TaxTMI 
TaxTMI 
2023 (8) TMI 60
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....petitioners, shorn of unnecessary details, is culled out hereunder :- Shriram Holdings (Madras) Pvt. Ltd. (for short 'SHMPL') was incorporated and functioned primarily as a holding company, which held shares and investments in various entities under the umbrella of the Shriram Group. This included inter alia shares held by SHMPL in other entities of the Shriram Investments Ltd. (for short 'SIL') and Shriram Overseas Finance Ltd. (for short 'SOFL'), which entities were Non-Banking Finance Companies. The merger of SIL and SOFL with STFCL was carried out through Scheme of Amalgamation on 25.11.2005 and 1.12.2006 with effect from 1.4.2005. 3. It is the further case of the petitioners that in the year 2005, SHMPL entered into an arrangement with an investment entity, viz., Newbridge India Investments II Ltd., and M/s.Newbridge India Investments III Ltd. (for short 'Newbridge'), based in Mauritius. In view of the collaboration between Newbridge and SHMPL, investments to a total extent of Rs.600 Crores were to be made in SHMPL, SIL and SOFL. Newbridge, being an entity based outside India, to carry on business transactions with Newbridge, SHMPL ought to get the approval of the Govern....
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....the petitioners that a total amount of Rs.546,68,36,249/- was received by way of inward remittances as evident from the compounding application submitted by SHMPL to the 2nd respondent dated 10.05.2013 and it reveals that the amount was well within the limit of Rs.600 Crores approved by FIPB. 8. It is the further averment of the petitioners that SHMPL was under the bona fide assumption that the issuance of warrants would be within the ambit of approval granted by FIPB, as permission was granted for investment through subscription and/or subsequent acquisition of upto 74% of the equity shares of the company and consequent downstream investments. It is the further averment of the petitioners that the issue of warrants did not change the nature of the investments made, as these warrants were nothing but instruments, which would later fructify into issue of equity shares, as the approval granted by FIPB clearly permitted subsequent acquisition upto 74% of the equity shares of the company. It is the further averment of the petitioners that the amounts covering the warrants issued were well within the permitted limit of remittances, which were approved by FIPB. It is the further averm....
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....7.03.2007 and 31.07.2007 and informed that the entire warrants had been converted into equity shares in SHMPL within a period of 18 months from the date of allotment. 12. It is the further case of the petitioners that the investments made were consistent with FIPB approval as only 49% of the equity capital came to be held by Newbridge as against approved limit of 74% and the remittances were also within the limits prescribed. It is the further averment of the petitioners that the warrants issued were also only for the purpose of subsequently issuing equity shares, which issuance is below 74%. It is the further case of the petitioners that as the 2nd respondent had advised the STFCL to obtain post facto approval of FIPB, the letter is being addressed and it was further highlighted that there was no prohibition whatsoever on the issue of warrants under the FDI guidelines prevailing at the time of allotment in the year 2006. It is the further case of the petitioners that during October, 2010, a revised policy was framed allowing the issue of warrants with the approval of FIPB. Therefore, necessary approval was sought for by the petitioners from FIPB relating to the issue of partly ....
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....ation, be compounded and that the 2nd respondent had also issued detailed guidelines for compounding of contraventions under FEMA and, accordingly, the petitioners were informed to submit necessary applications for compounding the within a period of 45 days in line with the circulars. It is the specific case of the petitioners that it is not the case of the 2nd respondent at any point of time that issue of warrants were contrary to FEMA and the issues identified as contraventions were compoundable, which had been informed by the 2nd respondent to the petitioner. It is therefore the case of the petitioners that the above clearly shows that the 2nd respondent, basis the FIPB letter dated 20.03.2013, had come to the conclusion that there was no contravention of the provisions of FEMA and regulations made thereunder. 18. It is the further case of the petitioners that compounding application was filed on which the 2nd respondent passed an order dated 13.08.2013 in and by which the contraventions were compounded on payment of Rs.18,70,100/-, which was duly complied with by STFCL. 19. It is the case of the petitioners that when it was presumed that everything stood rested, out of th....
