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AMICUS AI
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Case Number
Advocates
  • S. Pal and Partha Bose
  • Biswarup Gupta
  • Ajoy Gupta
  • P.K. Dutta and P. N. Banerjee. for Respondents
Judges
  • Satyabrata Sinha, J.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • S. Pal and Partha Bose
  • Biswarup Gupta
  • Ajoy Gupta
  • P.K. Dutta and P. N. Banerjee. for Respondents
Judges
  • Satyabrata Sinha, J.
Acts
See more information ...
Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

The petitioner company (Petitioner No. I) conducted a rights issue of fully convertible debentures which opened on 11 September 1996 and closed on 11 October 1996. The underwriter was SMIFS Capital and the lead manager was Hong Kong & Shanghai Banking Corporation Limited. The petitioner contends the issue did not reach the mandatory 90% subscription, and that SMIFS/underwriter arrangements produced applications from Vasundhara Holdings Ltd. (Vasundhara) which allegedly concealed facts contrary to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 ("1994 Regulations"). The petitioner cancelled the issue and refunded subscription money on 22 November 1996.

SEBI issued a show-cause notice proposing cancellation of the issue and later issued an order dated 11 February 1997 giving directions under Section 11B of the SEBI Act, 1992. The petitioner filed the present writ application seeking, inter alia, a declaration that Section 11B (as inserted by the Securities Laws Amendment Act, 1995) is ultra vires, and various writs quashing and restraining enforcement of SEBI's order; prayer (a) was not pressed. The petition challenged both the jurisdictional basis for SEBI's order and alleged violation of natural justice (non-disclosure of materials and denial of further hearing).

After hearing the parties and reviewing relevant statutory provisions (Sections 11A, 11B and 12 of the SEBI Act), SEBI rules, Companies Act provisions and authorities, the Court considered whether SEBI's impugned order of 11 February 1997 was valid in law and whether principles of natural justice had been violated.

Legal Issues Presented

  1. Whether SEBI could validly exercise powers under Section 11B of the SEBI Act, 1992 against a company offering a rights issue in the absence of regulations framed under Section 11A (i.e., whether Section 11B could be applied to the petitioner-company in the facts of this case).
  2. Whether the petitioner was under any statutory obligation to refer or notify SEBI prior to cancelling the rights issue and refunding subscription money (i.e., whether unilateral cancellation without referring the matter to SEBI was prohibited by statute or regulations).
  3. Whether the show-cause notice and the impugned order complied with principles of natural justice—specifically whether SEBI relied upon material (letters, legal opinion, correspondence) obtained from third parties without disclosing those materials to the petitioner and whether the petitioner was denied a fair opportunity for further hearing and to place additional documents.
  4. Whether the impugned order dated 11 February 1997, including directions barring the petitioner from accessing the capital market for a period (described in the order), was sustainable in law given the statutory and procedural context described above.

Arguments of the Parties

Petitioners' Arguments (as advanced by Mr. S. Pal)

  • The show-cause notice was illegal and void because no formal procedure had been prescribed under Section 11A of the SEBI Act for matters covered by Section 11B.
  • The proposed action under Section 11B did not properly apply to a company in respect of matters specified in Section 11A (contention that Section 11B's reference to matters in Section 11A did not encompass the petitioner-company in the absence of regulations).
  • If Section 11B were applicable, the show-cause notice nevertheless failed to state facts germane to the proposed action.
  • The impugned order violated principles of natural justice because the petitioner was not given an opportunity for further hearing or to place additional documents after new points arose during meetings/hearings.
  • SEBI relied upon materials (letters, legal opinions and correspondence) from Vasundhara and others that were received "behind the back" of the petitioner; reliance was placed on authorities (Brajlal Manilal, State of Assam v. Mahendra Kumar Das, B. Surinder Singh Kanda) to contend that undisclosed materials could not be used against the petitioner.
  • The impugned order was perverse, had no nexus with the grounds in the show-cause notice, and did not address points raised by the petitioner.

Respondents' Arguments (as advanced by Mr. Biswarup Gupta)

