TaxTMI 
TaxTMI 
2025 (12) TMI 1615
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....Rs. 11 crores. 88% of the project, i.e. Rs. 8 crores were to be by way of NRI participation. The balance 11.12% of the shares was to be contributed by resident Indians. The NRI investment was approved by the Department of industrial development, government of India, Secretariat of Industrial Approval (SIA for short). 2. Dr. Kamal Dutta was one of the 1st directors of the said company. He along with Dr Binod Prasad Sinha held 52.74% of the equity shares in the company. Dr. Kamal Dutta contributed Rs. 4.26 crores out of which about Rs. 3.5 crores were by way of second-hand equipment brought from the USA. Sajal contributed Rs. 1.23 crores. 3. The Reserve Bank of India granted permission on 29.03.1997 for allotment of shares to Dr. Kamal Dutta for the equipment brought by him from the United States of America (USA for short). The permission however was withdrawn on 20.05.1998 at the instance of the company, which challenged the approval granted by the Reserve Bank of India before the Calcutta High Court, by filing a writ petition No. 525 of 1999 The High Court directed for giving a personal hearing to the parties. 4. The Reserve Bank of India once again granted approval for al....
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....He continued to pursue the writ proceeding. 11. In such circumstance, the company filed a General Application bearing G.A. No. 360 of 2007 seeking dismissal of the writ petition on the ground of its non-maintainability in law, since the company had withdrawn from the proceeding. The company also raised an issue regarding the 2nd writ petitioner, an individual shareholder, having no locus standi to pursue the writ proceeding since the nature of grievance and relief did not involve any infringement of the writ petitioner's individual/fundamental rights. 12. The writ petition was dismissed by the Learned Single judge by a judgment dated 16.03.2016. The same was put to challenge by Sajal by filing an appeal (APO 114 of 2016). 13. G.A. No. 360 of 2007 was disposed of by the learned single judge by the self-same judgement dated 16.03.2016, which was assailed by Dr. Kamal, by filing a cross objection (OCOT No. 3 of 2016). 14. Thus, the appeal filed by Sajal Dutta (APO 114 of 2016) was taken up for consideration by this court along with the cross objection (OCOT 3 of 2016) filed by Dr. Kamal. 15. There is a relevant development in the meantime. Dr. Kamal, along with Dr. Bino....
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....ed 03.03.1997, which is not reflected in the Company records. The Company had sent communication in this regard to the RBI by its letters dated 16.04.1997 and 26.05.1997. The writ petition was thus filed by the Company challenging the permission granted by the RBI. 21. There is a significant development after filing of the writ petition. The Company resolved not to proceed with the writ petition. Pursuant to such decision, the Company has withdrawn its name from the writ petition, meaning thereby that the Company was not making an issue in respect of the permission for issuing shares in favour of Dr. Kamal, granted by the RBI on 07.05.2004. Therefore, Sajal could not have continued to pursue the writ petition. The resolution of the Board dated 16.09.2006, not to proceed with the writ petition was taken after Sajal seized to be Managing Director of the Company. He also seized to be a director. He, thereafter, was merely a shareholder of the Company. Therefore, there was no question of continuance of Sajal as petitioner No. 2, who was a petitioner as the Managing Director of the Company. 22. On the issue of maintainability Mr. Mitra further submitted that the CLB findings regar....
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....nst funds (foreign exchange) remitted/ invested in the Company from abroad by Dr. Kamal; and only if such funds were utilized for covering the cost of import of new capital goods. The SIA Approval was under the statement of industrial policy dated 24.07.1991, which contemplated such investment. The GM, RBI however, granted permission for allotment of shares on non-repatriable basis against import of secondhand low-quality equipment which was purchased abroad by Dr. Kamal contrary to the terms of SIA approval. 26. Grant of such permission by the RBI was therefore legally unsustainable and issuance of shares in favour of Dr. Kamal against import of such second-hand inferior equipment, would result in wrongly enhancing Dr. Kamal's shareholding and reducing the writ petitioner shareholding in the Company. It is under such circumstances that specific averments have been made in the writ petition regarding the RBI's order dated 07.05.2004 imposing unreasonable restriction on the petitioner's right to carry on trade, and that the RBI permission is to the benefit of Dr. Kamal, and at the expense of petitioner No. 1 as well as petitioner No. 2 (Sajal). 27. Insofar as petitioner No. 2 ....
