Reserve Bank of India v. Jindal Steel and Power Limited

7. The learned Single Judge considered the objections of the appellant and held as under:a) The appellant rejected the application of the respondent on account of objections raised by ED. b) A conjoint reading of Regulation 6 and 9 would show that where an Indian Party is under any investigation by any investigation/enforcement agency or regulatory body, the Indian party can apply under Regulation 9 for making any direct investment in a joint venture or wholly owned subsidiary outside India. c) The learned Single Judge further held that it is clear from the reading of Regulations 6 and 9 that mere existence of an investigation by an investigation/enforcement agency or regulatory body ipso facto does not debar an Indian Party from direct investment in Joint Venture or wholly owned subsidiary outside India.

8. The learned Single Judge also held that the impugned order dated 30.12.19 is bad as:i) No reasons have been given for rejection. ii) The reasons given in the order communicated vide Email dated 30.12.2019 at 3:29 PM is also passed contrary to Regulation 9.

9. The learned Single Judge has relied upon Mahender Singh Gill Vs. Chief Election Commissioner, (1978) 1 SCC 405 that “8. when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out....”

10. The learned Single Judge further held that reasons given subsequently in the e-mail dated 30.12.2019, or in the counter affidavit do not satisfy the requirements of Regulation 9(3) so as to warrant denial of approval.

11. The learned Single Judge further held that the appellant while dealing with an application filed under Regulation 9 cannot reject the same at the behest of any other Statutory Agency like CBI, Enforcement Directorate, etc.

12. To come to this conclusion, the learned Single Judge relied upon Chintpurni Medical College & Hospital & Anr. Vs. State of Punjab & Ors. AIR 2018 SC 3119 and various other judgments of the Apex court.[1]

13. Lastly, the learned Single Judge held that the commitment and transactions of the respondent were done with prior consent and permission of the appellant. Now the appellant sought to take a U-turn and refused the permission to complete transactions which have already been cleared by the appellant. Dipak Babaria & Anr. vs. State of Gujarat & Ors. (2014) 3 SCC 502; Ajantha Transports (P) Ltd., Coimbatore vs. T V.K. Transports, Pulampatti, Coimbatore District, AIR 1975 SC 123.

14. Hence, the learned Single Judge quashed the impugned order dated 30.12.2019 wherein request for undertaking additional financial commitments was rejected by the appellant.

15. Aggrieved by the said order dated 04.12.2020, the appellant, RBI has filed the present appeal. Mr. Jayant Bhushan, learned Sr. Counsel appearing for the appellant has argued the following:-

1. The arguments of the learned Sr. Counsel for the appellant is that the reason for rejection communicated to the respondent on 30.12.2019 was an administrative action and unless and until a Statute/Regulation requires decision to be given, administrative decisions do not require “reasons to be given in writing”.

2. Learned Sr. Counsel has further contended that even though the order dated 30.12.2019 require no reasons to be given even then the appellant in order to ensure principles of natural justice, equity and fair-play communicated the reasons vide email dated 30.12.2019 sent at 3:29 PM giving the reasons as under:- “From: Semwal, Mayank <mayanksemwal@rbi,org.!n> Date: Man, Dec 30,2019 at 3:29 PM Subject: RE: RBI Letter To:deepak.sogani@iindalsteel.com<deepak.sogani@jindillsteel.co m> Dear Shri Sogani, With respect to the attached letter to your trailing e-mail, addressed to our CGM, Shri R.K Moolchandani, you may recall that during a meeting held in November, 2019 in CGM's cabin, your Company's representatives were advised that with a view to expedite decision on your request, we had already written to DoE for their views in the matter. As Shri Hemant Kumar has already discussed with the CGM through telecon today, in view of the reservations expressed by DoE/ongoing investigations, it shall not be possible for us to give approval Thanks and Regards, MayankSemwal Manager Foreign Exchange Dept. Reserve Bank of India Mumbai In support of the above contentions the learned Sr. Counsel for the appellant has relied on M/s. Mahabir Jute Mills LTD., Gorakhpore Vs. Shri Shibban Lal Saxena and Ors,[2] Union Of India and Ors. Vs. E.G. Nambudiri 3, and Hanuman Prasad and Ors. Vs. Union Of India And Anr.[4] The learned Sr. Counsel has further argued that E.G Nambudiri case as well as Hanuman Prasad case both have considered Mahender Singh Gill and the only harmonious construction which can be culled out from conjoint readings of the judgments is that when an administrative or a quasi-judicial order is passed the authorities passing those orders cannot be permitted to substitute their reasons or contents of orders by reference to subsequent affidavits or other actions which did not find place in the order.

