TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 60
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....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 Government through Foreign Investment Promotion Board....
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..../- 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 averment of the petitioners that during the relevant point of ....
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....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 paid and unpaid warrants to enable them to approach the 2nd respo....
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....uidelines 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 the blue, after a period of six year from the compounding, a show cause notice da....
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....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 FIPB being aware of warrants and did not ask the petitioners to compound as compounding un....
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....bmitted 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 issued as the said warrants were already converted into equity shares, the 1st respondent, who is merely....
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....ess 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 communication. Merely because at the material time, the issuance of warrants was not explicit in the said provision, t....
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....ion 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 FEMA, 1999, but the petitioners having converted the warrants into equity shares by the time the matter was place....
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....r 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 in respect of partly paid and partly unpaid optionally convertible warrants and, therefore, SHMPL was directed to approach FIPB to obtain post facto approval. It is therefore the submission of the learned Addl. Solicitor Genera....
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....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 FEMA prior to 2014, the mere subsequent conversion of share warrants into equity shares would squarely be a contravention of the provisions of FEMA, 1999. 45. It is the further submission on behalf of the 1st respondent that the stand o....
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....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 learned Addl. Solicitor General that a writ under Article 226 is not maintainable, as the issue relating to issuance of warrants and its permissibility at the relevant point of time are disputed questions, which cannot be decided by this Court. Therefor....
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....54 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 adequate legal remedies." 18. This proposition was considered by a Constitution Bench of this Court in A.V.Venkateswaran, Collector of Customs. Bombay vs Ramchand Sobhraj Wadhwani & Anr. AIR 1961 SC 1506 and was affirmed and followed in the following words "The passages in the judgments of this Court we....
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....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 no longer res integra . This Court in Gujarat Agro Industries Co. Ltd. v. Municipal Corporation of the City of Ahmedabad dealing with an analogous provision, where discretion to waive pre-deposit was limited only to the extent of 25 per cent of the tax, was upheld by this Court. To the same effect is the decision of this Court in Shyam Kishor....
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....y 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, this Court has made it clear that availability of an alternative remedy does not operate as an absolute bar to the "maintainability" of a writ petition and that the rule, which requires a party to pursue the alternative remedy provided by a statute, is a rule of policy, convenience and discretion rather than a rule of law. Though elementary, it needs to be restate....
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....quate 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 unambiguously transpires that the availability of alternative remedy does not operate as an absolute bar to the maintainability of a writ petition and it is only a rule of policy, convenience and discretion rather than a rule of law. The Apex Court has culled out the circumstances in which a writ court would be justified in entertaining a writ petition inspite of the availability of alternative remedy. Therefore, in view of t....
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....ntral 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 upon certain information from the petitioners, which was duly given by the petitioners on 7.8.2012. However, no action was taken by the 1st respondent on the said response and out of the blue, the show cause notice had come to be issued after about seven years and the delay in the issuance of show cause notice vitiates the prosecution, is an ancillary contention advanced on behalf of the petitioners. On the above facts, this Court....
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.... 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 acquired. But where there is a new law which not only repeals the old law, but is substituted in place of the old law, section 6(e) of the General Clauses Act is not applicable, and we would have to fall back on the provisions of the new Act itself." These observations could not undoubtedly rank higher than mere obiter dictum for they were not at all necessary for purposes of the case, though undoubtedly they are entitled to great respect. In agreement with this dictum of Sulaiman C.J. the Hig....
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.... 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 out that the task of enforcement alone is left to the 1st respondent and it is only the 2nd who is empowered to decide on the permission that may be granted. In the case on hand, the 3rd respondent is entrusted with the task of granting approval for receipt of foreign exchange. Now the question that looms large is whether the 1st respondent can decide whether approval has been granted to the petitioners or not for a particular act, in the facts and circumstances of the case. To address the aforesaid issue,....
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....h 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 there was some delay for which compounding was resorted to and the petitioners have also paid the penalty towards compounding. 73. However, at the time of compounding, basing the information provided in the forms submitted by the petitioners, the 2nd respondent, viz., RBI, had referred to two sets of warrants issued by SHMPL to Newbridge observed that the approval of FIPB dated 27.12.2005 as amended on 31.01.2006 was only for 74% equity participation by Newbridge in SHMPL and downstream investment by SHMPL in STFCL and SOFL and there was no implicit approval for the issue of partly paid and unpaid optionally....
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....s 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 management through them; (ii) to vote on resolutions at meetings of the company; (iii) to enjoy the profits of the Company in the shape of dividends; (iv) to apply to the Court for relief in the case of oppression; (v) to apply to the Court for relief in the case of mismanagement; (vi) to apply to the Court for winding up of the Company; (vii) to share in the surplus on winding up. A share is transferable but while a transfer may be effective between transferor and transferee from the date of transfer, the transfer is truly complete and the transferee becomes a shareholder in the true and full sense of the tern, with all the ....
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....ares, 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 orders from time to time have been fulfilled and whether permission should be granted or not. The consequences of non-compliance with the provisions of the Act and the rules, orders and directions issued under the Act are mentioned in sees. 48, 50, 56 and 63 of the Act. There is no provision of the Act which enables an individual or authority functioning outside the Act to determine for his own or its own purpose whether the Reserve Bank was right or wrong in granting permission under Section 29(1) of the Act. As we said earlier, under the scheme of the Act, it is the Reserve Bank of India that is constituted and entrusted wi....
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....or 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 into equity shares. 81. The sequence of events for obtaining approval have already been extracted above. In this regard, the initial approval was granted by FIPB on 27.12.2005. Thereafter, as there was certain errors in the number of equity shares, further approval was solicited, which was also granted by FIPB on 31.01.2006. There is no quarrel that equity shares were issued by the petitioner company in favour of Newbridge. However, for an amount of about Rs.243 Crores, share warrants were issued, which was subsequently converted into equity shares. 82. The interregnum infraction in issuance of share warrants and subsequent conver....
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....hould 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 omission of warrants, therefore, cannot be construed that it is a prohibited instrument and, therefore, it is a contravention of Section 6 (3) (b) of FEMA, 1999. 87. Had FIPB was of the view that there was a clear prohibition, even impliedly, the tenor of the order of FIPB would have been in a different form. However, FIPB had spoken out that there was no explicit material denoting prohibition and, therefore, the conversion into equity shares already having taken place, there was no requirement for post facto approval. Even if FIPB had felt that a permission was required, though there was no prohibition for issuance of warrants, FIPB would have accord....
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....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 filing the forms FCGPR and certain other discrepancies. 92. In the aforesaid backdrop of the facts as could be seen from the materials available on record, when the 2nd respondent itself has accepted that there was no contravention of Section 6 (3) (b) of FEMA, 1999, the show cause notice issued by the 1st respondent to the petitioners alleging that there is no permission for issuance of share warrants is not only uncalled for, but is also an act usurping the powers of the 2nd respondent. 93. As laid down by the Apex Court in LIC case (supra), except for the RBI and in this case FIPB, no other authority is vested with any power nor may it assume to itself the powe....