REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4263 OF 2003

ASHIWIN S. MEHTA & ANR. — APPELLANTS

VERSUS

UNION OF INDIA & OTHERS — RESPONDENTS    

J U D G M E N T

D.K. JAIN, J.:

1. This appeal under Section 10 of the Special Court (Trial of Offences  

Relating  to  Transactions  in  Securities) Act,  1992  (for  short  “the  

Special  Court  Act”)  is  directed  against  the  order  dated  30th April,  

2003,  as  corrected  vide  order  dated  2nd May,  2003,  passed  by  the  

Special Court at Bombay, in Misc. Petition No. 64 of 1998.  By the  

impugned orders, the Special Court has permitted the Custodian to sell  

54,88,850  shares  of  Apollo  Tyres  Ltd.  (for  short  “Apollo”),  

respondent No. 3 in this appeal, at  Rs.90/- per share.    

2. The material facts giving rise to the appeal are as follows:

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”).   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  

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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 as follows:

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“NORMS  FOR  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 their offer(s).”

                      (Emphasis  supplied)

4. 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  

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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:

“In 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  

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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  2  nd   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 1  st   method)  .

These  appeals  are  disposed  of  in  the  aforesaid  terms.”  (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  Hon’ble 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  Hon’ble Court for approval of the offer of the highest  bidder so identified by the Disposal Committee.  The  

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Hon’ble 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 said “Controlling Block” of shares if it so desires.

15.     The sale as stated herein above is subject to the  sanction  of  Hon’ble  Special  Court.   The  Hon’ble  Special Court reserves the right to accept or reject any  of the offer or bids that may be received for purchase  of the shares.

              ……    ……….   ……..      ……… ……...  …………”

6. 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  

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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 made:

“Appeal admitted.

Mr. A.D.N. Rao, Ms. Manik Karanjawala and Ms. Pallavi  Shroff,  learned  counsel  accept  notice  on  behalf  of  respondent  Nos.1,  3  and 7 respectively.   Learned counsel  appearing for the Management – Respondent No.7 submits  that as on date only 4.95% of the shares purchased alone are  in existence.  In regard to these existing shares, the learned  counsel undertakes not to further alienate them.  We record  the said undertaking.”

8. Ms.  Kamini  Jaiswal,  learned  counsel  appearing  on  behalf  of  the  

appellants,  while assailing the impugned orders on several grounds,  

strenuously urged that the sale of 54,88,850 shares of Apollo ought to  

be  rescinded,  particularly  because,  the  said  sale  was  in  conscious  

breach of the scheme as also the terms and conditions laid down for  

the sale of these shares and was also in violation of the principles of  

natural justice.   

9. Elaborating her contention that the sale was in contravention of the  

scheme framed by the Custodian and duly approved by the Special  

Court by order dated 17th August, 2000 and with modifications by this  

Court vide order dated 23rd August, 2001, learned counsel argued that  

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Condition  No.14  in  the  ‘terms  and  conditions  for  sale’  had  been  

violated on three counts: viz. (i) Apollo and/or its management could  

be  invited  to  bid  only  after  the  Special  Court  had  ascertained  the  

highest  offer  and satisfied  itself  about  the  inadequacy  of  the  other  

bids.   But  the  Custodian  vide  letter  dated  28th April  2003,  invited  

Apollo to bid for purchase of the said shares on his own volition, even  

before the bids received were placed before the Special Court; (ii) the  

offer to bid was to be made either to Apollo ‘OR’ its management and  

not  to both as was done in the present  case and (iii)  the buy back  

effected by Apollo was in complete violation of Section 77A of the  

Companies  Act,  1956  (for  short  “the  Companies  Act”)  as  well  as  

SEBI (Buy back of Securities) Regulations, 1998.  It was also urged  

that by accepting the bids of Apollo and respondent Nos.5 to 8, who  

were the investment companies of the promoters of Apollo, Condition  

No.7 of the said terms and conditions was also violated because each  

bid had to be for the entire lot of shares and not for a part of shares.

