ORDER
D.C. Aggarwal, (Member)
1. Mr. J. P. Sharma claiming to be an investor in the capital market has moved this complaint under Section 36B(a) of the Monopolies and Restrictive Trade Practices Act, 1969, praying that an enquiry be instituted against Reliance Petrochemicals Ltd. (hereinafter referred to as “the respondent”) for its having misrepresented to the public about the benefits of investing in the debentures issued by it as per the prospectus (hereby marked as annexure “A”). It is submitted that the Act of the respondent comes within the ambit of Clauses (iv), (v) and (vi) of Sub-section (1) of Section 36A, The complainant has also made an application under Section 12A of the Monopolies and Restrictive Trade Practices Act supported by an affidavit and it is prayed that a temporary injunction be granted against the respondent to restrain it. from carrying on the unfair trade practices. This order will dispose of both the
complaint and the application for injunction.
2. It is stated that the respondent company was incorporated on January 11, 1988, and has launched a public issue of 12.5 per cent secured fully convertible debentures of Rs. 200 each aggregating to Rs. 593.40 crores, while the paid-up captial of the respondent company so far is only Rs. 10 lakhs. The aggregate amount of Rs. 593.40 crores includes 15 per cent excess subscription of Rs. 77.40 crores. The complainant has assailed the prospectus as well as the public issue of the debentures on the following grounds, namely:
1. Although the present issue in the sum of Rs. 593.40 crores has been offered to the public yet as much as half the offer has been reserved for a specific group of persons and thereby the public is deprived of a substantial share of the debenture-stock. According to the complainant, it tantamounts to giving a step-motherly treatment to the public at large and discriminates between one section of the public and the other ;
2. The debentures to be allotted on preferential basis to corporate shareholders of RIL will, inasmuch as the same cannot be transferred, hypothecated or sold for three years from the date of allotment, create an inequitable situation because ah individual shareholder is not treated at par with a company shareholder ;
3. No interest has been promised to be paid on the application monies till the date of allotment and further in the matter of interest on excess application money, the rate of interest has not been indicated ;
4. There is difference in what is stated at page 1 of the prospectus that the issue is for fully secured convertible debentures and in what is stated at page 3 that the debentures shall be secured by a residual charge on all or any of the immovable and movable assets of the company;
5. According to the auditor’s report, the fixed assets of the company do not exceed Rs. 40.92 crores in value. If it be so, how could Rs. 593.40 crores be borrowed from the public. The debenture holders are likely to be left without any remedy for their investments.
6. The project is to manufacture PVC, MEG and HDPE at a total cost of Rs. 700 crores but the respondent company is not holding any approval, permission or licence from the Central Government to manufacture those items. The respondent company is thereby deceiving the public. The arrangement, if any, between RIL and the respondent company cannot have any binding effect either on the Central Government or on the shareholders of RIL and, therefore, the respondent company cannot step into capital market;
7. The manufacture of the proposed items is not possible without
foreign technical collaboration. The agreement, if any, entered into by RIL
will be of little advantage because RIL is entirely a different entity;
8. The land on which the multi-crore plant is proposed to be set up does not belong to the respondent company. This land stands in the name of RIL and, therefore, it is unfair for the respondent company to seek investment in the proposed debenture capital from the public ;
9. Under the heading “Plant and machinery”, it has not been mentioned by the respondent company whether any plant or machinery has been purchased or ordered and whether permission for import has been obtained from the Central Government. Suppression of this fact from public is unfair. Under the heading “Prospectus and profitability”, the respondent company has stated that they will be in a position to earn adequate profits and pay reasonable dividend in the first year after the commencement of commercial production. Since the project is likely to be commissioned not before the second half of the year 1990, it is not likely that the company would pay dividend before the year 1991. So, the assertions that Reliance Petrochemicals is “your family’s khazana” and “steady return, growth and yield–interest at 12.5% until conversion” under the innovative features are too far fetched and, therefore, an unfair trade practice;
10. The brochure says that the company will meet the interest
burden during the project period easily as it has provided for the interest
. in the project cost The inclusion of interest to be paid from the amount
borrowed as project investment is illegal and the concealment of these
facts in the prospectus itself is an unfair trade practice ;
11. Under, the conversion terms, the phased conversion of debentures into equity shares is to take place and it is stated that it will be an appropriate number of equity shares of Rs. 10 each at a premium, if any, as may be fixed by the Controller of Capital Issues. The non-fixation of premium at the date of allotment is unfair, one-sided and biased; in case the company suffers losses, the debenture-holder will suffer irreparable loss ;
12. To raise such huge funds at a petty interest of 12.5 per cent, per annum without permitting the public to participate in profits by offering them equity shares at the outset cannot be allowed.