(i) where the investment is more than USD 5 (five) million, by a Category

I Merchant Banker registered with SEBI or an Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country; and

(ii) in all other cases, by a

Chartered Accountant or a Certified Public Accountant. (b) for the purposes of investment by acquisition of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party’s shares, shall be accompanied by the valuation carried out by a Category I Merchant Banker registered with the SEBI or an Investment Banker/Merchant Banker registered with the appropriate regulatory authority in the host country. (3) The Reserve Bank may, inter alia, take into account following factors while considering the application made under sub-regulation (2):a. Prima facie viability of the Joint Venture/Wholly Owned Subsidiary outside India; b. Contribution to external trade and other benefits which will accrue to India through such investment; c. Financial position and business track record of the Indian Party and the foreign entity; d. Expertise and experience of the Indian Party in the same or related line of activity of the Joint Venture or Wholly Owned Subsidiary outside India.” Mr. Bhushan placed reliance on the words “inter alia” appearing in Regulation 9(3) to urge that the grounds mentioned in Regulation 9(3) are indicative and not exhaustive. He further argued that the appellant has to be satisfied and only then it is to grant approval. The satisfaction is “subjective satisfaction” of the appellant. The appellant before granting approval sought inputs from the DOE and based upon their inputs, the approval was not be granted. The learned Sr. Counsel for the appellant argued that DOE being an expert body its opinion was sought and after seeking their opinion which was contained in the letter of 03.12.2019, the appellant conveyed its rejection on 30.12.2019. The letter dated 03.12.2019 reads as under:

2. In this regard, I have been directed to inform you that the Directorate is conducting investigations against M/s Jindal Steel & Power Ltd (India) under Foreign Exchange Management Act, 1999 (FEMA) in 04 cases. Further, the Directorate is also conducting investigations under Prevention of Money Laundering Act, 2002 (PMLA)in 03 cases against M/s Jindal Steel & Power Ltd (India) and its related entities I persons.

3. Brief details of pending FEMA and PMLA cases are enclosed as Annexure-'A' and Annexure-'B' respectively.

4. In view of the above, at this stage this Directorate has objections to the subject proposal of M/s Jindal Steel & Power Ltd (India) for approval of additional financial commitment by way of granting loan/ equity/ guarantee/corporate guarantee to M/s Jindal Steel & Power Ltd (Mauritius) as the same may result in nonavailability of properties of attachment and jeopardise the on-going investigations by this Directorate.

5. This issues with the approval of Director of Enforcement. Encl: As above Yours faithfully, (Ashima Batra) Deputy Director”

(i) lack of territorial jurisdiction;

(ii) non joinder of necessary & proper party, ie. Enforcement

(iii) Delays and laches; and

(iv) Concealment of material facts and information.

