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Judgment
M.S. Shah, J.—This petition under article 226 of the Constitution challenges the order dated September 10, 1996, passed by the appellate
authority of the Securities and Exchange Board of India (hereinafter referred to as ""the SEBI""), dismissing the appeal filed by the petitioner herein
u/s 22 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ""the Act"").
Facts :
The petitioner is a public limited company registered under the Companies Act in the year 1992. The petitioner made a public issue of 32,38,100
equity shares of Rs. 10 each cash at par aggregating to Rs. 323.81 lakhs. According to the terms of the prospectus, the shares of the petitioner
company were to be listed on three stock exchanges, i.e., Vadodara Stock Exchange (VSE), Bombay Stock Exchange (BSE) and Ahmedabad
Stock Exchange (ASE). The public issue opened on April 8, 1996, the earliest closing was to be on April 11, 1996, and it was to close not later
than on April 18, 1997. Accordingly, it was closed on April 18, 1996. According to the petitioner-company, the issue was subscribed to the
extent of 96 per cent. which is more than the minimum subscription prescribed at 90 per cent. of the size of the issue under the provisions of
section 69 of the Companies Act. On May 27, 1997, the Vadodara Stock Exchange granted the listing permission and being the Regional Stock
Exchange, it also approved the basis of allotment on May 27, 1996, itself, since the subscription was to the extent of 96 per cent. On that day, the
Ahmedabad Stock Exchange also granted approval for listing of the company''s shares on the Ahmedabad Stock Exchange.
The petitioner''s application was pending before the Bombay Stock Exchange, but in the meantime, on May 27, 1996, the governing board of
the Bombay Stock Exchange changed the conditions of listing agreement requiring that ""there should be at least five public shareholders for every
one lakh rupees net capital offered to the public"". In view of the aforesaid requirement, the petitioner-company''s public issue was required to have
1566 shareholders, but in fact the petitioner had only 1415 shareholders and, therefore, on June 27, 1996, the Bombay Stock Exchange rejected
the petitioner''s application for listing of shares of the petitioner-company on the Bombay Stock Exchange. The petitioner, therefore, challenged the
aforesaid decision by filing an appeal before the SEBI u/s 22 of the Act on July 1, 1996.
In the meantime, on June 28, 1996, some investors who had applied in response to the public issue approached this court by filing Special Civil
Application No. 4515 of 1996 making certain complaints about the manner in which the public issue was handled by the petitioner-company
including dispute about non-compliance with the minimum subscription requirement and also seeking a declaration that because the Bombay Stock
Exchange had refused listing permission, the allotment cannot survive and the present petitioner-company must refund the entire subscription. That
petition came to be disposed of by this court on July 5, 1997, in terms of certain observations and directions and in view of the statements and
undertaking given on behalf of the petitioner-company. The relevant portion of the order of this court reads as under :
... This petition is preferred with a view to safeguard the petitioner''s interest to claim refund lest the amount may not be available for refund with
the company if it is allowed to withdraw the amount of subscription received by the banks and utilise it. In order to attain this relief, several grounds
have been raised, including the dispute about raising the minimum subscription.
However, this apprehension does not survive in view of the categorical statement made by learned counsel for respondent No. 1 (that is the
petitioner-company herein) that unless the appeal of the lead manager in respect of deemed refusal of permission is allowed by the appellate
authority of the SEBI and listing permission is granted, the subscription would fail, and the company is not entitled to withdraw any amount from
the banks until then. It was also stated that even otherwise, the petitioner-company undertakes not to withdraw any amount out of the subscriptions
received by the respective banks in pursuance of the public issue.
As a result of this statement made on behalf of the company, in my opinion, no present cause or grievance survives to proceed with this petition.
Notice discharged. The parties are free to make their respective representations before the appellate authority, if they have any grievance about
listing of the shares by the Bombay Stock Exchange. No costs.
