SABYASACHI MUKHARJI. J.


In these transferred writ petitions and one suit, we are concerned with the powers, functions and the role of the Controller of Capital Issues. By an order dated September 9, 1988 this Court had directed that the four writ petitions and one civil suit i. e., W. P. No. 1791 of 1988 pending before the Delhi High Court, W. P. No. 2708 of 1988 pending before the Jaipur Bench of the Rajasthan High Court, W. P. No. 12176 of 1988 pending before the Karnataka High Court, W. P. No. 4388 of 1988 pending before the High Court of Bombay and Civil Suit No. 1172 of 1988 pending before the Civil Judge, Junior Division Bench, Baroda, Gujarat, be transferred to this Court for disposal. It would be appropriate to deal with the facts of one of these, i. e., W. P. No. 1791 of 1988, which was filed in the Delhi High Court in T. C. No. 161 of 1988. The other writ petitions and the suit raise more or less identical problems and issues on more or less same facts


2. 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 Petrochemicals Ltd. (RPL). The case of the petitioner is that he is an individual who is a public spirited person and is an existing shareholder of the company known as Reliance Industries Ltd. (RIL), which was the promotor of Reliance Petrochemicals Limited, being respondent 3. The petitioner held at all relevant times 144 shares of RIL and 100 debentures of different categories. Respondent 3, being RPL, was a newly set up public limited company for the purpose of carrying on the business of manufacture of petrochemicals. These writ 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 (Rs. 516 crores) by the RPL. It was contended in the petition that respondents 1 and 2, being the Union of India and the Controller of Capital Issues, ough


3. On the basis of the said consent, it was stated that respondent 3 had issued prospectus and at the relevant time had intended to open the issue from August 22, 1988, of about 3 crores debentures of the face value of Rs. 200 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 ultimately to defraud them. It was stated that under the terms of the prospectus, each debenture of the face value of Rs. 200 would be fully convertible : respondent 3 would issue one share of Rs. 10 at par on the date of allotment. There would, thus, be an equity capital of about Rs. 30 crores in all on allotment. Further, it was stated that the company would convert Rs. 40 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 al


4. It is further the case of the petitioner that the operations of RIL (Promotor) 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 pointed out that though the issue proposed was of shares of Rs. 50 crores and debentures of Rs. 516 crores, the company was allowed to retain over-subscription to the tune of 15 per cent amounting to Rs. 77.40 crores. It was alleged that respondent 3 was a new company and it should not be allowed 15 per cent retention; and if it wanted to raise Rs. 600 crores, it should have come out with an issue of that amount. It was further alleged that respondent 2, without considering the propriety of the situation, allowed respondent 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 3 calls for judicial review. It was also alleged that the sanction was approved at exorbitant terms : 5 per cent of the face value (equal toThe consent order was hit by arbitrary and capricious exercise of jurisdiction by respondent 1. It was further alleged that respondent 3's promoters i. e. RIL had been obtaining from respondents 1/2 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 (Promotor) was allowed to raise Rs. 100 crores by way of issuance of 'F' Series debentures. 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 obtained huge borrowals from nationalised banks; and several bank employees got into trouble due to advancin


5. It was alleged that the act of respondents 1/2 was vitiated as in issuing the consent order respondent 2 was influenced by extraneous considerations not germane to the public interest. The Capital Market in India has undergone 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 soundness/financial viability of any company. It was further alleged that respondents 1/2 had acted wrongly and illegally in allowing respondent 3 to raise share capital on premium for financing new projects. It was contended in the petition of the petitioner that the consent order was a fraud


6. 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 August 22, 1988


7. The facts and the circumstances leading to this consent order have been stated in the affidavit on behalf of respondent 3 to the writ application. After disputing the locus of the petitioner, who challenged the consent order for making the public issue of 12.5 per cent Secured Convertible Debentures by respondent 3, respondent 3 stated that the petition suffers from laches and delays. On behalf of respondent 3 it was asserted that the public issues made by respondent 3 had been promoted by RIL. the RIL and RPL are interconnected and represented companies in the large industrial house known as 'Reliance Group'. According to respondent 3, they represented India's fastest growing private sector companies and comprised the world's second largest investor family of over 30 lakhs investors. It was further asserted that respondent 3 would have India's largest private sector petrochemical complex for the manufacture of critically scarce raw materials. It was stated that respondent 3 would manufacture versatile ra


