TaxTMI 
TaxTMI 
2020 (12) TMI 187
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.... The petitioner is said to be a company with business interest in steel manufacturing, power generation, mining of iron ore, lime stone and coal. It is claimed that the petitioner has a business strategy of both forward and backward integration so as to be the most competitive company in the market. To optimise the cost of raw material required for manufacturing as also to have a linkage to raw material like coking coal, the petitioner set up various overseas subsidiaries including (i) Jindal Steel & Power (Mauritius) Ltd. (also called JSPML), a company incorporated under the laws of Mauritius; (ii) Skyhigh Overseas Ltd. (also called SOL), a company incorporated under the laws of Mauritius; and (iii) Jindal Steel Bolivia (also called JSBSA). 3. It is stated that the petitioner has been making overseas direct investment and has also undertaken other financial commitments in respect of the aforesaid subsidiaries after getting them approved from RBI through SBI. It is stated that as on 31.03.2020, the aggregate financial commitment of the petitioner in the aforesaid three subsidiary companies is as follows:- "Name of Overseas Direct Subsidiaries UIN No. Direct Investment E....
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....t of defaulters to the banking system circulated by RBI or under investigation by any investigation/enforcement agency or regulatory body, prior approval of RBI for making direct investment in a joint venture or wholly owned subsidiary outside India is required under Clause 9 of the said 2004 Regulations. 6. The writ petition lists out trials and investigations that the petitioner is facing. The details of which are as follows:- "23.1 A case bearing CC No. 248/2019 (erstwhile CC No. 44/2016 in RC No. 219 2013 E 0006) is pending before the Ld. Special Judge - CBI, Rouse Avenue Courts, New Delhi against the Petitioner and M/s Gagan Infra Energy Limited, M/s Jindal Reality Private Limited and their then and present directors, public servants and other accused persons in relation to alleged illegalities/ irregularity in the allocation of Amarkonda Muragadangal Coal block. The Ld. Special CBI Court vide its Order dated 16 August 2018 had framed charges for the offences u/s 420 Indian Penal Code 1860 [hereinafter "IPC"], and S. 13(1)(d) of the Prevention of Corruption Act, 1988 [hereinafter "PC Act"] against all accused persons. The matter is now put up for further prosecutio....
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....tted to the office of Enforcement Directorate, and the matter is pending investigation. 23.7 Notice bearing No. 1044/PE 219/2012/E/0004/CBI/EOIII New Delhi dated 25.3.2020 has been received from CBI for preliminary enquiry being conducted with regard to Petitioner seeking allocation of Utkal-D coal block in December 1999. It is pertinent to mention that the Utkal-D coal block was formally not allocated to Petitioner. The relevant documents have been submitted to the office of CBI." 7. The petitioner wishes to remit USD 300 Million to JSPML by way of equity subscription/loan/corporate guarantee/bank guarantee or through other permitted mode. This is within the permitted limit of 400% of the net worth of the petitioner. It is stated that had there been no trials/investigations pending, the petitioner was entitled to automatically make payment to the extent of 400% of its net worth without approval of RBI. However, as the aforesaid trials/investigations are pending, the petitioner submitted an application on 03.09.2019 for respondent's approval to make an additional financial commitment in JSPML by way of equity subscription/loan/corporate guarantee/bank guarantee, etc. Ho....
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....stigation against the Petitioner regarding unrealized export proceeds. Investigation in this case was initiated on the basis of communication received from SIT which in turn was received from RBI. Unrealised export proceeds for an amount of Rs. 751,48,99,454/- of the Petitioner for period prior to March 2014 and March 2014 to March 2015 were reported in the said communication. In this regard clarification was sought from the concerned AD Bank, which has reported Nil pendency regarding aforesaid amount. However, one transaction of USD 9.03 Million of the Petitioner with M/s Ircon International Ltd, Bangladesh is still under investigation for suspected contraventions of FEMA. * Enquiry under the provisions of FEMA in respect of purchase and sale of 4 vessels registered in the names of their subsidiaries in Marshall Island during the year 2012 to 2017. For the aforesaid procurement of vessels deal, these entities have entered into various Joint Ventures by acquiring/transferring shares from time to time during the period. The details of these entities associated in the process amongst others include JSPML. * Investigation in two cases under FEMA regarding purchase of....
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....petitioner has given a corporate guarantee of 864.82 million dollars. It is further stated that the petitioner and its wholly owned subsidiary JSPML have restructured the payment of the aforesaid due amount to lenders by restructuring agreement dated 07.02.2018. It is admitted that the petitioner had been granted permission by the respondent to remit certain sums and to furnish a corporate guarantee in relation to a loan taken by JSPML. It is further claimed that post grant of such approval, on 14.09.2018 certain enquiries/investigations have been initiated with regard to the transactions between the Petitioner and JSPML. It is in the course of such enquiry that the Enforcement Directorate (ED) vide its letter dated 14.08.2019 wrote to the respondent seeking certain information/documents in relation to an enquiry being initiated against the petitioner and some other entities including JSPML in respect of purchase and sale of 4 vessels registered in the name of their subsidiaries in the Marshall Islands during 2012 to 2017. It is claimed that the pendency of this enquiry was concealed by the petitioner in its application to the respondent dated 03.09.2019 and even before this court.....