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....pondents 2 and 3 would go to show that the permission granted was only with regard to issue of equity shares and not for the issue of warrants. 22. It is the further averment of the petitioners that the findings of the 1st respondent in the impugned order that warrant as an instrument of FDI was recognized under FEMA, 1999 only by way of notification dated 30.06.2014 with effect from 8.7.2014 and, therefore, warrants issued on and after that date alone could be considered as capital instruments for the purpose of FEMA Regulations. It is the further finding of the 1st respondent that warrant was not a permitted FDI instrument till 7.7.2014 and that the Indian entities could only issue equity shares, preference shares and convertible debentures upto 7.7.2014 and further it has been held that only by its Press Note 9 dated 15.9.2015, FIPB had modified the FDI Policy of 2015 by allowing partly paid shares and warrants as eligible capital instruments and, therefore, any act done in the issuance of warrant prior to 7.7.2014, is a clear contravention of the provisions of FEMA and the Regulations. 23. It is the further contention of the petitioners that the finding with regard to FIP....
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....d. - Vs - Excise & Taxation Officer - cum - Assessing Authority &Ors. (2023 SCC OnLine SC 95), submitted that the power of the High Court under Article 226 to issue writs under the Constitution is plenary in nature and merely because an alternative remedy is available would not be a bar for the Court to reject the writ as not maintainable in a routine manner. It is the submission of the learned senior counsel that objection as to the maintainability goes to the root of the matter, which, if found to be of substance, would render the court incapable of adjudicating the lis, however, entertainability is entirely within the realm of discretion of the courts. 29. It is the further submission of the learned senior counsel submits that when the authority, who has passed the impugned order, has no jurisdiction to pass such order, the mere fact that an alternative remedy of appeal is available would not act as a bar in knocking the doors of this Court by invoking the writ jurisdiction. It is the submission of the learned senior counsel that when FIPB had already observed that no post facto approval was required to be granted as it would have no relevance in respect of the warrants issue....
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....s no authority to go behind the same. According to the learned senior counsel, this is a clear act of excess of jurisdiction, usurped by the 1st respondent, appropriating power on itself to determine whether approval ought to have been obtained by the petitioner. The order passed by the 1st respondent is nothing but a clear overreach into the domain of IFPB and RBI and when the said authorities have closed the issue, it does not lie within the jurisdiction ot the 1st respondent to pass any order contrary to the order passed by the said statutory authorities. 33. It is the further submission of the learned senior counsel that the empowerment of RBI u/s 6 (3) of FEMA, clearly provides the RBI to prohibit, restrict or regulate the matters, which are set out in the said provision. RBI having not chosen to either prohibit, restrict or regulate the issue of warrants issued by the petitioners during the period 2006-2007, which later stood issued as equity shares, it clearly establish that neither the FDI Policy nor the FEMA Regulations either restricted or prohibited the issuance of warrants in any manner, which would also be evident from the position adopted by IFPB in its communicati....
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....ore, the consequential order of the 1st respondent inflicting penalty on the petitioners for alleged contravention of the FEMA, 1999 is not only illegal, perverse and arbitrary, but it is also not supported by the provisions of FEMA, 1999 and, therefore, liable for interference. 34. It is the further submission of the learned senior counsel that pursuant to the orders of IFPB, which was placed before RBI by the petitioners for the purpose of satisfying the requirement of submission of the requisite forms relating to the issuance of equity shares, for the delayed submission, RBI had compounded the contravention relating to delay in submission of the requisite forms and also with regard to certain portion of the money, which was held by the petitioners, which was for the purpose of bank charges. Had RBI, being the custodian general of foreign exchange, was of the view that IFPB had not granted approval and that there was contravention of FEMA, necessarily RBI would have taken action and the fact that RBI had not taken any action on the petitioners is a clear indication that not only was RBI agreeable with the view of IFPB that the issuance of warrants were not in contravention of ....
