Court sets aside order, deems penalties illegal; Share warrants issuance not FEMA violation

The court allowed the writ petitions, setting aside the impugned order passed by the 1st respondent. It held that the 1st respondent acted beyond its jurisdiction and that the issuance of share warrants by the petitioners was not in violation of FEMA, 1999. Consequently, the penalties imposed on the petitioners were deemed illegal and arbitrary.

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Issues Involved:
1. Maintainability of Writ Petition Despite Alternative Remedy
2. Jurisdiction of the 1st Respondent
3. Validity of Issuance of Share Warrants
4. Delay in Issuance of Show Cause Notice

Summary:

Maintainability of Writ Petition Despite Alternative Remedy
The court examined whether the writ petition is maintainable despite an available alternative remedy. It was held that the power of the High Court under Article 226 is plenary and not limited by other provisions. The court cited the Apex Court's decision in Whirlpool Corporation v. Registrar of Trademarks and other cases, emphasizing that the availability of an alternative remedy does not bar the maintainability of a writ petition. The court concluded that the writ petitions are maintainable.

Jurisdiction of the 1st Respondent
The court scrutinized the jurisdiction of the 1st respondent, who issued the impugned order. It was argued that the 1st respondent, being an enforcement authority, overstepped its jurisdiction by questioning the approval granted by the Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI). The court referred to LIC of India v. Escorts Ltd., highlighting that the RBI is the "custodian-general of foreign exchange" and has the exclusive authority to grant permissions related to foreign exchange transactions. The court found that the 1st respondent usurped the jurisdiction of the RBI and FIPB, making its actions arbitrary and illegal.

Validity of Issuance of Share Warrants
The court analyzed whether the issuance of share warrants by the petitioners was valid under the Foreign Exchange Management Act (FEMA), 1999. It was noted that the FIPB had granted approval for foreign investments and that the policy regarding the issuance of warrants was not explicit at the material time. The court found that there was no prohibition on the issuance of warrants, and the subsequent conversion of warrants into equity shares did not require post facto approval from FIPB. The court held that the issuance of share warrants was not in contravention of FEMA, 1999.

Delay in Issuance of Show Cause Notice
The court considered the delay in issuing the show cause notice, which was issued in 2019 for transactions that occurred in 2005. The court did not adjudicate this issue separately, as it had already concluded that the 1st respondent lacked the authority to interpret the approvals granted by FIPB and RBI.

Conclusion:
The court allowed the writ petitions, setting aside the impugned order passed by the 1st respondent. The court held that the 1st respondent acted beyond its jurisdiction and that the issuance of share warrants by the petitioners was not in violation of FEMA, 1999. Consequently, the penalties imposed on the petitioners were deemed illegal and arbitrary.

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