Foreign share acquisition and indirect control do not by themselves trigger FERA share-purchase prohibition.

Section 29(1)(b) of the Foreign Exchange Regulation Act, 1973 applies to the purchase in India of shares of an Indian company or acquisition of an Indian undertaking; a purchase abroad of shares in foreign companies that incidentally gives indirect control over an Indian company is not treated as that prohibited transaction. On that footing, section 47(1) cannot independently sustain a notice where the underlying statutory prohibition is inapplicable. In adjudication, the noticee may seek relevant RBI and company law records where permission and contravention are in issue, and refusal to summon them can prejudice the defence. The notice and consequential proceedings were quashed.

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Issues: (i) Whether the acquisition of shares of foreign companies, resulting in indirect control of an Indian company, attracted section 29(1)(b) and consequently section 47(1) of the Foreign Exchange Regulation Act, 1973. (ii) Whether the Special Director was justified in proceeding on the impugned notice without summoning the Reserve Bank of India and Company Law Board records and in treating the proceedings as valid after the lapse of time.

Issue (i): Whether the acquisition of shares of foreign companies, resulting in indirect control of an Indian company, attracted section 29(1)(b) and consequently section 47(1) of the Foreign Exchange Regulation Act, 1973.

Analysis: Section 29(1)(b) prohibits, without Reserve Bank permission, the purchase in India of shares of an Indian company or acquisition of an Indian undertaking. The transaction in question was a purchase abroad of shares of foreign companies that already held shares of the Indian company. Shareholders do not own the company's assets or undertaking, and the corporate veil was not required to be lifted on the facts. The show-cause notice proceeded on the assumption that indirect control over the Indian company was equivalent to purchase of its shares in India, which was not the statutory language. Once section 29(1)(b) was inapplicable, section 47(1) could not independently sustain the notice.

Conclusion: The alleged contravention under sections 29(1)(b) and 47(1) was not made out and the notice was without jurisdiction on that footing.

Issue (ii): Whether the Special Director was justified in proceeding on the impugned notice without summoning the Reserve Bank of India and Company Law Board records and in treating the proceedings as valid after the lapse of time.

Analysis: In adjudication under the Act, the noticee was entitled to rely on official records relevant to the question whether permission was necessary and whether any contravention had occurred. The Special Director had statutory power to summon records and evidence, and refusal to do so caused serious prejudice in the defence. The record also showed no abandonment of proceedings, but the long delay did not cure the underlying defect because the notice itself was founded on an inapplicable statutory provision. The proceeding could not be saved by reliance on section 19(5), which was not the provision specified in the show-cause notice.

Conclusion: The refusal to summon relevant records was improper, and the continuation of the proceedings could not be sustained.

Final Conclusion: The impugned show-cause notice and all consequential proceedings were quashed, and the respondents were restrained from proceeding further.

Ratio Decidendi: For a valid adjudication notice under the Foreign Exchange Regulation Act, 1973, the precise statutory prohibition invoked must actually apply to the transaction alleged, and a foreign share transfer made outside India is not treated as a purchase of shares in India or acquisition of an undertaking in India merely because it results in indirect control of an Indian company.

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