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2. It cannot be said that the attitude taken by the Life Insurance Corporation of India in regard to (i) the issue of Equity linked Debentures; (ii) Repayment of loans to Indian Financial Institutions; and (iii) the proposal of the merger of Goetze with Escorts were mala fide and an attempt on its part to exert pressure on Escorts Ltd. to register the shares of Caparo Group. The result of accepting the proposal for the issue of Equity linked Debentures would be that the L.I.C.'s holdings would be reduced from 30 per cent to 18.14 per cent, while the holding of all the financial institutions would be reduced from 52% to 31.21% besides involving great financial loss to them. Similar would be the position if the proposals for the merger of Goetze with Escorts was accepted. None holding a majority of the equity capital of a company would allow himself to be hustled into becoming a minority shareholder. The object of prepayment of loans was to get rid of the directors who the financial institutions had a right to nominate. True Escorts offered to appoint Mr. Davar as a Director even if the financial institutions had no right to nominate him. But it is one thing to have the right to nominate a director and quite another thing to be a director at sufferance. [1018 D- E; 1019 A-B; 1021 C-D] 3.1 On an overall view of the several statutory provisions and judicial precedents, it is clear that a shareholder has an undoubted interest in a company, an interest which is represented by his share holding. Share is movable property with all the attributes of such property. The rights of a share holder are (i) to elect directors and thus to participate in the management through them; (ii) to vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company in the shape of dividends; (iv) to apply to the court for relief in the case of oppression; (v) to apply to the court for relief in the case of mismanagement; (vi) to apply to the court for winding up of the company; and (vii) to share in the surplus on winding up. [995 G-H; 996 A] 3.2 A share is transferable but while a transfer may be effective between transferor and transferee from the date of transfer, the transfer is truly complete and the transferee becomes a shareholder in the true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered in the company's register. A transfer effective between transferor and the transferee is not effective as against the company and persons without notice of the transfer until the transfer is registered in the company's register. Indeed until the transfer is registered in the books of the company, the person whose name is found in the register alone is entitled to receive the dividends, notwithstanding that he has already parted with his interest in the shares. However, on the transfer of shares, the transferee becomes the owner of the beneficial interest though the legal title continues with the transferor. The relationship of trustee and ceatui que trust is established and the transferor is bound to comply with all reasonable directions that the transferee may give. He also becomes a trustee of the dividends as also of the rights to vote. The right of the transferee "to get on the register" must be exercised with due diligence and the principle of equity which makes the transferor a constructive trustee does not extend to a case where a transferee takes no active interest "to get on the register". [996 A-D] 3.3 Where the transfer is regulated by a statute, as in the case of transfer to a non-resident which is regulated by the Foreign Exchange Regulation Act, the permission, if any, prescribed by the statute must be obtained. In the absence of the permission, the transfer will not clothe the transferee with the "right to get on the register" unless and until the requisite permission is obtained. A transferee who has the right to get on the register, where no permission is required or where permission has been obtained, may ask the company to register the transfer and the company who is so asked to register the transfer of shares may not refuse to register the transfer, except for bona fide reasons, neither arbitrarily, nor for any collateral purpose. The paramount consideration is the interest of the company and the general interest of the shareholder. On the other hand, where, the requisite permission under FERA is not obtained, it is open to the company, and indeed, it is bound to refuse to register the transfer of shares of an Indian company if favour of a non-resident. [996 E-H] But once permission is obtained, whether before or after the purchase of the shares, the company cannot, thereafter refuse to register the transfer of shares. Nor is it open to the company or any other authority or individual to take upon itself or himself, thereafter the task of deciding whether the permission was rigthtly granted by Reserve Bank of India. The FERA makes it its exclusive privileges and function. The