2020 (8) TMI 30 - HC - FEMA

Permission for Direct Investment in certain cases - direct investment in joint venture or wholly owned subsidiary outside India - application the petitioner seeks permission for remission of USD 54.99 Million on or before 31st July, 2020 - HELD THAT - What prima facie appears is that based on a communication written by Directorate of Enforcement containing cryptic information the RBI/respondent has chosen to withhold permission to the petitioner. The discretion under clause 9 of the abovenoted Regulations has to be exercised by RBI the respondent based on cogent facts and materials and not at the mere directions of Directorate of Enforcement. It was for the respondent/RBI to exercise its discretion in the facts and circumstances of the case keeping in view its own permissions given and subsequent facts and events that may have taken place after the permission was given. The discretion has to be exercised by RBI. The same cannot be delegated to the Enforcement Directorate. The impugned orders is also a non speaking order. Petitioner has made out a prima facie case. The interim directions as stated in the order are reiterated. Pass the following directions - The respondent shall permit the petitioner to transmit the sum of 54.99 million USD forthwith before 31.07.2020 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 55 million USD, the petitioner shall forthwith deposit the same in court. (ii)The petitioner shall give an undertaking that it has unencumbered assets worth 60 million USD or above and that the petitioner shall not sell, alienate or transfer or encumber these assets without prior permission of this Court.

Summary

Issues Involved:
1. Permission for remission of USD 54.99 Million by the petitioner.
2. Petitioner's prior overseas direct investment and financial commitments.
3. Rejection of petitioner's application by the respondent due to Enforcement Directorate's objections.
4. Legal provisions under FEMA and RBI regulations.
5. Respondent's objections and counter-affidavit.
6. Interim relief and directions by the court.

Detailed Analysis:

1. Permission for Remission of USD 54.99 Million:
The petitioner sought permission to remit USD 54.99 Million by 31st July 2020, based on similar grounds as an interim order dated 19.06.2020. The petitioner argued that this remission was essential to meet debt obligations and avoid default, which would adversely affect their credit rating.

2. Petitioner's Prior Overseas Direct Investment and Financial Commitments:
The petitioner had made substantial overseas direct investments and financial commitments to its wholly-owned subsidiaries, including Jindal Steel and Power (Mauritius) Limited (JSPML). These investments included equity shares, loans, and corporate guarantees, all made with prior approval from the Reserve Bank of India (RBI).

3. Rejection of Petitioner's Application by the Respondent:
The petitioner's application for remission was rejected by the respondent on 30.12.2019 due to "reservations expressed by the Enforcement Directorate." The petitioner argued that the rejection was unjustified as no fresh inquiries under FEMA or PMLA had been initiated since 2015, and previous permissions had been granted despite ongoing investigations.

4. Legal Provisions under FEMA and RBI Regulations:
The court examined relevant regulations under FEMA and RBI notifications, particularly Regulation 6 and Regulation 9. Regulation 6 prohibits direct investment if investigations are pending by law enforcement agencies, while Regulation 9 allows for RBI approval in such cases. The court noted that the petitioner had correctly approached RBI under Regulation 9, which does not stipulate the same restrictions as Regulation 6.

5. Respondent's Objections and Counter-Affidavit:
The respondent raised several objections in their counter-affidavit, including:
- Lack of territorial jurisdiction as the respondent's head office is in Mumbai.
- Non-joinder of necessary parties, specifically the Enforcement Directorate.
- Delay and laches, as the petition was filed long after the rejection of the application.
- Concealment of material information about ongoing investigations and enquiries by the Enforcement Directorate.

The respondent admitted that previous permissions had been granted but cited recent investigations as the reason for withholding permission.

6. Interim Relief and Directions by the Court:
The court observed that the respondent's rejection was based on cryptic communications from the Enforcement Directorate and lacked detailed reasoning. The court emphasized that the RBI should exercise its discretion based on cogent facts and not merely follow the Enforcement Directorate's directions. The court reiterated its interim directions from the order dated 19.06.2020, allowing the petitioner to remit USD 54.99 Million by 31.07.2020, subject to specific conditions, including:
- An undertaking from the Board of Directors to deposit the remitted amount if directed by the court.
- An undertaking that the petitioner has unencumbered assets worth 60 million USD or above and will not encumber these assets without court permission.

The application was disposed of, and further arguments were scheduled for 28.08.2020.