10.Alleging  collusion  between  the  Custodian,  Apollo  and  its  

management,  learned  counsel  submitted  that,  though the  appellants  

and  their  relatives  and  corporate  entities  promoted  by  them  were  

together  holding  approximately  one  crore  shares  in  Apollo,  which  

were ready and available for sale, yet, the Custodian proposed sale of  

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only  54,88,850  shares.  Further,  the  Custodian  never  explained  the  

rationale behind breaking up the controlling block of shares to only  

15.1% of the equity capital when the total share holdings were easily  

more than 25% of the capital of the company.  It was asserted that, the  

offer  for  sale  of  15.1% shares  was  deliberately  resorted  to  by  the  

Custodian only to ensure that no other bid came forward as such a  

prospective bidder would have been bound to make a further public  

offer  for  purchase  of  20%  of  the  capital  under  SEBI  (Substantial  

Acquisition  of  Shares  and  Takeovers)  Regulations,  1997.   It  was  

strenuously urged that the Custodian, with ulterior motive, had made  

the  conditions  very  stringent  and  onerous  to  restrict  and  for  that  

matter,  practically  deny  participation  of  any  other  institution  or  

individual in the bidding process.   

11. It was contended that the impugned sale was in complete violation of  

the order of this Court dated 23rd August, 2001, wherein it was stated  

that the object for laying down the norms was to realise the highest  

possible price for the shares.  It  was urged that in the instant case,  

instead of maximising the price, the shares were sold at a discount of  

25% of the then prevailing market price, thereby defeating the very  

purpose  of  the  scheme.  It  was  thus,  contended  before  us  that  the  

Disposal  Committee  and  the   Custodian  ought  not  to  have  

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recommended the acceptance of the bid at Rs.90/- per share since both  

the offers received were way below the then prevailing market price as  

well  as  the  book  value  of  shares.  Under  the  given  circumstances,  

according to the learned counsel, the Special Court should have opted  

for the 2nd method relating to sale of bulk shares, as stipulated in the  

order of this Court dated 23rd August 2001.  It was  urged that the  

Special Court also failed to follow its past precedents, particularly in  

the  case  of  M/s  Ranbaxy  Laboratories  Ltd.,  when  8,04,777  shares  

were ordered to be sold @ Rs.565/- per share. In that case, the bid was  

received under the Bulk Category @ Rs.540/- per share but on the  

insistence of the Special Court, the offer was improved to bring it at  

par with the prevailing market price. In support of the proposition that  

the Custodian as  also the Special  Court  having committed  material  

irregularities,  resulting  in  substantial  injury  to  the  appellants,  the  

subject sale of shares is liable to be set aside, learned counsel placed  

reliance on the observations of this Court in Desh Bandhu Gupta Vs.   

N.L. Anand & Rajinder  Singh1 and  Gajadhar Prasad & Ors.  Vs.   

Babu Bhakta Ratan & Ors.2

12. Learned counsel strenuously contended that the impugned order was  

also arbitrary and in violation of the principles of natural justice in as  

1 (1994) 1 SCC 131 2 (1973) 2 SCC 629

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much as the Special Court not only outrightly rejected the prayer made  

by the notified parties during the course of proceedings on 30th April,  

2003 for grant of 48 hours time to secure a better offer in the same  

manner  as was done to secure a better  offer  for the Bulk category  

shares of M/s Ranbaxy Laboratories Ltd., it also failed to consider the  

objections  raised  by  them in  their  written  submissions  filed  on  2nd  

May,  2003.   It  was  stressed  that  the  Special  Court  rejected  the  

legitimate  request  of  the  appellants  without  any  justification  and  

showed undue haste in ordering the sale of shares, even ignoring the  

direction of this Court,  i.e.,  to explore the possibility of selling the  

shares either under the Bulk Category or as Routine Shares to secure  

maximum price  for  the  shares. On the  contrary,  the  Special  Court  

granted Apollo  and its  management  two days  to bring their  proper  

offer and earnest money on 2nd May, 2003, which fact is duly recorded  

in the impugned order dated 30th April, 2003. In order to bring home  

her  allegation  of  discriminatory  treatment  at  the  hands  of  the  

Custodian as also by the Special Court, learned counsel referred to the  

two letters dated 28th April, 2003 and 29th April, 2003, addressed to the  

notified parties by the Custodian intimating them about the date when  

the Special Court would consider the bids received in response to the  

advertisement for sale of subject shares. While letter dated 28th April,  

2003  allowed  the  notified  parties  to  submit  offers  independently  

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received  by  them for  purchase  of  the  said  shares,  letter  dated  29th  