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....rein the Apex Court considered that an action may impair the rights of a company, as also rights of a shareholder. Considering such a circumstance the Apex Court took into consideration that if the State action impairs the right of the shareholders as well as the company, the writ Court may not deny its jurisdiction to grant relief. The learned Single Judge considered that this principle was reiterated by the Apex Court in the case of the Neptune Assurance Co. Ltd. And Others vs. Union of India and Another reported in AIR 1973 SC 602 as also in the case of Bennett Coleman & Co. (Supra). The learned Single Judge further took note of the law stated by the Apex Court in the case of Press Trust of India and Another vs. Union of India and Others reported in AIR 1974 SC 1044. Paragraph 8 of the judgment has been taken note of. Upon a careful consideration of the above citations dealing with the invocation of writ jurisdiction by a shareholder the learned Single Judge found with reference to the facts of the present case that at the time of incorporation of the company Dr. Kamal had 52% shares and Sajal had 48% shares. The learned Single Judge took note of the fact that an alteration in t....
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....f the RBI taken in this regard would be beyond the scope of scrutiny under Article 226 of the Constitution of India. In an appropriate case where decision of a statutory authority is perverse without any basis, without taking into consideration relevant material and without jurisdiction, then it cannot be said that a Constitutional court exercising judicial review under Article 226 of the Constitution of India would be powerless to interfere with such decision. In such circumstances, including an order passed in violation of principles of natural justice, having civil consequences, in an appropriate case, decision of the RBI would be amenable to the writ jurisdiction under Article 226. 34. The learned Single Judge, therefore, in our opinion rightly found that the Company, and its principal shareholders i.e. Dr. Kamal as well as the writ petitioner (Sajal) had a vital interest in the grant of such license, or its revocation. The learned Single Judge, after a detailed consideration of the facts and law, rightly concluded that the company, Dr. Kamal, as well as Sajal had right to approach the writ Court assailing decision of the GM, RBI. 35. Upon consideration of the judgments c....
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....ow issuance of shares in lieu thereof. Under the provisions of the FERA, GM, RBI was bound to consider and follow the mandate laid down in the SIA approval. The RBI approval dated 07.05.2004, therefore, was unsustainable. 39. Dr. Kamal's reliance placed on the Ministry of Finance letter dated 03.01.1994 to sustain the approval dated 07.05.2004 is misplaced and unsustainable. It is submitted that the RBI could not ignore the provisions of the statement of Industrial Policy, which did not permit import of second-hand capital equipment. The decision of the RBI to grant permission for allotment of shares on repatriable basis in lieu of second-hand medical equipment is in deviation from and contrary to the SIA approval. The permission granted by the GM, RBI de horse the terms of SIA approval and the prevailing industrial policy and import policy is, therefore, unsustainable. The GM, RBI could not ignore these provisions while considering an application. In support of such contention, Mr. Mukherjee has relied upon Union of India vs. ABN Amro Bank and Others reported in (2013) 16 SCC 490 and Elizabeth Jacob vs. District Collector, Idukki and others reported in (2008) 15 SCC 166. 40.....
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.... in the case of ABN Amro Bank (Supra) and Elizabeth Jacob (Supra) is misplaced. A lack of consideration would arise only if an authority overlooks, or ignores a provision or policy relevant to the decision. Under such circumstance, in an appropriate case there may be scope to interfere with such decision taken by a statutory authority, ignoring other mandatory applicable provisions. In the present case, we have noticed that the modus of investment, approved by SIA policy dated 06.08.1993 was not pursued. There was a conscious decision to resort to different modus of investment, which did not involve bringing in any foreign capital or outflow of any foreign currency for purchase of equipment. Thus, there was no occasion whatsoever for the RBI to take into consideration the approval under the SIA policy dated 06.08.1993. 44. The learned Advocate also made submissions with reference to the judgment of the Company Law Board dated 29.10.1999 in C.P. No. 86 of 1997, paragraph 28 of which reads: "28. ...In this case, as is evident from the facts of the case, that it was decided to invest by way of supply of equipments as is apparent from the annual report for 1994-95 wherein, ....