provisions of the Foreign Exchange Regulation Act are so structured and woven as to make it clear that it is for the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the various rules, directions and orders issued from time to time have been fulfilled and whether permission should be granted or not. The consequences of non-compliance with the provisions of the Act and the rules, orders and directions issued under the Act are mentioned in secs. 48, 50, 56 and 63 of the Act. There is no provision of the Act which enables an individual or authority functioning outside the Act to determine for his own or its own purpose whether the Reserve Bank was right or wrong in granting permission under section 29(1) of the Act. Under the scheme of the Act, it is the "custodian- general" of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under section 29(1) of the Act. The Act makes it its exclusive privilege and function. No other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally before any Court. However, the grant of permission by the Reserve Bank may be questioned by an interested party in a proceeding under Article 226 of the Constitution on the ground that it was malafide or that there was no application of the mind or that it was opposed to national interest as contemplated by the Act. [996 H; 997 A-G] 3.5 It is certainly not open to a company whose shares have been purchased by a non-resident company to refuse to register the shares even after permission is obtained from the Reserve Bank of India on the ground that permission ought not to have been granted under the FERA. The permission contemplated under section 29(1) of the Foreign Exchange Regulation Act is neither intended to nor does it impinge in any manner or any legal right of the company or any of its shareholders. Conversely neither the company nor any of its shareholders is clothed with any special right to question any such permission. [997 G-H; 998 A] 3.6 Where the articles permitted the Directors to decline to register the transfer of shares without assigning reasons, the Court would not necessarily draw adverse inference against the Directors but will assume that they acted reasonably and bonafide. Where the Directors gave reasons the Court would consider whether the reasons were legitimate and whether the Directors proceeded on a right or a wrong principle. If the articles permitted the Directors not to disclose the reasons, they could be interrogated and asked to disclose the reasons. If they failed to disclose that reason adverse inference could be drawn against them. [995 C-F] Manekji Pestonji Bharucha and Anr. v. Wadilal Sherabhai and Co. 52 I.A. 92; Bank of India v. Jamshetji A.R. Chinoy A.I.R. 1950 Pc 90; In Re Fry [1946] 2 All E.R. 106; Swiss Bank Corporation v. Lioyds Bank Ltd. [1982] A.C. 584; Charanjit Lal Chaudhury v. Union of India A.I.R. 1951 S.C. 41; Mathalone and Ors. v. Bombay Life Assurance Company Ltd. A.I.R. 1953 S.C. 385; Vasudev Ramachandra Shelat v. Pranlal Jayanand Thakkar [1975] 1 S.C.R. 534; A.K. Ramiah v. Reserve Bank (1970) 1 M.L.J. PI referred to.

(a) and the acquisition of an undertaking or shares in India of the character mentioned in clause (b). Hence, Parliament left to the Reserve Bank of India as the saftest authority to grant permission previous or ex post facto, conditional or unconditional. And the Reserve Bank could be expected to use the discretion wisely and in the best interests of the country and in furtherance of declared Government fiscal policy in the matter of foreign exchange. 1982 F; G-H] 6.6 Reading together sections 13 and 67 of the Foreign Exchange Regulation Act and section 11 of the Customs Act, it is seen that an order under section 13 FERA operates as a prohibition and there, can therefore, be no question of the Reserve Bank of India granting subsequent permission to validate the importation of the prohibited goods and avoid the consequences prescribed by the Customs Act. To accept the analogy of section 13 to interpret sections 19 and 29, therefore, is not possible. [983 D-E] 6.7 It is true that the consequences of not obtaining the permission of the Reserve Bank or not to follow the procedure prescribed are serious and even severe. It is also true that the burden of proof is on the person proceeded against and that mensrea may consequently be interpreted as ruled out. But that cannot lead to the inevitable conclusion that the permission contemplated by section 29 is necessarily previous permission. [983 G-H; 984 A] 6.8 If it was the intention of Parliament to comprehend both previous and subsequent permission, the word "confirmation" as in section 19(5) would not do at all. While it may be permissible to construe the word "permission" widely, the word "confirmation" could never be used to convey the meaning "previous permission". The word "confirmation" is totally misplaced in section 29. [984 E-F] 6.9 The rule against retrospectivity cannot be imported into the situation presented here. The rule