  • The petitioner had unilaterally cancelled the issue despite the obligation of underwriters to make good shortfalls under the standby underwriting agreement; SEBI was entitled to issue directions under Section 11B since the matter involved investor interest and potential regulatory breaches.
  • The 1994 Regulations (Substantial Acquisition & Takeovers) permitted SEBI to act; the petitioners' contention that the Regulations were conditions subsequent (and not conditions precedent) meant the offer did not become void on 15-11-96 as alleged by the petitioner.
  • The petitioner was under a duty to inform SEBI of the circumstances; SEBI acted appropriately in protecting investor interests and the orderly development of the securities market.
  • As to natural justice, no new inculpatory material was used against the petitioner without disclosure and no prejudice was caused; in any event, petitioners had knowledge of many relevant facts (including statements to the press) and the show-cause notice was not ex facie bad in law.
  • Section 11B applies to companies as persons referred in Section 12 and to persons associated with the securities market; Section 11A's marginal note/headings are not conclusive as to its scope (reliance placed on Frick India Ltd.).
  • The petitioner had alternative remedies (appeal) and the order did not suffer from the defects alleged if Section 11B was applicable.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Brajlal Manilal & Co. v. Union of India, AIR 1964 SC 1643 Cited by petitioners in support of the proposition that material collected/used behind a party's back cannot be relied upon in adjudicatory proceedings. The Court relied on the line of authority (including this case) to emphasise that documents or information relied on by an authority behind the back of a party may vitiate the proceeding and cause prejudice.
State of Assam v. Mahendra Kumar Das, AIR 1970 SC 1255 Principle that enquiry officers/quasi-judicial authorities must not collect and rely upon outside material without making it available to the delinquent; reliance on such undisclosed material vitiates proceedings. The Court applied this authority directly to hold that SEBI's reliance on material not disclosed to the petitioner presumes prejudice and vitiates the order passed without affording an opportunity to the petitioner to meet that material.
B. Surinder Singh Kanda v. Government of the Federation of Malaya, (1962) AC 322 Authority cited with respect to natural justice and the impermissibility of taking into account undisclosed material in adjudicatory proceedings. Cited by the petitioners and relied upon by the Court to support the conclusion that reliance on undisclosed documents is contrary to principles of fairness and natural justice.
Frick India Ltd. v. Union of India, AIR 1990 SC 689 Authority concerning interpretation of statutory provisions and that marginal notes/headings are not conclusive; cited by respondents on scope of Section 11A. The Court observed that Frick India Ltd. did not militate against the petitioners' contention about reading Section 11A and its marginal note; the Court did not accept respondents' broader reliance to expand Section 11A in absence of regulations.
Ram Chandra Tripathy v. U.P. Public Services Tribunal, (1994) 5 SCC 180 Cited by respondents in support of propositions relating to procedural fairness/natural justice context in administrative adjudication. Referenced by respondents; the Court considered general principles of natural justice but found, on the facts, that nondisclosure by SEBI caused prejudice to the petitioner.
State Bank of Patiala v. S.K. Sharma, AIR 1996 SC 1669 Principle that where there is no substantial prejudice from a procedural irregularity, the delinquent may not be entitled to relief on natural justice grounds. The Court noted this authority (referred to by respondents) but distinguished it: here prejudice from nondisclosure was present because of the severity of SEBI's penal order affecting statutory rights.
Bhinka v. Charan Singh, AIR 1959 SC 960 Proposition that headings of a section may be used as an aid to interpretation where meaning is unclear. The Court relied on this authority to support its approach to reading Section 11A's marginal note as an aid in construing the scope of the provision when regulatory detail was absent.
Mahinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851 Where a quasi-judicial authority relies on affidavits/documents not put before the party, prejudice will be presumed; affidavits used in support cannot substitute for proper adjudicatory disclosure. The Court cited this case to reinforce that where quasi-judicial authorities consider undisclosed materials in passing penal orders, prejudice is presumed and proceedings are vitiated.
Sri Hanuman Steel Rolling Mill v. C.E.S.C. Ltd., AIR 1996 Cal 449 Discussion of the imperative to afford fair administrative procedure and fair consideration of both sides in administrative orders (quoting Wade). The Court used this authority to underscore the importance of fair procedure and to support its conclusion that procedural fairness was not observed by SEBI in the present case.
Franklin v. Minister, Town and Country Planning, (1947) AC 87 English authority cited as part of a canon that persons whose rights are affected must be given reasonable opportunity to be heard. Used as part of the jurisprudential background invoked by the Court in explaining principles of audi alteram partem applicable to this case.
John v. Rees, (1970) Ch 345 Another authority cited for the same general rule of procedural fairness and hearing rights where rights/property are affected. Referred to by the Court in its exposition of general natural justice principles relevant to the petitioners' loss of statutory rights.
Karnavali Fincap Limited v. SEBI, 1996 (10) SEBI & Corporate Law Rep. 6 Consideration of whether persons referred to in Section 12 include an investor; dealt with Section 11 issues. The Court observed that the Karnavali decision concerned Section 11 and that the present questions had not been raised in that case; thus it was not authority on the points in dispute here.
Regional Manager v. Pawan Kumar Dubey, AIR 1976 SC 1766 Doctrine that ratio decidendi comprises the rule deduced from the application of law to facts; observations beyond required ratio are not binding. The Court cited this authority to explain the limited precedential force of earlier decisions and to justify careful reliance on previous cases only for their true ratio.
Krishena Kumar v. Union of India, (1990) 4 SCC 207 : AIR 1990 SC 1782 Explains doctrine of precedent: only the ratio decidendi binds; observations wider than necessary are not binding. The Court relied on the exposition in Krishena Kumar when assessing prior authorities and held that decisions must be followed only to the extent of their ratio.
Goodyear India Ltd. v. State of Haryana, AIR 1990 SC 781 Point not argued/considered by a Court is not binding on another bench. The Court cited this to support the proposition that precedents are not authority for propositions that were not argued or decided in those cases.
Mittal Engineering Works (P) Ltd. v. Collector of Central Excise, Meerut, (1979) 1 SCC 203 Decision cannot be relied upon for a proposition which it did not decide. Referred to by the Court to caution against over-extending precedents beyond what was actually decided.
Hirday Narain v. Income-tax Officer, AIR 1971 SC 33 High Court may entertain petitions even when an alternative remedy exists, depending on circumstances and pendency; existence of alternative remedy is not an absolute bar. The Court relied on this line of authority to justify hearing the writ on merits despite submissions about alternative remedies; it held it would be imprudent to send the parties elsewhere at the present stage.
State of U.P. v. Mohd. Noon / Md. Nooh v. State of U.P., AIR 1958 SC 86 Authority referred in context of when High Courts may exercise jurisdiction despite alternative remedies; also cited in natural justice context. Used as part of the Court's survey of authorities explaining when High Courts may exercise discretionary writ jurisdiction despite alternative remedies.
Shri Swapan Ray v. Indian Airlines Ltd., (1996) 1 Cal HN 147 Cited in context of discretionary exercise of writ jurisdiction despite alternative remedies. Referenced to support the Court's decision to decide the writ on merits rather than require pursuit of alternative remedies.
Miss Maneek Custodji Surjarji v. Sarafazali Nawabali Mirza, AIR 1976 SC 2446 Statement that the availability of an alternative remedy does not rigidly prevent High Court interference; extraordinary circumstances required. Cited in the Court's analysis of alternative remedies and discretionary jurisdiction to justify proceeding on merits in the present case.
Dr. Bal Krishna Agarwal v. State of U.P., 1995 Lab IC 1396 : AIR SCW 800 Support for the proposition that a High Court may entertain writ petitions despite alternative statutory remedies where circumstances warrant. Invoked by the Court to support hearing the petition on merits due to pendency and the stage of proceedings.

Court's Reasoning and Analysis

The Court undertook a textual and purposive reading of Sections 11A and 11B of the SEBI Act (inserted by the Securities Laws (Amendment) Act, 1995), the Companies Act provisions relating to prospectus and disclosures (Sections 2(36), 56 and Schedule II), and the 1994 Regulations (Substantial Acquisition & Takeovers). The Court's analysis proceeded through the following steps (as reflected in the opinion):

