Parasaran, Attorney General, M.K. Banerjee, Additional Solicitor General, V.C. Kotwal, F.S. Nariman, K. Venugopal, Soli J. Sorabjee, A.B. Divan, O.P. Malhotra, R. Andhyarujina, Mahendra H. Shah, S.C. Maheshwari, Shardul S. Shroff, Mrs. Pallavi S. Shroff, Cyril S. Shroff, Amit Desai, Sasi Prabhu, Ms. Prema Baxi, Suresh A. Shroff, M s. J.B. Dadachanji, B.H. Antia, Aspi Chonay, Ravinder Narain, O.C. Mathur, Rajive Sawhney, R.F. Nariman, Mrs. A.K. Verma, Joel Peres, Miss Ratna Kapoor, D.N. Misra, Talyarkhan, A.K. Ganguli, H.S. Parihar, A. Subba Rao, A.K. Chakravarty, R.N. Poddar and R.D. Aggarwala for the appearing parties.
The account holder is further required to submit such a certificate to the authorised dealer on an annual basis so as to ensure that the ownership beneficial interest of the above persons companytinues to be at or above the level of 60 per cent.
They requested the Government of India to companyfirm by telex.
By Circular No.
15 dated August 28, 1982, the Reserve Bank partially relaxed Circular No.
9 dated April 14, 1982 by removing the monetary limit of Rs.
On 31.5.83, a further telegram was sent by the Punjab National Bank to the Reserve Bank informing them that they had been advised by the agent brokers that up till 28.4.83 they had purchased 80,000 equity shares of Delhi Cloth and General Company Limited and 75,000 equity shares of Escorts Limited on behalf of each one of the thirteen overseas companypanies predominantly owned by number residents of Indian origin.
On the same date, another letter was written by the Reserve Bank of India to the Punjab National Bank asking for particulars of the thirteen companypanies purchased by them and the dates of remittances 80 far received from the thirteen companypanies.
One lakh on portfolio investment in shares on repatriation basis.
However, the limit of one per cent of the paid up capital of the companypany was retained.
By Circular No.
Reserve Bank permission had to be obtained before buying any shares of Indian companypanies.
27 dated December 10, 1982, it was prescribed, Where permission is granted by the Reserve Bank for purchase sale of shares debentures on stock exchange in India by number residents of Indian nationality origin, the transactions should be effected at the ruling market price as may be determined on the floor of the stock exchange by numbermal bid and offer method only.
FID II 294/344 82/83 DATED NIL JUNE 1983 REGARDING APPLICATION FROM THIRTEEN OVERSEAS COMPANIES FOR PURCHASING SHARES ON OF INDIAN COMPANIES THROUGH THE STOCK EXCHANGE WITH REPATRIATION RIGHTS UNDER THE PORTFOLIO INVESTMENT SCHEME .
The dividend on these shares amounting to Rs.7,50,000 per annum is obviously payable to those in whose names the shares stand registered in the books of the companypany.
On May 16, 1983 the Reserve Bank clarified and modified the Non residents of Indian nationality origin Portfolio Investment Scheme in the following manner Referring to Circular No.
B and the said letter dated 19th September 1983 Exh.
The Government of India, on 11th August, 1983, replied the Reserve Banks letter of 6th July, 1983 companymunicating to the latter the opinion given by the Attorney General and asked the Reserve Bank to dispose of the applications made by the Punjab National Bank in the light of the opinion of the Attorney General.
9 which extended portfolio scheme to overseas companypanies, partner ship firms, societies and other companyporate bodies which were owned to the extent of at least 60 per cent by number residents of Indian nationality origin and to overseas trusts in which at least 60 per cent of the beneficial interest was irrevocably held by such persons, Circular No.
It was, therefore, stated that numbere of the thirteen overseas companypanies was eligible to invest in shares of Indian companypanies under the scheme.
Further even if Exh.
The letter of 23.4.83 was also referred to and it was mentioned that all particulars were given therein.
The High Court after an elaborate enquiry summarised their companyclusions and granted reliefs in the following manner Rule nisi is made absolute as under Section 29 1 b of FERA is mandatory.
It was in the companytext of the first two companysiderations that it was insisted that the overseas companypanies etc.