8. The terms of the issue of debentures of the face value of Rs. 200 being fully converted into equity shares were the following


(i) A sum of Rs. 10 being 5 per cent of the face value of each debenture by way of first conversion immediately into one equity share at per on allotment;


(ii) A sum of Rs. 40 being the 20 per cent 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 per cent 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 of Capital Issues


9. The premium, it was stated on behalf of respondent 3, that would be charged at the time off conversion into equity shares would be as fixed and decided by the prescribed statutory authority, namely, the Controller of Capita; Issues, and respondent 3 and its Board of Directors would not have any say in the matter or be entitled 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 respondent 3, promotor company, would be entitled to participate in all the future issues of respondent 3. The fully convertible debentures of respondent 3 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 a


10. The products which were intended to be manufactured by respondent 3 were many, namely, (a) High Density Polyethylene (HDPE) and Poly Vinyl Chloride (PVC) which are raw material behind plastic revolution; (b) Mono Ethylene Glycol (MEG) is a critical polyester raw material; HDPE and PVC being vital thermoplastics play an important role in the core sector and used for manufacture of everything from films to pipes, auto parts to cable coatings, and containers to furnishings. It is not necessary for the issue involved in these applications to set out in detail the very many particulars given by respondent 3 in support of the contention that a petrochemical complex proposed to be set up by the new company - respondent 3 - would be beneficial socially and economically for the country as well as for the investors


11. The advantages of convertible debentures proposed to be issued at that time by respondent 3 were also highlighted. It is stated that debentures are treated as equity. Respondent 3'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 Rs. 85 crores from them). The interest which would, therefore, have been payable 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 terms loans obtained from the financial institutions would bee available to the investors thereby ensuring them growth in equity value. It was further stated that since the preferential allotment of 50 per cent of the total issue was made to RIL shareholders, the shareh


12. It was further stated that RIL, who are the promotors 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 issue involved in these applications either to dilate upon these or to consider the correctness or otherwise of these assertions. Reliance's plant at Patalganga complex in the State, as Maharashtra and its beneficial effects to the community and the State, as asserted on behalf of respondent 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 Pagaria, learned counsel appearing for one of the petitioners, Radhey Shyam Goyal tried to impress upon us that among the world


13. The industrial licences have been applied for and it was stated that pending the formation and incorporation of RPL on January 4, 1988 under the companies Act. 1956, RIL had undertaken and performed various acts and needs, particulars whereof have been mentioned in the statement of facts. In the statement of facts filed on behalf of respondent 3, a list of consents and approvals obtained by respondent 3, has also been indicated


14. It was further stated that pursuant to the order of this court, dated august 19, 1988 the public issue was made under the prospectus dated July 27, 1988 which opened on August 22, 1988 and closed on August 31, 1988. There had been an overwhelming response to the issue from all categories of investors including non-residents, RIL shareholders/employees and the issue was heavily over-subscribed. On behalf of the RPL, it was stated that the time frame of 10 weeks commencing from September 1, 1988 and ending on November 10, 1988 had to be strictly adhered to. The provisions of Section 73 and other applicable provisions of the Companies Act, 1956, the provisions of the Securities (Contract and regulation) act, 1965 and the listing requirements of the stock exchanges were also complied with


15. It was stated on behalf of respondent 3 that for the purpose of finalising the means of finance of HDPE, PVC and MEG projects, RIL as the promotors of respondent 3 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 discussion which were initiated in the second half of 1987 with ICICI, the idea of implementing these projects through a new independent company instead of RIL had taken shape duly taking into account the financial aspects, management aspects, issues related to management and operation control of setting up the projects within the existing company vis-a-vis the setting up of the projects in the new company, namely respondent 3 company, was taken up. Respondent 3 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 institutional/stock exchange/Ministry of Finance norms and guidelines as regards financing of projects. (e) That is should be sustainable and attractive enough in terms of the profitability/servicing capability of the project. (f) That it should reduce the dependence of the company institutional finance. (g) That it should encourage the capital market activity in India


16. The various alternative means of issue of security such as equity share and/or convertible cumulative preference shares (CCP) and/or partially convertible debentures and/or non-convertible debentures and/or equity linked debentures and/or 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 3


17. 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 type 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 expect 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 and/or convertible debenture should be issued and the merits of his conclusions are not open to judicial review