April, 2003, made it clear that no offers brought by the notified parties  

to the Court  would be considered.  As regards the  reasoning of the  

Special  Court that any delay in finalisation  of the bid would have  

resulted in a crash in the market price of the shares because of break in  

the news of purchase of huge quantity of shares by one party, it was  

submitted that the said reasoning was again erroneous in as much as  

the news of sale of 54,88,850 shares of Apollo was already in public  

domain when advertisement for sale of these shares was published. It  

was thus, pleaded that the impugned order be set aside and the entire  

sale  of  54.88  lakhs  shares  be  rescinded  in  public  interest  and  to  

achieve the object of the Special Court Act.   

13.   Per contra, Mr. Joseph Vellapally, learned senior counsel appearing  

for Apollo, supporting the order of the Special Court, at the outset,  

submitted that the said order had been passed by the Special Court in  

exercise of wide discretionary powers conferred on it by the Special  

Court  Act  as  also  by  this  Court  and  that  such  discretion  can  be  

interfered with only if it is shown to have been  exercised  in violation  

of the statutory provisions or contrary to the  well established judicial  

principles. It was argued that in the present case the decision of the  

Special  Court  was  based  on  the  recommendation  of  the  Disposal  

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Committee, which consisted of experts in the field of securities and  

shares, and therefore, it cannot be said to be perverse so as to warrant  

interference  by  this  Court.  In  order  to  highlight  the  role  of  the  

Disposal  Committee  and  the  probative  value  of  its  advice  and  

recommendations, learned senior counsel commended us to a decision  

of this Court in  Sudhir S. Mehta & Ors.  Vs.  Custodian & Anr.3  In  

support of his submission that the Appellate Court should not lightly  

interfere  with  the  discretion  exercised  by  the  Trial  Court,  learned  

counsel placed heavy reliance on the decisions of this Court in Ramji   

Dayawala And Sons (P) Ltd.  Vs. Invest  Import4 and  Wander Ltd.   

And  Anr.  Vs. Antox  India  P.  Ltd.5, wherein  it  was  held  that  the  

Appellate Court would not ordinarily substitute its discretion in the  

place of the discretion exercised by the Trial Courts, save and except  

where the Trial Court had ignored the relevant evidence, sidetracked  

the  approach  to  be  adopted  in  the  matter  or  overlooked  various  

relevant considerations.  The Appellate Court would normally not be  

justified  in  interfering with  the  exercise  of  discretion under  appeal  

solely on the ground that if it had considered the matter at the trial  

stage it would have come to a contrary conclusion.  It was strenuously  

urged  that  the  Special  Court  having  acted  reasonably  and  in  a  

3 (2008) 12 SCC 84 4 (1981) 1 SCC 80 at page 96 5 1990 (Supp) SCC 727

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judicious manner, this Court should not interfere with the decision of  

the Special Court in approving the sale of shares to Apollo.

14. It was further contended by Mr. Vellapally that the appellants have no  

locus  standi to  assail  the  entire  sale  of  54.88  lakh  shares  as  their  

shareholding was only 1,49,570 shares, as stated in the affidavit of the  

Custodian. It was pointed out that there was no averment in the appeal  

to the effect that the same was being filed in a representative capacity  

on behalf  of other  members  of Harshad Mehta Group.  At best,  the  

appellants could impugn sale of 1,49,570 shares.        

