1992 (8) TMI 296 - HC - Indian Laws

Court invalidates RBI's discriminatory policy favoring certain universities, orders release of foreign exchange for student's studies.

Pranab Kumar Ray and another Versus Reserve Bank of India And others

The court held that the Reserve Bank of India (RBI) and the Union of India acted discriminatorily and unreasonably by denying foreign exchange for a ... - Issues Involved:1. Validity of Reserve Bank of India's (RBI) decision rejecting the release of foreign exchange for LL.B. (Hons.) Course at the University of Leeds.2. Discriminatory treatment and violation of Article 14 of the Constitution.3. Statutory and mandatory nature of RBI guidelines.4. Rational and proximate nexus between the object of Foreign Exchange Regulation Act (FERA) and RBI's policy.Issue-wise Detailed Analysis:1. Validity of Reserve Bank of India's (RBI) Decision:The petitioners challenged the RBI's decision communicated on 13th January 1990, which rejected the release of foreign exchange for petitioner No. 2's LL.B. (Hons.) Course at the University of Leeds. The RBI's policy guidelines, as per the Book of Instructions, allowed foreign exchange release only for LL.B. courses at Cambridge and Oxford Universities. The petitioners sought to quash the RBI's communications dated 28th September 1989 and 13th January 1990, which denied their request based on these guidelines.2. Discriminatory Treatment and Violation of Article 14:The court found that the RBI's guidelines, which favored Cambridge and Oxford Universities over other UK universities, were discriminatory and violated Article 14 of the Constitution. The Bar Council of India recognized the LL.B. degree from the University of Leeds, treating it on par with degrees from Cambridge and Oxford. The RBI's preference for the latter two universities, without a cogent justification, was deemed arbitrary and discriminatory. The court noted that institutional preferences had been struck down by the Supreme Court in several decisions as arbitrary.3. Statutory and Mandatory Nature of RBI Guidelines:The court examined whether the guidelines in the Book of Instructions had any statutory force or mandatory effect. It concluded that the guidelines were meant for internal guidance and did not have statutory force. The guidelines were not rigid and had been deviated from in the past, indicating their non-mandatory nature. The court referenced several decisions to support the view that guidelines are not always mandatory and can be flexible.4. Rational and Proximate Nexus Between the Object of FERA and RBI's Policy:The court evaluated whether there was a rational and proximate nexus between the object of FERA and the RBI's policy of releasing foreign exchange only for Cambridge and Oxford Universities. The object of FERA was to conserve and properly utilize the country's limited foreign exchange resources. The court found that the RBI's policy did not have a rational connection with this objective, as it arbitrarily favored certain institutions without justifiable reasons. The policy was deemed to work against the best interests of the country by not allowing foreign exchange for studies at other reputable universities like Leeds.Conclusion:The court held that the RBI and the Union of India acted in a discriminatory and unreasonable manner by denying foreign exchange to petitioner No. 2 for his studies at the University of Leeds. The RBI's policy guidelines were declared ab initio bad and violative of Article 14 of the Constitution. The court quashed the RBI's communications dated 28th September 1989 and 13th January 1990 and directed the RBI and the Union of India to release foreign exchange to petitioner No. 2 for his LL.B. (Hons.) course at the University of Leeds by 30th September 1992. The petition was allowed.