18. It has to be borne in mine that the write 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 be 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 be granted. These are unnecessary to be dealt which now when the matter is being finally disposed of


19. 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 Government did not take the responsibility 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 government had improperly permitted the issue of shares of new company at premium in the instant of shares of a new company at 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 conver


20. 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 fluctuation 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 occasions the sales 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 cooperation and support from the authorities


21. It was further alleged that there was discrimination in respect of time period of conversion of loan/investment into equity between the shareholders of RIL and the investing public. Immediately on allotment the conversation of percentage of investment of the rights holders is 53.49 per cent whereas that of the investing public is only 5 per cent. At the end of 3 years from the debenture allotment date, percentage debenture conversion of investment of the rights holders is 46.51 per cent and that of the investing public is nil. Hence, after the end of 3 years time the percentage of conversion in investment of rights holders is 100 per cent whereas that of the investment of rights holders at the end of 3 years in figures in approx. Rs. 107.50 crores and the investing public is only Rs. 29.67 crores. Between 3 and 4 years of debenture allotment the percentage public is 20 per cent. Between 5 and 7 years of the debenture allotment date the percentage of conversion of investment of the rights holders was nil


22. 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 Constitution. 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 stated


23. One consolidated reply to all these writ petitions on behalf of the Union of India through the Secretariat, Ministry of Finance, Department 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 controller of Capital Issues. He has mentioned that the consent of the Controller of Capital Issues was granted on July 4, 1988 and the same was amended to a certain extent on July 19 and 26, 1988. He has explained in his affidavit the background of the circumstances leading to the consent order


24. In relation to the 3 projects, namely, (i) for manufacture of 1, 00, 000 tonnes per annum Poly Vinyl Chloride (PVC); (ii) 60, 000 tonnes per annum of MEG (Mono Ethylene Glycol); and (iii) 50, 000 tonnes per annum of HDPE (High Density Polyethylene), RPL submitted an application for issue of capital on or about May 4, 1988 in the prescribed form. RPL proposed raising of capital by various instruments, like, equity shares, cumulative convertible preference shares (CCP), party convertible debenture intended to be issued to the public, to the shareholders 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. 47.00


Shareholders, debenture holders and deposit holders of 4.00


Reliance Industries Ltd


Public 6.00


Cumulative Convertible Preference Shares (CCPS)


Non-resident Indians/Foreign Collaborators/ 81.00


Indian Resident Public


Convertible Debentures


Shareholders, debentureholders and deposit holders of 214.00


Reliance Industries Ltd


Public 241.00


The Instrument of convertible cumulative preference shares was proposed to be converted at a price to be fixed by respondent 2 at premium not exceeding Rs. 40 per share between the third and fifth year from the date of allotment. The debentures proposed were to be of the face value of Rs. 500 each and the conversion was to be of Rs. 200 into 10 shares as follows


6 per cent of the face value (Rs. 30) would be compulsorily


converted into equity at per at 1 year from allotment


16 per cent of the face value (Rs. 80) would be compulsorily


converted at 2 years from allotment into equity at apremium to be decided at the time of conversion


but not greater than Rs. 20 per share


18 per cent of the face value (Rs. 90) would be compulsorily


converted into equity at 3 years from allotment at a


premium decided at the time of conversion but not


greater than Rs. 30 per share


60 per cent of the face value (Rs. 300) would be redeemed


between 8th and 10th years from allotment by


draw of lots


25. It appears that the Industrial Credit and Investment Corporation of India Ltd. (for short ICICI), was the lead financial institution and lead manager for the issue of capital of RPL, and its merchant banking department, having the necessary expertise, was interacting between respondent 2, 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 3 (RPL) by removing the instrument of cumulative preference shares as also the non-convertible portion of the debentures. This would have been necessitated by the sluggishness in the capital market, the market reactions to non-covertible preference shares 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 investment and draw out saving from the home savi


(i) 5 per cent of the face value of the debentures at par on allotment;


(ii) 20 per cent of the face value (inclusive of premium) at a premium as may be decided in consultation with the Controller of Capital Issues at he end off the fourth year from the date of allotment;