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....-hand capital goods, the investment was permissible only on non-repatriable basis. Therefore, the RBI, by the order dated 07.05.2004 granted permission to issue shares to Dr. Kamal on non-repatriable basis against importation of second-hand capital equipment for the Company. The RBI was the authority vested with statutory power to grant permission in this regard. 48. The learned Advocate for the RBI further submitted that Clause 39B of the Industrial Policy and the extract from handbook for NRI investment in India relied upon, governed direct foreign monetary investment into a company on repatriable basis in view of the foreign exchange requirement for import of capital goods. In the present case there is no outflow of foreign exchange for import of new capital goods. The second-hand capital goods were purchased by Dr. Kamal from his own funds, outside the country, before bringing the second-hand machinery into the country for use of the Company. It was under such a circumstance that permission was sought from the RBI under the provisions of Section 19(1)(d) and 29(1)(b) of FERA for issuance of shares against such direct importation of second-hand capital goods. For such importa....
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....dent from a plain reading of the impugned order dated 07.05.2004, passed by the GM, RBI, relevant extract of which reads: "...I am of the opinion that the Reserve Bank has a rather a limited role under the Provisions of FERA, 1973 in the dispute between the parties and there are 3 issues to be addressed. I will be addressing them serially as follows: First Issue "Whether approval shall at all be granted or not" In terms of section 19(1)(d) any person (which includes a company) has to obtain RBI's permission before, Issuing shares to a person resident outside India. Section 19(1)(d) of FERA, 1973 reads as follows: "Notwithstanding anything contained in Section 81 of the Company's Act, 1958, no person shall, except with the general or special permission of the Reserve Bank issue, whether in India or elsewhere, any security which is registered or to be registered in India, to a person resident outside India." From the above, it is clear that any person (which includes a company) can issue shares to NRIs only with the prior permission of RBI for issuance of such shares. The issuance of shares can be on repatriation ....
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....mar Dutta had ceased to be the Chairman of the company and there was a Board Resolution of the company not to apply for shares against second-hand equipment. Hence the act of RBI, Kolkata was based on the documents/papers signed/submitted by Dr. Dutta representing himself as the Chairman of the Company. Therefore, the aforesaid permission was granted In good faith and without negligence. Dr. Dutta took delivery of the permission letter addressed to RGHL. In original, personally which was given to him as he represented himself as the Chairman of the Company and as such, the letter was not posted to the company at its registered office address. This permission was objected to by the Ruby General Hospital represented by Shri Sajal Dutta, the Managing Director of the company vide its letter 26th May 1997 mainly on the two. grounds mentioned earlier. RBI, Kolkata withdrew its approval letter dated 22.3.1997 on the basis of this complaint. However, RBI, Kolkata in good faith believing in the representation of Shri Sajal Dutta withdrew the approval letter issued to RGHL and handed over to Dr. Dutta on 22nd March 1997 by issuing another letter dated 2.6.1997 a copy of which was en....
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....y Investigation to delve into each and every claim and counter claim. Third Issue "Whether there shall be any monitory limit or limit to the number of shares" The permission shall be granted for the issue of 30,55,329 equity shares of Rs. 10/- each against import of secondhand medical equipment's to D. K. K. Dutta, NRI Investor on non-repatriation basis for which he had made the payments abroad and in support of which he had submitted documentary evidence at the time of making application which was scrutinized and found to be in order. I hereby direct that a copy of this Order be sent to both the parties to the proceedings before me...." 51. We are conscious of the limited scope of judicial review in such circumstance where there is no lack of jurisdiction in a statutory authority, and the decision dated 07.05.2004 is in exercise of statutory discretion, taking into consideration relevant material being the DO letter dated 03.01.1994. We, therefore, considering the settled law circumscribing the scope of judicial review in such matters refrain from sitting in appeal over the decision of a statutory body such as RBI. We find no infirmity in the....
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....to pass an order for winding up of the Company because it will not be in the interest of the Company nor in the interest of the parties. Therefore, we allow the appeals and set aside the impugned order dated 31-3-2005 passed by the learned Single Judge of the High Court and pass limited direction that all the resolutions which have been passed by the Board of Directors, or in the annual general meeting or extraordinary general meeting with regard to the raising of funds of Rs 40 lakhs in the meeting of 19-4-1995 and the meeting dated 16-2-1996 whereby Appellant 1 was stripped off his powers as Managing Director, the resolution by which Dr. Binod Prasad Sinha was removed from the office of Director and other resolutions by which the shares were allotted to the subsidiary company of Sajal Dutta or other persons are bad and we restore the position ante 19-4-1995 and direct that a fresh meeting be convened and proper decision be taken in the matter in the interest of the Company. We confirm the order and direction of CLB..." 54. The Apex Court has taken notice of pendency of the present writ petition. The judgment of the Apex Court extracted above takes note of the fact. In this con....