Court rules refusal to extend permission without a hearing violates natural justice

The court ruled in favor of the petitioners, holding that the refusal to extend permission without a hearing violated the principles of natural justice. The court directed the respondents to give the petitioners a proper hearing before deciding on their application for extension of permission. The petitioners were allowed to carry on their work under an existing contract until the final decision of the respondents and for two weeks thereafter. No order as to costs was made.

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Issues Involved:
1. Whether the refusal to extend permission under Section 29(1)(a) of the Foreign Exchange Regulation Act, 1973 (FERA) without a hearing violates the principles of natural justice.
2. Whether the principles of natural justice apply to an alien or foreign entity operating in India.
3. Whether the decision of the Reserve Bank of India (RBI) was arbitrary and lacked sufficient reasoning.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioners contended that the refusal to extend permission without a hearing violated the principles of natural justice. They argued that they were entitled to a hearing before the RBI made a decision. The court examined Section 29 of FERA, which requires the RBI to provide a reasonable opportunity for making a representation before rejecting an application under Section 29(2)(a) and Section 29(4)(a). However, Section 29(1)(a) does not explicitly provide for such an opportunity. The respondents argued that the exclusion of a hearing under Section 29(1)(a) was implied. The court disagreed, stating that the principles of natural justice are vital to the rule of law and should not be readily discarded. The court cited several Supreme Court decisions emphasizing the importance of the audi alteram partem rule, which requires a hearing before a decision is made. The court concluded that the principles of natural justice were not excluded by necessary implication in Section 29(1)(a) and that the petitioners should have been given a hearing.

2. Application of Principles of Natural Justice to Aliens:
The respondents argued that the petitioners, being an alien entity, had no legal right to carry on business in India and therefore could not claim the protection of natural justice principles. The court rejected this argument, stating that the principles of natural justice apply universally and are not limited by national frontiers. The court emphasized that a State governed by the rule of law must ensure that its authority is not used arbitrarily, whether against a citizen or an alien. The court cited several cases, including Union of India v. Tulsiram Patel and Attorney General of Hong Kong v. Ng Yuen Shiu, to support the view that aliens are entitled to the protection of natural justice principles. The court also noted that the petitioners had a legitimate expectation of being heard before their permission was denied, based on the long history of routine extensions granted to them.

3. Arbitrariness and Lack of Reasoning in RBI's Decision:
The petitioners argued that the RBI's decision was arbitrary and lacked sufficient reasoning. They contended that the refusal to extend permission disrupted important contracts with various government agencies and public sector undertakings. The court noted that the RBI's affidavit-in-reply raised new allegations about the petitioners' financial practices, which were not previously communicated to the petitioners. The court found that these allegations should have been addressed through a hearing. The court also questioned the respondents' claim that Indian technical know-how was available, given that government agencies continued to contract with the petitioners. The court concluded that there was no compelling necessity to exclude the principles of natural justice in this case and that the petitioners should have been given an opportunity to make a representation.

Conclusion:
The court ruled in favor of the petitioners, holding that the refusal to extend permission without a hearing violated the principles of natural justice. The court directed the respondents to give the petitioners a proper hearing before deciding on their application for extension of permission. The petitioners were allowed to carry on their work under an existing contract until the final decision of the respondents and for two weeks thereafter. No order as to costs was made.

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