2009 (7) TMI 1399 - HC - Indian Laws

Summary

Issues Involved:

1. Whether the Foreign Investment Promotion Board (FIPB) erred in granting approval to Takata Corporation for setting up a wholly owned subsidiary in India.
2. Applicability and interpretation of Press Notes 1 and 3 (2005 series) concerning foreign investment and joint ventures.
3. Whether the FIPB approval violated the contractual agreements between the parties.
4. The scope of judicial review in administrative decisions by FIPB.

Issue-wise Detailed Analysis:

1. FIPB Approval to Takata Corporation:

The primary issue was whether the FIPB's approval to Takata Corporation to establish a wholly owned subsidiary in India for manufacturing automotive airbag modules and steering wheels was erroneous. The petitioners argued that this approval violated the existing agreements and press notes, as Takata had a prior joint venture with the petitioners in the same field. The court noted that the FIPB was aware of the agreements and had considered the potential jeopardy to the Indian partner's interests. The FIPB had ensured that Takata would provide engineering assistance and components for four years, which exceeded the contractual obligations, demonstrating that the interests of the Indian partner were safeguarded.

2. Applicability and Interpretation of Press Notes 1 and 3 (2005 Series):

The court examined the applicability of Press Notes 1 and 3 (2005 series), which require government approval for foreign investments in cases where there is an existing joint venture in the same field. The term "same field" was defined by the four-digit National Industrial Classification (NIC) 1987 Code. It was admitted by both parties that Takata's new proposal fell within the same field as the previous joint venture, thus necessitating government approval. The court found that the FIPB had correctly applied the press notes and had considered the potential jeopardy to the existing joint venture when granting approval.

3. Violation of Contractual Agreements:

The petitioners contended that the FIPB approval violated the Shareholder's Agreement and the Collaboration Agreement, which were focused on the manufacture of seat belts. The court highlighted that the agreements contained a non-compete clause limited to seat belt manufacturing, and the parties had mutually agreed that the restrictions would only apply to seat belts. The court emphasized that contractual rights should be adjudicated in civil courts, not in writ proceedings, and found no breach of the agreements by the FIPB's decision.

4. Scope of Judicial Review:

The court clarified the scope of judicial review, emphasizing that it does not serve as an appellate forum to reassess the merits of administrative decisions. Instead, it focuses on the decision-making process, ensuring legality, rationality, and procedural propriety. The court found that the FIPB's decision was made within the legal boundaries, considering relevant facts and circumstances, and was not arbitrary or unreasonable. The FIPB had taken necessary precautions to protect the petitioners' interests, and the decision-making process was deemed fair and just.

Conclusion:

The court dismissed the writ petition, concluding that the FIPB had acted within its discretion and had adequately protected the interests of the Indian partner. The FIPB's approval was not contrary to the press notes or the contractual agreements, and the judicial review found no procedural impropriety or irrationality in the decision-making process. There was no order as to costs.