2016 (4) TMI 615 - HC - FEMA

Court dismisses writ application; petitioner has standing, no res judicata, transition to FEMA, lawful allotment of shares

The court dismissed the writ application, holding that the petitioner had the standing to maintain the writ, the principle of res judicata did not apply, ... Issue of grant or revocation of grant of licence - Held that:- The licence to import was vitally connected with the shareholding of Kamal Kr. Datta and the percentage shareholding of his brother Sajal Datta. If the number of shares issued to Kamal increased on the basis of importation of those items, the percentage shareholding of Sajal was likely to fall. Therefore, both the company and its principal shareholders Kamal and Sajal had an interest in the grant of the licence or revocation of it, by the Reserve Bank of India. As far as the decision Life Insurance Corporation of India v. Escorts Ltd. [1985 (12) TMI 289 - SUPREME COURT OF INDIA ] and others is concerned, none doubts the authority of the Reserve Bank of India to grant the licence. But it should be remembered that the Reserve Bank of India, like other creatures of the Constitution and the Statutes is amenable to a writ of mandamus commanding it to do its duty. In the two previous writ applications orders were passed by this court directing the Reserve Bank of India to consider the issue of grant or revocation of grant of licence upon hearing Kamal and Sajal. Therefore, both the brothers had the right to approach the court complaining of failure on the part of the Reserve Bank of India to discharge this duty, by refusing to pass an order or by passing a wrong order. Applicability of res judicata - Held that:- The shares had been allotted to Kamal subject to the outcome of the writ. No, doubt, the Hon’ble Judge had expressed his utter disgust at Kamal in preferring the writ applications to nullify the allotment of shares in favour of Kamal but nowhere it confirmed the said allotments. It certainly held oppression of Kamal by Sajal and set aside the order of this High Court in the Company Law Board appeal dated 31st March, 2005 and also all resolutions of the board from 19th April, 1995 onwards. It reversed the decision of the Board of Directors alloting additional shares of ₹ 40 lakhs and so on. But not even for a moment did the court even make any comment with regard to the 30,55,329 equity shares issued to Kamal provisionally pending the writ. The passing observation of the Court is not even obiter dicta. Therefore, the point of res judicata raised by Mr. Kapur also fails Neither adjudication of penalty nor criminal prosecution can be undertaken as the period of two years from the date of commencement of the 1999 Act has long elapsed. Either a civil proceeding for penalty had to be started by issuance of a show cause notice or cognizance of the offence should have been taken by a criminal court within two years of commencement of the Act, 1999, under Section 49 of FEMA, 1999. Since it came into effect on 1st June, 2000 any action should have been taken by 31st May, 2002. The preservation of old rights and liabilities under the FERA, 1973 was restricted for this period and to this extent only. At this point of time, even if it is assumed that the importation was wrongful, no action can be taken, by operation of law. If a new statute after repeal of an Act does not contemplate any action in relation a past illegal act under the repealed statute, then the new statute has the effect of legitimising that illegality. Lastly, the importation was made more than 20 years ago. These capital goods have spent their life. Their value, now after depreciation is nil. At the time of their importation their declared value was ₹ 3,05,53,290/-. Against this value, shares were allotted to Kamal. Even if Sajal now succeeds, the equipments, cannot be returned to Kamal. The monetary value has to be refunded with interest from the other assets of the Company. That is plainly not permissible or feasible. W.P. fails Issues Involved:1. Locus Standi2. Res Judicata3. FEMA v. FERADetailed Analysis:Locus Standi:The primary issue revolves around whether Sajal, as a shareholder, has the locus standi to maintain the writ petition. According to the judgment, a person can file an application under Article 226 of the Constitution of India to enforce a fundamental or legal right, which should belong to the petitioner and be a personal or individual right. The court cited several precedents, including the cases of Calcutta Gas Company (Proprietary) Limited v. State of West Bengal and Rustom Cavasjee Cooper v. Union of India, to establish the principle that a shareholder does not have the right to move a writ application on behalf of the company unless the action affects both the company and the shareholder.The court concluded that Sajal, despite being a shareholder, was directly affected by the allotment of shares to Kamal, as it would alter the shareholding percentage and control of the company. Therefore, Sajal had the right to continue the proceeding even after the deletion of the company's name from the cause title.Res Judicata:The second issue concerns whether the disputes raised in the writ were already adjudicated or deemed to have been adjudicated in the Supreme Court judgment in Kamal Kr. Datta v. Ruby General Hospital Limited. The court examined the Supreme Court judgment and found that it did not address the specific issue of the allotment of 30,55,329 equity shares to Kamal. The Supreme Court had expressed its disapproval of the repeated writ petitions but did not confirm the allotments. Therefore, the principle of res judicata did not apply in this case.FEMA v. FERA:The final and most decisive issue pertains to the transition from the Foreign Exchange Regulation Act (FERA), 1973 to the Foreign Exchange Management Act (FEMA), 1999. The court noted that under FEMA, no permission is required from the Reserve Bank of India (RBI) to allot shares on the importation of capital goods to Non-Resident Indians. The court discussed the repeal and savings clause of FEMA, which stipulates that no court shall take cognizance of an offence under the repealed Act after two years from the commencement of FEMA.The court concluded that even if the decision by the RBI to grant permission was erroneous, no action could be taken after the sunset period of two years. Furthermore, the RBI had stated that the importation of second-hand medical equipment was lawful and accompanied by proper documentation. Given that the importation occurred over 20 years ago, the court found it impractical to reverse the transaction or refund the monetary value.Conclusion:The writ application was dismissed on all grounds. The court held that Sajal had the locus standi to maintain the writ, the principle of res judicata did not apply, and no action could be taken under FERA due to the transition to FEMA and the elapsed time. The connected application G.A. 360 of 2007 was also disposed of, with no order as to costs.