  1. Statutory framework and interplay: The Court noted that Sections 11A and 11B were independent provisions but linked in application to companies—Section 11A provides an enabling power to the Board to specify by regulations matters relating to issue of capital and how such matters should be disclosed by companies; Section 11B empowers the Board to issue directions to persons referred to in Section 12 or to any company in respect of matters specified in Section 11A.
  2. Absence of regulations under Section 11A: The Court observed that although Section 11A contemplated regulations for protection of investors and for matters relating to issue of capital, no regulations had been framed under Section 11A after its insertion; the 1994 Regulations did not satisfy Section 11A's requirements (they were made earlier and did not amount to regulations under Section 11A).
  3. Scope of Section 11B vis-à-vis a company offering a rights issue: Reading the Act as a whole, the Court concluded that Section 11B's reference to "persons referred to in Section 12 or associated with the securities market" did not, by itself, bring within its purview a company offering a rights issue unless regulations under Section 11A specified the matters for companies. Thus, in absence of such regulations, the Board could not properly issue directions under Section 11B against the petitioner-company in respect of matters specified in Section 11A.
  4. Statutory compliance by the petitioner: The Court noted that the petitioner had made the statutory declarations required by the Companies Act and Schedule II concerning refund in the event the minimum subscription (90%) was not received. The petitioner refunded subscriptions and there was no other admitted wrongdoing aside from the unilateral cancellation.
  5. Nature of Section 11B as a penal provision and strict construction: Because Section 11B is penal in nature (it empowers the Board to issue directions including debarment from the capital market), the Court emphasized that it must be strictly construed and that clear procedural specifications (i.e., regulations under Section 11A) were needed before it could be applied against a company.
  6. Procedural fairness and non-disclosure: Independently of the jurisdictional question, the Court examined whether SEBI had complied with principles of natural justice. The record admitted that SEBI had correspondence and legal opinions from Vasundhara and SMIFS which were not disclosed to the petitioner. The Court held that taking into account undisclosed material against a party in quasi-judicial/penal proceedings presumes prejudice and offends fairness; authorities were relied upon to support this principle.
  7. Prejudice and insufficiency of hearing: The petitioner had sought further opportunity to place documents and further hearing; the Court found that SEBI passed the impugned order without giving that further hearing and without disclosing material considered. The Court treated the nondisclosure and denial of adequate hearing as rendering the impugned order invalid in law.
  8. Distinguishing contrary authorities and alternative remedies: The Court considered respondents' authorities (e.g., State Bank of Patiala) on lack of substantial prejudice and the availability of alternative remedies, but distinguished those authorities on the facts and emphasised that the prejudice here was manifest because the penalty affected statutorily conferred rights (access to capital markets) and was quasi-penal in nature. The Court also noted it was appropriate to hear the writ petition on merits despite alternative remedies.
  9. Conclusion of analysis: On the combined grounds of (a) absence of regulations under Section 11A limiting the application of Section 11B to the petitioner-company in this context, and (b) violation of principles of natural justice by SEBI in relying upon undisclosed materials and denying further hearing, the Court concluded the impugned order dated 11 February 1997 was bad in law.

Holding and Implications

Holding: The Court held that the impugned order dated 11th February, 1997 passed by the Chairman, SEBI, was bad in law and consequently quashed the order. The writ application was allowed to the extent set out in the opinion.

Implications / Direct Effects:

  • The impugned SEBI order dated 11 February 1997 is quashed.
  • The writ application was allowed (the opinion states "Application allowed").
  • There will be no order as to costs in the facts and circumstances of the case.
  • The respondents or any other authority remain free to take appropriate action for violation of any statute against the petitioner in accordance with law (i.e., the Court did not preclude lawful proceedings conducted with proper procedure and compliance with natural justice and statutory requirements).

The opinion does not set forth any express declaration that it creates a new binding precedent beyond the legal conclusions reached on the facts of this case; the Court relied on established authorities and statutory interpretation to reach its conclusion on jurisdictional limits and procedural fairness.

End of summary. This summary is strictly limited to and derived from the contents of the provided opinion; no facts or legal conclusions not present in the opinion have been invented or inferred.

Show full summary ...

    Jenson And Nicholson (India) Ltd. And Others v. Union Of India And Others

    1. The petitioner in this application has prayed for the following reliefs:—

    “a) Declaration that Section 11B of the Securities Exchange Board of India Act, 1992 introduced by the Securities Laws Amendment Act, 1995 is ultra vires the Constitution of India and the Companies Act, 1956 and is void in so far as it seeks to empower the Securities and Exchange Board of India to impose penalties on companies and bodies corporate to increase their capital by further issue of shares;

    b) A writ of and/or order and/or direction in the nature of Mandamus commanding and directing the respondents to withdraw, recall, rescind and cancel the said order dated February 11, 1997 and to forbear and refrain from giving any effect or further effect thereto in any manner whatsoever;

    c) A writ of and/or order and/or direction in the nature of Certiorari calling upon the respondents to certify and forthwith send to this Hon'ble Court its entire records culminating in the order dated February 11, 1997 so that the same be quashed and conscionable justice done;

    d) A writ of and/or order and/or direction in the nature of Prohibition prohibiting and restraining the respondents from giving any effect or further effect to the said order dated February 11, 1997 in any manner whatsoever.”

    2. It may be stated that prayer (a) of the writ petition has not been pressed.

    3. The petitioner No. I which is an existing company made a right issue of fully convertible debenture, the underwriter whereof was one Smifs Capital (hereinafter referred to as “Smifs”) Hong Kong & Shanghai Banking Corporation Limited was the lead manager therefor. The said issue was opened on 11th September, 1996 and closed on 11th October, 1996.

    4. According to the petitioner the said issue did not reach the minimum 90% subscription to make the same valid which was intimated to the under-writer. Allegedly underwriting agreement by and between the petitioner and the aforementioned under-writer provided that the under-writer itself would take up debenture or would procure outsider for the said purpose. One Vasundhara Holdings Ltd. (hereinafter referred to as ‘Vasundhara’) applied for 7 lacs debentures as renouncee from under-writer on or about 11th October, 1996. It is alleged that along with the application no Memorandum or Articles of Association was deposited by Vasundhara and, thus, the petitioner had no knowledge as to who is the person in control or charge thereof.

    5. The matter of allotment had already been delegated to a Committee by the Board of Director of the petitioner and the said Committee allotted 566647 debentures to Vasundhara which never indicated that it had any connection with any of the existing shareholders of the petitioner Company.

    6. On 12th November, 1996 Vasundhara wrote a letter to the petitioners wherefrom it transpired that it had applied for the debenture in clear contravention of the Securities & Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1994 (hereinafter referred to as ‘1994 Regulations’) and the said facts were suppressed by Vasundhara and Smifs. A legal advice was obtained by the petitioners to the effect that the said application was illegal and void being in contravention of the 1994 regulations. Owing to failure of 90% subscription the petitioners refunded the subscription money to the applicants on 22nd November, 1996. The said action on the part of the petitioners was questioned by Vasundhara by filing a suit in this Court but on-its failure to obtain an interim order it withdrew the application money deposited by it with the petitioners.

    7. Smifs had also written on behalf of Vashundhara for refund of the application money and even lodged a claim of interest at the rate of 36% per annum. On or about 13th December, 1996 the petitioners received a Show-cause Notice from the Securities & Exchange Board of India (hereinafter referred to SEBI) wherein an action was proposed by SEBI for cancellation of issue. The petitioners sent a detailed note to SEBI on 16th November, 1996 and also met the SEBI Officials on 18th November, 1996 and 26th November, 1996 whereafter a letter was sent by them on 2nd December, 1996.

    8. A show-cause pursuant to the impugned notice was filed wherein a further opportunity to place other documents was prayed for. A hearing took place on 9-1-1996 whereafter the petitioner by its letter dated 15th January, 1997 prayed for further hearing whereby substantial points in addition to the points already raised by the letter dated 18th December, 1996, were raised but without making any further communication to the petitioner the impugned order dated 11th February, 1997 was passed by the Chairman SEBI.