Thereafter, the appellate authority of the SEBI heard the petitioner-company through its chairman and also considered the representations made by
investor Shri Kamlesh S. Jain (respondent No. 4) regarding certain aspects in respect of the public issue of the petitioner-company. The appellate
authority ultimately passed the impugned order dated September 10, 1996, holding that since the petitioner-company''s public issue opened prior
to the date of, the amendment amending the listing requirement regarding minimum number of shareholders in its meeting held on May 27, 1996,
the said requirement cannot be made applicable to the petitioner-company. However, the appellate authority dismissed the appeal on the ground
that there was substance in the complaint lodged by some of the shareholders to the effect that in order to bring the subscription at the public issue
up to 90 per cent. of the share capital offered, the company had accepted six disputed applications for one lakh shares each of the applicants
having similar addresses and the payment was purported to be made by stockinvests under consecutive numbers and issued by Punjab National
Bank. All the stockinvests were encashed in Current Account No. 1361 of Punjab National Bank (not bankers to the issue) opened on April 25,
1996, with a token amount of Rs. 500 and the stockinvests worth Rs. 30 lakhs were encashed up to May 11, 1996, and withdrawal of the entire
amount was on the same day. The appellate authority further found that the entire amount of Rs. 30 lakhs upon encashment of stockinvests was
withdrawn in cash through cheque in favour of K. Machi, an employee of the petitioner-company.
The appellate authority, therefore, came to the conclusion that although apparently the full amount of more than 90 per cent. of the subscription
was paid and received, it was merely an illusion because the amount came from a set of dubious applicants acting in concert and the amount
remained with the company technically for a few moments but was withdrawn immediately for purposes not explained properly and justifiably.
Hence, the appellate authority came to the conclusion that the money was not really received and, therefore, the allotment was not proper. It was
clearly found that excluding the aforesaid applications, the minimum subscription clause was not complied with and hence the company becomes
liable to refund the money in terms of the prospectus.
Contentions on behalf of the petitioner :
At the hearing of this petition, Mr. S. N. Soparkar, learned counsel for the petitioner, urged the following contentions to challenge the order of the
appellate authority :
I. The petitioner company had filed the appeal u/s 22 of the Act for challenging the decision of the governing board of the Bombay Stock
Exchange refusing to grant listing permission. Hence, the appellate could not have expanded the scope of the appeal so as to decide any issue
other than that raised in the petitioner''s appeal.
II. The petitioner-company was not supplied with the material document being letter dated July 12, 1996, addressed by the Bombay Stock
Exchange to the SEBI on which letter, the appellate authority has based its decision.
III. On the merits, once the appellate authority held that the amount was paid and received, it was not open to the appellate authority to give a
finding against the petitioner-company on the ground that the amount was not really received but merely technically received for a few moments
and, therefore, the allotment was not proper.
Submissions on behalf of the respondents :
On the other hand, Mr. S. N. Shelat with Mr. B. H. Chhatrapati, appearing for respondent No. 3 - appellate authority of the SEBI submitted as
under :
(i) When persons who had applied in response to the public issue of the petitioner-company had filed Special Civil Application No. 4515 of 1996,
this court specifically observed in its order that the parties are free to make their respective representations before the appellate authority, if they
have any grievance about listing of the shares by the Bombay Stock Exchange. This court did not entertain the petition filed by some of the
applicants to the public issue raising certain disputes including noncompliance with minimum subscription requirement, in view of the plea of the
petitioner-company (respondent No. 1 in that petition) that the matter was being examined by the appellate authority. Therefore, the SEBI was
entitled to examine the grievance of the investors against the petitioner-company.
(ii) As far as letter dated July 12, 1996, mentioned in the last paragraph of the impugned order of the appellate authority is concerned, a copy
thereof was produced at the hearing of the petition. That letter merely stated that the copies of letter dated July 10, 1996, and its enclosures
received from one Shri Kamlesh S. Jain were being sent by the Bombay Stock Exchange to the appellate authority. However, the said letter and
enclosures sent by Kamlesh S. Jain were already sent to the petitioner also along with letter dated July 12, 1996, from the Bombay Stock
Exchange to the petitioner and the said letter along with letter dated July 10, 1996, of respondent No. 4 and its enclosures are already annexed at
annexure ""I"" to the petition. Hence, there was no breach of the principle of natural justice.
(iii) On the merits, it was submitted that on an examination and analysis of the facts brought to the notice of the SEBI by Kamlesh S. Jain for which
the appellate authority had given an adequate opportunity to the petitioner-company to give an explanation in response to the complaints, the
appellate authority has come to the conclusion and given a finding of fact that the amount of subscription of more than 90 per cent. of the issue
offered was only technically paid and received, but it was merely an illusion and the categorical finding, therefore, given is that the money was not
really received and, therefore, the minimum subscription clause was not complied with.
