Court quashes RBI rejection, stresses reasons in decisions, emphasizes Regulation 9 compliance.

The court quashed the RBI's rejection order and remanded the matter for reconsideration, emphasizing the need for reasons in such decisions. It held that the rejection lacked justification and failed to adhere to regulations, specifically Regulation 9. The court highlighted that the RBI must independently assess applications, considering factors like investment viability and applicant's financial standing, rather than solely relying on objections from other agencies. Additionally, the court validated transactions conducted under interim orders and lifted restrictions on the petitioner's assets.

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Issues Involved:
1. Territorial Jurisdiction
2. Non-joinder of Necessary and Proper Parties
3. Delay and Laches
4. Concealment of Material Information
5. Validity of RBI's Rejection Order
6. Adherence to Foreign Exchange Management Regulations

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction:
The respondent argued that the Delhi High Court lacked territorial jurisdiction as the head office of the respondent (RBI) is in Mumbai and the petitioner was dealing with the Foreign Exchange Department, Central Office, Overseas Investment Division in Mumbai.

2. Non-joinder of Necessary and Proper Parties:
The respondent claimed that the Enforcement Directorate (ED) was a necessary and proper party for the adjudication of the dispute. The respondent had declined the petitioner’s application due to objections from the ED, which stated that the petitioner’s proposal might result in non-availability of properties for attachment and jeopardize ongoing investigations.

3. Delay and Laches:
The respondent contended that the petition suffered from delay and laches as the rejection of the application was issued on 30.12.2019, but the petitioner filed the writ petition only at the last minute.

4. Concealment of Material Information:
The respondent accused the petitioner of concealing material information about ongoing investigations and enquiries by the ED, including investigations into offshore investments, unrealized export proceeds, purchase and sale of vessels, and purchase of aircraft.

5. Validity of RBI's Rejection Order:
The RBI's order dated 30.12.2019 rejected the petitioner’s application to remit USD 300 million to its wholly owned subsidiary without providing any reasons. The court found this order to be a cryptic non-speaking order, which is untenable and contrary to Regulation 9 of the 2004 Regulations. The court emphasized that an order must provide reasons, especially when it has serious consequences for the petitioner.

6. Adherence to Foreign Exchange Management Regulations:
The petitioner argued that under Regulation 6 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, it was entitled to make direct investments up to 400% of its net worth without RBI approval. However, due to ongoing investigations, the petitioner applied under Regulation 9, which allows RBI to grant approval even if the party is under investigation. The court noted that the existence of an investigation does not automatically debar an Indian party from making direct investments abroad. The court found that the RBI's rejection based solely on ED’s objections was improper, as the RBI must independently evaluate the application based on criteria in Regulation 9(3), such as the viability of the investment and the financial position of the petitioner.

Conclusion:
The court quashed the RBI’s order dated 30.12.2019 and remanded the matter back to the RBI for reconsideration in accordance with the law and the principles noted. The court also validated the transactions carried out pursuant to its interim orders and lifted the embargo on the petitioner’s assets.

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