    9. According to the respondents the unilateral action on the part of the petitioners is in contravention of the Regulations, and, thus, it was entitled to issue the directions in terms of the impugned order in exercise of its power under Section 11B of the Securities and Exchange Board of India Act. It is contended that conditions contained in Regulations of 1994 are not conditions precedent but conditions subsequent and thus the question of the offer becoming void on 15-11-96 as was alleged by the petitioner does not arise. According to the respondents the petitioners were under a statutory obligation to inform the SEBI which could take an action as the matter involved interest of the investors.

    10. Mr. S. Pal, the learned Counsel appearing on behalf of the petitioners, inter alia, submitted as follows:—

    1)a. the show cause notice is illegal and void as no formal procedure is prescribed in terms of Section 11A of the Act.

    b. The proposed action does not come within the purview of Section 11B of the Act in the case of a company as in respect of matters specified in Clause 11A refers only to disclosure of matters by companies.

    c. Assuming that the proposed action is covered by Section 11B the show-cause notice does not state facts which are germane therefor.

    2) The impugned order has been made in violation of principles of natural justice inasmuch as the petitioners were not given an opportunity of further hearing and placing further documents despite the fact that during course of the meeting several new points have cropped up to which the petitioners were entitled to make further submissions.

    3. From the affidavit-in-opposition it would appear that SEBI had relied upon a letter dated 18th November, 1996 together with a legal opinion and the correspondences exchanged between SEBI and Vasundhara as is evident from Vasundhara's letter dated 25th January 1997, SEBI's letter dated 4th December, 1996 inviting comments of SMIFS. letters dated 18th December, 1996 and 4th December, 1996 from SEBI to Hongkong Bank and replies thereto by Hongkong Bank dated 10th December, 1996 which were received behind the back of the petitioner without disclosing the said materials to the petitioners. It is submitted that the same is bad in law and in support of the aforementioned contention reliance has been placed in Brajlal Manilal and Co. v. Union of India, reported in AIR 1964 SC 1643, State of Assam v. Mahendra Kumar Das reported in AIR 1970 SC 1255 and B. Surinder Singh Kanda v. Government of the Federation of Malaya reported in 1962 Appeal Cases 322.

    4. The impugned order is perverse since the findings arrived at therein have no nexus with the purported ground of show-cause i.e cancellation without following the formal procedure prescribed. It also does not deal with the points raised by the petitioner.

    11. Mr. Biswarup Gupta, the learned senior counsel, appearing on behalf of the respondents on the other hand, submitted that after the letter of offer was issued, the issue was to open in between the period 11-9-96 to 11-10-96 and it did not fail to reach the required 90% and, thus, the petitioner called upon SMIFS to put in application for the shortfall under Clauses 4 and 6(c) of the Stand by agreement. On a perusal of the letters dated 4-10-96, 9-10-96 and 10-10-96 issued by the petitioners to SEBI. it would appear that they have been giving varying figures as regards short-fall. By a letter dated 10-10-96 the SMIFS informed the company that they had received commitment from their clients subscribing to 7 lakhs STDs, which was procured by SMIFS from Vasundhara under the stand by under-writing arrangement. It is stated that the obligation of the under-writers to contribute directly or procure offers to the extent of the shortfall is an admitted fact. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1994 made under the SEBI Act, 1992 provides by clause 6(1) that one who acquires more than 5% shares in a company, shall disclose the aggregate of his share-holdings to that company and to all stock exchanges where shares are listed which was made by VHL by a letter dated 12-11-1996 and in terms of that letter similar intimation, was also given to other stock Exchanges.

    12. According to Mr. Gupta. Clause 9(1) occurring in Chapter III of 1994 Regulations provides that company shall through negotiations acquire more than 10% or more of the shares of a company unless the acquirer makes a public announcement to acquire shares at a minimum offer price from other shareholders of the company in accordance with the Regulations which the petitioner was well aware of as would be evident from the statement made by the petitioners before the Press, namely. Business Standard, a copy whereof has been annexed to the affidavit-in-opposition. It was stated that the said statements have not been controverted in the affidavit-in-reply although the maker of the said report himself had affirmed affidavit in support thereof. It is stated that the factual position is as follows:—

    “(i) Clause 21 deals with the public announcement to acquire shares where the acquirer has more than 10% of shares.

    (ii) Clause 21(4) provides that the offer shall not result in the public shareholding being reduced to less than 20%.

    (iii) As will appear from page 50 of the petition, being a part of the letter of offer, the Indian public held 37.24% of the shares. The rest were with the promoter group and financial institutions. It is also stated there that the promoter group would subscribe to their rights entitlement to the full extent. There is no allegation by the writ petitioners that the financial institutions would not subscribe to the rights issue. Having regard to the requirement of 20% public holding under Clause 21(4), all that could be acquired was about 17.24% of the shares.

    (iv) As against the promoter group's holding of 28.47% and the financial institutions' holding of 34.29% the acquisition of 17.24% could hardly be termed as takeover alleged in the petition”.

    13. Referring to Clauses 33, 34, 36, 37 and 39 it is submitted that Boardis empowered to issue any direction to the acquirer of shares in the event there has been a violation of the provision of the said Regulations and, thus, it was not for the company to take an unilateral action. As regards the question of violation of principles of natural justice it is submitted that no new materials either aggravating or mitigating the situation had been used against the petitioners nor any prejudice has been caused to it. It is stated that the petitioners were aware of all such materials and in fact, in its letter to SEBI that it had made a suppression to the effect that the shares had already been cancelled. Mr. Gupta in support of his contention has relied upon in Stale of Assam v. Mohendra Kumar Das reported in AIR 1970 SC 1255. Ram Chandra Tripathy v. U.P Public Services Tribunal reported in (1994) 5 SCC 180 and State Bank of Patiala v. S.K Sharma reported in AIR 1996 SC 1669.

    14. According to the learned counsel it is not a case where no notice, no opportunity or no adequate hearing has been given. Assuming that had such materials been disclosed they would not have made any difference. It is submitted that paragraphs 3 and 15 of the affidavit-in-reply merely complains of non-disclosure but it has not been specified therein as to how the same would satisfy the prejudice test. It was further submitted that in view of the unchallenged evidence in the form of statement to the press the petitioners must be held to have notice of every facet of the matter. It is submitted that the show-cause notice is not ex facie bad in law inasmuch as the petitioner was asked as to why its decision to cancel the issue which was taken unilaterally in its part without complying with the formal procedure prescribed in this regard as the petitioners were aware of the procedure as would be evident from paragraph 42(iv) of the writ petition. It is submitted that there is no infirmity in the show-cause notice subject to the applicability of section 11B and thus, the impugned order is not ultra vires. It was urged that Section 11B not only applies to a company but also to persons referred to in Section 12 or persons associated with the securities market, which includes any company in respect of matters specified in Section 11A. Section 11A according to Mr. Gupta is not confined only to the disclosure inasmuch as marginal note or headings of the Section is not conclusive. Reliance in this connection has been placed in Frick India Ltd. v. U.O.I, reported in AIR 1990 SC 689. The petitioners, according to Mr. Gupta, are also persons interested as would appear from a decision of the Gujarat High Court in Karnavali Fincap Limited v. SEBI reported in 1996 (10) SEBI and Corporate Law Report, page 6. The learned counsel submits that the petitioner has an alternative remedy and in the event it is found that the impugned order does not suffer from violation of the principles of natural justice, the petitioner should prefer an appeal.