15. It was also contended by Mr. Vellapally that in terms of the order of  

the Special Court dated 17th August, 2000 and the order of this Court  

dated 23rd August, 2001, the management of Apollo had the right to  

buy and Apollo had the right to buy back its own shares under Section  

77A of the Companies Act, once the highest offer is received from  

those entities who participated in the bid.  Since the purchase of shares  

by  Apollo  was  akin  to  an  auction  sale,  its  interests  as  a  bonafide  

purchaser  in  the  shares  are  saved,  having  no  connection  with  the  

underlying dispute between the Custodian and the notified parties. In  

support of the contention, reliance was placed on  Ashwin S. Mehta  

Vs. Custodian6 wherein,  according  to  the  learned  counsel,  (albeit  

6 (2006) 2 SCC 385 at para 67-72

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dealing with sale of commercial properties) in a similar situation, the  

interests of bona fide purchasers were protected.  

 16. Refuting the claim of the appellants  that  the said sale  of  shares of  

Apollo was at a loss, it was submitted by Mr. Vellapally that it is a  

matter of  common knowledge that transactions in the stock market  

are speculative in nature and cannot be predicted with accuracy. It was  

submitted that this Court in the matter of  Sudhir S. Mehta (supra),  

while dealing with the notified parties’ objections to a sale of shares of  

Reliance Industries Ltd. had observed that the sale of shares between  

the period ‘12.12.2000 to 1.11.2007’ (said period covering the sale of  

shares of Apollo) could not be said to be at a loss, especially because  

of  the  fact  that  the  said  sale  had  been  approved  by  the   Disposal  

Committee, a  committee of experts.  

17.Lastly, learned senior counsel submitted that pursuant to the buy back  

of shares and on due compliance with the provisions of Section 77A  

read with Section 77A (7) of the Companies Act, Apollo had already  

extinguished 36.90 lakh shares so bought-back and therefore, to that  

extent,  prayer of the appellants to rescind the purchase of shares is  

rendered  infructuous. It was asserted that any order at this juncture,  

setting aside the impugned order, would not result in resurrection of  

the  extinguished  shares  but  entail  a  fresh  issue  of  shares  under  

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Sections  79  and  81  of  the  Companies  Act,  which  is  fraught  with  

statutory restrictions and difficulties, resultantly affecting the rights of  

third party shareholders, who are not parties to the present dispute.  

18. Mr. Arvind Kumar Tewari, learned counsel appearing on behalf of the  

Custodian  (respondent  No.  2),  supporting  the  impugned  order,  

vehemently argued that the Special Court had not only followed all the  

norms settled by this Court, it was also successful in obtaining a price  

higher by Rs.10/- per share as compared to what was offered by the  

highest bidder, viz. Punjab National Bank. It was alleged that in spite  

of being informed by the Custodian in advance, vide letter dated 28th  

April, 2003, the appellants had failed to arrange for a purchaser who  

could bid higher than Apollo and had frivolously sought another two  

days time to arrange for a higher bid.  

19. Dr. A. M. Singhvi, learned senior counsel appearing for respondents  

Nos. 3, 6 and 8, the co-bidders with Apollo, while adopting all the  

submissions  made  on  behalf  of  Apollo,  reiterated  that  the  said  

respondents  being  bonafide  bidders,  having  no  concern  with  the  

procedure  adopted  by  the  Custodian  for  sale  of  shares,  any  

interference by this Court with a well  reasoned and equitable order  

passed by the Special Court would cause extreme hardship to them. In  

support  of  the  submission  that  having  regard  to  the  nature  of  

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controversy sought to be raised by the appellants notified parties under  

the Special Court Act, this Court will be loath to interfere with the  

discretion  exercised  by  the  Special  Court,  learned  senior  counsel  

commended us to the decisions of this Court in   Employees’ State   

Insurance Corpn. & Ors.  Vs. Jardine Henderson Staff Association  

& Ors.7, State of M.P. & Ors. Vs. Nandlal Jaiswal & Ors.8, Ramana  

Dayaram  Shetty  Vs.  International  Airport  Authority  of  India  &  

Ors.9; Sesa Industries Limited Vs. Krishna H. Bajaj & Ors.10 and on  

a decision of the House of Lords in  Susannah Sharp Vs. Wakefield   

& Ors.11.  In the alternative, learned counsel submitted that if for any  

reason, this Court was to come to a conclusion that the price realised  

for  sale of said shares was at a discount and/or less than the market  

price then the relief granted to the appellants ought to be confined to  

their  shareholding  and  the  promoters  may  be  directed  to  pay  the  

difference between the price paid by them for the purchase of shares  

i.e.  Rs. 90/-  per share and the then prevailing market  price i.e.  Rs.  

