Delhi High Court Quashes ED's Denial Of NOC To Times Of India Group For Overseas Investments

Noting that the denial of NOC lacked any clear or rational reasons, Justice Sanjeev Narula stated that the previous allegations of overvaluation or misuse of foreign exchange, for which no proceedings have been initiated, cannot be a reason for the denial of NOC.

The petitioners, Times Internet Limited and Bennet Coleman & Co. Ltd ('Times Group') have Wholly Owned Subsidiaries (WOS) abroad to facilitate international operations and investments. As part of their business strategy, the Times Group are required to remit funds to these WOS in the form of overseas direct investments.

For this purpose, the Times Group sought NOCs from the ED under Rule 10 of the Foreign Exchange Management (Overseas Investment) Rules (FEMA OI Rules), 2022. However, their request was denied by the ED.

For context, Rule 10 of FEMA OI Rules, 2022, stipulates certain conditions for obtaining a NOC from a relevant agency under specific circumstances including when a person resident in India is under investigation by any financial regulators or investigative agencies such as the ED, CBI, or SFIO.

The ED's primary ground for rejecting the NOC was due to the allegation that during previous ODI transactions in 2017 and 2018, TIL invested in a company through an alleged overvaluation of shares, resulting in an excessive outflow of foreign exchange under the guise of legitimate investments.

However, the Court did not accept this ground and remarked that “The issuance of summons under Section 37(1) of FEMA, 1999, over three years ago, without any subsequent initiation of formal proceedings or adjudication against TIL or its parent company, Bennet Coleman, raises serious questions.”

The Court stated that ED's investigation for an extended period cannot be used to indefinitely impede the Times Group's legitimate business activities.

“Investigations lingering in limbo for such an extended period cannot serve as a tool to indefinitely impede a company's legitimate business activities.”

The Court remarked that nothing prevented the ED from pressing specific charges against the Times Group. It noted that if ED had any cogent material indicating overvaluation or misuse of foreign exchange, they ought to have initiated proceedings under FEMA, 1999.

It further observed as ED only made allegations till now, the Times Group's valuation conducted by an expert body had a 'probative force'.

Observing that the ongoing investigation could not justify the denial of an NOC, the Court stated that the Times Group's right to make further investments cannot be denied by a prolonged investigation and a lack of action under FEMA.

It observed that they have a 'legitimate expectation' of conducting their business without any hindrances, particularly in the absence of definitive findings against them.

The Court thus quashed the ED's letters which denied NOCs to the Times Group. It said that they are free to approach the authorised dealer for remittance of investment abroad.

Case title: Times Internet Limited vs. ED & Ors. (W.P.(C) 15242/2023 & CMAPPL. 52797/2024) & Connected Matter