    15. The notice of show-cause was issued on only one ground i.e the petitioners have taken a decision to cancel the issue unilaterally without complying with the formal procedure prescribed in this regard and they were asked to show-cause as to why action under Section 11B of the SEBI Act directing it not to cancel the issue and debarring it and its group companies and all officers in default in whichever company they are and in whatever capacity from accessing the capital market for a period of 10 years should not be initiated against them.

    16. Before issuing the shares, a statutory declaration has to be made as would appear from Annexure ‘A’ to the writ application which is in the following term:—

    “If the Company does not receive application money for at least 90% of the issued amount, the entire subscription will be refunded to the applicants within 42 (forty two) days from the date of closure of this issue. If there is a delay in the refund of application money by more than 8 (eight) days after the Company becomes liable to pay the amount (i.e 42 days after closure of the issue), the Company will pay interest for the delayed period, at prescribed rates in sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956”.

    17. Such a statutory declaration is necessary in view of Section 2(36) of the Companies Act which would be evident from the definition of ‘prospectus’ as contained in Section 2(36) of the Companies Act read with Section 56 and the Schedule II thereof. Sections 2(36) and 56(1) read thus:—

    “S. 2(36). ‘Prospectus’ means (any document described or issued as a prospectus and includes any) notice, circular, advertisement or other document (inviting deposits from the public) or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate”.

    S. 56(1). Every prospectus issued—

    (a) by or on behalf of a Company, or

    (b) by or on behalf of any person who is or has been engaged or interested in the formation of a company shall state the matters specified in Part I of Schedule II and set out the reports specified in Part 11 of that Schedule; and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule”.

    18. Schedule II which referred to the matters to be specified in Prospectus and reports to be set out therein includes statements/declaration about refund of the issue if minimum subscription of 90% is not received within 90 days from disclosure of the issue.

    19. Relevant SEBI guidelines being guideline No. 9/92 is in the following terms:—

    “a) Underwriting is mandatory for the full issue and minimum requirement of 90 per cent subscription is also mandatory for each issue of capital to public. Number of underwriters would be decided by the issuers.

    b) If the company does not receive 90 percent of issued amount from public subscription plus accepted development from underwriters, within 120 days from the date of opening of the issue, the company shall refund the amount of subscription. In case of the disputed development, the company should refund the subscription, if the above conditions are not met.

    c) The lead manager(s) must satisfy themselves about the net worth of the underwriters and the outstanding commitments and disclose the same to SEBI.

    d) The underwriting agreements may be filed with the stock exchanges”.

    20. It is not in dispute that the petitioners have followed the aforementioned provisions. The petitioners had arrived at its own opinion on the basis of the legal advice obtained by it. The same may be right or wrong. The question which arises for consideration is that whether prior to taking such a decision the petitioner was under a statutory obligation to refer the matter to SEBI. No such provision has been brought to this Court's notice.

    21. Sections 11A, 11B and 12 read thus:—

    “S. 11A. Without prejudice to the provisions of the Companies Act, 1956 (1 of 1956), the Board may, for the protection of investors specify by regulations.—

    (a) the matters relating to issue of capital, transfer of securities and other matters incidental thereto: and

    (b) the manner in which such matters shall be disclosed by the companies.

    Section 11B. Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary—

    (i) in the interest of investors, or orderly development of securities market: or

    (ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interests of investors or securities market; or

    (iii) to secure the proper management of any such intermediary or person, it may issue such directions,—

    (a) to any person or class of person referred to in Section 12, or associated with the securities market: or

    (b) to any company in respect of matters specified in Section 11A, as may be appropriate in the interests of investors in securities and the securities market.

    Section 12(1). No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the (regulations) made under this Act:

    Provided that a person buying or selling securities or otherwise dealing with the securities market as a stockbroker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market immediately before the establishment of the Board for which no registration certificate was necessary prior to such establishment, may continue to do so for a period of…………….”

    22. Section 11A and Section 11B were inserted by the Securities Laws (Amendment) Act, 1995 with effect from 25-1-1995 whereas Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 came into force with effect from 1994. The said regulations evidently do not satisfy the requirements of Section 11A, although the same satisfies the requirements of Sections 11 and 12 of the Act. It is not in dispute that after coming into force of Section 11A no other regulation had been framed for protection of investors in terms of Section 11A of Act which would be without prejudice to the provision of the Companies Act. Unless such regulations are framed, the parties would be bound by the provision of the Companies Act, 1956 and the other statutory instruments. In any event. Section 11A of the Act merely provides for an enabling provision to make a Regulation in respect of the matters relating to issue of capital, transfer of securities and other matters incidental thereto; and the manner in which such matter shall be disclosed by the Companies.

    23. Sections 11A and 11B although are two independent provisions, as regards a company, if any action is taken against it under Sec. 11B procedure referred to Section 11A has to be taken recourse to and, thus, there cannot be any doubt whatsoever that unless the conditions precedent laid down under Section 11A are satisfied any action under S. 11B cannot be taken recourse to. Thus, reading Section 11A as a whole, there cannot be any doubt that the marginal note reflects the legislative policy correctly, that Section 11A, inter alia, deals with matters to be disclosed by the Companies. In this connection the words may satisfy for the protection of the investors' are relevant inasmuch as had the intention of the Parliament been that the existing Regulations, namely, 1994 Regulations are sufficient for the said purpose, the question of empowering the Board to frame a further Regulations in terms of Section 11A would not have arisen.

    24. Section 11B empowers the Board to issue direction either to any person or class of persons referred to in Section 12 or associated with the securities market or to any company in respect of matters specified in Section 11A. ‘Other persons’ referred to in Section 12 or associated with the securities market cannot bring within this purview a ‘company’ who is offering right shares to public. It is now well known canon of interpretation of statute that the entire Act has to be read as a whole and then Section by Section and words by words. So read the word ‘company’ used in Section 11B must be held to be the ‘company’ offering right issue and does not come within the purview of ‘other persons’ interested. Thus, in absence of any Regulations, the question of any action being taken as against the company by directing the company in respect of matters specified in Section 11A does not arise.

    25. So long no Regulation is made the petitioner-company was bound by the provisions of Companies Act and other relevant provision and it had made a statutory declaration as noticed hereinbefore in terms thereof. It was not necessary on its part either in terms of a provision of statute or otherwise to bring it to the notice of SEBI. It is admitted that except taking a unilateral decision to cancel the issue, the petitioner has not committed any other wrong, if any. Evidently, the words “shall be disclosed by the companies” qualify both sub-clauses (a) and (b) of Section 11A. As no regulation in terms of Section 11A has been made, there is no escape from the conclusion that there is no ‘specification’ of matters which would come within the purview of Section 11A of the Act.

