SC slams sale of Harshad Mehta’s shares

A bench of justices D K Jain and A K Ganguly passed the judgement while allowing an appeal filed by Ashwin S Mehta and other family members “Big Bull” Harshad Mehtra who shot into infamy in early 90s.

The family had challenged a Mumbai special court’s decision of May 2003 to permit the Custodian to sell 54,88,850 shares of Apollo Tyres Ltd at Rs.90/- per share to the same company without making efforts for proper bids.

The shares had earlier been attached by the Custodian.

“Having examined the impugned order in the light of the statutory provisions and the norms laid down for sale of the subject shares,we are of the opinion that there is substance and merit in the submissions made by learned counsel for the appellants to the extent that the special court failed to make a serious effort to realise the highest possible price for the said shares.

“We also feel that the special court overlooked the norms laid down by it in its order dated 17th August,2000,ignored the afore-extracted directions by this court contained in order dated 23rd August,2001,and glossed over the procedural irregularities committed by the Custodian,” the apex court said.

The apex court said it was a requirement of law for giving reasonable opportunity of being heard before an order is made by an administrative,quasi-judicial or judicial authority,when it entails adverse civil consequences.

“We are of the opinion that in the present case,the special court failed to comply with the principles of natural justice. As noted above,the special court rejected the prayer of the appellants to grant them 48 hours¿ time to secure a better offer.

“In fact,by his letter dated 29th April,2003,addressed by the Custodian to the notified parties,including the appellants,the right of the appellants to bring a better offer was foreclosed by the Custodian,which evidently was without the permission of the special court.

“We are,thus,convinced that the appellants have been denied a proper opportunity to bring a better offer for sale of shares,resulting in the realisation of lesser amount by way of sale of the subject shares,to the detriment of the appellants and other notified parties,” the bench said.

According to the apex court,as the decision of the special court is vitiated in the normal course,the order must be struck down in its entirety.

“However,bearing in mind the fact that the sale of 54,88,850 shares was approved and all procedural modalities are stated to have been carried out in the year 2003,we are inclined to agree with Mr. Vellapally and Dr. Singhvi (counsel for Custodian and others) that at this stage,when 36.90 lakh shares of Apollo are claimed to have been extinguished,the relief sought for by the appellants to rescind the entire sale of 54,88,850 shares will be impracticable and fraught with grave difficulties.

“In the result,we allow the appeal partly,set aside the impugned order to the extent indicated above and remit the case to the special court for taking necessary steps to recover the said 4.95% shares from Apollo or its management,as the case may be,and put them to fresh sale ,” the bench added.