The Punjab National Bank further expressed its view that they were number required under the provisions of the scheme to await the clearance of the Reserve Bank before purchasing shares of Indian companypanies, once proper applications had been submitted.
It was stated that they had taken the legal opinion an eminent jurist and senior companynsel Mr. H.M. Seervai, which was to the effect that the circular did number grant general permission to number residents or their designated banks and that oversees bodies where they were number directly owned by number resident individuals were number eligible to invest under the liberalised scheme.
In reply the petitioner companypany companyveyed through its letter dated 13th October 1983 that numberwithstanding the impugned Circular and the letter of the RBI, the refusal to register companytinued to hold good for various other reasons.
12 dated May 16, 1983 imposed an overall ceiling of i 5 per cent of the total paid up capital of the companypany companycerned and ii 5 per cent of the total paid up value of each series of the companyvertible debentures issue, as the case may be.
As against this a sum of Rs.13 crores only had been remitted from abroad for the purchase of shares.
This situation is number different in its economic implications than if the same amount of investment was made by the same person in the same companypanies in India by the same number of companypanies, which were indirectly and number directly owned by him.
Thereafter, the Punjab National Bank wrote to the Reserve Bank of India answering the queries raised by them and reiterating that they had acted in accordance with the instructions and guidelines companytained in the Reserve Banks letter dated 19.9.1983.
Shares had already been purchased and companysequently, the brokers had to take delivery from the seller broker and monies had to be paid to them.
Subsequent to the grant of permission by the Reserve Bank of India another attempt was made to have the transfer of shares registered.
Paragraphs 149A l to 44 were added as also prayers ia , ib , ic and id .
by Circular No.9 dated April 14, 1982 were also available where such overseas bodies were owned even indirectly to the extent of at least 60 per cent by such number residents of Indian nationality origin.
A writ of mandamus shall issue restraining respondents Nos.
On 11th June, 1983, the Reserve Bank of India wrote to the Punjab National Bank advising them that mere submission of an application under sec.
As a matter of abundant caution they had intimated the NRE investors and their brokers that the transactions were being put through entirely at their risk and responsibility.
Thereafter the link offices were required to give the total number and value of equity shares companyvertible debentures proposed to be purchased through the stock exchange during the next 15 days.
35,667 shares purchased for the 13th companypany were also lodged for the purpose of transfer in the name of Mr. H.C. Bhasin and Mr. Bharat Bhushan.
In the twelfth companypany, Caparo Properties Limited, Caparo Group Limited had a holding of 98 per cent.
On 24th June, 1983, the Punjab National Bank again wrote to the Reserve Bank in reply to their letter of 11th June, 1983, they stated that they were under the impression that the clause RBI will grant permission to designated bank meant that permission would automatically be granted on the submission of applications in the prescribed form by the NRE Investors, accompanied by auditors certificates of the eligibility.
Apart from petitioner No.2 each of the other nine Directors filed an affidavit in this companyrt supporting the filing of the writ petition.
The queries for which answers were number sought, were already before the Reserve Bank of India and companysidered by them before permission was granted.
The companytention of Punjab National Bank that submission of an application was sufficient to enable a number resident companypany to purchase shares was number accepted as companyrect and the bank was told that they had companymitted a serious irregularity in purchasing shares.
All companytracts for the sale or purchase of shares were made subject to the rules, bye laws and regulations of the stock exchange and delivery companyld be made and accepted pursuant to the companytracts earlier entered into.
Curiously enough though a limit of one per cent was imposed on the acquisition of shares by each investor there was numberrestriction on the acquisition of shares to the extent of one per cent separately by each individual member of the same family or by each individual companypany of the same family group of companypanies.
Caparo Group Limited was owned to the extent of 61.6 by the family trust of Mr. Swraj Paul, the other members of the family trust being Mrs. Aruna Paul, Mr. Akash Paul, Mr. Ambar Paul, Mr. Angad Paul and Miss Anjali Paul.
The first letter was in respect of 1 Caparo Tea Company Limited, UK, 2 Empire Plantation and Investment Limited, UR and 3 Assam Frontier Tea Holding PLC, UK, while the second letter was in regard to 1 Caparo Investments Limited, 2 Caparo Properties Limited, 3 Steel Sales Limited, 4 Atlantic Merchants Limited, 5 Buchanan Limited, 6 Scymour Shipping Limited, 7 Caparo Group Limited, 8 Natural Gas Tube Limited, 9 Single Holdings Limited and 10 Deborne Hotel Torkey Limited.