    26. It is true that heading of a section cannot be taken recourse to for interpretation of words which are unambiguous but in a case where the meaning is not clear, the same acts as a preamble to the Section. Reference in this case may be made to Bhinka v. Charan Singh reported in AIR 1959 SC 960 at 966. The decision of the Supreme Court in Frick India Limited v. Union of India reported in AIR 1990 SC 689 does not militate against the said contention.

    27. Only in terms of the 1994 Regulations it is possible for the SEBI to make an investigation as regards the matter relating to sub-section (2) of Section 33 in a case where Chapter III has no application. The said Regulations prima facie appear to be directed against an acquirer of snares and in terms thereof the Board may call upon the person concerned to take such measures as the Board may deem fit in the interest of the securities market in compliance with the provision of the Act, Rules and Regulations. From the impugned order dated 11th February, 1997 as contained in Annexure ‘M’ to the writ application, it appears that the allegation made against the petitioner was (1) the lead manager and SEBI were not informed about the decision and, (2) the petitioner unilaterally cancelled its right issue.

    28. Such a matter prima facie does not come within the purview of Section 11B of the Act.

    29. The Chairman, SEBI had stated that apart from the show cause notice issued to the company, explanation had also been called for from it but it does not appear from the records that any other explanation had been called for from the petitioner. It is true that the petitioner by a letter dated 11th October, 1996 as contained in Annexure ‘B’ to the writ application requested SMIFS to put applications for 3,72,741 FCDs as per clauses 4 and 6(c) of the Stand by Underwriting Agreement. But the respondent No. 3 does not appear to have taken into consideration the fact that according to the petitioners, they came to learn about the factual position that ‘Vasundhara’ would be acquiring 90 per cent share which would be in contravention of Regulation 9 of 1994 Regulations.

    30. It is also true that in the affidavit-in-reply the violation of Regulation 9 of 1994 Regulations on the part of the Vasundhara has been alleged but it does not appear that the same would mean that the petitioner was bound to bring the matter to the notice of SEBI and/or wait till a direction is issued by the SEBI to ‘Vasundhara’. As indicated hereinbefore any unilateral decision on the part of the company may attract any action at the hands of the investors but. Section 11B of the Act would have no application in this regard, in absence of any formal procedure having been specified therefor. A procedure when required to be laid down, must clearly state as to what are the procedures and what would be the violations. Section 11B is a penal provision. The same, thus, has to be strictly construed. From a perusal of the impugned order further it appears that the respondent No. 3 failed to take into consideration the explanation on the part of the petitioners as also the fact that refunds have already been made and accepted by all concerned. It also failed to take into consideration that the very self-same question was pending consideration in a suit before this Court. The respondent No. 3 should not have taken a decision in the matter as the self same question was sub-judice in a Suit particularly in view of the fact that Vasundhara had failed to obtain an interim injunction and further during pendency of the suit, has also accepted the subscription money. Non-approaching SEBI by the petitioner before cancellation of the whole issue may send a wrong signal based on its perspective of irregularity committed by a third party but as noticed hereinbefore no provision has ben enacted under which the petitioner was statutorily obliged to do so. Before a penalty can be imposed, the respondents were bound to comply both substantive as well as procedural safeguards. It was also bound to take into consideration the question as to whether the petitioners have acted mala fide and/or had any actus reus in the matter.

    31. The penalty imposed upon the petitioner is to the effect that it be directed not to have access to the capital market through a right issue or public issue at least for a period of 2 years from the date of the said order. However, the matter relating to reduction of capital by the company was left to the Department of Company Affairs although the same had specifically been stated in the notice and the petitioners were asked to file their show cause as regard the same also.

    32. In the affidavit-in-opposition it has been admitted that before passing the said order the respondent No. 3 was corresponding with Vasundhara, Smifs and had also an occasion to go through the legal opinion. It is also admitted that such facts have not been disclosed to the petitioners. For the purpose of this case even if it be assumed that by non-disclosure of such documents as contained in Annexures ‘B’, ‘C’, ‘D’ and ‘E’ to the affidavit-in-opposition neither the situation aggravated nor mitigated, there cannot be any doubt whatsoever that principles of natural justice which has root in fairness commands that no document behind the back of a person should be taken into consideration. Prejudice on the part of the petitioner is writ large on the facts of the case. It is not a case where the petitioner has admitted his default or where all the defence raised by the petitioner, even it gives face value and taken to be correct in its entirety would lead to the same conclusion. The Court in a case of this nature is required to lake into consideration the facets of the principles of natural justice, viz., (1) whether the notice discloses all the relevant facts for which show-cause is directed to be filed and (2) A fair and impartial opportunity of hearing be given to the delinquent. Non-disclosure of such documents itself leads to prejudice inasmuch as justice is not only to be done but manifestly seems to be done. This argument has been advanced only in the affidavit-in-opposition. Had an opportunity been given to the petitioner, they could have shown before the respondent No. 3 that the legal opinion obtained by ‘Vasundhara’ was not correct and/or was capable of being interpreted differently. Even an admission of a party which was not in the proceeding should not be taken into consideration without bringing the same to the notice's attention as even an admission can be withdrawn or explained away.

    33. It is now well known in view of the decision of the Supreme Court of India, in Mahinder Singh Gill v. Chief Election Commissioner reported in AIR 1978 SC 851 that where quasi judicial authority passes an order, the correctness thereof cannot be tested upon taking into consideration an affidavit used in support thereof. In such a case prejudice suffered by the petitioner shall be presumed inasmuch as the law deprecates a tendency on the part of the quasi-judicial authority having a high power even to pass penal orders to consider certain documents behind the back of a party and thus, trying to shake the very foundation of the principles of natural justice. In paragraphs 13 and 14 of the affidavit-in-opposition the respondents clearly state that clarification provided by VHL by letter dated 25-1-97 and the letter of SMIFS dated 18-12-96 containing point by point in answer to the allegation made by the petitioner on the question as to whether there was unilateral cancellation of the issue, had been taken into consideration. Had an opportunity been given to the petitioners they could have shown Regulations, namely, 1994 Regulations are sufficient for the said purpose, the question of empowering the Board to frame a further Regulations in terms of Section 11A would not have arisen.

    24. Section 11B empowers the Board to issue direction either to any person or class of persons referred to in Section 12 or associated with the securities market or to any company in respect of matters specified in Section 11A. ‘Other persons’ referred to in Section 12 or associated with the securities market cannot bring within this purview a ‘company’ who is offering right shares to public. It is now well known canon of interpretation of statute that the entire Act has to be read as a whole and then Section by Section and words by words. So read the word ‘company’ used in Section 11B must be held to be the ‘company’ offering right issue and does not come within the purview of ‘other persons’ interested. Thus, in absence of any Regulations, the question of any action being taken as against the company by directing the company in respect of matters specified in Section 11A does not arise.