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.... being in contravention of the provisions of FEMA, 1999, the 1st respondent has jurisdiction to take action and, therefore, the issuance of show cause notice cannot be said to be without jurisdiction. 37. It is the further submission of the learned Addl. Solicitor General that the approval granted by FIPB was only in relation to the issuance of equity shares and it does not cover issuance of share warrants. In fact, the approval letter of FIPB clearly specifies that the petitioners have to obtain requisite clearances, if the investments are in any way in violation of the provisions of FEMA, 1999. 38. It is the further submission of the learned Addl. Solicitor General that the failure of the petitioners to comply with reporting obligations under FEMA, as it is the duty cast upon the petitioners to file requisite forms setting out the compliance with all the applicable laws along with requisite certificates. Drawing the attention of this Court to the communication of RBI dated 12.3.2013, learned Addl. Solicitor General submits that the communication of RBI clearly reveals that the approval granted by FIPB was only in relation to equity shares and there was no approval granted i....
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....he petitioners, the impugned order had come to be passed, for the findings rendered therein and penalty was imposed on the petitioners. It is the further submission of the learned Addl. Solicitor General that inspite of the fact that a remedy of appeal is available against the said order, without resorting to the said remedy, the petitioners have rushed to this Court and, therefore, the present petition is not maintainable. 44. Referring to Section 2 (27) of the Companies Act, 1956, it is the submission of the learned Addl. Solicitor General that a 'member' in relation to a company does not include a bearer of a share-warrant of the company issued in pursuance of Section 114. It is therefore the submission of the learned Addl. Solicitor General that individuals, who hold share-warrants would not be construed as members of the company until such time the warrants are converted to share. Permission given by FIPB was only for issuance of fully paid-up shares and without approval of the Central Government, share warrants to bearers outside India could not be issued and in the absence of any permission from RBI, and also the fact that the concept of warrants not being available under....
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....n, reliance is placed on the decision of the Apex Court in Fibre Boards Pvt. Ltd., - Vs - Commissioner of Income Tax, Bangalore (2015 (10) SCC 333). 48. However, it is the submission of the learned Addl. Solicitor General that the prosecution taken up by the 1st respondent being relatable to a contravention, which was very much available in FEMA, 1999, the date on which the offence was committed is relevant and if the said act constitutes an offence, the subsequent amendment or repealment would not render the said act as not an offence. Therefore, the prosecution initiated by the 1st respondent against the petitioners for contraventions of FEMA, 1999 is wholly maintainable and cannot be said to be without jurisdiction. 49. It is the further submission of the learned Addl. Solicitor General that Section 37 of the FEMA, 1999, empowers the 1st respondent to initiate search and seizure in respect of the contraventions contained u/s 13 of FEMA, 1999. Therefore, the 1st respondent is infested with power and authority to initiate action for any contraventions of the provisions of FEMA, 1999 and it has not acted in excess of its jurisdiction. It is the further submission of the learn....
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.... Municipal Board, kairana, AIR 1960 SC 163, laid down that existence of an adequate legal remedy was a factor to be taken into consideration in the matter of granting Writs. This was followed by another Rashid case, namely, K.S.Rashid & Son Vs. The Income Tax Investigation Commissioner AIR 1954 SC 207 which reiterated the above proposition and held that where alternative remedy esisted, it would be a sound exercise of discreation to refuse to interfere in a petition under Article 226. This proposition was, however, qualified by the significant words, "unless there are good grounds therefor", which indicated that alternative remedy would not operate as an absolute bar and that Writ Petition under Article 226 could still be entertained in exceptional circumstances. 17. A Specific and clear rule was laid down in State of U.P. vs. Mohd. Nooh 1958 SCR 595 = AIR 1958 SC 86, as under : "But this rule requiring the exhaustion of statutory remedies before the Writ will be granted is a rule of policy convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequa....
