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2024 (11) TMI 476 - HC - FEMAEx post facto approval granted to the respondent for foreign investment - order passed by a public authority - investment in a new company, alleging it violated the FDI policy - ex post facto approval can be given to the proposal of the respondent no. 5 subject to conditions and compounding by the Reserve Bank of India. HELD THAT - In the present case a committee was constituted vide letter dated 16.02.2010 issued by DEA then the petitioners and the respondent no. 5 were called to present their respective case before committee. As further stated that once the committee gave its report then no need was felt to call the parties again before FIPB. The said Committee accorded ex post facto approval to the respondent no 5. It is not stand of the respondents no. 1 and 2 that the petitioners no. 2 and 3 and the respondent no. 5 were called for personal hearing or accorded personal hearing on 04.08.2010 which reflects that reconstituted Committee accorded approval to the respondent no. 5 on its proposal for investment made in the respondent no. 6 only on basis of submissions oral and documentary and documents already submitted to Committee prior to reconstitution till 17.03.2010. The reconstituted Committee under chairmanship of Sh. Bimal Julka should have afforded or given a fresh personal hearing to the petitioners no. 2 and 3 and the respondent no. 5 before according ex post facto approval to the respondent no 5. Although four members were common in Committees on 17.03.2010 and 04.08.2010 but on both occasions, Chairpersons of the Committee were different and reconstituted Committee without affording fresh opportunity to the parties and despite fact that personal hearing was given by the earlier Committee has accorded the approval to the respondent no. 5 which was in gross violation of the right to personal hearing and in turn Principles of Natural Justice. The approval to the respondent no. 5 either should have been granted by the Committee which was chaired by Ms. L. M. Vas or a fresh personal hearing must have given by the reconstituted Committed under chairmanship of Sh. Bimal Julka and failure to do so was gross violation of Principles of Natural Justice. Any authority when conferred with a discretionary power must exercise that power after applying its mind to the facts and circumstances of the case. The authority should not act mechanically in exercise of discretion. Supreme Court in East Coast Railway V Mahadev Appa Rao 2010 (7) TMI 967 - SUPREME COURT observed that every order passed by a public authority must disclose due and proper application of mind by the person making the order. Even at risk of repetition, it is stated that the petitioner no. 1 was incorporated due to execution of Joint Venture Agreement between the petitioners no. 2 and 3 and the respondent no. 5. The respondent no. 5 set up the respondent no. 6 on or about 14.06.2005 and made foreign investment therein. The petitioners made complaints to the respondents no. 1 to 3 for violation of Press Notes No. 1 3. The respondent no. 1 passed an order dated 02.04.2007 holding that the respondent no. 5 had violated FDI Policy in setting the respondent no. 6. The respondent no. 5 vide order dated 11.08.2009 passed in LPA bearing no 387 of 2008. LPA was permitted to approach FIPB for appropriate relief. Thereafter the respondent no. 5 filed an application/proposal on 6.10.2009 for grant of ex post facto approval under Press Note No. 1 (2005 Series) for investment made in the respondent no. 6. FIPB in its meeting held on 18.01.2010 directed for constitution of a committee to examine rival contentions of the petitioners and the respondent no. 5 and said Committee was set up under Chairmanship of Ms. L. M. Vas. The Committee gave a hearing to the petitioners no. 2 and 3 and the respondent no. 5 on 17.03.2010 and written submissions were also submitted by them. The Committee was reconstituted under chairmanship of Sh. Bimal Julka and said reconstituted committee made recommendation on 04.08.2010 for grant of ex post facto approval and said recommendation was considered by FIPB in its meeting held on 10.09.2010 and thereafter the respondent no. 2 granted ex post facto approval to the respondent no. 5. The perusal of Approval dated 29.09.2010 reflects that the Department of Economic Affairs, FIPB (FC SECTION), Ministry of Finance conveyed to the respondent no. 5 about grant of ex post facto approval by the Government of India subject to certain terms and conditions. The clause 10 of said Approval detailed about circumstances which were necessary for grant of approval to the respondent no. 5. The ex post facto approval dated 29.09.2010 was result of deliberations made in FIPB on the basis of recommendation made by Committee constituted by FIPB to examine rival contentions of the petitioners no. 2 and 3 and the respondent no. 5 about foreign investment made by the respondent no. 5 in the respondent no. 6. The petitioners no. 2 and 3 were given personal hearing by the Committee and written submissions were also submitted by the petitioners no. 2 and 3. It cannot be said that ex post facto Approval dated 29.09.2010 was granted without any reason although those reasons may not be specifically mentioned in Approval dated 29.09.2010. The argument advanced by the learned Senior Counsel for the