against retrospectivity is a rule of interpretation aimed at preventing with rights unless expressly provided or necessarily implied. To invoke the rule against retrospectivity in a situation where no vested rights are involved is to give statutory status to a rule of interpretation forgetting the reason for the rule. [984 G-H; 985 A-B] 6.10 Paragraph 24A.1 of the Exchange Control Manual is neither a statutory direction nor is it a mandatory instruction issued under section 73(3) of the Foreign Exchange Regulation Act, but is in the nature of a comment on section 29(1)(b). The paragraph is an explanatory statement of guideline for the benefit of the authorised dealers. It reads as if it is in the nature of and, indeed it is, advice given to the authorised dealers that they should obtain prior permission of the Reserve Bank of India, so that there may be no later complications. It is a helpful suggestion rather than a mandate. The Manual itself is a sort of guide book for authorised dealers, money changers, etc. and is a compendium or collection of various statutory directions, administrative instructions, advisory opinions, comments, notes, explanations, suggestions etc. The expression "prior permission" used in paragraph 24.A(1) is not meant to restrict the range of the expression "general and special permission" found in sections 29(1)(b) and 19(1)(b). It is meant to indicate the ordinary procedure which may be followed. [986 B-E] 6.11 The forms cannot control the Act, the Rules or the directions. None of the prescribed forms, no doubt, provided for the application and grant of subsequent permission, but that is so because ordinarily one would expect permission to be sought and given before the act. [986 E-F] 6.12 The Portfolio investment Scheme does not talk of any prior or previous permission. Further a power possessed by the Reserve Bank under a Parliamentary legislation cannot be so cut down as to prevent its exercise altogether. It may be open to subordinate legislating body to make appropriate rules and regulations to regulate the exercise of a power which the Parliament has vested in it so as to carry out the purposes of the legislation, but it cannot divest itself of the power. Therefore, the Reserve Bank, if it has the power under the FERA to grant ex post facto permission cannot divest itself of that power under the scheme. [987 A-D] Shakir Hussain v. Candoo Lal & Ors., AIR 1931 All. 567, Vasudev Ramachandra Shelat v. Pranlal Jayanand Thakur, [1975] 1 S.C.R. 534 referred to.

The importance of 2nd May, 1983 so frequently mentioned in the telex message is apparently because 2nd May, 1983 was fixed as the cut-off date for the introduction of the ceiling of 5 per cent in shares of Indian companies by foreign investors of Indian origin by the Circular No. 12 dated May 16, 1983 issued by the Reserve Bank of India.

In the meanwhile, on 31.5.83, Punjab National Bank wrote to Escorts Limited informing them that the thirteen overseas companies had been making investments in shares of Escorts Limited in terms of the scheme for investment by overseas corporate bodies predominantly owned by non- 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 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 companies. Out of the shares 80 purchased 35,560 shares purchased by each of companies 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 company. 35,667 shares purchased for the 13th company were also lodged for the purpose of transfer in the name of Mr. H.C. Bhasin and Mr. Bharat Bhushan. Escorts Limited replied on June 16th, 1983 and requested the Punjab National Bank to furnish informations whether the non- resident companies had executed and handed over applications to be filed with Reserve Bank of India for prior permission to purchase the shares of the company 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 companies mentioned in the letter. Escorts Limited did not refer in this letter to the circumstance that H.C. Bhasin and Bharat Bhushan had lodged the shares with them for transfer in their own names instead of the names of any of the overseas companies. Escorts Limited obviously did not think in strange that the brokers lodged the shares in their own names instead of their principals, for the simple reason that Bye-law 242 of the Stock Exchange Regulations permit the brokers to do 80 if they are unable to complete the formalities before the closing of the books. They now seek to make a point of it. It is A obviously without substance. In fact in their letter to Punjab National Bank, Escorts Limited did not even think it worthwhile mentioning that when they wrote to the brokers on 27.5.83 requesting information whether they were the beneficial owners of the shares and whether the shares had been purchased on behalf of non-residents of Indian origin with the requisite permission of the Reserve Bank of India they had been curtly refused the information by Mr. H.C. Bhasin and Mr. Bharat Bhushan who had also