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....ed in rejecting the application of the petitioner in view of the stand taken by the Enforcement Directorate. 14. I may now look at the impugned order dated 30.12.2019 by which order the application of the petitioner was rejected. The same reads as follows:- "IP, Jindal Steel and Power Ltd -WOS, Jindal Steel and Power (Mauritius) Ltd, (UIN:NDWAZ20070442): Request for undertaking outward Remittance. Please refer to your letter dated October 23, 2019 on the captioned subject. 2. In this connection, we advise that your application concerning IP's request for undertaking additional financial commitment(s) to its captioned WOS was considered carefully, but we regret to inform that the said request cannot be acceded to." 15. Hence, by a cryptic non-speaking order, the respondent RBI has rejected the application of the petitioner without giving any reasons whatsoever. 16. The reasons for having passed the impugned order and rejecting the application of the petitioner are stated in the counter-affidavit in paras 18 and 19 of the preliminary objections which read as follows:- "18. The Respondent, in view of the objections raised by the ED did not ....
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....ectorate. 18. I may now look at the applicable regulations, namely, the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations 2004. Regulation 6 and Regulation 9 of the said Regulations read as follows:- "6. Permission for Direct Investment in certain cases (1) Subject to the conditions specified in sub-regulation (2), (and Regulation 7 in case investment in financial services sector) an Indian party may make direct investment in a Joint Venture or Wholly Owned Subsidiary outside India. (2) (i) The total financial commitment of the Indian party in Joint Ventures/Wholly Owned Subsidiaries shall not exceed 100% of the net worth of the Indian Party as on the date of the last audited balance sheet; Explanation: - For the purpose of the limit of 100% of the net worth the following shall be reckoned, namely: (a) cash remittance by market purchase and /or equivalent rupee investments in case of Nepal and Bhutan (b) capitalisation of export proceeds and other dues and entitlements as mentioned in Regulation 11; (c) fifty per cent of the value of guarantees issued by the Indian party ....
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....by a Chartered Accountant or a Certified Public Accountant. (b) for the purposes of investment by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party's shares, shall be accompanied by the valuation carried out by a Category I Merchant Banker registered with the SEBI or an Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country. (3) The Reserve Bank may, inter alia, take into account following factors while considering the application made under sub-regulation (2): a) Prima facie viability of the Joint Venture/Wholly Owned Subsidiary outside India; b) Contribution to external trade and other benefits which will accrue to India through such investment; c) Financial position and business track record of the Indian Party and the foreign entity; d) Expertise and experience of the Indian Party in the same or related line of activity of the Joint Venture or Wholly Owned Subsidiary outside India." 19. Hence, as per Regulation 6 of the said Regulations, an Indian party may make direct investment ....
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.... cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out......" 23. In the present case, admittedly there are no reasons given. This on the face of it shows that the said impugned order is vitiated and liable to be set aside. 24. Secondly, I may for completely dealing with the case of the respondent in any case look at the reasons given by the respondent in the counter-affidavit to justify rejection of the application of the petitioner. As noted above, the counteraffidavit shows that the application of the petitioner was rejected in view of the objection raised by the Enforcement Directorate in its letter dated 03.12.2019, as noted above. 25. Regulation 9 (3) of the 2004 Regulations spells out the criteria to be adopted by RBI while considering an application made by a party under Regulation 9. The relevant parameters that are spelt out are as follows:- "..... (3) The Reserve Bank may, inter alia, take into account following factors while considering the application made under ....
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....ts power with someone else, or may allow someone else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by Parliament is exercised, at least in part, by the wrong authority, and the resulting decision is ultra vires and void. So strict are the courts in applying this principle that they condemn some administrative arrangements which must seem quite natural and proper to those who make them." 29. Hence, where the authority which is given to a functionary is exercised, at least in part, by the wrong authority, the resulting decision is ultra virus and void. 30. Reference may also be had to another judgment of the Supreme Court in the case of Dipak Babaria & Anr. vs. State of Gujarat & Ors. (2014) 3 SCC 502 where the Court held has follows:- "69. Besides, the present case is clearly a case of dictation by the State Government to the Collector. As observed by Wade and Forsyth in the 10th Edn. of Administrative Law: "If the Minister's intervention is in fact the effective cause, and if the power to act belongs to a body which ought to act independently,....
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....t, the grant will be bad. The power to grant permits under Section 47 of the Act is limited to the purposes for which it is meant to be exercised. Considerations which are relevant for applying Articles 14 and 19(1)(g) of the Constitution could not be foreign to the scope of Section 47(1)(a) which is fairly wide." 32. The facts and the counter-affidavit of the respondent reveal that the respondent has acted at the behest and saying of the Enforcement Directorate and has rejected the application of the petitioner by passing the impugned order dated 30.12.2019. The same amounts to the respondent acting at the behest of another Agency. The impugned order is clearly vitiated. 33. There is another aspect which persuades me to hold that the impugned order is illegal. Admittedly the commitments and transactions carried out earlier by the petitioner with its wholly owned subsidiary were done with the prior consent and permission of RBI. By the impugned order, RBI seeks to take a uturn and seeks to refuse permission to the petitioner to complete transactions which have already been cleared earlier by the respondent. No plausible explanation is sought to be given as to why this volte f....
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....rly, while exercising powers under Regulation 9 of the 2004 Regulations, RBI has completely ignored the relevant factors and has merely at the behest of the Enforcement Directorate passed the impugned order dated 30.12.2019. Past permissions given have been ignored. I may note that there is not even a whisper anywhere that there is any attempt on the part of the petitioner to carry out an illegal transaction or that the proposed transactions are an attempt to siphon away funds out of India beyond the reach of law enforcing agencies. Clearly the rejection of the application of the petitioner on 30.12.2019 is illegal. It is also contrary to Regulation 9 of the 2004 Regulations. I accordingly quash the communication dated 30.12.2019. The matter is remanded back to RBI to reconsider the application made by the petitioner afresh as per law and in accordance with the principles noted above. Needful be done by RBI expeditiously. 36. I may note that this court had passed interim orders in favour of the petitioner on 19.06.2020 and 24.07.2020. On 19.06.2020, the following directions were passed:- "13. In these facts and circumstances, I pass the following directions:- T....