2010 (10) TMI 226 - HC - FEMA

Appeal to High Court Territorial jurisdiction - directors had entered into an agreement for sale of their share holdings in their individual capacity and since the directors reside in Mumbai, Court have jurisdiction notwithstanding the fact that the company had its registered office in Bangalore - agreement was in respect of the sale of the shares of the company which as indicated above can be said to ordinarily carry out its business in Bangalore at the relevant time - whole intrinsic cause of action can also be said to have arisen in Bangalore and therefore the Company s appeal would lie before the High Court of Karnataka - Since the Company s appeal would lie before the High Court of Karnataka, the Appeal Nos. 72/09 and 73/09 filed by the appellants, who were the directors of the said company, cannot be segregated on the ground that the directors reside in Mumbai and, therefore, the said appeals would also lie before the High Court of Karnataka

Summary

Issues Involved:
1. Maintainability of appeals in the High Court of Bombay based on territorial jurisdiction.
2. Interpretation and application of Section 35 of the Foreign Exchange Management Act, 1999 (FEMA).
3. Determination of the place where the company "ordinarily carries on business."

Detailed Analysis:

1. Maintainability of Appeals Based on Territorial Jurisdiction
The primary issue raised by the respondents was whether the High Court of Bombay had the territorial jurisdiction to entertain the appeals. The respondents argued that the company, being registered and having its business operations centered in Bangalore, should file appeals in the High Court of Karnataka. The appellants contended that since the company had an administrative office and a bank account in Mumbai, and certain actions related to the case occurred in Mumbai, the High Court of Bombay should have jurisdiction.

2. Interpretation and Application of Section 35 of FEMA
Section 35 of FEMA stipulates that appeals should be filed in the High Court within the jurisdiction where the aggrieved party ordinarily resides or carries on business. The respondents emphasized that the company's primary business activities and registered office were in Bangalore, making the High Court of Karnataka the appropriate forum. The appellants argued that the administrative office and bank account in Mumbai, along with the directors' residence in Mumbai, justified filing the appeals in the High Court of Bombay.

3. Determination of the Place Where the Company "Ordinarily Carries on Business"
The court examined the factual matrix to determine where the company ordinarily carried on its business. The company was incorporated in Bangalore, with its registered office and primary business activities, including a significant agreement with M/s. Hemadri Associates, centered in Bangalore. The court concluded that the company's business operations were primarily based in Bangalore, despite having an administrative office and bank account in Mumbai.

Consideration and Judgment:
The court analyzed the statutory provisions and the facts presented. It noted that the company's registered office and main business activities were in Bangalore. The court held that the administrative office and bank account in Mumbai did not constitute the company ordinarily carrying on business in Mumbai. The court also dismissed the appellants' argument that the directors' residence in Mumbai could confer jurisdiction on the High Court of Bombay.

The court referred to relevant judgments, including the Apex Court's decision in Stridewell Leathers (P) Ltd. v. Bhankerpur Simbhaoli Beverages (P) Ltd., which supported the respondents' position. The court emphasized that the historical and business context at the time of the alleged contravention was crucial in determining jurisdiction.

Conclusion:
The court upheld the preliminary objection raised by the respondents, concluding that the appeals were not maintainable in the High Court of Bombay. The court directed the appellants to file their appeals in the High Court of Karnataka. Consequently, the related civil applications for stay were also disposed of, with liberty to the appellants to refile them in the High Court of Karnataka.

Final Order:
The appeals were disposed of with liberty to the appellants to file appeals before the High Court of Karnataka. No order as to costs. The related civil applications were also disposed of, with liberty to refile in the High Court of Karnataka.