120/-  per  share.  In  support  of  his  proposition  that  this  Court  had  

sufficient  powers  under  Article  142 of  the  Constitution of  India to  

balance the equities between the parties and render complete justice  

by moulding the relief, learned senior counsel placed reliance on the  7 (2006) 6 SCC 581 8 (1986) 4 SCC 566 9 (1979) 3 SCC 489 10 (2011) 3 SCC 218 11 (1891) A.C. 173

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observations  made  by  this  Court  in  Rajesh  D.  Darbar  Vs.  

Narasingrao Krishnaji Kulkarni12.   

20. Before addressing the contentions advanced on behalf of the parties, it  

will  be  necessary  and  expedient  to  notice  the  overarching  

considerations behind the enactment of the Special Court Act, which  

came into force on 6th June, 1992.  It replaced the Special Court (Trial  

of Offences Relating to Transactions in Securities) Ordinance 1992, as  

promulgated  on  6th June  1992,  when  large  scale  irregularities  and  

malpractices  pertaining to the  transactions in both Government  and  

other  securities,  indulged in  by some brokers  in collusion with the  

employees of various banks and financial  institutions  were noticed.  

The Special Court Act provides for establishment of a Special Court  

for speedy trial of offences relating to transactions in securities and  

disposal of properties attached thereunder.  Section 3 of the Special  

Court Act relates to the appointment and functions of the Custodian.  

Sub-section (2) thereof clothes the Custodian with the power to notify  

in the official gazette, the name of a person, who has been involved in  

any offence relating to transactions in securities during the period as  

mentioned therein.  Sub-sections (3) and (4) of Section 3 stipulate that  

with  the  issue  of  the  aforesaid  notification,  properties,  movable  or  

immovable  or  both,  belonging  to  the  notified  person  shall  stand  12 (2003) 7 SCC 219

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attached, and  such properties are to be dealt with by the Custodian in  

such  manner  as  the  Special  Court  may  direct.   Section  9A of  the  

Special Court Act deals with the jurisdiction, power, authority and the  

procedure  to  be adopted by the  Special  Court  in  civil  matters.   In  

short, on and from the commencement of the Special Court Act, the  

Special Court exercises all such jurisdiction etc. as are exercisable by  

a Civil Court in relation to any matter or claim relating to any property  

that stands attached under sub-section (3) of Section 3 and it bars all  

other courts  from exercising any jurisdiction in relation to any matter  

or claim referred to in the said Section.  Sub-section (4) of Section 9A  

of the Special Court Act contemplates that the Special Court shall not  

be bound by the procedure laid down by the Code of Civil Procedure,  

1908 and shall have the power to regulate its own procedure, but shall  

be guided by the principles of natural justice.  The other provision,  

which is relevant for our purpose is Section 11 of the Special Court  

Act, which exclusively empowers the Special Court to give directions  

in the matter of disposal of the property of a notified person, under  

attachment. Sub-section (2) of Section 11 lists the priorities in which  

the  liabilities  of  the  notified  person  are  required  to  be  paid  or  

discharged.  