Mr. K. A. Puj, learned advocate, for the applicants of Civil Application No. 8478 of 1996, i.e., three investors who are permitted to be joined as
respondents Nos. 4 to 6, also supported the order of the appellate authority and prayed that the appeal be dismissed. He made some further
submissions on the basis of the complaint made by his clients before the appellate authority.
Minimum subscription and statutory provisions :
Before considering the rival contentions urged on behalf of the parties, it is necessary to refer to the meaning and object of minimum subscription
and the relevant provisions of sections 69 and 73 of the Companies Act which are part of the group of sections prescribing conditions of valid
allotment of shares and connected matters including grant of listing permission/s by recognized stock exchanges and custody of application moneys.
Minimum subscription means the amount which, in the estimate of the directors, must be raised to meet the following needs, namely, purchase price
of any property to be defrayed partly or wholly out of the proceeds of the issue, preliminary expenses and working capital. No shares can be
allotted unless at least so much amount has been subscribed.
Prof. Gower has lucidly explained the object of these provisions in the following words :
The object of the present provisions is to prevent the company getting under way until it has raised the capital needed to carry out the objects in
which it has invited the public to participate; it would obviously be iniquitous to force an applicant, who has accepted an invitation to participate in
a pound 50 million issue for the purpose of buying Wembley Stadium, to sink his capital in a company which has only raised enough money to buy
a suburban villa. They also afford protection to the creditors by ensuring that a limited company is not able to incur commitments if it is grossly
under-capitalised.
(Gower''s Principles of Modern Company Law, fourth edition, page 356).
There is no dispute about the fact that the minimum subscription required in the instant case as mentioned in the prospectus issued by the
petitioner-company was 90 per cent. of the equity capital offered to the public. Section D of the guidelines for disclosure and investor protection
dated June 11, 1992, issued by the SEBI also stipulates that the minimum subscription of 90 per cent. is mandatory for each issue of capital to the
public.
Section 69 starts with the title or heading ""prohibition of allotment unless minimum subscription received"".
Sub-sections (1) and (2) of section 69 contain a prohibition against the allotment of any share capital of a company offered to the public for
subscription, unless the amount stated in the prospectus as the minimum subscription has been subscribed and the sum payable on application for
the amount so stated has been paid to and received by the company, whether in cash or by a cheque or other instrument which has been paid.
Sub-section (4) provides that all monies received from applicants for shares shall be deposited and kept deposited in a scheduled bank until the
certificate to commence business is obtained and until the entire amount payable on applications for shares in respect of the minimum subscription
has been received by the company. If such amount of minimum subscription has not been received within 120 days after the first issue of the
prospectus, all monies received from the applicants for shares shall be returned in accordance with sub-section (5). Contravention of this
subsection is punishable with fine to be imposed on every person knowingly responsible for such contravention.
Sub-section (5) provides that non-compliance with the aforesaid conditions shall require the company as well as the directors of the company to
repay all monies received from the applicants for shares with liability to pay interest if the repayment is made after 130 days after the date of issue
of the prospectus. Sub-section (6) provides that any condition for waiver of the requirements of section 69 shall be void.
Section 73 provides for allotment of shares to be dealt in on the stock exchange. Sub-section (1) requires that every company intending to offer
shares to the public for subscription by the issue of a prospectus shall before such issue, make an application to one or more recognized stock
exchanges for listing permission. Sub-section (IA) thereof provides that any allotment made on an application in pursuance of such prospectus
shall, whenever made, be void if the listing permission has not been granted by each of the stock exchanges whose permission is sought, before the
expiry of ten weeks from the date of the closing of the subscription lists, but if an appeal against the decision of any recognized stock exchange
refusing listing permission has been preferred u/s 22 of the Securities Contracts (Regulation) Act, 1956, such allotment shall not be void until the
dismissal of the appeal. Sub-section (2) provides that where the permission has not been granted, the company is required to repay all monies
received from the applicants, with or without interest, depending on the length of the period of delay in making such repayment.
Sub-section (3) specifically provides that all monies received from the applicants for shares shall be kept in a separate bank account maintained
with a scheduled bank, until the listing permission has been granted or until disposal of the appeal, with liability to repay the amounts if the
permission has not been granted.
Sub-section (3A) specifically contains a prohibition to the effect that moneys standing to the credit of the separate bank account as aforesaid shall
not be utilized for any purpose other than the following :
(a) where listing permission is granted by each stock exchange specified in the prospectus, for the purpose of adjustment against allotment of
shares;
(b) in any other case, for repayment of application moneys to investors.
