1991 (4) TMI 295 - SC - Companies Law

Restrictions on appointment of certain persons or companies as agents or technical or management advisers in India

Issues Involved:
1. Validity of the arbitration clause in the Technical Collaboration Agreement.
2. Requirement of Reserve Bank of India (RBI) permission under Section 28 of the Foreign Exchange Regulation Act (FERA), 1973.
3. Whether the agreement was void ab initio for lack of RBI permission.
4. The effect of SIA approval on the validity of the agreement.
5. Whether the arbitration clause survives if the agreement is declared void.

Detailed Analysis:

1. Validity of the Arbitration Clause:
The principal question was whether the arbitration clause in Article 12 of the Technical Collaboration Agreement was rendered void due to the agreement itself being void for lack of RBI permission under Section 28 of FERA. The court examined the broad scope of the arbitration clause, which included "any claim, dispute or controversy arising out of or relating to this agreement," and concluded that it was wide enough to cover disputes regarding the interpretation and validity of the agreement itself. The High Court had previously held that the arbitration clause does not perish even if the main contract is terminated or rendered void.

2. Requirement of RBI Permission under Section 28 of FERA:
Section 28(1) of FERA mandates that a person or company resident outside India must obtain general or special permission from the RBI to act as a technical or management adviser in India. The court scrutinized whether such permission was indeed obtained. Paragraphs 24A.11 and 25A.2 of the Exchange Control Manual were examined to determine the procedure for securing RBI permission. The court found that the SIA approval and subsequent actions taken by the appellant and respondent indicated substantial compliance with the requirement of RBI permission.

3. Whether the Agreement was Void Ab Initio:
The appellant argued that the agreement was void ab initio due to the lack of RBI permission, as required under Section 28(1) of FERA. The court, however, found that the SIA approval process and the subsequent actions taken by the appellant and respondent, including the remittance of the first installment, indicated that the necessary permissions were effectively in place. The court emphasized that the substance of compliance was more important than the form, and the failure to communicate the RBI's decision was a ministerial lapse that did not nullify the permission granted.

4. Effect of SIA Approval on the Validity of the Agreement:
The court noted that the SIA approval process was designed to streamline permissions and avoid duplication. Once the SIA approved the collaboration and the agreement was "taken on record," it was deemed that RBI permission was also granted. The court found that the SIA approval, followed by the RBI's actions, including the authorization of remittance, constituted substantial compliance with Section 28(1) of FERA.

5. Whether the Arbitration Clause Survives if the Agreement is Declared Void:
Given the court's conclusion that RBI permission was effectively obtained, the question of whether the arbitration clause would survive if the agreement was voided under Section 28(2) became moot. The court did not need to address this issue further as the agreement was not rendered void.

Conclusion:
The Supreme Court dismissed the appeal, holding that the Technical Collaboration Agreement was valid and enforceable as the necessary RBI permission was obtained. The court emphasized that the arbitration clause was wide enough to cover disputes regarding the agreement's validity and that substantial compliance with the procedural requirements was sufficient. The court also expressed disapproval of the appellant's attempt to invalidate a part-performed agreement on hypertechnical grounds, urging the parties to resolve their differences amicably. The appeal was dismissed with costs quantified at Rs. 5,000.

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