(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


26. In view of the revised project cost it was felt that the promotor's contribution of Rs. 50 crores was less and RIL as promotors were told, as asserted in the affidavit, to increase the promotor's contribution to 15 per cent of the total project cost of Rs. 700 crores. RIL in view of this requirement, agreed to bring in Rs. 107.50 crores as its contribution to RPL, out of which a sum of Rs. 50 crores was directed to be kept as interest free unsecured loan at the time of allotment which would be converted into equity ar par at the expire of 36 months from the date of allotment of convertible debentures


27. As a practice, it is asserted, respondent 2 being the CCI, observed that debenture holder/fixed deposit holders of RIL were not eligible for preferential reservation in the capital issue of RPL, and thus RPL was not permitted to issue capital to these categories on preferential basis and only the shareholders of RIL were permitted preferential entitlement in accordance with the practice


28. By a press release dated September 15, 1984 respondent 2 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 March 8, 1985. Guidelines were also issued by press release on August 19, 1985 for issue of convertible cumulative preference shares. There are guidelines issued by press release dated August 1, 1985 for employees stock option scheme. In accordance with the guidelines of September 15, 1984, as amended on March 8, 1985, the consent for capital issue for secured fully convertible debentures was issued as the projects originally to be established in RIL were permitted by the Department of Company Affairs to be transferred to RPL. The application for industrial licences and endorsements thereof from RLL to RPL had already been filed including, inter alia, the endorsement of the letter of intent for the MEG project. The scheme of finance for setting up of 3 projects


29. The proposal contemplated was within the debt-equity norms and radio in accordance with para 4 of the non-statutory guidelines as the debt in the proposal aggregated to Rs. 471 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 5 (ii) of the Capital Issues (Exemption) Order, 1969. In the present case, 25 per cent of the face value of the debenture would stand redeemed by the third and fourth years and before the fifth year, and it would therefore not be considered as debt for evaluating debt-equity ratio as per the guidelines. Similarly, the promotor's contribution of Rs. 100 crores plus 25 per cent converted debentures at the end of 5 years would bee categorised as equity representing share capital and free reserves converted from the total investment of Rs. 516 crores proposed by RPL. It was assumed to aggregate to Rs. 229 crores and debt-equity ratio thus came to 2.05 : 1 - which approximates the ratio of 2


30 It was further asserted that these guidelines being non-statutory and not rigid, a relaxation in the norm of debt-equity ratio of 2 : 1 is considered favourably for capital intensive projects like petrochemical which require large investments as would appear from the Note annexed to the guideline. The guidelines postulate that these debentures should be secured. The proposal itself contemplated that the security would be in such form and manner as required by the trustees for the debenture holders for convertible debentures. It was asserted that it was not a requirement of the guidelines that the debenture issue be compulsorily underwritten. The guidelines themselves contemplated that 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 respondent 2 after carefully examining this issue. The guidelines contemplated simultaneous listing of shares and debentures. In the present case, upon allotment, there was simultan


31. However, it was further stated that, in view of the size of the issues there was a modification dated July 19, 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


32. On behalf of the Controller it was asserted that the guideline should not be construed in a manner which would fetter, constrict or inhibit statutory discretion vested in respondent 2 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 Capital Issues (Control) Act 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 preventing the statutory authority from adopting or modifying varying norms in operational area of implementing the purposes of the Act especially when there were no fetters under the statue


33. The Controller of Capital Issues had issued, it was stated, guidelines as a result of the wartime needs and controls, since the year 1947 and flow from the experience gained under the Defence of India Rules, 1939. Hence, according to the deponent, these controls have been progressively reduced and the Capital Issues (Exemption) Order, 1969 was brought into force so as to reduce the rigors of the Act. In the absence of any control for capital issues for securities, according to the deponent, there would be no fetter or restriction to the part of the company to borrow or raise capital from he market. It is to check raising of wasteful capital and to avoid investment being made in non-productive, 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 119


34. All these petitions challenge only the grant of sanction by the Controller of Capital Issues, though different aspects 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 sanction to capital issues. It is further necessary to examine if that role has in any way, 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 purported 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 bona fide in law. These are the broad questions which have to be viewed in respect of the challenge to


35. 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 sanctioned 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 May 4, 1988 and sanctioned on July 4, 1988 - within hardly a period of two months; this reflects under 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, and plication 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 prejudicial affect the applicant and it is not only desirable but also 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


