TaxTMI 
TaxTMI 
2020 (12) TMI 187
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....ss 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 Equity shares* Loans* Corporate Guarantees issued* Total ....
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.... 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 prosecution evidence from 17.6.2020 to 23.6.2020. Petitioner and its directors have pleaded 'not guilty' and are contesting the charges. 2....
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....5.3.2020 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. However, on 30.12.2019 the respondent refused to grant permission to the petitioner to make additional commitment/payment as above. Hence, the present writ petition. 8. The re....
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....ceeds 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 aircraft by the shareholding company of the Petitioner and JSPML and Buyer's Credit loan taken by the Petitioner and its repayment in 2013. (v) The respondent admits that in the past permission had been granted by the respond....
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....ed 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. 10. It is further stated that pursuant to the application filed by the petitioner on 03.09.2019 to the respondent for grant of permission for making additional financial commitment of USD 300 million to JSPML, the respondent wrote to the ED to en....
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....:- "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 grant permission to the Petitioner for making additional financial commitment of USD 300 Million to JSPML and informed the Petitioner of the same vide its letter and email dated 30.12.2019. 19. Even after the Respondent's refusal to grant permission on account of the information provided....
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....pecified 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 to or on behalf of the joint venture company or wholly owned subsidiary. (d) investment in agricultural operations through overseas offices or directly (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines. Notwithstanding anything contained in these Regulations investment in Pakistan shall not be permitted. Notwithstanding anything contained ....
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....y, 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 in a joint venture or wholly owned subsidiary outside India subject to the conditions specified. One of the disqualifications for attraction of Regulation 6 is that the Indian party should not be on the Reserve Bank's Exporters' caution list or list of defaulters to the banking system or under investigation by any investigation/enforcement agency or the regulatory body. 20. Regulation 9 provides that where a party does not satisfy the eligibility norms under Regulation 6, it may apply to RBI for approval. A conjoint reading of Regulati....
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....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 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." 26. In the counter-affidavit, in the reasons that have been given for rejecting the application of the petitione....
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....ority, 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, the action taken is invalid on the ground of external dictation as well as on the obvious grounds of bad faith or abuse of power." The observations by the learned authors to the same effect in the 7th Edn. were relied upon by a Bench of three Judges of this Court in Anirudhsinhji Karansinhji Jadeja v. State of Gujarat [(1995) 5 SCC 302]. In that matter the appellant was produced before the Executive Magistrate, Gondal, on the allegation that certain weapons were recovered from him. The provisions of TADA had been invoked. The appellant's application for bail was rejected. A specific point was taken that the DSP had not g....
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.... 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 face has taken place except relying upon the communication received from the ED. I have dealt with this aspect in the interim order that was passed on 24.07.2020, relevant portion of which reads as follows:- "9. Reference in this context may be had to the original permission granted by respondent/RBI to the petitioner on 24.03.2015 where permission was granted to the petitioner for carrying out the following transactions:- "a) Issuance of SBLC by IndusInd Bank for an amount of USD 59.575 million.; b) Issuance of Corporate Guarantee of USD 45 million in favour of Axis Bank, DIFC Branch, Dubai to enable the WOS to avail a term loan of USD....
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....gly 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:- The respondent shall permit the petitioner to transmit the sum of 75 million USD forthwith, the respondent will also permit the petitioner to transmit another sum of 15 million USD by 30.06.2020 as has been prayed for. This permission is however subject to the following: (i) The petitioner shall furnish an undertaking from the Board of Directors that if for some reason this court passes a direction to the petitioner to deposit the said remitted amount amounting to 90 million USD, the petitioner shall forthwith deposit the same in court. (ii) The petitioner shall give an undertaking that it has unencumbered assets worth 100 million USD or above and that the petitioner shall not sell, alienate or tran....