1990 (3) TMI 299 - HC - Companies Law

Restrictions on persons resident in India associating themselves by participating in concerns outside in India, Supplemental provisions

Summary

Issues Involved:
1. Violation of Section 27(1) of the Foreign Exchange Regulation Act, 1973.
2. Interpretation of Section 27(1) and its applicability to the case.
3. Legal status of the branch office in Dubai under Section 73(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Violation of Section 27(1) of the Foreign Exchange Regulation Act, 1973:
The primary issue was whether the respondent-company, by engaging in independent transactions through its Dubai branch office without the Central Government's permission, violated Section 27(1) of the Foreign Exchange Regulation Act, 1973. The Adjudicating Officer initially found the company guilty of this violation and imposed penalties. However, the Foreign Exchange Regulation Appellate Board overturned this decision, concluding that the provisions of Section 27(1) did not apply to the facts of the case.

2. Interpretation of Section 27(1) and its Applicability:
Section 27(1) states: "No person resident in India shall, without the previous permission of the Central Government associate himself with, or participate in, whether as promoter or otherwise, any concern outside India engaged in, or intending to engage in any activity or a trading, commercial or industrial nature, whether such concern is a body corporate or not." The court emphasized that the language of Section 27(1) is clear and unambiguous. It was determined that the head office in India did not "associate itself" with a foreign concern merely by operating its own branch office in Dubai. The court noted that a branch office is an extension of the company itself, and activities conducted by the branch are essentially activities of the company. Therefore, the head office could not be said to have violated Section 27(1) by conducting trading activities through its Dubai branch.

3. Legal Status of the Branch Office in Dubai under Section 73(1)(c):
Section 73(1)(c) provides that "a firm or the branch of a firm shall be treated in all respects as if such firm or branch were a body corporate resident where it is situated." The appellant argued that this provision meant the Dubai branch should be treated as a separate body corporate, implying that the head office engaged in trading with a foreign entity. The court rejected this argument, clarifying that Section 73(1)(c) is a supplementary provision meant for income and statutory obligations, not for construing violations under Section 27(1). The court concluded that the branch office's activities are inherently those of the company itself, and no separate association with a foreign concern had occurred.

Conclusion:
The court upheld the Foreign Exchange Regulation Appellate Board's decision, stating that the provisions of Section 27(1) were not applicable to the case. The appeal was dismissed, and no order as to costs was made. The court also refused the appellants' oral prayer for granting leave to appeal to the Supreme Court, asserting that the interpretation of Section 27(1) was clear and unambiguous.