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....cially in a case where the authority against whom the Writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation." 55. Reiterating the aforesaid proposition, a Division Bench of the Delhi High Court in R.M.Mehrotra - Vs - Enforcement Directorate & Ors. (MANU/DE/0706/2008), held as under :- "12. The power of the High Courts under Article 226 is indeed wide and any attempt to place a narrow construction upon its jurisdiction would militate the spirit of the Constitution itself. As was observed in Dwarkanath v. ITO Article 226 "ex facie confers a wide power on the High Courts to reach injustice wherever it is found". It is true that while exercising its power of review under Article 226 the Courts have a wide discretion, and would ordinarily, where alternative remedies exist, desist from exercising using them. But that cannot amount to a mechanical rejection of the power itself in the face of an alternative remedy. In State of Tripura v. Manoranjan Chakraborty the Supreme Court, speaking about the plenary nature of the jurisdiction under Article 226, stated as follows: As we see it, the point in issue is ....
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....ower to issue writs. While it is true that exercise of writ powers despite availability of a remedy under the very statute which has been invoked and has given rise to the action impugned in the writ petition ought not to be made in a routine manner, yet, the mere fact that the petitioner before the high court, in a given case, has not pursued the alternative remedy available to him/it cannot mechanically be construed as a ground for its dismissal. It is axiomatic that the high courts (bearing in mind the facts of each particular case) have a discretion whether to entertain a writ petition or not. One of the self-imposed restrictions on the exercise of power under Article 226 that has evolved through judicial precedents is that the high courts should normally not entertain a writ petition, where an effective and efficacious alternative remedy is available. At the same time, it must be remembered that mere availability of an alternative remedy of appeal or revision, which the party invoking the jurisdiction of the high court under Article 226 has not pursued, would not oust the jurisdiction of the high court and render a writ petition "not maintainable". In a long line of decisions,....
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....erfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies. ***" 6. At the end of the last century, this Court in paragraph 15 of the its decision reported in (1998) 8 SCC 1 (Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and Others) carved out the exceptions on the existence whereof a Writ Court would be justified in entertaining a writ petition despite the party approaching it not having availed the alternative remedy provided by the statute. The same read as under: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is violation of principles of natural justice; (iii) where the order or the proceedings are wholly without jurisdiction; or (iv) where the vires of an Act is challenged. (Emphasis Supplied) 57. From the above, it un....
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.... to inflow or outflow of money, viz., foreign exchange should be upon necessary grant of approval by the RBI. However, only insofar as grant of permission for receiving foreign exchange, approval of RBI is necessary. Insofar as enforcement with regard to the manner in which the foreign exchange is being handled, viz., whether it is within the four corners of the permission granted by the RBI or the appropriate authority of the Central Government, the 1st respondent has the powers to investigate into the issue. In the aforesaid backdrop, in view of the aforesaid issue, definitely these writ petitions are entertainable so as to find out whether the act of the 1st respondent in passing the impugned order is within the provisions of FEMA, 1999. 61. It is evidenced from the materials available on record that information was called for from the petitioners with regard to the receipt of foreign exchange way back in the year 2012 and, thereafter, things were at rest until a complaint was lodged by the Assistant Director, resulting in the issuance of show cause notice dated 30.03.2019 u/s 6 (3) (b) of FEMA, 1999 by the 1st respondent. The 1st respondent had, even in the year 2012, called....
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.... C.J. in Danmal Parshotamdas v. Baburam. The question raised in that case was whether a suit by an unregistered firm against a third party, after coming into force of section 69 of the Partnership Act, would be barred by that section in spite of the saving clause contained in section 74(b) of the Act. The Chief Justice felt some doubts on the point and was inclined to hold that section 74(b) would operate to save the suit although the right sought to be enforced by it had accrued prior to the commencement of the Act; but eventually he agreed with his colleague and held that section 69 would bar the suit. While discussing the provision of section 74(2) of the Partnership Act, in course of his judgment, the learned Chief Justice referred by way of analogy to section 6(e) of the General Clauses Act and observed as follows: "It seems that section 6(e) would apply to those cases only where a previous law has been simply repealed and there is no fresh legislation to take its place. Where an old law has been merely repealed, then the repeal would not affect any previous right acquired nor would it even affect a suit instituted subsequently in respect of a right, previously so acq....