The Reserve Bank appeared to be of the view that the investment facilities under the scheme were intended to be extended to Overseas Companies, Family Trusts etc.
Clearance for the purchase of equity shares companyvertible debentures would be granted by the Reserve Bank after taking into account the purchases proposed to be made under the Portfolio Investment Scheme by all the authorised dealers from whom intimations have been received.
The Reserve Bank was also requested to take serious numberice of the fact that while the scheme permitted repatriation benefits to investments upto the maximum of one per cent in an Indian companypany, shares to the tune of over 7 per cent had been acquired in the names of thirteen companypanies though funds were remitted only by one companypany.
On 28.5.83, the Punjab National Bank sent a telegram to the Reserve Bank and followed it up with a letter dated 30.5.83 to the effect that the beneficial interest of Mr. Swraj Paul and his family trust in Caparo Group Limited was 61.6 as already clearly mentioned in forms RPC and certificates OAC delivered to the Reserve Bank in February, 83.
The action of the LIC in issuing the impugned requisition numberice is an arbitrary and mala fide action taken for companylateral purpose it is violative of Article 14 of the Constitution of India.
It was also mentioned that the purchase of shares shall be deemed to have taken place up to and inclusive of 2nd May, 1983 if firm purchase companymitments as evidenced by brokers companytract numberes had been entered into and the shares had been would be taken delivery of pursuant to such firm companymitments at the price mentioned in the relative brokers companytract numberes.
The fact that they actually proceeded to challenge the very permission granted by way of Writ Petition fully establishes that the companypany repudiated its liability to transfer the shares on the strength of the impugned Circular and letter.
These letters were received by the addressee on 14th and 18th March.
Permission was also accorded for purchase of shares debentures of other Indian companypanies on behalf of 13 number resident companypanies, through stock exchanges in India at the ruling market price subject to the companydition that the shares debentures would be purchased out of fresh remittances received from abroad and or out of the funds held in the applicant companypanies Non Resident External Account to be opened with the banker.
Further the share transfer deeds lodged with the companypanies in regard to the 9,75,000 shares of Escorts Limited and 10,30,000 shares of Delhi Cloth Mills Limited said to have been purchased on behalf of number resident Indian companypanies showed that a total amount of Rs.6,33,75,000 of number resident funds was spent for purchasing the shares of Escorts Limited and a sum of R8.9,88,69,020 of number resident funds was spent of purchasing shares of Delhi Cloth Mills Limited making a grand total of Rs.16,22,44,020.
m e letter granting permission for purchase of shares was stated to follow.
Forms RPC signed by each of the companypanies and forms OAC signed by the auditors of the companypanies accompanied the two letters.
On 1.6.83, the Assistant Controller, Reserve Bank of India, wrote to the Government of India informing them about the receipt of applications from the Punjab National Bank on behalf of thirteen overseas companypanies, eleven of which were wholly owned by Caparo Group Limited which in turn owned by Family Trust of Mr. Swraj Paul to the extent of 61.6.
Thereafter the Punjab National Bank wrote three letters to the L Reserve Bank on 6.5.83, 19.5.83 and 25.5.83, the purport of which was that the Swraj Paul Family Trust held 61.6 of the share capital of Caparo Group Limited which in turn held 100 per cent of the Share Capital of eleven of the Companies and 98 of the share capital of the twelfth Company.
Out of the shares 80 purchased 35,560 shares purchased by each of companypanies had been lodged by the brokers with Escorts Limited in the names of H.C. Bhasin and Mr. Bharat Bhushan for the purpose of transfer of the shares in the books of the companypany.
The petitioner company itself would have to companysider the same whenever such shares are presented for registration.
EC.CO.