petitioners that Approval dated 29.09.2010 was without any reason or passed without reasons does not have legal force. The contrary arguments advanced by the learned Senior Counsel for the respondents no. 5 and 6 carry legal force. In view of the fact that reconstituted Committee which recommended grant of approval to the respondent no. 5 on 04.08.2010 was not the Committee comprising same Chairperson/members which heard the petitioners no. 2 and 3 and the respondent no. 5 on 17.03.2010. Accordingly grant of approval on 29.09.2010 by the respondent no. 2 to the respondent no. 5 needs fresh reconsideration again by the Committee which shall be hearing the petitioners no. 2 and 3 and the respondent no. 5 on the proposal of the respondent no. 5 and shall be taking decision on the proposal made by the respondent no. 5. Accordingly, the respondent no. 2/Ministry of Finance/FIPB is directed to constitute fresh/new Committee to hear afresh on proposal of the respondent no. 5 stated to have been made on 06.10.2009 vide application bearing Ref. No. 210/2009-FC.1 within six weeks from date of this judgment and said Committee shall hear the petitioners no. 2 and 3 and the respondent no. 5 on proposal of the respondent no. 5 and thereafter same committee shall take appropriate decision on the proposal of the respondent no. 5. It is made clear that there shall not be any change in composition of the Committee or reconstitution of the Committee in any circumstance. The new Committee shall afford opportunity of being heard to the petitioners and the respondent no. 5 which shall also include filing of written submissions if any by the petitioners no. 2 and 3 and the respondent no. 5.
Issues Involved:
1. Legality of the ex post facto approval granted to the respondent for foreign investment. 2. Alleged violation of the principles of natural justice. 3. Requirement for providing reasons in administrative decisions. 4. Compliance with Foreign Direct Investment (FDI) policy and Press Notes. Issue-wise Detailed Analysis: 1. Legality of the ex post facto approval: The petitioners challenged the ex post facto approval granted by the Foreign Investment Promotion Board (FIPB) to the respondent for investment in a new company, alleging it violated the FDI policy. The approval was granted despite an existing joint venture between the petitioners and the respondent, which required prior government approval under Press Note No. 1 (2005 Series). The petitioners argued that the approval perpetuated illegality as it was subject to compounding by the Reserve Bank of India (RBI). The court noted that the approval was granted based on the recommendation of a reconstituted committee, which had not personally heard the petitioners, thus necessitating reconsideration by a new committee. 2. Alleged violation of the principles of natural justice: The petitioners contended that the reconstituted committee, which recommended the approval, did not afford them a fresh personal hearing, violating the principles of natural justice. The court emphasized the importance of personal hearings, stating that decisions should not be made by a committee that did not hear the parties involved. The court cited precedents, including the Supreme Court's decisions in Gullapalli Nageswara Rao and Hyundai Rotem Company, underscoring that if one authority hears and another decides, it defeats the purpose of personal hearing. The court directed the formation of a new committee to hear the parties afresh and take a decision on the proposal. 3. Requirement for providing reasons in administrative decisions: The petitioners argued that the approval and its subsequent amendment lacked recorded reasons, contrary to the principles of natural justice. The court referenced Supreme Court rulings, including S.N. Mukherjee v. Union of India, which mandate that reasons must be recorded to ensure transparency and minimize arbitrariness. The court acknowledged that while the approval may not have explicitly stated reasons, it was based on deliberations and recommendations. Nonetheless, the court stressed that the new committee must provide clear and explicit reasons in its decision. 4. Compliance with Foreign Direct Investment (FDI) policy and Press Notes: The petitioners alleged that the respondent's investment in a new company without obtaining a No Objection Certificate (NOC) from the joint venture partner violated the FDI policy as outlined in Press Notes 1 and 3. The court noted that the respondent's actions were initially found to be in violation of the FDI policy by the Department of Industrial Policy and Promotion. The court directed that the new committee should reconsider the proposal in light of the FDI policy and the relevant Press Notes, ensuring compliance with the established guidelines. Conclusion: The court directed the constitution of a new committee to reconsider the respondent's proposal for ex post facto approval, ensuring adherence to the principles of natural justice by providing a fresh hearing to the parties involved. The committee is required to provide clear reasons for its decision, ensuring compliance with the FDI policy and relevant Press Notes. The existing approval remains in effect until the new committee reaches a decision. The parties retain the right to pursue further legal action if aggrieved by the new decision.
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