36. (b) Secondly, it has been submitted that the RPL was a company which was incorporated only on January 11, 1988. RIL had issued a 'G' series of debentures as recently 1986 for the same projects. In granting completely overlooked 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 petitioner are correct in saying that the Controller of Capital Issues has overlooked or was not aware of the debenture issues by the RIL or the purposes for which these debenture issues had been sanctioned. The application for consent makes it clear that the petitioner company is a new company promoted by RIL and that RIL was promoting 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 Rs. 650 crores and that this cost had been approved earlier in 1985. Considering that RPL had come into existence only on January 11, 1988, this was clear indication tha


37. (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 pint 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 al the necessary licences, consents, orders, approvals, etc. in is 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 bee


38. We shall first refer to the steps taken by the RIL in this regard


39. On October 10, 1983 as RIL proposed to engage in manufacture of MEG, it filed an application of grant of an industrial licence under the Industries (Development and Regulation) Act, 1951. On August 16, 1984 RIL received a Letter of Intent No. 653 (84) Regn. No. 1323 (83) - IL/SCS issued by the Government of India for the manufacture of 40, 000 TPA of MEG. Thereafter, from time to time on the applications made by the RIL, the Government of India by various letters extended the validity of the period ending up to June 30, 1989. The last of such extensions was made by a letter dated September 2, 1988. On May 11, 1988 pursuant to an application made, the Government of India permitted expansion of capacity for manufacture of MEG from 40, 000 TPA to 60, 000 TPA. From January 12, 1988 to July 22, 1988 to July 22, 1988 to 22, 1988 applications were made by RIL for change of company from RIL to RPL for the MEG project. It appears that on August 11, 1988 approv

al/sanction was granted by the Government of India for ch 40. It appears that on October 9, 1984 pursuant to an application made by RIL for foreign collaboration with M/s Union Carbide Corporation, USA, the Government of India by its order of that date accorded approval to the terms of the foreign collaboration for a period of six months for this project. It further appears that on March 14, 1986 pursuant to an application made by RIL, the government accorded approval for foreign collaboration with M/s Scientific Design Company. It may, however, be mentioned that there was a letter dated April 30, 1986 whereby approval was granted by the Reserve Bank of India in respect of foreign collaboration agreement with M/s Scientific Design Co. USA 41. The next aspect of the matter which has to be borne inn mind in view of the contentions urged was regarding the licences. It appears that there was an application on March 25, 1987, for licence. On August 9, 1988 the Industrial Licence dated March 25, 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 42. It also appears that so far as the MRTP Act is concerned, an application was made by RIL on or about October 12, 1984 under Section 22 (3) (a) for manufacture of PVC. Several other steps were taken and on June 29, 1988 there was an order of the Government of India under Section 22 (3) (d) of the Act, according approval to the proposal for modified scheme of finance 43. There was a further proposal for modification and further orders. Last of such orders was dated October 11, 1988. Similarly regarding the foreign collaboration, there were approval letters and the last one was dated August 12, 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 August 24, 1985 pursuant to an application made by RIL under Section 22 (3) (a) off the MRTP Act, the Government granted approval for the establishment of a new undertaking for manufacture of HDPE 44. Regarding foreign collaboration, an application was made by RIL in 1984 for approval of foreign collaboration with M/s 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 October 12, 1988. Similar other consents were there. Mention may be made of letters dated April 28, March 11, December 6, 1986, January 2, 1987, July 15, July 25 and 26, August 19, 1988 which appear at various pages of volume IV of the papers. Finally, capital goods clearance was endorsed in favour of RPL for the PVC project on August 12, 1988. Capital goods clearance was also endorsed in favour of RPL for HDPE project on August 23, 1988. Thus, it will be seen that all the basic groundwork had already been done by the RIL 45. It is in above perspective that one has too examine the events that have happened. The question tat 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 June 16, 1987 by a press note issued by the Department of Industrial Development in the Ministry of Industry, the Government of India declared that where a transfer company is a fully owned subsidiary of the company holding the Letter of Intent or licence, the change of the company is a fully owned subsidiary of the company implementing the project would be approved. It is in the light of this that the Board of RIL on December 30, 1987 passed a resolution to incorporate a 100 per cent subsidiary company whose main objects were, inter alia, too implement the licences/Letters of Intent received by RIL and the objects of undertaking, processing, converting, manufacturing, formulating, using, buying, dealing, acquiring, storing, packaging, selling, transport.