    25. So long no Regulation is made the petitioner-company was bound by the provisions of Companies Act and other relevant provision and it had made a statutory declaration as noticed hereinbefore in terms thereof. It was not necessary on its part either in terms of a provision of statute or otherwise to bring it to the notice of SEBI. It is admitted that except taking a unilateral decision to cancel the issue, the petitioner has not committed any other wrong, if any. Evidently, the words “shall be disclosed by the companies” qualify both sub-clauses (a) and (b) of Section 11A. As no regulation in terms of Section 11A has been made, there is no escape from the conclusion that there is no ‘specification’ of matters which would come within the purview of Section 11A of the Act.

    26. It is true that heading of a section cannot be taken recourse to for interpretation of words which are unambiguous but in a case where the meaning is not clear, the same acts as a preamble to the Section. Reference in this case may be made to Bhinka v. Charan Singh reported in AIR 1959 SC 960 at 966. The decision of the Supreme Court in Frick India Limited v. Union of India reported in AIR 1990 SC 689 does not militate against the said contention.

    27. Only in terms of the 1994 Regulations it is possible for the SEBI to make an investigation as regards the matter relating to sub-section (2) of Section 33 in a case where Chapter III has no application. The said Regulations prima facie appear to be directed against an acquirer of shares and in terms thereof the Board may call upon the person concerned to take such measures as the Board may deem fit in the interest of the securities market in compliance with the provision of the Act, Rules and Regulations. From the impugned order dated 11th February, 1997 as contained in Annexure ‘M’ to the writ application, it appears that the allegation made against the petitioner was (1) the lead manager and SEBI were not informed about the decision and, (2) the petitioner unilaterally cancelled its right issue.

    28. Such a matter prima facie does not come within the purview of Section 11B of the Act.

    29. The Chairman, SEBI had stated that apart from the show cause notice issued to the company, explanation had also been called for from it but it does not appear from the records that any other explanation had been called for from the petitioner. It is true that the petitioner by a letter dated 11th October, 1996 as contained in Annexure ‘B’ to the writ application requested SMIFS to put applications for 3,72,741 FCDs as per clauses 4 and 6(c) of the Stand by Underwriting Agreement. But the respondent No. 3 does not appear to have taken into consideration the fact that according to the petitioners, they came to learn about the factual position that ‘Vasundhara’ would be acquiring 90 per cent share which would be in contravention of Regulation 9 of 1994 Regulations.

    30. It is also true that in the affidavit-in-reply the violation of Regulation 9 of 1994 Regulations on the part of the Vasundhara has been alleged but it does not appear that the same would mean that the petitioner was bound to bring the matter to the notice of SEBI and/or wait till a direction is issued by the SEBI to ‘Vasundhara’. As indicated hereinbefore any unilateral decision on the part of the company may attract any action at the hands of the investors but. Section 11B of the Act would have no application in this regard, in absence of any formal procedure having been specified therefor. A procedure when required to be laid down, must clearly state as to what are the procedures and what would be the violations. Section 11B is a penal provision. The a quasi-judicial in nature and before a penal action can be taken against the proceedee a fair procedure was required to be adopted.

    43. In Sri Hanuman Steel Rolling Mill v. C.E.S.C Limited reported in (1996) 1 Cal HN 469 : (AIR 1996 Cal 449), it has been held (at p. 463 of AIR):—

    “In Wade's Administrative Law, 6th edition, page 497, the learned Author observed:—

    “The hypothesis on which the courts built up their jurisdiction was that the duty to give every victim a fair hearing was just as much a canon of good administration as of good legal procedure. Even where an order or determination is unchallengeable as regards its substance, the Court can at least control the preliminary procedure so as to require fair consideration of both sides of the case. Nothing is more likely to conduce to good administration”.

    44. Apart from the rules of audi alteram partem, which means that no one shall be condemned unheard, corollary of which is that he should be given reasonable notice of the nature of the case to be met, there are other rules of common law to the same effect. (See Franklin v. Minister, Town and Country Planning (1947) AC 87 : (1947) 2 All ER 289, John v. Rees (1970) Ch 345). In case any person has acquired any right in any property or his right is being affected by the process, he would be afforded reasonable opportunity of hearing and also to meet the cause against him.

    45. In De-Smith's Judicial Review of Administrative Action, 5th Edition, at page 403 the learned authors have referred to various decisions while emphasising the need to comply with the principles of natural justice in a case of forfeiture or deprivation of some right as also in the cases where applications are required to be filed as for example the cases of license.

    46. In State Bank of Patiala v. S.K Sharma reported in AIR 1996 SC 1669 upon which Mr. Gupta has placed strong reliance, a two Judge division bench was examining a service matter where under the Regulation 68 of the State Bank of Patiala (Officers) Service Regulation, 1979 fell for consideration in terms whereof copies of the statement of the witnesses were required to be supplied but the delinquent officers instead were given inspection thereof and he took copies therefrom and further did not raise any objection whatsoever, was held not to be entitled to question the order of punishment on the ground of violation of principle of natural justice as he was not substantially prejudiced. Each case as is well known, must be considered in the light of the fact thereof. The Apex Court itself in paragraph 32 of the said decision while summarising the principles held that the same are by no means intended to be exhaustive and are effected keeping in view the context of the disciplinary enquiry imposed by an employer upon the employee. The said decision, therefore, may not have any application where a company looses a statutory right to offer issue of shares at least for a period of 2 years and even he may have to face a penalty by the statutory authority.

    47. In any view of the matter keeping in view my findings aforementioned it is not necessary to consider this aspect of the matter any further. So far as purported Press Report is concerned the same is not of any evidentiary value in view of the fact that the same had not been taken into consideration by the respondent No. 3.

    48. It may be possible that the acquisition of share by VHL was not illegal and the petitioner No. 1 company came to a wrong decision but in my opinion, it is not the proper forum where such a question can be adjudicated upon in view of the fact that a Suit is already pending and furthermore, at this stage this Court is only concerned with the question as to whether the impugned order dated 9-1-1996 passed by the respondent No. 3 is valid in law.

    49. In Karnavali Fincap Limited v. SEBI reported in 1996 (10) SEBI and Corporate Law Report 6, the question which arose for consideration was a matter under Section 11 of the Act. In that case the question posed was as to whether the person referred to in Section 12 includes an investor.

    50. The question which had been raised in this application were not raised before the said Court and, thus, it cannot be said to be authority on a proposition which had not been considered.