Sub-section (4) provides that any condition for waiver of the requirements of section 73 shall be void. It bears repetition that the provisions of sub-
section (6) of section 69 and sub-section (4) of section 73 make the mandatory nature of the requirements of section 69 and section 73 abundantly
clear by providing that any condition purporting to require or bind any applicant for shares to waive compliance with any requirement of these
sections shall be void.
Contention I - Scope of appeal :
Mr. Soparkar relied on the provisions of section 22 of the Act to contend that the jurisdiction of the appellate authority in the appeal filed by the
petitioner was only to consider the grievance made by the petitioner-company against refusal of the listing permission and that it had no jurisdiction
to consider the complaint of the investors. Section 22 reads as under :
Right of appeal against refusal by stock exchanges to list securities of public companies. - Where a recognized stock exchange acting in
pursuance of any power given to it by its bye-laws, refuses to list the securities of any public company, the company shall be entitled to be
furnished with reasons for such refusal, and may, -
(a) within fifteen days from the date on which the reasons for such refusal are furnished to it, or ...
appeal to the Central Government against such refusal, omission or failure, as the case may be, and thereupon the Central Government may, after
giving the stock exchange an opportunity of being heard, -
(i) vary or set aside the decision of the stock exchange; or
(ii) where the stock exchange has omitted or failed to dispose of the application within the specified time, grant or refuse the permission,
and where the Central Government sets aside the decision of the recognized stock exchange or grants the permission, the stock exchange shall act
in conformity with the orders of the Central Government.
Mr. Soparkar submitted that the SEBI as an authority for protection of investors is different from the appellate authority of the SEBI acting as a
delegate of the Central Government for hearing and deciding the appeals. He further submitted that if the appellate authority had no jurisdiction to
go into the grievances raised by the investors while considering the petitioner''s appeal u/s 22 of the Act, even the alleged consent or deemed
consent on account of any statement made at the hearing of Special Civil Application No. 4515 of 1996, cannot confer jurisdiction on the
appellate authority. It was further submitted that Kamlesh S. Jain whose complaint was examined by the appellate authority was not a party to
Special Civil Application No. 4515 of 1996.
Although the contention urged on behalf of the petitioner appears to be prima facie attractive, it cannot be accepted. As per sections 69 and 73
for valid allotment of shares, there are, inter alia, two conditions precedent : (i) minimum subscription, and (ii) listing permission by each of the
recognized stock exchanges specified in the prospectus. In point of time minimum subscription precedes listing permission. Hence, compliance with
the mandatory statutory requirement of minimum subscription is a condition precedent for listing permission as well. It, therefore, stands to reason
that the appellate authority hearing the company''s appeal against refusal of listing permission by the Bombay Stock Exchange was not only
empowered, but also duty-bound, to satisfy itself that the company had complied with the mandatory statutory requirement of minimum
subscription. Examination of complaints of investors regarding non-compliance with the above requirements was, therefore, a logical and legitimate
part of the exercise of appellate powers by the appellate authority.
It is in this context that it is required to be noted that when some of the investors of the petitioner-company had earlier filed Special Civil
Application No. 4515 of 1996, making various grievances including the grievance about non-compliance with the minimum subscription
requirement, this court had granted liberty to the parties to make representations to the appellate authority. In fact, the petition itself was not
entertained as learned counsel for the company (respondent No. 1 in that petition) had urged that the matter was pending with the appellate
authority as the petitioner-company had filed an appeal against the refusal to grant listing permission by the Bombay Stock Exchange. The fact
remains that Special Civil Application No. 4515 of 1996 was filed by some of the investors in the petitioner-company and the nature of the
grievances made by the said investors was the same as the grievance made by Kamlesh S. Jain before the Bombay Stock Exchange which in turn
was considered by the appellate authority. Hence, the appellate authority did not commit any error in looking into the grievances made by Kamlesh
S. Jain who has been permitted to be joined as respondent No. 4 herein.
Contention Il - Principles of natural justice :
As far as non-supply of letter dated July 12, 1997, is concerned, since the copy thereof was produced at the hearing of the petition and it was
found that the contents of the said letter were identical with the contents of the letter dated July 12, 1997, from the Bombay Stock Exchange to the
petitioner-company, learned counsel for the petitioner fairly stated that no prejudice was caused to the petitioner-company on account of non-
supply of the letter in question to the petitioner.