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21. It is plain that the Special Court Act which is a special statute, is a  

complete  code in  itself.   The purpose  and object  for  which it  was  

enacted was not only to punish the persons who were involved in the  

act  of  criminal  misconduct  by  defrauding  the  banks  and financial  

institutions but also to see that the properties, moveable or immovable  

or  both,  belonging  to  the  persons  notified  by  the  Custodian  were  

appropriated and disposed of for discharge of liabilities to the banks  

and financial  institutions,  specified government  dues  and any other  

liability.   Therefore,  a notified party has an intrinsic interest  in the  

realisations, on the disposal of any attached property because it would  

have a direct  bearing on the discharge of his liabilities  in terms of  

Section 11 of the Special Court Act.  It is also clear that the Custodian  

has to deal with the attached properties only in such manner as the  

Special Court may direct. The Custodian is required to assist in the  

attachment of the notified person’s property and to manage the same  

thereafter. The properties of the notified persons, whether attached or  

not, do not at any point of time, vest in him, unlike a Receiver under  

the Civil Procedure Code or an official Receiver under the Provincial  

Insolvency Act or official Assignee under the Presidency Insolvency  

Act (See :  B.O.I. Finance Ltd.  Vs. Custodian & Ors.13). The statute  

13 (1997) 10 SCC 488

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also mandates that the Special Court shall be guided by the principles  

of natural justice.   

22. At this juncture, it would also be profitable to briefly note the salient  

features of the scheme formulated by the Custodian for sale of shares  

in terms of the directions issued by this Court in its order dated 11th  

March 1996 (CA No.5225/1995); the norms laid down by the Special  

Court vide order dated 17th August 2000 and the modification of these  

norms  by  this  Court  vide  order  dated  23rd August,  2001  (CA  

No.5326/1995).  What clearly emerges from the scheme/orders is that  

the underlying object of the procedure/norms laid down in the scheme  

is to ensure that highest possible price on sale of shares is realised.  It  

is manifest that with this end in view, this Court vide order dated 23rd  

August, 2001, left it to the Special Court to decide what procedure to  

adopt  in  order  to  realise  the  highest  price  for  the  shares.  The  

scheme/norms had been further modified by the Special Court and this  

Court in a way to inject flexibility in the scheme in order to secure the  

highest price for the shares.  

23. Having examined  the  impugned order  in  the  light  of  the  Statutory  

provisions and the norms laid down for sale of the subject shares, we  

are of the opinion that there is substance and merit in the submissions  

made  by  learned  counsel  for  the  appellants  to  the  extent  that  the  

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Special  Court  failed  to make a serious  effort  to realise  the  highest  

possible price for the said shares.  We also feel that the Special Court  

overlooked the norms laid down by it in its order dated 17th August  

2000; ignored the afore-extracted directions by this Court contained in  

order  dated  23rd August  2001  and  glossed  over  the  procedural  

irregularities committed by the Custodian.  As stated above, Condition  

No.14 of the terms and conditions of sale, clearly stipulated that it was  

only  after  the  Special  Court  had  ascertained  the  highest  offer  that  

Apollo or its management was to be given an option to buy back the  

shares.  However, the letter of the Custodian dated 28th April, 2003,  

addressed to Apollo clearly divulges the fact that the Custodian had,  

without any authority, invited Apollo and its management ‘to bid’ on  

30th April,  2003,  the  settled  date,  when the  report  of  the  Disposal  

Committee was yet to be considered by the Special Court. It is evident  

from Condition No.15 of terms and conditions of sale, that the Special  

Court has the discretion to accept or reject any offer or bid that may be  

received for purchase of shares.  Therefore, the stand of the Custodian  

that inviting Apollo to make the bid was necessarily in compliance of  

the scheme/condition of sale, cannot be accepted inasmuch as it was  

for the Special Court to take such a decision at the appropriate time  

and not the Custodian. The Custodian could not have foreseen that the  

Special Court would not accept the bid of the sole bidder viz. Punjab  

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National Bank. As aforesaid, so far as issue of notification in terms of  

Section  3(2)  is  concerned,  the  Custodian  derives  his  power  and  

authority from the Special Court Act but his jurisdiction to deal with  

property under attachment, flows only from the orders which may be  

made  by  the  Special  Court  constituted  under  the  said  Act.  It  is  

obligatory upon the Custodian to perform all the functions assigned to  

him strictly in accordance with the directions of the Special Court.  In  

the present case, although we do not find any material on record which  

may suggest any malafides on the part of the Custodian yet we are  

convinced that by inviting Apollo to bid, vide letter dated 28th April,  

2003, the Custodian did exceed the directions issued to him by the  

Special  Court.  However,  we feel  that  this  being in the  nature of  a  

procedural omission, the alleged violation is not  per se  sufficient to  

nullify the sale of shares.