questioned their authority to ask for such information, and even threatened legal action of the transfer was not registered. We are unable to fathom the reason behind the attitude of the brokers. We can but make a guess. It was probably they were still awaiting the permission of the Reserve Bank of India. That they had purchased the shares for overseas investors was no secret since they had already so informed the Punjab National Bank. They seem to have, thought that they were within their rights under the Stock Exchange Regulations in asking the shares to be transferred in their names. It was suggested by the learned counsel for Escorts Limited that the brokers were loath to disclose the names of their principals as they had utilised rupee funds and wanted to cover up that fact. The suggestion appears to be far fetched as the funds remitted till then from abroad were more than ample to cover the purchase of the shares until then lodged. We must, however, notice that the record does not disclose how Bharat Bhushan came into the picture, who authorised him to purchase the shares on behalf of Caparo Group and who directed him to deposit the shares in his own name? He was not the stock broker designated to purchase shares on behalf of the overseas companies. If so, one wonders what authority he had to enter into transactions on behalf of overseas companies! This is also a matter which may require investigation by the Reserve Bank. As already mentioned the Punjab National Bank wrote to Escorts Limited on 31.5.83 about purchase of shares by each of the thirteen companies and the lodging of the shares with the company in the names of H.C. Bhasin and Mr. Bharat Bhushan for the purpose of transfer of shares in the books of the company. We have also referred to the reply of Escorts Limited to Punjab National Bank on 1.6.83. Punjab National Bank immediately wrote to Escorts Limited on 2.6.83 that they had already informed the company that the purchase of shares for the thirteen companies had been handled by designated brokers M/s. Raja Ram Bhasin & Co. and wanted to know the purpose for which Escorts Limited was seeking information from them. They however, stated that they were designated as bankers of the thirteen companies and that they had acted in terms of the procedure laid down by the scheme. Without much further ado, that is, without making any further enquiry either from M/s. Raja Ram Bhasin or from the Punjab National Bank or without seeking any information of guidance from the Reserve Bank of India, Escorts Limited proceeded to consider the question of registering the transfer of shares. A Committee was constituted by Escorts Limited to scrutinize the transfer of the shares. After taking expert legal opinion, the Committee submitted a report to the Board of Directors of Escorts Limited recommending against the registration of the transfer of shares. The primary ground on which the recommendation was based and with which we are now concerned is ground No.5 which stated, "that the company is prohibited by the provisions of section 19 of FERA from registering transfer of shares in its books when it has reasons to suspect that there has been a violation of the provisions of section 19 of FERA."

The High Court after an elaborate enquiry summarised their conclusions and granted reliefs in the following manner:

"Rule nisi is made absolute as under : Section 29(1)(b) of FERA is mandatory. No NRI Investor is authorised to purchase shares in an Indian company without prior permission of the RBI under section 29(1)(b) of FERA; any purchase of shares without such prior permission is illegal. Neither the Union of India nor the RBI is empowered to order otherwise either by issuing directions under section 75 or under section 73(3) of the FERA; nor are they empowered to grant permission after the shares are purchased so as to validate such purchases or to 'permit holding of the shares purchased without obtaining prior permission. The press release dated 17th September, 1983 (Exh. 'A'), the Circular dated 19th September, 1983 (Exh. 'B') and the letter dated 19th September, 1983 (Exh. 'C') cannot operate retrospectively so as to validate the purchase of shares made by NRI Companies which were ineligible on the date of purchase; nor Can they authorise purchase of shares without obtaining prior permission of the RBI under section 29(1)(b) of the FERA. In so far as the impugned press release, circular and the letter permit the respondent companies 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. 73(3) of the FERA. To that extent, they are void and inoperative both prospectively and retrospectively. The impugned press release and the Circular, however amount to amending the Portfolio Investment Scheme with full repatriation benefits introduced under Circular No. 9 dated 14th April, 1982 (Exh.'G') and such amendment operates only prospectively. A writ of mandamus shall issue restraining respondents Nos. 1 and 2 from issuing any directions -