Delhi High Court says Yes to Forex Remittance
to Mauritius
The Delhi High Court
today remanded to the Reserve Bank of India, an application by Jindal Steel and
Power Ltd (JSPL) to transmit $300 million to its wholly owned subsidiary Jindal
Steel and Power (Mauritius) Ltd (JSPML).
Directing the central
bank to reconsider its decision on JSPL's application, the court noted that the
RBI's order dated 30.12.2019, vide which it had rejected JSPL's application had
"serious consequences" inasmuch as the "commitments undertaken
abroad with the prior consent" of the RBI would go into default causing
huge losses to JSPL
The Single Judge Bench
of Justice Jayant Nath held, "I may note that
there is not even a whisper anywhere that there is any attempt on the part of
the petitioner to carry out an illegal transaction or that the proposed
transactions are an attempt to siphon away funds out of India beyond the reach
of law enforcing agencies. Clearly the rejection of the application of the
petitioner on 30.12.2019 is illegal…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."
JSPL claimed that it had
undertaken a corporate guarantee of $864.82 million towards loans by JSPML,
with RBI's consent, which the subsidiary had sought to enforce citing
unavailability of funds to meet its cash flow requirements. JSPL sought to make
additional financial commitments and payments of $300 million to aid its
subsidiary, for which it had applied to RBI.
The steel giant claimed
to have applied to the RBI as per the norms stipulated in the Foreign Exchange
Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 for
permission to remit $300 Million to JSPML, by way of equity
subscription/loan/corporate guarantee/bank guarantee or through other permitted
mode.
RBI rejected JSPL's
application vide order dated 30.12.2019, seeking the quashing of which, JSPL approached the Delhi High Court.
RBI submitted before the
court that, although in the past it had granted permission to JSPL to remit
certain funds and to furnish a corporate guarantee in relation to a loan taken
by JSPML, on 14.09.2018 certain investigations/enquiries had
been initiated on transactions between the parent and subsidiary
companies.
RBI claimed that this
pending enquiry was concealed by JSPL in its application dated 03.09.2019, and
that the Enforcement Directorate (ED) had raised objection to JSPL's
application due to which RBI did not grant permission to JSPL to go ahead with
the remittance. RBI further stated that even after its rejection order dated
30.12.2019, it had approached the ED, however, the ED refused to budge and
reiterated that the grant of approval for additional financial commitment would
"jeopardize ongoing investigations" and "may result in
non-availability of properties for attachment."
JSPL,
on the other hand, submitted that it had made an application to RBI only in
view of Regulation 6(2)(iii) r/w Regulation 9(1) of Regulations 2004 which
require an entity/party under investigation/enforcement of an agency or
regulatory body to obtain prior approval of RBI for any transaction falling
under aforesaid regulations, and that it had applied for approval only because
JSPL was admittedly under investigation and facing prosecution of various
offences under Indian Penal Code, 1860, Prevention of Corruption Act, 1988,
Prevention of Money Laundering Act, 2002 and FEMA Act, 1999.
However, it stated that
its remittance amount was within the permitted limit of 400% of its net worth,
and that had there been no trials/investigations pending, it would have been
entitled to automatically make payment to the extent
of 400% of its net worth without approval of RBI.
Ruling in favour of JSPL, the Single Judge Bench of Justice Jayant Nath stated that, the RBI had failed to assign any reasons
for rejection of JSPL's application in its original order and supplied reasons
for the same only in its counter affidavit submitted later. Relying
on the case of Mahender Singh Gill Vs.
Chief Election Commissioner, (1978) 1 SCC 405, the court upheld that, "When
a statutory functionary makes an order based on certain grounds, its validity
must be judged by the reasons so mentioned and cannot be supplemented by fresh
reasons in the shape of affidavit or otherwise," and said the RBI's
order was vitiated by the lack of reasons and liable to be set aside.
The
court also held that, in the reasons for rejection stated in the
counter-affidavit also, "no reference" had been made by RBI to any of
the factors stipulated in Regulation 9(3) of the 2004 Regulations, and that
while "the criteria stated in Regulation 9(3) may not be exhaustive and
other issues may be taken into account if facts so warrant, no such facts
either were stated by RBI." Therefore, it held that RBI's
rejection order was also in violation of Regulation 9.
Importantly, the Court
also held that facts and counter-affidavit by the RBI itself had revealed that
RBI had "acted at the behest and saying of the Enforcement
Directorate" and rejected JSPL's application in that light, therefore,
the same "amounted to the Respondent (RBI) acting at the behest of
another Agency. The impugned order is clearly vitiated."
The court relied on the
judgments in the cases of Ajantha
Transports (P) Ltd., Coimbatore vs. T.V.K. Transports, Pulampatti,
Coimbatore District, AIR 1975 SC 123, Dipak Babaria & Anr. vs. State of Gujarat & Ors.
(2014) 3 SCC 502, Chintpurni
Medical College & Hospital & Anr. Vs. State of
Punjab & Ors., AIR 2018 SC 3119, to hold that
RBI acting at the behest of ED vitiated its order.