Appellant pursuant to the Order USD) 19.06.2020 22.06.2020 USD 90 million 24.07.2020 29.07.2020 USD 54.99 million 29.09.2020 30.09.2020 USD 96.15 million The learned Sr. Counsel for the appellant argued that even though the appellant gave permission at three earlier instances, the same were pursuant to interim orders by the Learned Single Judge and the very fact that the appellant chose not to challenge the order and in fact comply with the same can neither be held against them nor will have bearing on the merits of on the present appeal. He relied on the Judgment M/s. Mahabir Jute Mills LTD., Gorakhpore Vs. Shri Shibban Lal Saxena and Or.,[6]

I. The learned Sr. Counsel has argued before us that the impugned judgment does not direct any permission to be given to the respondent. It is the submission of the learned Sr. Counsel for the appellant that the appellant cannot be worse off in filing the appeal than had he not filed the appeal.

16. On the other hand, Mr. Tripathi learned Sr. Counsel appearing on behalf of the respondent has stated that the aggregate financial commitment of the respondent in its three overseas subsidiary companies was as under:- Name of Overse as Direct Subsidi aries UIN No. Direct Investment Equity shares* Loans* Corporate Guarantees issued* Total (in USD)* JSPML NDWAZ[2]

102.84 370 864.[5] 1337.34 SOL NDWAZ[2]

22.35

NIL NIL 22.35

JSB SA NDWAZ[2]

148.59 NIL 0.32 148.91 TOTAL 273.78 370.0 864.82 1508.60 *All Figures in USD and are in millions

17. The respondent, its wholly owned subsidiary JSPML and its lenders have restructured payment, according to which the following payments are to be made by JSPML to its lenders on: Amount* Last date by which payment is to be made USD 153 Million USD 229.[5] Million USD 382.[5] Million March 31, 2020 March 31, 2021 March 31, 2022

18. Since the first instalment payable on 31.03.2020, had got delayed, the same had to be renegotiated with the lenders and the revised payment schedule is as under:- Payment Due Dates Amount 24.6.2020 USD 51 Million 31.7.2020 USD 40.80 Million 30.9.2020 USD 61.20 Million 31.3.2021 USD 229.50 Million 31.3.2022 USD 382.50 Million

19. In addition, the respondent has to also pay instalments of JSPAL along with additional interest and other charges which inflated the remittance to USD 90 million on 22.06.2020, USD

54.99 million on 29.07.2020 and USD 96.15 million on 30.09.2020.

20. In order to meet the contentions of the learned Sr. Counsel for the appellant, the learned Sr, Counsel for the respondent has stated that even the judgment relied upon by the appellant namely the E.G. Nambudiri case states that “competent authority has no license to act arbitrarily, he must act in a fair and just manner”.

21. The learned Sr. Counsel for the respondent has argued that even assuming without admitting that the reasons can be looked into, the bare perusal of the reasons clearly shows that the same are arbitrary and whimsical. In support, the learned Sr. Counsel for Respondent has drawn our attention to argue that the reasons communicated in the e-mail of 30.12.2019 as well as in the letter of 03.12.2019 only shows that the Directorate of Enforcement has indicated (a) pending of FEMA and PMLA cases. (b)in view of the above DOE has objections.

22. The learned Sr. Counsel for Respondent submitted that even after the letter of 03.12.2019 the appellant has granted permission to respondent on 09.09.2020. As per the letter of 09.09.2020, letter dated 09.09.20 reads as the appellant had “no objection from the FEMA angle.”

23. In para 22 of counter affidavit filed by the appellant in the writ petition filed by the respondent, the appellant has clearly stated: “22. It is submitted that the Respondent could have rejected the approval on the basis of the reservations expressed by ED but in on view of the pendency of the previous Writ Petition and in deference to the interim orders passed by this Hon’ble Court therein granted approval on conditions set out in therein. It is submitted that the conditions imposed in the letter of 09.09.2020 are not only in line with the FEMA ODI Regulations but also in line with the order passed by this Hon’ble Court and are necessary to protect the interests of the ED pending the adjudication of the previous Writ Petition. It is submitted that in view of the aforesaid, granting unconditional permission to the transactions as proposed by the Petitioner would amount to Respondent’s failure in discharge of its statutory duties.”