Contention III - Merits of the controversy :
Coming to the merits of the controversy between the parties, it is required to be noted that the appellate authority examined the facts of the case
along with the explanation offered by the petitioner-company or absence thereof and, thereafter, found that there were six disputed applications
coming from six applicants having similar addresses with no Income Tax numbers except one. Each application was for one lakh shares each and
the stockinvests accompanying the said applications were also consecutively numbered and issued by the Punjab National Bank. Though the
bankers to the issue were Karur Vysya Bank Ltd. and Vijaya Bank, all these stockinvests were encashed in a particular account with the Punjab
National Bank which was opened on April 25, 1996, with a token amount of Rs. 500 and between that date and May 11, 1996, the only entries
therein were regarding encashment of the stockinvests amounting to Rs. 30 lakhs and withdrawal of the entire amount on the same day. Thus. the
stockinvests were not encashed with the bankers to the issue but they were encashed with the Punjab National Bank immediately after the basis of
the allotment was finalised and the entire amount so encashed was withdrawn in cash through cheques in favour of K. Machi, an employee of the
petitioner-company. The chairman of the company informed the appellate authority that the withdrawal was for purchase of plant and machinery.
The appellate authority rightly did not accept the explanation as the names of the suppliers of the machinery were not furnished; the details about
name and type of machinery were not supplied; no information was furnished as to whether the money was actually given to the suppliers even on
the date of hearing, i.e., on September 4, 1996. On the basis of this material, no fault can be found with the finding given by the appellate authority
that the receipt of Rs. 30 lakhs by the company was merely an illusion. In any case, such finding cannot be interfered with, since it is either perverse
nor based on no evidence.
Since the aforesaid findings of fact and the inferences drawn on the basis thereof by the appellate authority cannot be reappreciated in writ
jurisdiction, learned counsel for the petitioner urged that the appellate authority, having given a finding that apparently the amount was paid and
received, could not have thereafter taken the view that the money was not really received, but merely technically received for a few moments and,
therefore, the allotment was not proper.
A propos the said submission, it is required to be noted that what the provisions of section 69 read with section 73 contemplate is not merely
that the amounts of application money tendered with the share applications should be deposited in a separate bank account with a scheduled bank,
but they must be deposited in a separate bank account with the scheduled bank/s which are bankers to the issue and shall be kept deposited with
them till the fulfilment of the purposes contemplated by sub-section (4) of section 69 and sub-sections (3) and (3A) of section 73 of the
Companies Act. It is true that the provisions of sub-section (4) of section 69 of the Companies Act speak of moneys being deposited in ""a
scheduled bank"" and sub-sections (3) and (3A) of section 73 speak of money being deposited in ""a separate bank account maintained with a
scheduled bank"" and, therefore, by themselves, are capable of being interpreted as ""any scheduled bank"". In this connection, it is, however,
necessary to bear in mind the following dictum of judge Learned Hand of the United State of America, which is quoted with approval by their
Lordships of the Supreme Court in the case of K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, and also in the case of C.B.
Gautam Vs. Union of India and Others, :
... it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any
writing; be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a
fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and
imaginative discovery is the surest guide to their meaning.
Bearing in mind the object of the minimum subscription requirement as well as the mandatory nature of the provisions of sections 69 and 73
laying down the minimum subscription requirement and the other conditions for valid allotment which are stipulated by the Legislature for the
protection of investors, it is clear that it is a condition precedent to valid allotment that the whole of the application money should have been paid to
and actually received by the company. Any means such as cash, cheques, drafts and/or stockinvests may be used, but instruments must be
received and encashed and remittances must be lying with the bankers to the issue before the company can proceed for allotment of shares. As
specified in sub-section (3A) of section 73, moneys received pursuant to the public offer of the shares can be utilized only for one of the two
purposes :
(a) if listing permission is granted by all the stock exchanges specified in the prospectus, the application money received from the public can be
adjusted against allotment of shares.
(b) but if listing permission is not received from each of the stock exchanges specified in the prospectus, (or the company is unable to make
allotment for any other reason), the application moneys have to be refunded to the applicants.