3. A look at the points raised by the complainant will show that it is not possible to invoke any of the Clauses (iv), (v) and (vi) of Sub-section (1) of Section 36A. Clause (iv) Will come into play only where the goods or services are represented to have had sponsorship, approval, performance, characteristics, accessories, uses or benefits which they do not have. Similarly, Clause (v) pertains to representation that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have. Clause (vi) will come into play when there is false or misleading representation concerning the need for, or usefulness of, any goods or services. It is manifest that the points raised in this complaint
come short of showing that the representation is false or misleading with respect to assertions made by the respondent as regards the public issue of debentures ; albeit those assertions do not relate to sponsorship, approval, characteristics, accessories, uses or benefits of any goods or services, supposing it were possible to characterise the debentures yet to be allotted as goods. Learned counsel for the complainant in ground No. 9, as stated supra, canvassed that some benefits of this investment in debentures have been exaggerated by the respondent, and the same are difficult to achieve. Under the heading “Prospectus and profitability” it is stated that the company will be in a position to earn adequate profits and pay reasonable dividend in the first full year after the commencement of commercial production. According to the complainant, the payment of dividend will not be possible before 1991. Under the heading, “Schedule of implementation” it is stated that the project is expected to be commissioned in the second half of 1990. In this way, there is nothing misleading if the dividend, if any, starts being paid even from the middle of the year 1991. It may be mentioned that even in this respect, the respondent has been careful not to make a categorical statement. In both respects, they expect fulfilment of their objectives subject to unforeseen circumstances. Furthermore, this expectation is in the context of certain facts and circumstances visualised by the Committee for Prospective Planning of Petrochemical Industry (1986-2000AD) as respects demand for PVC, MEG and HDPE. The inference is based on the existing situation, i.e., growing shortage and spurt in the international prices as adumbrated under the heading “Prospectus and profitability”. The complainant has not traversed the correctness of the facts and circumstances or the situations related by the respondent company under the heading “Prospectus and profitability”.
4. Having dealt with the only salient points which could attract Clauses (iv) and (vi) of Section 36A(i), if the debentures could possibly be regarded as goods even at the stage of allotment, we proceed to discuss the other grounds seriatim as set out above.
No. 1 : The prospectus explicitly says that what is being offered to the public is 2,96,70,000 fully convertible debentures of Rs. 200 each for cash at par but out of it 1,48,35,000 debentures are reserved for preferential allotment to equity shareholders of RIL, 14,83,500 debentures are reserved for preferential allotment to the employees and workers of the respondent company and of RIL and, that 1,33,51,500 debentures are being offered to the public. It is also clarified that the unsubscribed portion of the debentures reserved for preferential allotment will be added to the issue to the public. There is no inkling of any misrepresentation in this respect. The allegation of step-motherly treatment to the public is outlandish to Section 36A.
No. 2 : That the debentures to be allotted on preferential basis to the employees and corporate shareholders other than individual shareholders of
RIL cannot be transferred, sold, hypothecated till the end of three years from the date of allotment is not a ground either under Section 36A or under Section 2(o) of the Monopolies and Restrictive Trade Practices Act which can, by any raison d’etre, be agitated by the complainant. Rather it is wholesome that the individual shareholder is not under any inhibition in the matter of transferring, selling or hypothecating the debentures allotted to him. This restriction is in accordance with the consent order of the
Controller of Capital Issues.
No. 3 : That interest is not payable qn application monies whether
debentures are allotted or not except otherwise provided in the prospectus cannot be agitated as a ground under Section 36A. As a matter of fact, the respondent company should be given credit for having made it explicitly clear. It is for the investor to decide whether it would or would not be worthwhile to go in for investment in this issue of debentures.
No. 4 : It is abundantly clarified in para 5 under the heading “Security” that the residual value of the debentures remaining after the first date of conversion, interest and other monies due in respect thereof till such debentures are fully converted into equity shares shall be secured by a residual charge on all or any of the immovable and/or movable assets and properties at Hazira, District Surat, and at any other location. It is nowhere stated at page 1 of the prospectus that the issue is fully secured. The word “fully” qualifies the words “convertible debentures of Rs. 200 each” implying thereby that these debentures are fully convertible, not fully secured. Even otherwise what is stated under the heading ” Security” is that after the first date of conversion, which is to be simultaneous with allotment of debentures (as per the conversion terms), the residual value of the debentures, interest and other monies due in respect thereof shall be secured by a residual charge. There is nothing in it which can be dubbed as a mis-statement, or bring about a contradiction in what is stated in the prospectus in different places. This means debentures as such are fully secured.
No. 5 : That the fixed assets of the respondent company do not exceed Rs. 40.92 crores in value is no ground under the Monopolies and Restrictive Trade Practices Act for banning the company’s approach to the capital market for money to finance a project particularly when it is sanctioned by the Controller of Capital Issues who is the best judge to decide as to whether consent should or not be given to a particular issue. It is not an ingredient of unfair trade practice as defined in Section 36A.