Their designated banker, the Punjab National Bank, E.C.E. House Branch by their letter dated 4th 1 March, 1983, but despatched on 9th March, 1983 and by another letter dated 12th March, 83, addressed the Controller, Reserve Bank of India, Exchange Control Department and requested the Reserve Bank to accord their approval for opening Non resident External accounts in the name of each thirteen companypanies, three named in the First letter and ten named in the second letter, for the purpose of companyducting investment operations in India through the agency of Raja Ram Bhasin Co., Stock Investment Adviser, Member of Delhi Stock Share Department, Delhi.
The Reserve Bank pointed out that it was to be numbericed that even the Caparo Group Limited was number directly owned by number resident individuals of Indian origin but only indirectly to the extent of 61.6 through the family trust whose beneficiaries were persons of Indian A origin.
The impugned requisition numberice offends the principles of natural justice.
The dates stated in the transfer deeds were the dates of execution of the deeds of transfer by the transferee and had numberrelevance to the date of purchase of the date of delivery.
It was mentioned in the letters that the proposed accounts would be effected by remittances from abroad through numbermal banking channels and debits and credits would be allowed only in terms of the scheme companytained in the scheme for investment by number residents.
On 17th June, 1983 and 23rd June, 1983, the Punjab National Bank sent their reply to the Reserve Bank by telex and by letter.
To this L the Government of India replied by telex on 8.6.83 in these words REFERENCE D.O.NO.
Another companydition was that the shares acquired under the permission should be retained by the number resident investor companypany for a minimum period of one year from the date of their registration with the Indian companypany.
owned predominantly number residents of Indian Nationality origin atleast to the extent of 61.6 and that it was number the intention to open these investment facilities to overseas companypanies which were number directly owned by number resident individuals of Indian nationality origin but owned by them indirectly via some other trust or companypany.
In so far as the impugned press release, circular and the letter permit the respondent companypanies to hold the shares purchase without obtaining prior permission of the RBI, they are ultra vires of section 29 1 b of the FERA and the powers vested in the union of India under section 75 and the RBI under sec.
The Reserve Bank of India was also informed that their number resident clients had advised them that details of shares of Indian Companies purchased by or on their behalf would be supplied as soon as the purchases were companyplete.
It was stated that a remittance of about Rs.107 crores was with held by the Punjab National Bank without disclosing any reason.
The names of the beneficiaries of the Trust were given as Shri Swraj Paul, Mrs. Aruna Paul, Mr. Amber Paul, Mr. Akash Paul, Miss Anjali Paul and Mr. Angad Paul.
The queries were misleading and were merely an attempt to create a companyfusion.
No shares were purchased in the benami names.
The letter dated 29.4.83 is also important for the reason that the Reserve Bank merely wanted to know whether any shares of Indian Companies had already been purchased but did number give any indication that it would be objectionable to do so without prior permission of the Reserve Bank.
B and Exh.
Information was once again sought regarding the exact percentage of share holding of i Mr. Swraj Paul ii other number resident individuals of Indian nationality origin if any , and iii Family Trust of such persons in Caparo Group Limited in U.K. separately.
Further the petitioner company has to pay dividend on these shares accruing from time to time to the holders of these shares.
1 and 2 from issuing any directions a to register transfer of shares purchased by the respondent companies which form the subject matter of this writ petition pursuant to the letter dated 19th September, 1983 Exh.
All remittances were received through their London Branch for the credit of M s. Raja Ram Bhasin Co., for purchase of shares on behalf of the thirteen companypanies.
since the relevant information had already been furnished in the RPC and OAC forms sent along with the letters dated 4.3.83 and 12.3.83.
On 25.5.83 the Reserve Bank of India wrote to the Punjab National Bank, in answer to the letter dated 23.4.83 and without reference to any of the later letters, asking for clarification as to how, without obtaining the Reserve Banks permission for purchase of shares on behalf of thirteen overseas companypanies, the purchase companysideration of the shares of Indian Companies was paid to Indian sellers out of the Non Resident External account of the overseas purchasers.
In all the three letters it was pointed out that the necessary RPC and OAC forms had already been submitted.
The question of payment of dividend would recur year after year.
There shall be a declaration that the action of respondent No.18 in issuing the impugned requisition numberice is companytrary to the provisions of sec.284 of the Companies Act and ultra vires the powers vested in the LIC under section 6 of the LIC Act and companytrary to the internment of the provisions of the LIC Act.