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.... the light of these principles that we now proceed to examine the facts of the present case." 65. The observations in respect of Section 6 (e) of the General Clauses Act in the aforesaid decision would squarely stand attracted to the case on hand. In the case on hand, the repealment of Section 6 (3) was not followed up with a fresh legislation. In the absence of the old law being substituted with a new law, the provisions of the General Clauses Act would not apply. 66. However, it is to be pointed out that when Section 6 (3) (b) was available in the statute, the show cause notice has come to be issued, which is very well within the power and jurisdiction of the 1st respondent and, therefore, necessarily, the repealment of Section 6 (3) (b) would not stop the 1st respondent from proceeding with the due process of law subsequent to the issuance of the show cause notice, so long as there is no repugnancy with the other provisions of FEMA, 1999. Therefore, the act of the 1st respondent in following up on the show cause notice even after repealment of Section 6 (3) cannot bar the 1st respondent from proceeding further on the show cause notice. 67. However, it is to be pointed o....
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.... 3057595 26.07.2007 26,88,53,271/- 5 31.07.2007 Warrants 896177 11.12.2007 11,76,10,000/- 6 12.12.2007 Equity shares 392000 10.06.2009 85,26,00,000/- 7 12.06.2009 Equity shares 2842000 Total amount 546,68,36,249/- 71. There is no quarrel with regard to the foreign exchange received by the petitioners. In fact, the foreign exchange received by the petitioners is lower than the amount for which approval has been granted by FIPB. Thereafter, STFCL has issued equity shares to Newbridge to the extent of about Rs.300 Crores, which is also not in dispute. However, to the extent of about Rs.243 Crores, STFCL had, initially, issued share warrants. 72. In the meantime, since there was some typographical errors in the number of equity shares that were to be issued to Newbridge, necessary amendment application was filed with FIPB and amendment was also ordered as per order dated 31.01.2006. In respect of the receipt of foreign investments and the manner of its utilisation, the petitioners were to file necessary report in form FC-GPR (Foreign Collaboration - General Permission Route) before the RBI on which t....
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.... issue of warrants were without the approval of FIPB nor it was held that the issue of warrants were prohibited and, therefore, the act of the petitioners were in contravention of FEMA, 1999. 77. In the above backdrop of facts, this Court has to ascertain whether the issuance of share warrants was prohibited at the relevant point of time and without approval of FIPB issuance of share warrants would be a contravention of Section 6 (3) (b) of FEMA, 1999, warranting the 1st respondent to proceed with the issuance of show cause notice and resultant impugned order. 78. To answer this issue, it would be apposite for this Court to refer to the decision of the Apex Court in LIC's case (supra), wherein the Apex Court, on the powers of RBI vis-a-vis the Enforcement Directorate has observed thus:- "84. On an overall view of the several statutory provisions and judicial precedents to which we have referred we find that a shareholder has an undoubted interest in a Company, an interest which is represented by his share-holding. Share is movable property, with all the attributes of such property. The rights of a shareholders are (i) to elect directors and thus to participate in the....
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....ster the transfer and the company who is so asked to register the transfer of shares may not refuse to register the transfer except for a bona fide reason, neither arbitrarily nor for any collateral purpose. The paramount consideration is the interest of the company and the general interest of the shareholder. On the other hand, where, for instance, the requisite permission under the FERA is not obtained, it is open to the company and, indeed, it is bound to refuse to register the transfer of shares of an Indian company in favour of a non-resident. But once permission is obtained, whether before or after the purchase of the shares, the company cannot, thereafter, refuse to register the transfer of shares. Nor is It open to the company or any other authority or individual to take upon itself or himself, thereafter, the task of deciding whether the permission was rightly granted by the Reserve Bank of India. The provisions of the Foreign Exchange Regulation Act are so structured and woven as to make it clear that it is for the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the various rules, directions and....