24. The learned Sr. Counsel has further stated that it is evident from the entire correspondence, pleadings & documents on records that at best the ED has only expressed “a reservation” and expressing a reservation cannot be construed reason for rejection of permission to remit foreign exchange.

25. The learned Sr. Counsel has further stated that some investigations & inquiries have been pending against the respondent. It is in this view of the matter that each and every permission that has been granted to the respondent has been without prejudice to any action that may be taken by RBI or any investigative agency on account of any contravention observed at the future date.

26. The learned Sr. Counsel has further submitted that JSPML, the wholly owned subsidiary of the respondent has already taken the credit of foreign exchange from various lenders and the foreign exchange has already come to the country. It is only this foreign currency which is now being repaid by the respondent.

27. Without prejudice to the above, the learned Sr. Counsel for the respondent has further argued that the factum of Foreign Exchange Violation has not been raised before the learned Single Judge either in the counter affidavit nor argued, and not even raised as a ground in the present appeal. It cannot be permitted to be argued for the first time during oral arguments.

28. The learned Sr. Counsel has further submitted that under PMLA as per Section 2(U) the only violation is proceeds of crime which is define as under:- “(u) “proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property;”

29. The present case is not a PMLA violation as it is not the case of the RBI nor is the case of the appellant that the amounts of 90 million USD, 54.99 million USD and 96.15 million USD which were remitted in the past were not used for the purpose for which they were remitted. The learned senior counsel further argued that the letter dated 14th August, 2019 shows that there is not even an investigation against the respondent but only an enquiry.

30. The learned Sr. Counsel has further drawn our attention to the letter of the 03.09.2020 of DOE to state that the DOE was perfectly satisfied with the order of 24.07.2020 passed by the learned Single Judge which is reproduced herein under:- “15. In these circumstances, in my opinion, the petitioner has made out a prima facie case. The interim directions as stated in the order of this court dated 19.06.2020 are reiterated.

16. In the facts I 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.”

31. The learned Sr. Counsel submits that even today they are ready to give an undertaking from the Board of Directors that if for some reason this court passes a direction to the respondent to deposit the said remitted amount amounting to 241.[5] million USD, the Respondent shall forthwith deposit the same in court. As well as an undertaking that it has unencumbered assets worth 241.[5] million USD or above and that the respondent shall not sell, alienate or transfer or encumber these assets without prior permission of this Court.

32. Learned Sr. Counsel for the respondent has further argued that the appellant in the past has given permissions four times for Corporate guarantee namely

33. After having given permission four times in the past there was no reason for the appellant to deny permission on 30.12.2019.

34. We have also heard the applicant in C.M. No. 1571/2021 namely Directorate of Enforcement and have passed the order separately.

35. Learned Sr. Counsel for appellant has also argued in the rejoinder reiterating the submissions made earlier.

36. The learned Sr. Counsel for the appellant has relied upon the Report of the 2019-2020 of the respondent to show that the net foreign exchange expenditure is more than the income generated by the respondent and hence the appeal deserves to be allowed. Analysis and Conclusion

37. After considering the entire documents on record and the submissions of the learned Sr. Counsels, we are unable to agree with the contentions of the learned Sr. Counsel for the appellant for the following reasons:-

We are of the view that the order dated 30.12.2019 gives no reason for rejecting the application of the respondent. Assuming for the sake of arguments that the reasons are contained in the e-mail of 30.12.2019 as well as in the letter of 03.12.2019, we are also required to see that the reasons so mentioned are not arbitrary, whimsical and in accordance with the scheme of the FEMA. The reasons for rejection must be considered and also must relate to the dominant purpose of the FEMA Regulations which is conservation of Foreign Exchange. The reason contained in the e-mail of 30.12.2019 namely “ reservation expressed by DOE/on-going investigations” and in the letter of 03.12.2019 namely “ conducting investigations against M/s Jindal Steel Power under FEMA in four cases” and “conducting investigations under PMLA in three cases,” cannot be a ground for denial of permission. The appellant cannot deny approval merely on the premise of pending investigation. It is not the case of the RBI, in the appeal, counter affidavit in the writ petition or argued before us that the remittances made in the past by the respondent have been misused. Till date pursuant to the permission of the RBI the respondent has remitted a total amount of