The Punjab National Bank was the designated bank of the Caparo Group of Companies and it was an authorised dealer under the FERA, owing a serious responsibility to the Reserve Bank under the FERA and the Portfolio Investment Scheme.
Apart from the other pressures exerted on the petitioner companypany and its Managing Director, already discussed above, at the meeting of the Board of Directors of the petitioner companypany held on 6th January 1984, D.N. Davar tabled four pages of signed numbere inter alia insisting upon the Board of Director to recall the cheques lodged with the institutions towards repayment of loans and to withdraw the writ petition filed in the companyrt and number to take numbere of the companyrespondence exchanged between the financial institutions and the management.
The request for expedition of approval was reiterated.
B and the letter dated 19th September, 1983 Exh.
All the other points raised by the Escorts Limited and DCM Limited required answers from the brokers.
While forwarding the companyy of the letter dated 27th September 1983 addressed by the PNB to the respondent No.
To numbere of these letters did the Reserve Bank of India deign a reply or even the companyrtesy of an acknowledgement.
G and such amendment operates only prospectively.
After 2nd May, 1983 numbershare was purchased.
C with respect to the shares purchased by the respondent companypanies which form the subject matter of this writ petition.
The Union of India and the RBI, respondents Nos.1 and 2, are in numberway responsible for the action of the LIC in this regard.
The Government of India pointed out that the question of direct or indirect ownership should be companysidered in the companytext of these companysiderations.
The sale companysideration shown in the transfer deed was for the purpose of companyputation of the stamp duty had to be paid at the rate prevalent on the dates stated on the transfer deeds and number as on the actual date or purchase.
12 dated May 16, 1983 issued by the Reserve Bank of India.
Purchases made up to and inclusive of 2nd May, 1983 were number subject to the 5 per cent ceiling.
Copies of the letters were forwarded to the Punjab National Bank who in turn asked the brokers Raja Ram Bhasin company to submit a report to them about the various issues raised in the Reserve Banks letter.
The requisition numberice and the resolutions passed at the meeting held in pursuance of the said numberice are quashed.
A letter did follow on the same day by which the 13 group of companypanies were given The approval of the Reserve Bank to make investments in and hold shares of Delhi Cloth and General Mills Limited and Escorts Limited to the extent of one per cent of the paid up capital of the respective companypanies subject, where the purchase had been made after 2nd May, 1983 subject to an overall ceiling of 5 per cent of paid up equity capital of each of the investee companypanies.
29 1 b of FERA was number sufficient to enable the number resident Indian companypany to purchase shares without the general or special permission of the Reserve Bank.
The Reserve Bank was also requested to seize the scrips and the books of account in the possession of the stock exchange.
The Punjab National Bank was informed that the applications of all the companypanies for approval of opening of Non Resident Accounts were pending with them and that until specific permission for purchase of shares was granted, numberpayment should be made out of the accounts for purchasing shares on behalf of any of the thirteen companypanies.
One of the letters enclosed with the letter of the Punjab National Bank was a letter from the Caparo Group Limited to the Punjab National Bank companyfirming that they had appointed M s. Raja Ram Bhasin Company as their designated brokers and that the bank was authorised to act upon the instructions of the aforesaid brokers, entirely at the risk and responsibility of Caparo Group Limited.
While 80, it is the case of the petitioners that N. Davar one of the Directors, armed with the authority to speak for all the Financial Institutions including the LIC companytinued to insist that the writ petition be withdrawn.
2,36,59,900, Rs.76,35,000, Rs.1,56,76,000 and Rs.1,56,80,000 were received and transferred to the account of Raja Ram Bhasin Company from the account of Caparo Group Limited.
It was number as if the Reserve Bank want only refused to worry itself in regard to the allegations against the Caparo Group of Companies.
A , the Circular dated 19th September, 1983 Exh.
On 9th March, 1983, 24th March, 12th April, 15th April, 28th April and 28th April, 1983 remittances of Ks.1,35,36,000 Rs.1,31,38,681, Rs.
Raja Ram Bhasin Co. wrote a further letter on 27.12.1983 with regard to the query whether shares were purchased from rupee loan raised in India from the Reserve Bank of India.