24.The next question for determination is whether or not the impugned  

decision of the Special Court is in breach of the principles of natural  

justice,  thereby  vitiating  its  decision  to  sell  the  subject  shares  to  

Apollo and the companies managed by their promoters?   

25. It is true that rules of “natural justice” are not embodied rules.  The  

phrase “natural justice” is also not capable of a precise definition. The  

underlying  principle  of  natural  justice,  evolved  under  the  common  

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law,  is  to  check  arbitrary  exercise  of  power  by  any  authority,  

irrespective of whether the power which is conferred on a statutory  

body or Tribunal is administrative or quasi judicial.  The concept of  

“natural justice” implies a duty to act fairly i.e. fair play in action. As  

observed in  A.K. Kraipak  Vs. Union of India14,   the aim of rules of  

natural  justice is to secure justice or to put it  negatively to prevent  

miscarriage of justice.

26.   In  Swadeshi Cotton Mills  Vs. Union of India15,  R.S. Sarkaria, J.,  

speaking for the majority in a three-Judge Bench, lucidly explained  

the meaning and scope of the concept of “natural justice”. Referring to  

several decisions, His Lordship observed thus: (SCC p. 666)

“Rules  of  natural  justice  are  not  embodied  rules.   Being  means  to  an  end and not  an  end in  themselves,  it  is  not  possible to make an exhaustive catalogue of such rules.  But  there are two fundamental maxims of natural justice viz. (i)  audi alteram partem  (ii) memo judex in re sua.   The audi  alteram partem rule has many facets, two of them being (a)  notice of the case to be met; and (b) opportunity to explain.  This rule cannot be sacrificed at the altar of administrative  convenience  or  celerity.   The  general  principle--as  distinguished  from an absolute rule of uniform application-- seems to be that where a statute does not, in terms, exclude  this rule of prior hearing but contemplates a post-decisional  hearing amounting to a full review of the original order on  merits, then such a statute would be construed as excluding  the  audi  alteram  partem  rule  at  the  pre-decisional  stage.  Conversely if the statute conferring the power is silent with  regard to the giving of a pre-decisional hearing to the person  affected  and  the  administrative  decision  taken  by  the  

14 (1969) 2 SCC 262 15 (1981) 1 SCC 664

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authority  involves civil consequences of a grave nature, and  no full review or appeal on merits against that decision is  provided, courts will be extremely reluctant to construe such  a statute as excluding the duty of affording even a minimal  hearing,  shorn  of  all  its  formal  trappings  and  dilatory  features  at  the  pre-decisional  stage,  unless,  viewed  pragmatically, it would paralyse the administrative process  or frustrate the need for utmost promptitude.  In short, this  rule  of  fair  play  must  not  be  jettisoned  save  in  very  exceptional  circumstances  where  compulsive  necessity  so  demands.  The court must make every effort to salvage this  cardinal  rule  to  the  maximum  extent  possible,  with  situational  modifications.   But,  the  core  of  it  must,  however, remain, namely, that the person affected must  have  reasonable  opportunity  of  being  heard  and  the  hearing  must  be  a  genuine  hearing  and not  an empty  public relations exercise.”  

(emphasis supplied by us)

27.It is thus, trite that requirement of giving reasonable opportunity of  

being  heard  before  an  order  is  made  by  an  administrative,  quasi  

judicial or judicial authority, particularly when such an order entails  

adverse  civil  consequences,  which  would  include  infraction  of  

property,  personal  rights  and  material  deprivation  for  the  party  

affected, cannot be sacrificed  at the alter of administrative exigency  

or celerity. Undoubtedly, there can be exceptions to the said doctrine  

and as aforesaid  the  extent  and its  application  cannot be put  in  a  

strait-jacket  formula.  The  question  whether  the  principle  has  to  be  

applied  or  not  is  to  be  considered  bearing  in  mind  the  express  

language and the basic scheme of the provision conferring the power;  

the nature of the power conferred; the purpose for which the power is  

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conferred and the final  effect  of  the exercise  of  that  power on the  

rights of the person affected.  