Listing permission cannot be granted by a stock exchange if the minimum subscription requirement as required by sub-sections (1) to (3) of
section 69 is not complied with. If the listing permission is not granted by even one stock exchange specified in the prospectus or where the
company is for any reason unable to make allotment of shares, application moneys received from the public have to be refunded within the time
limit stipulated in the provisions of section 73 of the Companies Act. The scheme of sections 69 and 73 of the Companies Act, would, therefore,
suggest that the money should not be allowed to be handled or manipulated by the company till all the mandatory requirements of sections 69 and
73 of the Companies Act are complied with and till the company can proceed to make valid allotment of shares. In other words, the moneys must
be kept out of the reach of the company and its directors/promoters till the company can make allotment of shares in accordance with law. This
salutary object of the provisions of the Companies Act will be frustrated if it is held that application moneys received from the public are permitted
to be deposited in any bank account of any scheduled bank where the company may choose to deposit. In that case, there will be no control on
the company which may withdraw the application moneys or any part thereof in flagrant violation of the provisions of sections 69 and 73 of the
Companies Act and then agree to pay a fine of Rs. 5,000 under sections 69(4) and 73(3). No difficulty will arise either to the company which has
offered its shares to the public and is acting bona fide or to the investors, if the provisions of sub-section (4) of section 69 and sub-sections (3) and
(3A) of section 73 are interpreted as stated earlier, that is to say, all moneys received from applicants for shares offered to the public for
subscription shall be deposited and kept deposited in the scheduled bank/s which are bankers to the issue until the company has complied with all
the requirements of section 69 and section 73 of the Companies Act. It has been held that bankers to the issue hold the application moneys in the
nature of a trust fund, i.e., the statute has created a kind of trust for the protection of persons who pay the money on the faith of a promise to
refund the money, in case certain conditions are not fulfilled. [Nanwa Gold Mines Ltd., In re [1955] 25 Comp Cas 443 : [1955] 3 All ER 219 ;
Reserve Bank of India Vs. Bank of Credit and Commerce International (Overseas) Ltd. and another, : Reserve Bank of India v. Bank of Credit
and Commerce International (Overseas) Ltd. (No. 2) [1993] 78 Comp Cas 230 (Bom)]. It is only the bankers to the issue who can be expected
to make sure that before withdrawal the company has got the listing permission from each stock exchange specified in the prospectus. It is only the
bankers to the issue who are subject to the statutory control of the SEBI through the SEBI (Bankers to an Issue) Rules, 1994, and the SEBI
(Bankers to an Issue) Regulations, 1994.
On the other hand, if the aforesaid provisions are interpreted to mean that moneys received from applicants for shares may be deposited in any
scheduled bank of the choice of the company, it will give the company an opportunity to resort to manipulations not to make the application
moneys or a part thereof available to the company for the purposes for which moneys are raised from the public.
In the light of the aforesaid discussion and the admitted fact that stockinvests of Rs. 30 lakhs received from six applicants (who are found to be
dubious by the appellate authority) were not deposited with or encashed by either of the bankers to the issue, i.e., Vijaya Bank and Karur Vysya
Bank, the said amount cannot be said to have been paid to and received by the company as required by sub-section (1) of section 69 of the
Companies Act. The finding of the appellate authority that the said amount was actually not received by the petitioner-company can, therefore, be
upheld on this ground also. Besides, the said illegality has assumed the dimension of a fraud because the said stockinvests of Rs. 30 lakhs were not
only encashed with the Punjab National Bank (not a banker to the issue) but were also withdrawn in cash by bearer cheque in the name of an
employee of the petitioner-company. It is also pertinent to note that the said amount was withdrawn by the chairman and directors of the company
in the aforesaid manner between April 25, 1996, and May 11, 1996, i.e., long prior to the date on which the Vadodara Stock Exchange and the
Ahmedabad Stock Exchange granted listing permission on May 27, 1996, (annexures ""D"" and ""E"" respectively). As already noted earlier, the
application of the company for listing permission to the Bombay Stock Exchange was still pending. Under the circumstances, the company had
clearly committed flagrant breach of the mandatory provisions of subsections (3) and (3A) of section 73 of the Companies Act by withdrawing Rs.