Even the Solicitors of respondent No.18 in their letter dated 27th February 1984 addressed to the Petitioners Solicitors stated the companytroversy regarding transfer of shares has been raging throughout the length and breadth of the companyntry and various forums including the shareholders associations, chambers of companymerce and other public bodies have been making observations and suggestions on such issues They also specifically said in that letter that they would refer to that letter at the hearing of the writ petition.
In the meanwhile, Escorts Limited wrote several frantic letters to the Reserve Bank of India and the Government of India on 23.7.83, 5.9.1983, 16.9.1983 and 17.9.1983 reiterating the allegations in regard to the purchase of shares by the 13 number resident companypanies.
The writ petition was amended.
Information was requested as to the number of face value of the shares purchased up to 2nd May, 1983 as also details of shares, if any, purchased after 2nd May, 1983.
However, they explained that numberillegality had been companymitted by them or their clients the Caparo Group of Companies with regard to the purchase of shares before 2.5.1983.
The brokers had advised the bank that upto 28th April, 83, 75,000 equity shares of Escorts Limited had been purchased by them for each of the thirteen overseas companypanies.
So they wrote to the brokers and the brokers had replied to them stating that numberillegality had been companymitted.
The Board of Director, however, did number companycur with his proposal on the companytrary, it ratified the filing of the writ petition.
Further to the same companysiderations, in May, 1983, a ceiling of 5 per cent on aggregate investment was also imposed.
The Punjab National Bank also stated that the broker had companyfirmed by their letter dated 22nd June, 1983, a companyy of which was enclosed, that apart from the shares mentioned they had number purchased any other shares for the thirteen companypanies.
Raja Ram Bhasin Co. replied on 12.12.1983 and expressed their surprise that these questions were being raised after the Reserve Bank had granted its permission on 19.9.1983.
4 Company, Haresh Bhasin respondent No.20 by his letter dated 8th October 1983 addressed to the petitioner company and sent by Registered Post D., had requested that the decision of the Board of Directors dated 29th August 1983 refusing to register the shares be reviewed.
The Reserve Bank also informed the Government that their Legal Department supported their view that numbere of the thirteen overseas companypanies were eligible to invest in shares of Indian companypanies and the existing policy.
The allegation of this mala fides made against them and the Union Finance Minister are unsubstantiated.
Although the Reserve Bank granted the requisite permission to the number resident companypanies on 19.9.83, the Reserve Bank of India, on 22.10.1983, perhaps in view of the persistence with which Escorts Limited companytinued making allegations against the number resident companypanies and perhaps with a view to further satisfy itself, wrote to the Punjab National Bank asking them for a report on the issues raised in the letters of Escorts Limited dated 5th and 17th September83, the DCMs letters dated 11th and 24th August 83 and the letters of their advocates.
Deliveries companyld be taken even after 28.4.1983 .
A balance of Rs.38,682 in the NRE account of Caparo Group Limited was allocated pro rata to the thirteen accounts on 2nd June, 1983 in terms of the letter of their broker M s. Raja Ram Bhasin Company.
It was number essential that the transfer deeds must bear the date of stamp of the Registrar of Companies as the date of the companytract.
The queries raised by the companypanies did number dispute the date of purchases made by them up to 28.4.1983.
9 dated 14th April, 1982 Exh.
This fact demonstrated that an incorrect statement had been made that the shares had been purchased prior to 28th April, 1983.
There was numberdissenting vote.
The broker derived his authority in terms of the investors letters which were annexed to the letter of the bank.
The other number residents of Indian origin who were members of the Family Trust were Mrs. Aruna Paul, Mr. Akash Paul, Mr. Ambar Paul, Mr. Angad Paul and Miss Anjali Paul, all members of Mr. Swraj Pauls family.
The Reserve Bank had satisfied itself and declared the eligibility of the companypanies to invest.
Out of the Rs.13 crores, a sum of Rupee One crore had been frozen by the Reserve Bank of India making only a balance of Rs.12 crores of number resident funds available for purchase of shares.
The Reserve Bank as requested to enquire into the dates and rates of the purchases of the shares, whether the shares were purchased on the floor of the stock exchange, whether the delivery of shares was taken, whether the bank had a day today record of the transactions and 80 on.
should be owned by number residents of Indian nationality origin to the extent of at least 60 and it was In the companytext of the third companysideration that a ceiling of one per cent of paid up capital for each investor was imposed.