241.14 million USD (USD 90 million+ USD 54.99 million+ USD 96.15 million). Since, we have considered the reasons given for rejection in the order dated 30.12.2019 the reliance on Mahender Singh Gill, E.G Nambudiri and Hanuman Prasad case becomes irrelevant. Hence, we hold that even if we look at the reasons for rejection contained in the order dated 30.12.2019, the reasons are arbitrary, whimsical and do not further the scheme of Foreign Exchange Management Act.

9(3) We have considered the arguments of the learned Sr. Counsel for the appellant as well as learned Sr. Counsel for the respondent. We are of the view that Regulation 9(3) the word “ inter alia” of FEMA ODI Regulations must take its colour from the scheme, drift and tenor of the Act as well as Regulations. The FEMA ODI Regulations do not contemplate any role of the third party or the agency for approval or for prior approval, least of all investigating agency. The only mention of pending investigation is under Regulation 6(2) (iii) ie. If the Indian Party is under RBI caution list/lists of defaulters or under investigation by an investigation/enforcement agency or by a regulatory body. The very fact that Regulation 9(3) makes a conscious omission of pending investigations, by an investigation/ enforcement agency, further strengthens our opinion that merely an on-going enquiry /pending investigations cannot be a ground for rejection of permission to remit Foreign Exchange. It will be relevant to point out that all permissions given by the appellant have categorically stated “ each permission is without prejudice to any action that may be taken by any investigative agency on account of contravention” We also note with approval that even after “ so-called reservation” indicated by the DOE, the appellant has granted permission to the respondent on 09.09.2020 indicating “ no objection from the FEMA 1999 angle.” The counter affidavit of the appellant has reiterated that the conditions imposed in the letter of 09.09.2020 are in line with FEMA ODI Regulations. Hence, we hold that the denial of permission dated 30.12.2019 based upon Regulation 9(3) of FEMA ODI Regulations is wrong.

We are of the view, that the preliminary objections raised in the counter affidavit are not relevant/ germane to issue in controversy and hence have not been referred to by the learned Single Judge. i. Lack of territorial jurisdiction We are of the view that the authorised dealer bank i.e. the entity through which overseas direct investment is sought to be made, is State Bank of India, overseas branch New Delhi. The appellant himself in communication dated 01.01.2008(page 414), has directed the respondent to approach New Delhi Regional Office. Hence, no fault is found in the order of the learned Single Judge in entertaining the writ petition. ii. ED is a proper &necessary party The writ petition in the present case is impugning the order dated 30.12.2019 rejecting the respondent’s request to remit funds abroad. The same has to be tested in the context of the FEMA ODI Regulations. iii. Delays and laches The challenge in the writ petition is to the impugned order of the RBI dated 30.12.2019 and the writ petition has been filed on 17.06.2020. It is pertinent to mention that on account of COVID- 19, there had been a complete lockdown in the country from the last week of March, 2020. Hence, to our mind there is no delay which merits dismissal of the writ petition on this account. iv. Concealment of material facts To our minds, after going through the documents and hearing the parties, there has been no concealment of any material, fact or information which was relevant to the issue in controversy and which has not been brought to the notice of the learned Single Judge intentionally or malafidely, by the respondent. Hence, the learned Single Judge has not adverted to the preliminary objections raised in the counter affidavit.

