not be considered....... .......... ........ ......... ......... ......... ...... .......... ........ ......... ......... .........14. The Custodian will obtain directions of the Honble Court for approval of the offer of the highest bidder so identified by the Disposal Committee. The Honble Special Court after ascertaining the highest offer may give an opportunity to the management of the said Company to buy or to the Company to buy-back as per provisions of the Companies Act, 1956, the saidof shares if it so desires.15. The sale as stated herein above is subject to the sanction of Honble Special Court. The Honble Special Court reserves the right to accept or reject any of the offer or bids that may be received for purchase of the shares....... .......... ........ ......... ......... ............Pursuant thereto, the Custodian invited bids from individuals as well as from the corporate and other entities. The offers were to reach the office of the Custodian by 3.00 p.m. on or before 25th April 2003. In response, only two bids were received, the highest being Rs. 80/- per share given by Punjab National Bank. The Disposal Committee evaluated the bids so received and vide its minutes dated 25th April 2003, recommended that in addition to the aforesaid 54,88,850 shares, additional 8,15,485 benami shares also be sold to the highest bidder subject to sanction by the Special Court. Accordingly, the Custodian submitted a report to the Special Court for consideration and appropriate orders. By the impugned order, dated 30th April, 2003, corrected vide order dated 2nd May, 2003, the Special Court directed sale of 54,88,850 shares to Apollo and its management at Rs.90/- per share. Being dissatisfied with and aggrieved by the order indicated hereinbefore, the appellants have preferred this appeal.7. At the time of admission of this appeal on 29th May, 2003, the following interim order was

Court's reasoning:
In view of our finding that the decision of the Special Court is vitiated on the afore-stated grounds, it must follow as a necessary consequence that in the normal course, the impugned order must be struck down in its entirety. However, bearing in mind the fact that the sale of 54,88,850 shares was approved and all procedural modalities are stated to have been carried out in the year 2003, we are inclined to agree with Mr. Vellapally and Dr. Singhvi that at this stage, when 36.90 lakh shares of Apollo are claimed to have been extinguished, the relief sought for by the appellants to rescind the entire sale of 54,88,850 shares will be impracticable and fraught with grave difficulties. In our opinion, therefore, the relief in this appeal should be confined to 4.95% of the shares, subject matter of interim order, dated 29th May,view of our finding that the decision of the Special Court is vitiated on the afore-stated grounds, it must follow as a necessary consequence that in the normal course, the impugned order must be struck down in its entirety. However, bearing in mind the fact that the sale of 54,88,850 shares was approved and all procedural modalities are stated to have been carried out in the year 2003, we are inclined to agree with Mr. Vellapally and Dr. Singhvi that at this stage, when 36.90 lakh shares of Apollo are claimed to have been extinguished, the relief sought for by the appellants to rescind the entire sale of 54,88,850 shares will be impracticable and fraught with grave difficulties. In our opinion, therefore, the relief in this appeal should be confined to 4.95% of the shares, subject matter of interim order, dated 29th May,2003, extracted above.33. In the result, we allow the appeal partly; set aside the impugned order to the extent indicated above and remit the case to the Special Court for taking necessary steps to recover the said 4.95% shares from Apollo or its management, as the case may be, and put them to fresh sale strictly in terms of the aforenoted norms as approved by this Court vide order dated 23rd August, 2001. The shareholders who will be affected by this order shall be entitled to the sale consideration paid by them to the Custodian alongwith simple interest @6% p.a. from the date of payment by them upto the date of actual reimbursement by the Custodian in terms of this order.