No. 6 ; That the respondent company is not holding any approval, permission or licence from the Government to manufacture PVC, MEG and HDPE will also not bring this issue within the purview of an unfair trade practice as defined in Section 36A. On page 2 of the prospectus in
para 2, it has been clearly and explicitly stated that RIL, a public limited company is acting as promoter of the respondent company and holds 100 per cent, equity share capital of the respondent company. 1,00,000 equity shares of Rs. 10 each are being issued to RIL and they have already brought into the company a sum of Rs. 57.60 crores as interest-free non-refundable advance to be adjusted against RIL’s subscription of shares. In this context, it may be mentioned that RIL has approval for the manufacture of 1,00,000 tonnes per annum of PVC with permission under Section 22 of the Monopolies and Restrictive Trade Practices Act for the establishment of a new industrial undertaking. RIL has also approval for manufacture of 60,000 tonnes per annum of MEG for which there is also clearance under Section 22 of the Monopolies and Restrictive Trade Practices Act to establish a new undertaking. RIL has also got approval for manufacture of 50,000 tonnes per annum of HDPE with permission to establish a new undertaking in this respect It is clearly stated in para 2 of this prospectus that applications for endorsement of these licences in the name of the respondent company are pending with the Central Government. This being so, there is no substance in the insinuation of the complainant that the public is being deceived.
No. 7: It is explicitly stated in the prospectus that in implementing the project, the benefit of the existing collaboration agreements entered into by RIL would be made available to the company for which necessary steps are being taken with the collaborators. There is no misrepresentation of fact or misguiding of the public in this regard. RIL is the promoter of the respondent company. The public has been made fully aware of it and it is for them to decide whether investment in the debentures of the respondent company would or would not be profitable.
No. 8 : As regards the land on which the project is to be set up, there is no mis-statement by the respondent company. It is stated that Gujarat Industrial Development Corporation has agreed to make available on lease, the land at village Mora, Bhatha Post Office, Surat-Hazira Road, District Surat, admeasuring 24B hectares out of which possession of 122.50 hectares has already been obtained against provisional payment pending final negotiations on the terms as to payment, etc. It is also stated that the above allotment was made to RIL and steps are being taken for the lease being issued in the name of the company. Nothing has been concealed in this respect and, therefore, it does not lie in the mouth of the complainant to say that it is an unfair trade practice.
No. 9 : It has already been discussed above.
No. 10: No mis-statement has been alleged by the complainant with
respect to how the interest is to be paid. The brochure wherein it is clarified that provision for interest has been made in the project cost itself is
meant for the information of the public so that they are in a position to decide whether investment in the debenture issue of the respondent company would or would not be purposeful or profitable. Learned counsel for the complainant has not pointed to any provision under the Companies Act which obligates that this information must be incorporated in the prospectus. So, there cannot be any illegality in the matter of giving this information through the brochure.
No. 11 : The element of premium is linked to the second and third
phase in the matter of conversion of debentures into equity shares. It is
made clear (hat this premium will be subject to the decision of the Con
troller of Capital Issues. It is, therefore, idle to say that the company
should have declared the premium in this respect on the date of allotment.
Adequate information has been given by the respondent company to
the public in this respect for their decision to make or not to make
investment.
No. 12 : The objection that debentures are being offered at 12.5 per cent, interest and not the equity shares at the very first instance is meaningless and is unworthy of any further discussion. Under the company law, with the permission of the Controller of Capital Issues, a company is entitled to enter the capital market by offer of equity shares as well as debentures. It may also be mentioned that in the definition of “goods”, as given in Section 2(e), shares and stocks are included as goods but debentures have not been so included, although shares and debentures are the two modes of exploiting the capital market by a company. Even in the definition of “goods”, as given in Section 2(vii) of the Sale of Goods Act, debentures as such are not included though stocks and shares have been included. Furthermore, Section 36A is to be invoked only in the matter of promoting the sale, use or supply of any goods. In Consumer Education and Research Centre v. T.T.K. Pharma Ltd. [1990] 68 Comp Cas 89 (MRTPC), it has been held by the Full Bench of this Commission that shares before allotment are not goods and that the allotment of shares does not mean distribution, sale and control of goods. In Sri Gopal Jalan and Co. v. Calcutta Stock Exchange Association Ltd. [1963] 33 Comp Cas 862 ; AIR 1964 SC 250, it has been held that in company law, “allotment” means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to a person. Till such allotment, the shares do not exist as such ; the same has to be the position with respect to debentures too which come into existence only on allotment and, therefore, Section 36A on unfair trade practices, and even the provisions relating to restrictive trade practices cannot be brought into play with respect to the “allotment” of shares or debentures.
5. We find that the complaint preferred by Mr. J. P. Sharma is bereft of any merit whatsoever. A faint submission was made on the words “your
family, khazana”. Such like embellishments, by no stretch of language, can be regarded as misleading with potential of loss or injury. These words do not relate to any material fact which could be shown to be false. The issue is by the consent of the Central Government through the Controller of Capital Issues presumed to be given by him after duly considering the pros and cons from the public angle and the industry. Ultra-concern of an individual proceeding from subjective notions of fairness and conscientiousness is outside the domain of the Monopolies and Restrictive Trade Practices Act.
6. It is not a fit case for instituting an enquiry, much less for granting an interim injunction, under Section 12A. Both the complaint under Section 36B(a) and the application under Section 12A are hereby dismissed.