Foreign exchange permission may be granted ex post facto, with limited veil-lifting for portfolio investment eligibility.

Permission under section 29(1)(b) of the Foreign Exchange Regulation Act could be granted after the transaction and on conditions, because the provision does not require prior approval and must be read to support foreign exchange regulation. Overseas entities were eligible for portfolio investment if the ultimate beneficial ownership satisfied the Indian nationality or origin requirement, and the corporate veil could be lifted only to test that limited eligibility. Allegations of mala fides or non-application of mind against the Reserve Bank and the Union failed, and the shareholder requisition notice for an extraordinary general meeting was not invalid merely because it was unwelcome. The matter was remitted for a fresh enquiry into the share purchases and the designated bank's conduct.

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Issues: (i) whether permission under section 29(1)(b) of the Foreign Exchange Regulation Act, 1973 had to be prior permission or could be granted ex post facto and conditionally; (ii) whether overseas companies owned ultimately by non-resident persons of Indian nationality or origin were eligible to invest under the portfolio investment scheme and whether the corporate veil could be lifted only to the extent necessary to test that eligibility; (iii) whether the Reserve Bank of India and the Union of India acted mala fide or without application of mind in granting permission and issuing the impugned circular and clarification; (iv) whether the requisition notice issued by the Life Insurance Corporation of India to call an extraordinary general meeting was liable to be struck down.

Issue (i): whether permission under section 29(1)(b) of the Foreign Exchange Regulation Act, 1973 had to be prior permission or could be granted ex post facto and conditionally

Analysis: The expression used in section 29(1)(b) is "general or special permission" and it is not qualified by the word "previous". The scheme of the Act shows that Parliament used the qualifying word "previous" where it intended to insist upon prior approval, but omitted it in section 29. The Act is a fiscal and regulatory statute enacted in the national economic interest, and its provisions must be construed to advance the object of conserving and regulating foreign exchange. In that setting, permission under section 29(1)(b) is not confined to antecedent permission. It may be granted after the transaction, and may also be conditional.

Conclusion: The permission could validly be granted ex post facto and subject to conditions, and prior permission was not mandatory under section 29(1)(b).

Issue (ii): whether overseas companies owned ultimately by non-resident persons of Indian nationality or origin were eligible to invest under the portfolio investment scheme and whether the corporate veil could be lifted only to the extent necessary to test that eligibility

Analysis: The scheme was framed to encourage investment by non-residents of Indian nationality or origin while preventing destabilising acquisitions. For companies and other juristic entities, nationality can only be traced by lifting the corporate veil to ascertain the nationality or origin of the beneficial owners. That exercise is limited to identifying whether the stipulated percentage of ownership or beneficial interest rests with qualifying non-resident persons of Indian nationality or origin. The scheme did not require that the same individuals must directly own the applicant companies, and indirect ownership through layers of corporate holding did not by itself disqualify the applicants.

Conclusion: Such overseas bodies were eligible if the ultimate ownership requirement was satisfied, and the veil could be lifted only for that limited purpose.

Issue (iii): whether the Reserve Bank of India and the Union of India acted mala fide or without application of mind in granting permission and issuing the impugned circular and clarification

Analysis: The Reserve Bank initially had reservations, but after consulting the Government and considering the policy objectives, it clarified the scheme and granted permission. The material did not justify an inference of mala fides or legal mala fides. The Bank acted on the information supplied through the designated bank, and although that reliance later proved misplaced because the designated bank failed to discharge its monitoring obligations, the decision itself was not shown to have been taken for an improper purpose or without application of mind. No mala fides could be attributed to the Union of India either.

Conclusion: The allegations of mala fides and non-application of mind against the Reserve Bank of India and the Union of India failed.

Issue (iv): whether the requisition notice issued by the Life Insurance Corporation of India to call an extraordinary general meeting was liable to be struck down

Analysis: A shareholder, including a State instrumentality acting as shareholder, may seek to move the company in general meeting and is not obliged to disclose reasons for calling the meeting or proposing resolutions. The requisition was part of the ordinary rights of a majority shareholder seeking reconsideration of corporate management decisions after the company had launched litigation without consulting the majority. In the absence of proof of mala fides or illegality, the requisition could not be invalidated merely because the company disliked its consequences.

Conclusion: The requisition notice was not liable to be quashed on the grounds urged.

Final Conclusion: The lower court's view was set aside, the statutory permission and related governmental clarification were upheld, the challenge to the requisition notice failed, and the matter was sent back to the Reserve Bank for a fresh and fuller enquiry into the share purchases and the conduct of the designated bank.

Ratio Decidendi: Under section 29(1)(b) of the Foreign Exchange Regulation Act, 1973, permission to purchase shares by a qualifying non-resident investor may be granted either before or after the transaction, and the Reserve Bank alone has the primary role of determining eligibility and imposing lawful conditions in furtherance of foreign exchange regulation.

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