2020 (8) TMI 25 - HC - FEMA

Permission for Direct Investment in certain cases - on the saying of the concerned Enforcement Directorate, permission is being refused to the petitioner - HELD THAT - In case an Indian party does not satisfy the eligibility norms of Regulation 6 then it may apply for RBI for approval. It is Regulation 6 which states that permission cannot be given in case the investigations are pending by the Law Enforcement agencies. Regulation 9 does not provide any such stipulation. Hence, prima facie the petitioner was correct in having approached RBI under Regulation 9. Counsel for RBI has pointed out to some inquiry initiated recently as mentioned in communication dated 14.08.2019 by Enforcement Directorate. The petitioner refutes this. We cannot help noticing that the corporate guarantee and the loans have prima facie been taken with the prior permission of RBI. It would hardly be appropriate for the RBI to now let the petitioner go in default and dishonour its corporate guarantee because some investigation proceedings are pending by law enforcement agencies which appears to have been pending since 2015. In fact, as noted above while these proceedings were pending as late as in 2018, RBI has given permission to the petitioner. The petitioner has made a prima facie case. Necessary permission for transmission of 90 million USD is not granted, as sought for, it is manifest that irreparable loss and injury would be caused to the petitioners as their credit rating would get downgraded. Pass the following directions - The respondent shall permit the petitioner to transmit the sum of 75 million USD forthwith, the respondent will also permit the petitioner to transmit another sum of 15 million USD by 30.06.2020 as has been prayed for. This permission is however subject to the following (i) The petitioner shall furnish an undertaking from the Board of Directors that if for some reason this court passes a direction to the petitioner to deposit the said remitted amount amounting to 90 million USD, the petitioner shall forthwith deposit the same in court. (ii) The petitioner shall give an undertaking that it has unencumbered assets worth 100 million USD or above and that the petitioner shall not sell, alienate or transfer or encumber these assets till the next date of hearing.

Summary

Issues:
Petitioner seeking permission for additional payments of USD 300 million to its subsidiary for debt obligations.

Analysis:
1. The petitioner filed a writ petition seeking permission to make additional commitments and payments of USD 300 million to its wholly owned subsidiary to meet debt obligations. The petitioner had made overseas direct investments and financial commitments for its subsidiaries after obtaining approval from RBI through an authorized dealer. The total investment in equity shares, loans, and corporate guarantees amounted to significant sums.

2. The petitioner and its subsidiary had restructured payment obligations to lenders, with a specific amount due by a certain date. However, the petitioner's application for remittance of USD 300 million was rejected by the respondent, citing reservations expressed by the Enforcement Directorate. Subsequently, renegotiations were made with lenders for revised payment schedules.

3. The petitioner argued that all transactions were conducted with RBI permissions, and no fresh inquiries under FEMA or PMLA had been initiated since 2015. The petitioner emphasized the urgency of obtaining permission to avoid default on guarantees and prevent a drastic fall in credit rating, affecting business operations adversely.

4. The RBI, on the other hand, declined permission based on inputs from the Enforcement Directorate regarding ongoing inquiries. The court examined relevant RBI regulations, particularly Regulation 6 and Regulation 9, which govern direct investments by Indian parties. Regulation 6 prohibits permission if investigations are pending, while Regulation 9 allows for seeking RBI approval in such cases.

5. Considering the permissions granted by RBI in the past and the absence of recent investigations impacting the petitioner's financial commitments, the court found merit in the petitioner's arguments. It noted the potential irreparable harm if permission for the remittance was not granted, leading to credit rating downgrades and defaults on guarantees.

6. Consequently, the court directed the respondent to permit the petitioner to transmit the specified amounts promptly, subject to certain undertakings regarding depositing funds if required by the court and maintaining unencumbered assets. The respondent was given time to file a counter affidavit, and the case was listed for further hearing on a specified date.

This detailed analysis of the judgment highlights the key arguments presented by the parties, the regulatory framework governing the case, and the court's reasoning leading to the directions issued in favor of the petitioner.