28. In the backdrop of the aforenoted legal principles and the requirement  

of sub-section 4 of Section 9A of the Special Court Act, we are of the  

opinion that  in the present  case the Special  Court failed to comply  

with  the  principles  of  natural  justice.  As  noted  above,  the  Special  

Court rejected the prayer of the appellants to grant them 48 hours’  

time to secure a better offer. In fact, by his letter dated 29th April, 2003  

addressed  by  the  Custodian  to  the  notified  parties,  including  the  

appellants,  the  right  of  the  appellants  to  bring  better  offer  was  

foreclosed  by  the  Custodian,  which  evidently  was  without  the  

permission of the Special Court. Furthermore, the Special Court also  

ignored its past precedents whereby it had granted time to the parties  

to get better offers for sale of shares of M/s Ranbaxy Laboratories Ltd.  

There is also force in the plea of learned counsel appearing for the  

appellants that the reason assigned by the Special Court in its order  

dated 30th April, 2003, for declining further time to the appellants, that  

deferment of decision  on the sale of shares would have resulted in the  

share market falling down is unsound and unfounded. As stated above,  

the  share  market  was  already  aware  of  the  sale  of  a  big  chunk of  

shares  of  Apollo   in  view  of  the  advertisement  published  by  the  

2

Custodian and therefore,  there was hardly any possibility of further  

volatility  in the price of said shares.  We are thus, convinced  that the  

appellants have been denied  a proper opportunity to bring  a better  

offer for sale of shares, resulting in the  realisation  of lesser amount  

by way of sale of the subject shares, to the detriment  of the appellants  

and other notified parties.  Therefore, the decision of the Special Court  

deserves to be set aside on that short ground.

29.  We shall now advert to the plea strenuously canvassed on behalf of  

the respondents that the Special Court having exercised the discretion  

vested  in  it  under  the  Special  Court  Act,  keeping  in  view  all  the  

parameters  relevant  for  disposal  of  the  shares,  this  Court  may  not  

interfere  with  the  impugned  order.   There  is  no  quarrel  with  the  

general  proposition  that  an  Appellate  Court  will  not  ordinarily  

substitute its discretion in the place of the discretion exercised by the  

Trial Court unless it is shown to have been exercised under a mistake  

of law or fact or in disregard of a settled principle or by taking into  

consideration irrelevant  material. A ‘discretion’,  when applied to a  

court  of  justice  means  discretion  guided  by  law.   It  must  not  be  

arbitrary,  vague  and  fanciful  but  legal  and  regular.  (See  :  R.  Vs.  

Wilkes16 ).

16 (1770) 4 Burr 2527

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30.We have therefore, no hesitation in agreeing with Mr. Vellapally to  

the extent that same principle would govern an appeal preferred under  

Section 10 of the Special Court Act. However, since we have come to  

the conclusion that the Special Court has exercised its discretion in  

complete  disregard  to  its  own  scheme  and  ‘terms  and  conditions’  

approved by it  for sale of shares and above all   that the impugned  

order was passed in violation of the principles of natural justice, we  

think that  the facts  in hand call  for our interference,  to correct  the  

wrong committed by the Special Court.

31.For the view we have taken above, we deem it unnecessary to deal  

with the other contentions urged on behalf of the parties on the merits  

of the impugned order.  

32. This brings us to the question of relief.  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  

2

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.

34.However, in the facts and circumstances of the case, the parties are  

left to bear their own costs.

………………………………….J. (D.K. JAIN)

                                                    ………………………………….J.                           

(ASOK KUMAR GANGULY) NEW DELHI; NOVEMBER 8, 2011.

RS

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