    51. In the Regional Manager v. Pawan Kumar Dubey reported in AIR 1976 SC 1766, the Supreme Court held (at p. 1769 of AIR):—

    “It is the rule deducible from the application of law to the facts and circumstances of a case which constitutes its ratio decidendi and not some conclusion based upon facts which may appear to be similar. One additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts.”

    52. In Krishena Kumar v. Union of India reported in (1990) 4 SCC 207 : (AIR 1990 SC 1782), it was held (at p. 1793 of AIR):—

    “The doctrine of precedent, that is being bound by a previous decision, is limited to the decision itself and as to what is necessarily involved in it. It does not mean that this Court is bound by the various reasons given in support of it, especially when they contain “propositions wider than the case itself required”. This was what Lord Selborne said in Caledonian Railway Co. v. Walker's Trustees and Lord Halsbury in Quinn V. Leathem, Sir Frederick Pollock has also said: “judicial authority belongs not to the exact words used in this or that judgment, nor even to all the reasons given, but only to the principles accepted and applied as necessary grounds of the decision.”

    In other words, the enunciation of the reason or principle upon which a question before a Court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based on the test or abstract from the specified peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the facts of the case and the process of reasoning involving the major premise consisting of a pre-existing rule of law, either statutory or judge-made, and a minor premise consisting of the material facts of the case under immediate consideration. If it is not clear, it is not the duty of the Court to spell it out with difficulty in order to be bound by it. In the words of Halsbury (4th edn., Vol. 26, para 573):

    The concrete decision alone is binding between the parties to it but it is the abstract ratio decidendi, as ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which when it is clear it is not part of a Tribunal's duty to spell out with difficulty a ratio decidendi in order to be bound by it, and it is always dangerous to take one or two observations out of a long judgment and treat them as if they gave the ratio decidendi of the case. If more reasons than one are given by a Tribunal for its judgment, all are taken as forming the ratio decidendi”.

    It is further well known that a point which has not been argued is binding on any other bench. Reference in this connection may be made to Goodyear India Ltd. v. State of Haryana reported in AIR 1990 SC 781. In Mittal Engineering Works (P) Ltd. v. Collector of Central Excise. Meerut reported in (1979) 1 SCC 203, it has held in paragraph 8:—

    “A decision cannot be relied upon in support of a proposition that it did not decide”.

    53. As regards the question of alternative remedy, suffice it to say that this Court having heard the parties on merit of the matter itself it will not be prudent to ask the parties to ventilate their grievances before any other forum at this stage. Reference in this connection may be made to Hirday Narain v. Income-tax Officer, Bariclly reported in AIR 1971 SC 33: State of U.P v. Mohd. Noon reported in AIR 1958 SC 86 and Shri Swapan Ray v. Indian Airlines Limited reported in (1996) 1 Cal HN 147, wherein this Court has held:—

    “The submission of Mr. Mazumder to the effect that the petitioner should have taken recourse to the provisions of the Industrial Disputes Act cannot be accepted. There cannot be any doubt that in a case of this nature the delinquent employee should normally take recourse to the provision of the Industrial Disputes Act. However, that does not mean that only because there exists alternative remedy this Court will refuse to exercise its discretionary jurisdiction. Alternative remedy as is well known is a self-imposed restriction. Rule was issued in this writ application on 21-4-1987. The matter has been pending in this Court for more than 8 years now. To ask the petitioner to avail alternative remedy at this juncture in my opinion would be wholly improper.

    In Miss Maneek Custodji Surjarji v. Sarafazali Nawabali Mirza, reported in AIR 1976 SC 2446, the Apex Court has held (at p. 2450 of AIR):

    “It is true that this principle is not rigid and inflexible and there can be extraordinary circumstances where despite the existence of an alternative legal remedy, the High Court may interfere in favour of an applicant, but this was certainly not one of such extraordinary cases”.

    In L. Hirday Narain v. Income-tax Officer, Barcilly, reported in AIR 1971 SC 33, the Apex Court has held (at p. 36 of AIR):

    “But Hirday Narain moved a petition in the High Court of Allahabad and the High Court entertained that petition. If the High Court had not entertained his petition. Hirday Narain could have moved the Commissioner in revision, because at the date which the petition was moved the period prescribed by Section 33-A of the Act had not expired. We are unable to hold that because a revision application could have been moved for an order correcting the order of the Income-tax Officer under Section 35, but was not moved, the High Court would be justified in dismissing as not maintainable the petition, which was entertained and was heard on the merits”.

    Reference in this connection may also be made to Dr. Bal Krishna Agarwal v. State of U.P reported in 1995 Lab IC 1396 : (1995 AIR SCW 800) wherein it has been held (para 10):—

    “Having regard to the aforesaid facts and circumstances we are of the view that the High Court was not right in dismissing the writ petition of the appellant on the ground of availability of an alternative remedy under Section 68 of the Act especially when the writ petition that was filed in 1988 had already been admitted and was pending in the High Court for the past more than five years. Since the question that is raised involves a pure question of law and even if the matter is referred to the Chancellor under Section 68 of the Act it is bound to agitate in the Court by the party aggrieved by the order of the Chancellor, we are of the view that this was not a case where the High Court should have non-suited the appellant on the ground of availability of an alternative remedy”.

    In State of Assam v. Mahcndra Kumar Das reported in AIR 1970 SC 1255, the Apex Court held (at p. 1260 of AIR):—

    “But, we have to state that it is highly improper for an Enquiry Officer during the conduct of an enquiry to attempt to collect any materials from outside sources and not make that information so collected, available to the delinquent officer and further make use of the same in the enquiry proceedings. There may also be cases where a very clever and astute enquiry officer may collect outside information behind the back of the delinquent officer and without any apparent reference to the information so collected, may have been influenced in the conclusions recorded by him against the delinquent officer concerned. If it is established that the material behind the back of the delinquent officer has been collected during the enquiry and such material has been relied on by the enquiry officer it can be staled that the enquiry proceedings are vitiated”.

    54. Reference in this connection may also be made to Md. Nooh v. State of U.P reported in AIR 1958 SC 86.

    55. It is not necessary to multiply decisions of this subject as the law on this point is well settled. Furthermore as noticed hereinbefore. Mr. Gupta himself submitted that only in the event this Court comes to the conclusion that the entire proceeding is not bad in law and the principles of natural justice had been violated, in that situation only the petitioners can be directed to prefer an appeal. As the principal questions relating to jurisdiction and compliance of the principle of natural justice have been found against the respondents, I have no other option but to hold that the impugned order dated 11th February, 1977 is bad in law and consequently is directed to be quashed. The respondents or any oilier authority, however, may take appropriate action for violation of any statute as against the petitioner in accordance with law.

    56. For the reasons aforementioned, this application is allowed to the extent mentioned hereinbefore but in the facts and circumstances of this case there will be no order as to costs.

    Application allowed.

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    Jenson And Nicholson (India) Ltd. And Others v. Union Of India And Others
    (May 9, 1997)