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3. This scheme was amended by RBI Circular No. 15 dated August 20, 1982 (Exh."H"), removing the monetary limit of investment of Rs. 1 lakhs but retaining the limit of 1% of the paid-up share capital of the company. By other Circular No. 27 dated December 10, 1982 (Exh "I"), the shares were required to be purchased at the ruling market price as determined on the floor of the stock exchange by normal bid and offer method only.

4. While that was the position with regard to the facilities provided for NRI investors for investment in India companies with full repatriation benefits, letter were addressed by the Caparo Tea Co. Pvt. Ltd., the Empire Plantations and Investment Ltd. and Assam Frontier Tea Holding Public Ltd. Co., respondents Nos. 5, 6 and 7 herein, to stock exchange brokers, M/s. Rajaram Bhasin & Co., respondent No. 20 herein, instructing them to purchase shares in Delhi Cloth Mills (DCM) and in Escorts Ltd. with full repatriation benefits and intimating them that the Punjab National Bank ("PNB" for short), respondent No. 3 herein, was been authorised to advance to the extent of Rs. 2 lakhs in each case to cover margins payable to the stock exchange. It also authorised PNB to pay the full purchase price of the share to M/s. Rajaram Bhasin & Co., to be adjusted on final delivery of shares. In February, 1983, the PNB granted rupee loan to the Caparo Group Ltd., respondent No. 4 herein, and these amounts were made available to M/s. Rajaram Bhasin & Co., for the purchase of shares in India companies with full repatriation benefits. Remittances in all aggregating to Rs. 8.93 crores were received by the PNB from the Caparo Group Ltd., respondent No. 4 between March 9, 1983, and April 28, 1983, for the purpose of purchasing shares in the names of thirteen companies, respondents Nos. 4 to 16. The PNB disbursed these amounts to the stock brokers, M/s. Rajaram Bhasin & Co., "at the entire risk and responsibility of respondents Nos. 4 to 17 and their agents/brokers." M/s. Rajaram Bhasin & Co., in turn, purchased shares in two companies, namely DCM and Escorts Ltd., for the Caparo of companies, respondents Nos. 4 to 16 herein. The purchase of shares commenced on and from March 2, 1983. According to the statement filed with the PNB by the brokers, respondent No. 20, between March 2, 1983, and March 15, 1983, 22,08,850 shares in the DCM and 1,05,600 shares in Escorts Ltd., were purchased for the thirteen Caparo group of companies. On March 16, 1983, the RBI received a letter March 4, 1983, from the PNB forwarding three applications made by respondents Nos. 5 to 7 in form RPC seeking permission to make investments in India companies with full repatriation benefits. On March 18, 1983, the RBI received yet another letter dated March 12, 1983, from the PNB forwarding ten more applications in form RPC from respondents Nos. 4 and 8 to 16 seeking permission to make investments in shares. All these application were accompanied by auditors' certificates which disclosed that these companies were not directly owned by individuals of Indian nationality/origin though they appeared to have been owned to the extent of not less than 60% by individuals of Indian origin indirectly of Indian origin indirectly. According to the respondents, firm commitments for purchase of the shares were made by April 29, 1983, while according to the petitioners, they were purchased even after May 2, 1983, till August, 1983. However, even by August, 1983, permission under s. 29 of the FERA for the purchase of shares was not obtained from the RBI, by its letter dated April 29, 1983, required the PNB to furnish information as to whether non-resident individuals of Indian nationality/origin were holding at least 60% interest in that company and whether the shares were already purchased. The RBI also required the PNB to furnish particulars in the prescribed from OAC duly signed by overseas auditors. The PNB, in its letter dated May 6, 1983, informed the RBI that it had been advised that Swraj Paul, respondent No. 17, and his family trust held 61.6% of the share capital of the Caparo Group Ltd. (respondent No. 4) and the Caparo Group Ltd., in turn, held 100% of the share capital of the other companies except Caparo Properties Ltd., in which it had 98% of ownership stock. It was stated that a certificate of overseas auditors in form OAC had already been submitted along with the application. As regards the details of the purchase of the share in the Indian companies for and on behalf of the Caparo group of companies, the PNB stated that "The same would be supplied when the purchases are complete."

6. The books of the petitioner-company were being closed on May 14, 1983. By that date, 2,88,390 shares were lodged for transfer in the name of Harish Bhasin and 1,73,947 were lodged for transfer in the name of Bharat Bhushan, neither of whom was a non-resident foreign investor.