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....nded to nor does it impinge in any manner or any legal right of the company or any of its shareholders. Conversely neither the company nor any of its shareholders is clothed with any special right to question any such permission." 79. From the above, it clearly transpires without any semblance of doubt that the custodian general of foreign exchange is the Reserve Bank of India and any permission with regard to inflow of foreign exchange would definitely have to have the permission of the Reserve Bank of India. 80. In the case on hand, the permission is for receiving foreign exchange in lieu of issuance of equity shares and for the said purpose, the appropriate authority to grant permission is FIPB. Newbridge, the foreign investor, intended to invest in equity shares in the petitioner-company, with further downstream investment in the sister concern of the petitioner company for which necessary approval was granted by FIPB. In fact, the 1st respondent is also not disputing the approval granted to the petitioners for issuance of equity shares. However, the show cause notice was issued only on account of the petitioner company issuing share warrants, which was later converted in....
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.... the aforesaid communication reveals that FIPB had nowhere said that the issuance of warrants at the point of time when it was issued by the petitioner company required permission. In fact, the order clearly spells out that there was no explicit policy at the material point of time with regard to issuance of warrants. The above stand of FIPB unequivocally speaks to the effect that there was no explicit policy with regard to warrants, which effectively could only mean that there was no prohibition on issuance of warrants. The further stand of FIPB that no post facto approval is required as the warrants have since been converted into equity shares should not be read in isolation and it should be read in conjunction with the earlier part of the order, where FIPB has intimated that there was no explicit policy with regard to issuance of warrants at the relevant point of time. 86. Omission to spell out warrants to be included in the term 'security' as defined u/s 2 (za) of FEMA cannot be taken mean that issuance of warrants is prohibited. Prohibition should be clearly spelt out either explicitly or even impliedly. There is neither an implicit nor an explicit prohibition. The mere omi....
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....t there is no permission. However, in case of acts, where there is clear prohibition, the question of permission does not arise. Only on that premise, the 3rd respondent had addressed that post facto approval is not required as there was no prohibition. 91. Further, one other aspect which also strengthens the case of the petitioners is that after the order of FIPB, when the forms FC-GPR were submitted with the 2nd respondent, though belatedly, along with the communication of the 3rd respondent, the question of no approval or prohibition was not raised by the RBI. Instead, the 2nd respondent put the petitioners on notice that there is contravention of Paras 9 (1)(A), 8 and 9 (1) (b) of Schedule I to Notification FEMA 20/2000-RB dated 3.5.2000 and that in terms of Section 15 of FEMA any contravention u/s 13 may, on an application, be compounded. Guidelines for compounding were also issued by the 2nd respondent. Accordingly, on the quantification of the compounding fees, the contraventions were compounded by the 2nd respondent. The 2nd respondent had nowhere stated that there is contravention of Section 6 (3) (b) of FEMA, 1999; rather the contravention related only to the delay in ....
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....r to 2014, the definition of capital to include 'warrant' has not been included and inclusion was made only by the circular of 2015. Holding so, a finding has been rendered that issuance of warrants is nothing but a contravention of the provisions of FEMA in the absence of approval. The 1st respondent had gone on to hold that no approval has been granted by FIPB. However, the fact remains that in the post facto approval sought for, FIPB has clearly mentioned that there was no explicit policy at the material point of time and, therefore, no post facto approval is required. The 1st respondent has interpreted the order of FIPB that no approval was needed for issue of warrants at this point of time simply means that it has no relevance since the warrants issued by Noticee 1 were already converted into equity shares to mean that though approval was necessary, it has no relevance at the material point of time. When FIPB, the authority, who is vested with power to grant approval has held that no post facto approval is required, interpreting the order in any other fashion, that too by an authority, who is not empowered to decide on the manner in which the said order has been passed, it doe....