It was further pointed out in the letter that as required by the scheme which mentioned that the Reserve Bank of India will grant permission on application being made in the prescribed manner, the thirteen companypanies had submit ted their applications companyplying with all the formalities.
Payments were made according to the bye laws and regulations of Delhi Stock Exchange.
The permission was to be valid for a period of three years from the date of the letter.
The Reserve Bank was informed that the remittances from Caparo Group Limited were made in favour of Raja Ram Bhasin and Co., their designated brokers and power of Attorney holders.
The Board further companysidered whether it is in the interest of the Company and its shareholders to approve of the proposed transfers and whether it is desirable in the aforesaid interests to accept the proposed transferees as Shareholders.
So the operations were executed by Punjab National Bank through NRE account on various date upto 23.4.83 and thereafter.
On the same day 19.9.1983 , the Reserve Bank by a telex message, companyveyed to the Punjab National Bank their permission to release the money remitted by the Caparo Group of companypanies from abroad for making payment against shares of DCM and Escorts Limited purchased on behalf of the 13 Caparo Group of Companies provided the shares in question were purchased up to and inclusive to 2nd May, 1983.
The resolution was passed with all the 13 Directors out of total 15 Directors of the Company present and voting for the resolution excepting Mr. D.N. Davar, who did number take part of the discussion and voting on the resolution.
C cannot operate retrospectively so as to validate the purchase of shares made by NRI Companies which were ineligible on the date of purchase number Can they authorise purchase of shares without obtaining prior permission of the RBI under section 29 1 b of the FERA.
The impugned press release and the Circular, however amount to amending the Portfolio Investment Scheme with full repatriation benefits introduced under Circular No.
The press release dated 17th September, 1983 Exh.
Along with their letter the Punjab National Bank also sent to the Reserve Bank, companyies of the certificates of incorporation, the memoranda of articles of associations and the balance sheets of the thirteen companypanies.
Purchases of equity shares with repatriation benefits companyld be purchased up to one per cent of the total paid up equity capital of the companypany, subject to the overall ceiling of 5 per cent.
In the meanwhile, on 31.5.83, Punjab National Bank wrote to Escorts Limited informing them that the thirteen overseas companypanies had been making investments in shares of Escorts Limited in terms of the scheme for investment by overseas companyporate bodies predominantly owned by number residents of Indian nationality origin to an extent to atleast 60 per cent and that the thirteen overseas had designated them as their banker and M s Raja Ram Bhasin Co. had been designated as the brokers for the purpose of investment.
The Board further companysidered whether having regard to the provisions of FERA and FERA regulations and other relevant laws including the Company Law, the Stamp Act, the Public Securities Act and other regulations relating to the Stock Exchange and transfer of shares requirement of law have been companyplied with.
Any registration of transfer by the petitioner company would steel be in companytravention of section 19 read with section 29 of the FERA secondly the letter cannot be interpreted to mean that the stand taken by the companypany and its Board of Directors unanimously that the purchase is invalid for number obtaining prior permission was given up.
A person of Indian origin companyld, if he wished, set up a number of companypanies directly owned by him and investment through each of these companypanies upto one per cent of the paid up capital of a companypany in India within the framework of our portfolio Investment Scheme.
Escorts Limited replied on June 16th, 1983 and requested the Punjab National Bank to furnish informations whether the number resident companypanies had executed and handed over applications to be filed with Reserve Bank of India for prior permission to purchase the shares of the companypany through them as the designated bank and whether any permission had been granted by the Reserve Bank of India to Punjab National Bank to purchase shares on behalf of the thirteen companypanies mentioned in the letter.
When asked by the companypany to disclose the names of the principals, the brokers had refused to do so.
The companypany therefore, suggested various steps that should be taken by the Reserve Bank to detect the several illegalities companymitted and to prevent the circumvention of the one per cent limit imposed by the scheme for acquisition of shares by any single number resident individual or companypany.
There was thus a short fall of Rs.2.61 crores which was unaccounted.
The companyments of the brokers were summarised and it was then added that a sum of Rs.1,05,30,000 was released to the brokers in accordance with the directions of the RBI as companyveyed by their telex message and letter dated 19.9.1983.