We are unable to agree with this contention of the appellant as there is no finding given against the ED by the learned Single Judge. The learned Single Judge in Para 38 of the impugned order and judgment dated 04.12.2020 has observed merely that there is nothing on record of the writ court which shows that any demand appears to have been raised by the ED on the respondent. The learned Single Judge has further held that DOE has enough power under various statutory regimes to attach properties and assets of the defaulter individual.

We have already held and we rely on the observation of E.G Nambudiri that “ competent authority has no licence to act arbitrary, he must act in a fair and just manner.” The appellant in the present case has granted four permissions as elaborated by us in paragraph 32&33. The appellant even as late as 09.09.2020 has granted permission to the respondent ie. much after the alleged Panama/Mauritius Leaks on 14.08.2019 subject to

This clearly shows that the only requirement of the RBI was i. an undertaking from the Board of Director to deposit equivalent amount and ii. give an undertaking that the respondent has unencumbered assets worth the remittance amount. During the course of arguments the learned Sr. Counsel for the respondent has categorically made the statement that they would give a Board Resolution to deposit equivalent amount of the said financial commitment amounting to USD 241.[5] million and an undertaking that it had unencumbered assets worth USD 241.[5] million but the same was not acceptable to the respondent. Be that as it may, it is clear that the letter of 09.09.2020 was issued by the respondent after the so-called Panama/Mauritius Leaks and there is no justification or satisfactory explanation as to why the permission was granted even as late as 09.09.2020. Moreover, the learned Sr. Counsel for the appellant had relied on the Judgment M/s. Mahabir Jute Mills LTD., Gorakhpore Vs. Shri Shibban Lal Saxena and Ors to urge that the very fact that the appellant chose not to challenge the order and in fact comply with the same cannot be held against them. The said judgment need not detain us as we are of the opinion that the order dated 30.12.2019 is itself flawed. Hence, denial of permission of 30.12.2019 by the respondent is flawed.

38. For the reasons given in this judgment, and in this view of the matter, we find no infirmity in the order and judgment dated

04.12.2020 of the learned Single Judge passed in W.P. (C) NO. 3601/2020. Consequently, the present appeal is devoid of any merits and is dismissed along with accompanying applications. CM APPL. 1571/2020(Impleadment)

39. The present application has been filed under Order I Rule 10 read with Section 151 of CPC by the Directorate of Enforcement seeking impleadment as a respondent in the present appeal.

40. The case set up by the DOE is that the DOE informed the appellant that an inquiry under FEMA is being initiated against the respondent and others in respect of purchase and sale of four vessels registered in the name of respondent’s subsidiaries in Marshal Island during the year 2012-017. The applicant has further stated that the present proceedings will have an impact on the investigation being carried out by the DOE and hence sought impleadment in the present application as respondent.

41. The law with regard to impleadment has been settled by the Hon’ble Supreme Court in Mumbai International Airport (P) LTD. Vs. Regency Convention Centre and Hotels Private LTD. And Ors.[9] as well as Vidur Impex And Traders Private Limited And Ors. V.s Tosh Apartments Private Ltd. And Ors. 10

42. The Hon’ble Supreme Court has stated that a necessary party is the person who ought to be joined as the party in the proceedings and in whose absence an effective decree cannot be passed by the court.

43. A proper party is a person whose presence would enable the court who completely, effectively and properly adjudicate upon all matters and issues, though he may not be the person in favour of or against whom a decree is to be made for the reasons we have elaborated in our judgment dated 26.03.2021.

44. We feel that DOE is neither a proper nor a necessary party to the present proceedings as no relief is claimed against DOE ii. The disputes in question can be effectively, completely and properly be adjudicated in the absence of applicant.

45. In addition we are also persuaded by the fact that there is no averment in the application as to why DOE chose not to file a similar application for impleadment in the original writ proceedings and has only come up for the first time in the present appeal. The application is totally silent on the said ground. In this view of the matter we find no merit in the application and the same is dismissed.

JASMEET SINGH, J CHIEF JUSTICE MARCH 26, 2021