Indirect control under the Foreign Trade Policy can qualify a company as a group company for export obligation benefits.

Indirect control can satisfy the Foreign Trade Policy definition of a group company where the policy expressly recognises both direct and indirect voting control or board appointment power. The Bombay High Court held that an administrative reading confined to direct shareholding was inconsistent with paragraph 9.28 and with paragraph 5.4, which allows export obligation to be met through exports of a group company. Relying also on departmental clarification, the Court treated companies linked through shareholding chains as group companies and held that the export earnings of the associated company could be counted toward the EPCG export obligation. The impugned decision was quashed and the benefit claimed was directed to be granted.

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Issues: Whether the petitioners could be treated as a group company under paragraph 9.28 of the Foreign Trade Policy, 2004-09 on the basis of indirect control and thereby be entitled to have export earnings of the associated company counted towards fulfillment of export obligation under the Export Promotion Capital Goods Scheme.

Analysis: Paragraph 5.4 of the Foreign Trade Policy permits fulfillment of export obligation by exports of goods or services of the same firm, company, or group company, while paragraph 9.28 defines a group company as two or more enterprises which directly or indirectly are in a position to exercise twenty-six percent or more voting rights in the other enterprise, or appoint more than fifty percent of the board of directors. The impugned decision treated the claim as unsustainable on the footing that direct shareholding or direct control was absent. The Court held that this approach ignored the express language of paragraph 9.28, which recognises indirect control as sufficient, and that the policy interpretation had to be consistent with the object of encouraging exports. The Court also relied on the departmental clarification stating that companies linked through shareholding chains may be treated as group companies for the purposes of paragraph 9.28.

Conclusion: The petitioners satisfied the requirement of group company status through indirect control and were entitled to have the export benefits extended accordingly.

Final Conclusion: The impugned decision was quashed, the writ petitions were allowed, and the authorities were directed to grant the benefit claimed under the Foreign Trade Policy.

Ratio Decidendi: Where the governing policy expressly recognises both direct and indirect control, an administrative interpretation cannot read the definition of group company as requiring only direct control; the policy must be applied in a manner consistent with its text and export-promoting object.

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