Exchange-control permission conditions must have a direct nexus with the statute's object; severable invalid terms may be struck down

A statutory permission under exchange-control law may be challenged in writ jurisdiction where the validity of a condition raises questions the authority itself cannot effectively decide. A condition restricting share sales to larger industrial houses was held to lack a direct and proximate nexus with the Foreign Exchange Regulation Act's object of conserving and regulating foreign exchange, because it pursued a different policy concern. The expression used for the prohibited class was not treated as vague on the facts. The invalid restriction was also severable, so the remaining permission conditions could stand.

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Issues: (i) Whether the writ petition challenging the show cause notice and adjudication notice was premature and not maintainable in view of the statutory remedy under the Foreign Exchange Regulation Act, 1947 and the Foreign Exchange Regulation Act, 1973; (ii) whether the condition imposed by the Reserve Bank of India barring sale of shares to larger industrial houses and persons connected therewith had a rational and proximate nexus with the object of the Foreign Exchange Regulation Act, 1947; (iii) whether the expressions "larger industrial houses" and "persons connected therewith" were vague and uncertain; (iv) whether the invalid condition could be severed from the remaining conditions so that the permission would otherwise stand.

Issue (i): Whether the writ petition challenging the show cause notice and adjudication notice was premature and not maintainable in view of the statutory remedy under the Foreign Exchange Regulation Act, 1947 and the Foreign Exchange Regulation Act, 1973.

Analysis: The availability of an alternative statutory remedy does not by itself bar writ jurisdiction where the challenge is to a condition or order that the statutory authority is incapable of deciding. The Court held that the objections based on absence of nexus and vagueness could not be effectively determined by the authorities acting under the exchange-control statute, and therefore the petition was not to be rejected as premature.

Conclusion: The writ petition was maintainable.

Issue (ii): Whether the condition imposed by the Reserve Bank of India barring sale of shares to larger industrial houses and persons connected therewith had a rational and proximate nexus with the object of the Foreign Exchange Regulation Act, 1947.

Analysis: The object of the Foreign Exchange Regulation Act, 1947 was found to be conservation and proper utilisation of foreign exchange and regulation of foreign exchange dealings. The Court held that the impugned restriction was aimed at preventing concentration of economic power, which was the concern of a different legislative policy and not of the exchange-control statute. A condition imposed under the Act must be directly connected with the statutory object, and an indirect or remote connection is insufficient.

Conclusion: The impugned condition lacked the requisite nexus and was invalid.

Issue (iii): Whether the expressions "larger industrial houses" and "persons connected therewith" were vague and uncertain.

Analysis: The Court found that the expression "larger industrial houses" had acquired a definite commercial meaning through governmental reports and policy material, and that "persons connected therewith" was sufficiently intelligible in context to denote persons under the influence or control of such a house. The condition was therefore not void for uncertainty on the facts of the case.

Conclusion: The expressions were not held to be vague or uncertain.

Issue (iv): Whether the invalid condition could be severed from the remaining conditions so that the permission would otherwise stand.

Analysis: The permission granted by the Reserve Bank of India contained distinct conditions dealing with the mode and manner of share disposal. The impugned restriction was held to be separable from the valid conditions and not inextricably linked with them. The remaining conditions could therefore survive without the invalid restriction.

Conclusion: The invalid condition was severable and the remaining conditions were left intact.

Final Conclusion: The appeal failed, the original writ relief was sustained, and the impugned notices were directed to be withdrawn, while the valid conditions attached to the permission were left undisturbed.

Ratio Decidendi: A condition attached to statutory permission must bear a direct and proximate nexus with the object of the empowering statute, and if an invalid condition is severable from the valid part of the permission, the valid part may be preserved.

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