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AND WHEREAS it has been brought to the notice of the Central Government that Sarvashri Vijaykumar Berlia, Om Prakash Berlia, both of whom are residing at Rang Mahal, Second Floor, 212/216, Samuel Street, Bombay-400003, Berlia Chemicals and Traders (Private) Limited and others belonging to the Berlia Group, who are at present holding 68,853 equity shares in the said company, are making concerted efforts to gain controlling interest in the company;
AND WHEREAS it has been brought to the notice of the Central Government that certain persons alleged to belong to the aforesaid Berlia Group have lodged transfer of 27,263 shares in bulk with the said company in order to gain controlling interest in the said company;

6. On behalf of the Union, Chandrakant Kushaldas, who is the Director, Department of Company Affairs, New Delhi, in the Ministry of Law, has filed his affidavit dated June 28, 1979, in reply. Besides denying the allegations of the petitioners, it was asserted by him that the order was passed by the Central Govt. after being satisfied that as a result of the transfer of the shares lodged for registration by the Berlia group in their favour, a change in the controlling interest of the company was likely to take place and that such change would be prejudicial to the interests of the company. A reference is also made to two letters dated April 28, 1978, and June 6, 1978, written by the chairman of respondent No. 3 - company addressed to the Chairman, Company Law Board, New Delhi, and the other written jointly by the Chairman of the Unit Trust of India and the Chairman of the General Insurance Corporation of India both of whom are major shareholders of the company. In the first letter of April 28, 1978, the chairman of the company alleged that the Berlia group was attempting to gain should not be permitted to do so. This apprehension, as mentioned in the letter itself, was because at the meeting held on April 3, 1978, the chairman had announced that proxies numbering over 1,74,500 favouring Berlias were received for the extraordinary general meeting to be held on June 29,1978. The chairman stated in this letter that the receipt of the proxies numbering over 1,74,500 favouring Berlias were received for the extraordinary general meeting which confirmed the suspicion which they had expressed in their previous letter to the chairman dated February 3, 1978, that the Berlias had, besides 68,723 shares already standing in their names, acquired controlling interest in a further very large number of shares either through badly transactions or through nominee holdings or through friends. He quoted some instances of irregularities committed in the affairs of the company under the management of the Kapadias, it was alleged that these irregularities were sought to have been committed by the Berlias in collusion with the Kapadias. It is not necessary for the purposes of this petition to make a detailed reference to the irregularities said to have been committed by the petitioners enumerated in the said letter.

12. As I shall presently show, on the face of the order as well as on the material placed before me, it is impossible to hold that the Central Govt. had either applied its mind or was satisfied in this case that as a result of the transfer of the 27,263 shares in question, a change in the controlling interest was likely to take place, and that such a change was prejudicial to the company or to the public interest. On a bare perusal of the order, it is clear that there is a total non-application of mind. Mr. Zaiwala insisted before me that the impugned order is intended to affect not only the 27,263 shares but also the original holding of the petitioners, viz., 68,853 shares. Mr. Zaiwala was at pains to submit that in view of the concluding part of the order, it must be held that the Government's satisfaction related to both the holdings of shares. The contention that the Central Govt. contemplated inclusion even with regard to the holding of 68,853 equity shares is made only in the context of the alleged attempt of the petitioners to acquire further shares in the name of the persons belonging to their group for the purpose of gaining the controlling interest in the company. Undoubtedly, the last paragraph of the order does not specify and particular share or shares but merely quotes the section, and if that part alone is to be read, each one of the shares belonging to the petitioners could be brought within the mischief of the order passed by the Government. But on a bare reading of the order as a whole, it is patently clear that it was not within the contemplation of the Government to cast its net so wide as to affect each one of the petitioner's share. When it is now seriously contended that the entire holding of the petitioners was intended to be covered by the order, this contention by itself which goes was a total non-application of mind on the part of the Government. Then even as regards the block of 27,263 shares, the order shows that there was merely an allegation that they have been lodged for effecting transfer by persons alleged to belong to the Berlia group. How could an authority be satisfied merely on the basis of an allegation that some persons said to be belonging to the Berlia group had lodged shares in a bulk with the company in order to gain a controlling interest in it ? Neither the names of the persons not the numbers of the shares have been mentioned. There is absolutely no evidence to show that there was any material whatsoever placed before the authority to show that the said 27,263 shares were lodged by persons belonging to the Berlia group. The affidavit-in-reply mentions only the two letters dated April 28, 1978, and June 6, 1978, as the sole material on which the satisfaction was reached. No other material was produced. Not only that, the affidavit of Shri Khushaldas does not indicate any other, material on the basis of which the order could be passed but the respondents could not lay their hands on the material even at the stage of hearing. The learned counsel for the respondents, however, strongly relied on annex. A to the letter of June 6, 1978, which gave a list of the shares regarding which the order could be passed. This list does not specify which of the shares mentioned therein are purchased by persons alleged to belong to the Berlia group and which were lodged with the company in order to gain in controlling interest. Annexure A refers to about over 1,75,000 shares. It is now common ground that the petitioner possessed an original holding of 68,000 odd shares. They have also purchased 16,000 odd shares as mentioned above and then even with the addition of the dispute 27,263 shares, the total comes to much less. On what basis, therefore, the Central Govt. could reach this satisfaction regarding the existence of the conditions laid down in the section or the necessity of the order thereunder ? It is now pointed out that these 27,263 shares are said to have been transferred in the name of ten different persons other than the petitioners. If it is the case of the Government that these ten persons are the nominees of Berlia, then they could not rely merely on the basis of the allegations in that behalf.

13. The satisfaction could not be reached unless and until the Central Govt. applied its mind to the question as to whether the allegations were true or not. In fact, there was neither any inquiry not was any material placed before the government on the basis of which the satisfaction could be reached.

14. In the letter of April 28, 1978, by the 4th respondent to the Chairman of the Company Law Board, it was mentioned that in the meeting held on 3rd April, 1978, the chairman had announced that proxies numbering over 1,74,500 favouring the Berlias were received for the extraordinary general meeting, and that confirmed the suspicion which they had expressed in their previous letter to the Company Law Board dated 3rd February, 1978, that the Berlias have, besides 68,723 shares already standing in their names, acquired controlling interest in a further very large number of shares either through badla transactions or through nominee-holding or through friends. Beyond raising a suspicion, no material such as the names of the transferors, the names of the transferees, the names of the alleged nominees, the number of the shares, or the connection between the transferors and the Berlias was mentioned in the letter. There is only an apprehension expressed that having regard to the irregularities an improprieties committed during the regime of the Kapadias, in which it is said that the Berlias also had a hand, if the Berlias are allowed to gain controlling interest in the company or their nominees are allowed to the elected as directors on the board, that would cause serious prejudice to the interest of the company. Nowhere in the letter, details regarding particular shares in respect of which an action under ss. 108A and 108D should be taken, has been pointed out. In the last but one paragraph of the letter, it is suggested that action under s. 247 of the Companies Act for investigating into the membership of the company to ascertain whether the Berlia group either indirectly through their nominees or through badla transactions have acquired control of over 25% of the equity share capital of the company involving a breach of s. 108 of the Companies Act, 1956, should be taken. In other words, the letter merely gives vent to an apprehension without furnishing any specific material to enable the government to take action under s. 108. The letter would at the most afford a basis for starting an enquiry and nothing more.