30 lakhs from the application moneys received pursuant to the public offer of its shares before listing permission was granted by any stock
exchange. Such withdrawal could not have been made before allotment of shares and such allotment of shares could not have been made before
listing permission is granted by all the three stock exchanges, i.e., BSE, VSE and ASE. Such listing permissions could not have been granted
without the company having actually received application moneys for the minimum subscription. It is thus clear that non-deposit of the stockinvests
of Rs. 30 lakhs with the bankers to the issue was clearly a part of the well thought out design on the part of those in charge of the company in
order to play a fraud on the investors and to circumvent the mandatory provisions of sections 69 and 73 of the Companies Act. Mere encashment
of stockinvests of Rs. 30 lakhs with the Punjab National Bank (not bankers to the issue) without withdrawal thereof would have been an
irregularity or illegality which would have gone unnoticed. It is the withdrawal thereof in hot haste in a dubious manner and for unexplained
purposes which not only lends it the character of fraud, but also justifies ""the sympathetic and imaginative discovery"" of the meaning of the words ""a
scheduled bank"" in sub-section (4) of section 69 and sub-sections (3) and (3A) of section 73 of the Companies Act as ""the scheduled bank/s
which are the bankers to the issue"".
Once the above meaning of the term ""a scheduled bank"" is appreciated, the meaning of the words ""the sum payable on application for the
amount so stated (minimum subscription) has been paid to and received by the company"" in sub-section (1) of section 69 must be interpreted in
conjunction with the provisions of sub-section (4) of section 69 and subsections (3) and (3A) of section 73 of the Companies Act. In K.
Balakrishna Rao and Others Vs. Haji Abdulla Sait and Others, , the apex court quoted with approval, the following observations of Sir John
Nicholl M.R. in Brett v. Brett [1826] 3 Add 210:
The key to the opening of every law is the reason and spirit of the law. - It is the animus imponentis, the intention of the law-maker expressed in
the law itself, taken as a whole. Hence, to arrive at the true meaning of any particular phrase in a statute, the particular phrase is not to be viewed
detached from its context in the statute, it is to be viewed in connection with its whole context-meaning by this as well the title and preamble as the
purview or enacting part of the statute.
Similarly in State of West Bengal Vs. Union of India, , the apex court observed :
The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute;
it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs.
Applying the aforesaid well-settled principles of interpretation of statutes and in the light of the detailed discussion in para. 14 above, it has to be
held that since the entire application money paid to and received by the company is to be kept out of the reach of the company till all the conditions
for valid allotment are satisfied, there cannot be any hiatus between receipt of the money by the company and its deposit with the scheduled bank/s
which are bankers to the issue. In other words, that application money cannot be said to have been paid to or received by the company which
might have been physically received by the company, but which is not deposited in a separate bank account with the scheduled bank/s which are
bankers to the issue.
Having regard to the aforesaid object of statutory provisions and the findings of fact arrived at by the appellate authority, this court has no
hesitation in holding that the application money pursuant to the minimum subscription of shares offered to the public was not paid to and received
by the company as required by the provisions of sections 69 and 73 of the Companies Act. Out of abundant caution, this court would like to add
that even otherwise, in view of the fraudulent conduct on the part of those in charge of management of the petitioner-company, this court would
have declined to exercise its prerogative discretionary jurisdiction under article 226 of the Constitution in favour of the petitioner-company.
Mr. Puj for the investors submitted that the money was not even otherwise received inasmuch as the stockinvests were purchased after April
18, 1996, and were antedated, as it was found that the company had received subscription for approximately only about 80 per cent. of the equity
capital. Mr. Puj further wanted to refer to other allegations of irregularities pointed by respondent No. 4, Kamlesh S. Jain, as mentioned in his
letter dated July 10, 1996, which are annexed to the petition.
It is, however, not necessary to go into any such allegations made by respondent No. 4, as the appellate authority has not given any specific
finding on any such alleged irregularities and the order of the appellate authority is even otherwise being upheld.
ORDER
In the result, the petition is hereby dismissed. Notice is discharged with costs. The amounts of costs are quantified at Rs. 5,000 (rupees five
thousand only) for respondent No. 3 and another sum of Rs. 5,000 (rupees five thousand only) for respondents Nos. 4 to 6 in one set. The costs
shall be paid within one month from today.
After the judgment is pronounced, Mr. Soparkar, learned counsel for the petitioner, prays for stay of this judgment. All that this court has done is
to dismiss this petition against the order of the appellate authority u/s 22 of the Securities Contracts (Regulation) Act, 1956. During the pendency
of the petition, there was no ad interim or interim stay against operation of the said order of the appellate authority nor was there any other interim
or ad-interim relief granted in favour of the petitioner. In this view of the matter, the request is rejected.