Court affirms RBI's statutory discretion in granting share issuance to NRI under Foreign Exchange Regulation Act, dismisses appeal challenging the validity of the decision.
The Calcutta High Court, in a significant ruling, upheld the Reserve Bank of India's (RBI) decision to grant permission for the issuance of shares to an NRI against imported second-hand medical equipment. The decision was challenged by Sajal Dutta, an individual shareholder of Ruby General Hospital Company Limited, who contended that the RBI's permission was contrary to the industrial policy and detrimental to his shareholding in the company.
The court, comprising Justices Madhuresh Prasad and Supratim Bhattacharya, dismissed the appeal filed by Sajal Dutta. The ruling confirmed that RBI acted within its statutory discretion under the Foreign Exchange Regulation Act (FERA), 1973, and followed relevant governmental directives and policies.
The case centered around the import of second-hand medical equipment by Dr. Kamal Dutta, an NRI and a significant shareholder in Ruby General Hospital Ltd. The company initially received approval from the Secretariat of Industrial Approval (SIA) for NRI investment, which envisaged the importation of new equipment. However, the RBI granted permission for the issuance of shares to Dr. Kamal on a non-repatriation basis against the second-hand equipment he imported.
The court noted that the RBI's decision was based on a directive from the Ministry of Finance, dated January 3, 1994, which allowed capitalization of payments for second-hand capital goods on a non-repatriable basis. It emphasized that judicial review could not be used to sit in appeal over statutory decisions unless they were perverse, lacked jurisdiction, or violated natural justice.
Despite allegations by Sajal Dutta that the permission violated the industrial policy and diminished his shareholding, the court found no infirmity in the RBI's decision. It highlighted that the company's decision to alter its investment strategy, moving away from the original SIA-approved model, justified the RBI's approach.
The bench also addressed procedural issues raised, including claims of natural justice violations due to document access denial. It concluded that the RBI's process was fair and that the decision was well-grounded in statutory guidelines and government policy.
The court reinforced that individual shareholders have the right to approach the judiciary to protect their interests if company decisions infringe upon their rights. However, it found that Sajal Dutta's grievances did not warrant overturning the RBI's carefully considered permission.
This judgment reaffirms the RBI's authority and discretion in matters of foreign exchange and investment, particularly regarding compliance with statutory and policy frameworks. It also underscores the limited scope of judicial intervention in administrative decisions unless substantial legal violations are evident.
Bottom Line:
Legal scrutiny of RBI's decision under Article 226 of the Constitution regarding issuance of shares to NRIs against imported equipment.
Statutory provision(s): Constitution of India, Article 226; Foreign Exchange Regulation Act, 1973 Sections 19(1)(d), 29(1)(b); Companies Act, 1956 Sections 397, 398
Sajal Dutta v. Reserve Bank of India, (Calcutta)(DB) : Law Finder Doc Id # 2827453