7. Further correspondence between the PNB and the RBI was exchanged with regard to the purchase of shares in the petitioner-company by the Caparo group of companies seeking particulars and especially as to how the consideration for the purchase of shares of Indian companies was paid to the Indian sellers when "permission for purchase of shares on benefit of 13 overseas companies has not yet been granted to you". On May 27, 1983, the petitioner-company addressed letters to Harish Bhasin and Bharat Bhushan enquiring whether the shares has been acquired on behalf of the non-resident Indian whether permission had been acquired on behalf of the non-resident Indian, whether permission had been obtained from the RBI for such purchases had been received from the bank and the particulars thereof. To this enquiry, the PNB replied stating that beneficial interest in the Caparo Group Ltd. was 61.6% in the family trust of Swraj Paul (respondent no. 17) as stated in the RPC form and that the certificate in form OAC was already filed. The members of the family trust of Swraj Paul (respondent No. 17) were all stated to be non-resident of Indian origin having interest in the trust to the extent of 61.6%. The PNB asserted that, in its view, after submission of the applications, it was required to await the permission of the RBI that since remittances from Caparo Group Ltd. were made in favour of M/s. Rajaram Bhasin & Co., their designated brokers and power of attorney holders, the same were executed by the PNB through NRI (External) Account on various dates up to April 23, 1983, and also, therefore, conforming to the bye-laws and regulations of the Delhi Stock Exchange. On May 27, 1983, the petitioner-company addressed letters to respondents Nos. 20 and 21, calling for particulars; but in their replies dated May 31, 1983, they declined to furnish the information. The PNB, in its letter dated May 31, 1983, stated that it had been advised by M/s. Rajaram Bhasin and Co. respondent No. 20, that until April 28, 1983, 75,000 equity shares of the petitioner-company had been purchased by it for each of the thirteen companies and that a large number of shares had been lodged from the purpose of transfer only in the name of Harish Bhasin and Bharat Bhushan. In response to its letter dated April 29, 1983, the PNB further informed the RBI by its letter dated May 31, 1983, that it had been advised by the brokers, M/s. Rajaram Bhasin & Co., that up to April 28, 1983, they had purchased 80,000 equity shares of DCM and 75,000 shares of the petitioner-company on behalf of and for the benefit of each of the Coparo group companies, Although 5,12,663 shares were purchased by May 14, 1983, only 4,63,000 shares were lodged with the company for registration of transfer.

8. On June 1, 1983, the petitioner-company enquired of the PNB whether any permission had been granted by the RBI to the PNB to purchase shares on behalf of the thirteen respondent companies of Caparo group. The PNB refused to furnish the particulars requested. It also refused to disclose whether permission was granted or not by the RBI.

9. M/s. Rajaram Bhasin & Co. sent a letter dated April 30. 1983, to the PNB to allocate total remittances received till April 28, 1983, from Caparo Group Ltd. on pro-rate basis to the account of the thirteen companies, respondents No. 4 to 16. Upon the letter, the PNB opened twelve NRI (External) Accounts for the said overseas companies, respondents No. 5 to 16. Permission for this was not obtained from the RBI. The PNB debited the NRI (External) Accounts of Caparo Group Ltd. and credited the account equally into the NRI (External) Accounts of each of the respondent No. 5 to 16. Thus, the amount of Rs. 1.60 crores received from respondent No. 4 was allocated to all thirteen accounts and then transferred to M/s Rajaram Bhasin & Co.

10. The board of directors of the petitioner-company refused registration of transfer of shares loved in the names of the two brokers, namely, Harish Bhasin and Bharat Bhushan (respondents Nos. 20 & 21), on June 9, 1983, and as required under s. 111 of the Companies Act, 1956, gave them notice of rejection on June 13, 1983. It also intimated its decision to the PNB on June 14, 1983. Because by may 14, 1983, only 44,62,337 scrips had been lodged with the petitioner-company, the petitioner-company enquired of the PNB whether the bank was holding back 5,12,663 scrips. By another letter dated June 20, 1983, the petitioner-company requested the PNB to advice it as to whom 4,62,337 scripts should be returned. The PNB asked the petitioner-company to address the brokers who had lodged these shares with it. In view of the press release of the RBI dated June 10, 1983, the petitioner-company communicated to the RBI through its letter dated June 14 1983 (Exh. "AA"), the several illegalities committed by respondents Nos. 4 to 16 in the purchase of these shares. The RBI initiated an enquiry on June 8, 1983, regarding the eligibility of Caparo group of companies to purchase shares under the liberalised portfolio scheme. Dr. H. K. Sengupta, Joint Secretary (investments) Ministry of Finance, Department of Economic Affairs, sent a telex to the RBI on June 8, 1983, requesting it to enquire into the details of purchases made by respondents Nos. 4 to 16 and whether they were valid without prior approval of the RBI. On June 11, 1983, the RBI wrote to the PNB that prior permission under s. 29(1)(b) of the FERA was required for any NRI investor to purchase shares in India companies and that the provision specifically prohibited ever non-resident from purchasing shares of India companies except under a general or special permission of the RBI and that none of the thirteen respondent-non-resident companies and the PNB had till then been permitted to purchase shares. The RBI called upon the PNB to explain how it had allowed debit to NRI to explain how it had allowed debit to NRI (External) Accounts of Caparo Group Ltd. in contravention of the provisions of paragraph 28B. 9 of the Exchange Control Manual. It also directed the PNB not to make any payments of those accounts until specific permission of the RBI was granted. A copy of that letter dated June 11, 1983, the RBI requested the PNB for further particulars of the purchases stated to have been made by respondents Nos. 4 to 16. A copy of this letter was also forwarded to Dr. Sengupta, Joint Secretary (investments), Ministry of Finance, with reference to his telex dated June 8, 1983. The RBI issued instruction to the PNB on June 15, 1983, to freeze the accounts of the Caparo group of companies and of to release any further amounts therefrom.