Prior RBI permission and lawful shareholder purpose govern foreign share purchases and director removal requisitions.

A prohibitory foreign-exchange restriction on purchase of shares by a non-resident investor required prior RBI permission before completion of the transaction, and purchases made without that permission were invalid. A later press release, circular and letter could operate only prospectively and could not retrospectively validate earlier purchases or authorise registration of the shares. On company law, a requisition to remove directors had to disclose reasons and be used for a lawful purpose; a requisition deployed for collateral pressure was arbitrary, mala fide and ultra vires. The petitioners were held to have locus standi because the dispute over share registration remained live and affected continuing rights.

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Issues: (i) Whether prior permission of the Reserve Bank of India was mandatory for purchase of shares by a non-resident investor under the portfolio investment scheme. (ii) Whether the subsequent press release, circular, and letter could validate past purchases or operate retrospectively. (iii) Whether the requisition notice convening the extraordinary general meeting was valid under company law and the Life Insurance Corporation Act. (iv) Whether the petitioners had locus standi and a live issue to maintain the writ petition.

Issue (i): Whether prior permission of the Reserve Bank of India was mandatory for purchase of shares by a non-resident investor under the portfolio investment scheme.

Analysis: The statutory scheme of the Foreign Exchange Regulation Act regulated purchase of shares by persons resident outside India and by non-resident-controlled entities. The negative language of section 29(1)(b) was treated as prohibitory, and the scheme was read as requiring compliance before the purchase was effected. The Court held that the use of the word "permission" in the provision did not dilute the mandatory character of the restriction. Purchases made without prior permission exposed the investor to statutory consequences and could not be treated as valid purchases in law.

Conclusion: Prior permission under section 29(1)(b) was mandatory, and the share purchases made without such permission were invalid.

Issue (ii): Whether the subsequent press release, circular, and letter could validate past purchases or operate retrospectively.

Analysis: The later governmental clarification and Reserve Bank circular were held to be capable of operating only prospectively. Subordinate legislative or administrative action could not amend an earlier statutory scheme with retrospective effect so as to validate transactions already completed in breach of the governing restriction. The Court further held that the impugned documents could not confer post facto approval where the statute contained no such enabling power. The clarification could only regulate future investments by eligible entities and could not cure the illegality of earlier purchases.

Conclusion: The impugned press release, circular, and letter were valid only prospectively and could not retrospectively validate the earlier purchases or authorise registration of those shares.

Issue (iii): Whether the requisition notice convening the extraordinary general meeting was valid under company law and the Life Insurance Corporation Act.

Analysis: The Court held that a requisition to remove directors under section 284 of the Companies Act must disclose reasons so that the directors' right of representation is meaningful and the shareholders can understand the basis of the proposal. The stated reason in the requisition was found untenable. The Life Insurance Corporation, though a shareholder, remained a statutory authority and had to act within the limits of section 6 of the Life Insurance Corporation Act and consistently with Article 14. A requisition used to exert pressure and to secure a change in management for a collateral purpose, rather than to protect investment, was held to be arbitrary, mala fide, and beyond the statutory purpose. The resolution moved through the requisition was therefore unsustainable, and the consequential extraordinary general meeting could not stand.

Conclusion: The requisition notice and the resolutions passed pursuant to it were invalid, ultra vires, and liable to be quashed.

Issue (iv): Whether the petitioners had locus standi and a live issue to maintain the writ petition.

Analysis: The refusal to register the shares remained a live controversy because the respondents continued to press for registration, dividend consequences remained unresolved, and the legality of the purchases and the RBI's later clarification continued to affect future disputes. The company, acting through its board, was entitled to seek judicial determination, and the managing director could maintain the petition on behalf of the company and in his own capacity as shareholder.

Conclusion: The petitioners had locus standi, and the writ petition disclosed a live issue fit for adjudication.

Final Conclusion: The refusal to register the impugned shares was upheld, the retrospective validation attempt failed, and the requisition-led removal of directors was struck down. The writ petition succeeded, and consequential reliefs followed.

Ratio Decidendi: A statutory restriction framed in prohibitory terms must be complied with before the transaction is completed, and subordinate or administrative clarification cannot retrospectively validate an act done in breach of that restriction; equally, a statutory shareholder must exercise voting power only within the limits of the enabling statute and for a lawful purpose, failing which the action is arbitrary and liable to be struck down under Article 14.

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