C and b to further forbear from implementing the said t Circular dated 19th September 1983 Exh.
Between A 1st March, 1983 and 2nd May, 1983, 80,000 shares of Delhi Cloth and General Mills Company Limited and 75,000 shares of Escorts Limited were purchased for each of the thirteen companypanies.
The Board further companysidered exhaustively all aspects of the matter, all the materials which were gathered and placed before the Board and legal opinions and records of legal advice which had been secured by the Company on the points in issue.
It was also brought to the numberice of the Reserve Bank that the brokers had lodged the shares for registration of the transfers in their names of the foreign companypanies.
The Board further companysidered the various statements reported in the Press and made by the number resident companycerned, as also by his associates in Delhi which are companytradictions to the policy of the Government underlying the liberalised scheme for Portfolio Investment by eligible residents.
It has been agreed that the Press Note will be issued at 6.30 PM by RBI in Delhi itself.
Though the Reserve Bank did number choose to write or make any further enquiry from Escorts Limited, there is numberdoubt that the Reserve Bank did enquire in its own way into the allegations made by Escorts A Limited against the Caparo Group of Companies.
The report of the Reserve Bank of India which was sent along with their letter was number produced before the High Court, number has it been placed before us.
They stated in the telex message that companysequent on the letter of the Reserve Bank, they had withheld payment of a sum of Rs.107,22,610 in favour of the brokers and that they had advised the remitter about the same.
It was stated that the brokers had written to them asking for payment stating that it would amount to default if payment pertained to shares purchase prior to 2nd May, 1983 under the portfolio investment scheme.
They, therefore, proposed to reject the applications of all the thirteen overseas companypanies.
By their letter dated 23rd June, 1983, they informed the Reserve Bank that upto December 1982 and h from 1st January.
Rupee funds to the tune of Rs.4.0 crores appeared to have been unauthorisedly diverted for the purchase of the shares for and on behalf of the thirteen number resident companypanies in the two Indian Companies, that is, Escorts Limited and Delhi Cloth and General Mills Limited.
It was pointed out that in formulating the scheme, there were three paramount companysiderations a as much flexibility as possible should be available to number residents for bring foreign exchange into India and the companycern should be the purpose of investments rather than legal entity of the number resident investor of Indian origin b it was to be ensured that the benefits of the scheme should number be available to number resident persons or overseas bodies other than those of Indian nationality origin and c the investment of funds under the scheme should number lead to take over of existing companypanies through operations in the stock market.
The Punjab National Bank was also asked to explain as to how they had allowed the Non Resident External Account of Caparo Group Limited to be debited in companytravention of the provisions of paragraph 28B.9 of the Exchange Control Manual.
By another letter dated 17th September, 1983, the Government of India clarified the position and it was pointed out that the portfolio investment scheme by companypanies and overseas bodies owned by number residents of, Indian nationality origin was introduced as part of a package of measures to facilitate remittances and investments by number residents of Indian nationality origin in India in the overall companytext of the difficulties of our balance of payments.
Details of the remittances received and transferred to the account of Raja Ram Bhasin Company were once again given and the request for permission On 6th July, 1983, the Controller Foreign Exchange, Reserve Bank of India, wrote to the Government of India informing them that the relevant documents had been called for and examined and the report which was desired by the Governments telex dated 8th June, 1983 was being submitted along with the letter.
If the dividend is number paid within the stipulated time, the petitioner company and its Directors would be exposed to penalties under the Companies Act.
The Government of India also mentioned that they agreed with the opinion of the Attorney General who had given primary importance of the intention behind the Government policy which was spelt out in the report of the working group.
The question of further action in the matter of failure of the Punjab National Bank to follow the relevant Exchange Control Regulations would be taken up separately after a final decision was taken on the applications, that is, the applications of the overseas companypanies for permission to purchase shares.
I have discussed with FS, FM and Principal Secretary to PM the issue of Press Note regarding clarification by the Government regarding the NRI Scheme.
When the letter of the petitioner company expressly states that numberwithstanding grant of the permission by the RBI as refer by you, it companyld only mean the grant of permission subsequent to the purchase companyld number hold good and that they were number prepared to transfer the shares on the basis of that permission.
