1977 (10) TMI 122 - HC - FEMA

Court rules RBI's share sale restriction lacks nexus with FERA, directs recall of notices.

Director, Enforcement Directorate, Government of India and others Versus Saroj Kumar, Bhotika and another

The court found the application under Article 226 maintainable, ruling that the condition imposed by the RBI restricting the sale of shares to larger ... - Issues Involved:1. Whether the application under Article 226 of the Constitution is premature and, therefore, not maintainable.2. Whether there was any rational and proximate nexus between the object of FERA of 1947 or 1973 and the condition imposed by the RBI that the shares cannot be sold to larger industrial houses or to persons connected therewith.3. Whether the expressions 'larger industrial houses' and 'persons connected therewith' are vague, indefinite, and uncertain.Issue-wise Detailed Analysis:1. Prematurity and Maintainability of the Application under Article 226:The appellant argued that the respondent could not be considered an aggrieved person since no penalty had been imposed yet, and the respondent was merely served with a show cause notice with an opportunity for a personal hearing. The appellant cited several Supreme Court decisions, including *Chanan Singh v. Registrar Co-operative Societies, Punjab* and *Mani Subrat Jain v. State of Haryana*, to support the argument that a writ petition was premature as no punitive action had been taken.However, the court held that the application was maintainable. It reasoned that certain grounds raised by the respondent, such as the lack of nexus between the object of the FERA and the impugned condition, and the vagueness of the condition, could not be addressed by the authorities under FERA. The court referred to decisions from the Gujarat and Andhra Pradesh High Courts, emphasizing that a writ petition could be entertained if the challenge was on grounds that could not be determined by the statutory authority.2. Rational and Proximate Nexus with the Object of FERA:The court examined the object of the FERA, which was primarily to conserve and direct the limited supplies of foreign exchange and to control transactions in foreign exchange, securities, and gold. The court reviewed the legislative history and judicial interpretations of the FERA, concluding that the act was not concerned with the concentration of economic power within the country. The court found that the impugned condition imposed by the RBI, which restricted the sale of shares to larger industrial houses or persons connected therewith, had no rational or proximate nexus with the object of conserving foreign exchange. The court emphasized that the RBI's powers under Section 5(1)(a) of FERA were limited to ensuring that transactions were in order from the exchange angle and did not extend to imposing conditions unrelated to the conservation of foreign exchange.3. Vagueness and Uncertainty of the Expressions:The court addressed whether the expressions 'larger industrial houses' and 'persons connected therewith' were vague and indefinite. The court noted that while the expression 'larger industrial houses' was not defined in any statute, it had acquired a definite connotation in business circles, as evidenced by various government reports and guidelines. The court concluded that the expression was not vague or uncertain.Regarding the expression 'persons connected therewith,' the court referred to dictionary definitions and concluded that the term meant persons on whom a larger industrial house could exercise influence. The court found that the expression was not ambiguous in the context of the condition imposed by the RBI.Severability of the Invalid Condition:The court considered whether the invalid condition could be severed from the valid conditions. It referred to legal principles on severability and concluded that the invalid condition (prohibiting the sale of shares to larger industrial houses or persons connected therewith) could be severed from the other conditions without affecting the validity of the permission granted by the RBI.Conclusion:The court held that the RBI had exceeded its powers under FERA in imposing the condition restricting the sale of shares to larger industrial houses or persons connected therewith. The court directed the respondents to recall, cancel, and withdraw the impugned notices dated 13th Feb. 1975 and 14th Nov. 1975. The appeal was dismissed, and the rule was made absolute.