Delhi High Court Directs RBI To Reconsider Jindal Steel And Power Ltd Application To Remit $300 mln To Mauritius Subsidiary

Directing the central bank to reconsider its decision on JSPL's application, the court noted that the RBI's order dated 30.12.2019, vide which it had rejected JSPL's application had "serious consequences" inasmuch as the "commitments undertaken abroad with the prior consent" of the RBI would go into default causing huge losses to JSPL

The Single Judge Bench of Justice Jayant Nath held, "I may note that there is not even a whisper anywhere that there is any attempt on the part of the petitioner to carry out an illegal transaction or that the proposed transactions are an attempt to siphon away funds out of India beyond the reach of law enforcing agencies. Clearly the rejection of the application of the petitioner on 30.12.2019 is illegal…The matter is remanded back to RBI to reconsider the application made by the petitioner afresh as per law and in accordance with the principles noted above. Needful be done by RBI expeditiously."

JSPL claimed that it had undertaken a corporate guarantee of $864.82 million towards loans by JSPML, with RBI's consent, which the subsidiary had sought to enforce citing unavailability of funds to meet its cash flow requirements. JSPL sought to make additional financial commitments and payments of $300 million to aid its subsidiary, for which it had applied to RBI.

The steel giant claimed to have applied to the RBI as per the norms stipulated in the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 for permission to remit $300 Million to JSPML, by way of equity subscription/loan/corporate guarantee/bank guarantee or through other permitted mode.

RBI rejected JSPL's application vide order dated 30.12.2019, seeking the quashing of which, JSPL approached the Delhi High Court.

RBI submitted before the court that, although in the past it had granted permission to JSPL to remit certain funds and to furnish a corporate guarantee in relation to a loan taken by JSPML, on 14.09.2018 certain investigations/enquiries had been initiated on transactions between the parent and subsidiary companies.

RBI claimed that this pending enquiry was concealed by JSPL in its application dated 03.09.2019, and that the Enforcement Directorate (ED) had raised objection to JSPL's application due to which RBI did not grant permission to JSPL to go ahead with the remittance. RBI further stated that even after its rejection order dated 30.12.2019, it had approached the ED, however, the ED refused to budge and reiterated that the grant of approval for additional financial commitment would "jeopardize ongoing investigations" and "may result in non-availability of properties for attachment."

JSPL, on the other hand, submitted that it had made an application to RBI only in view of Regulation 6(2)(iii) r/w Regulation 9(1) of Regulations 2004 which require an entity/party under investigation/enforcement of an agency or regulatory body to obtain prior approval of RBI for any transaction falling under aforesaid regulations, and that it had applied for approval only because JSPL was admittedly under investigation and facing prosecution of various offences under Indian Penal Code, 1860, Prevention of Corruption Act, 1988, Prevention of Money Laundering Act, 2002 and FEMA Act, 1999.

However, it stated that its remittance amount was within the permitted limit of 400% of its net worth, and that had there been no trials/investigations pending, it would have been entitled to automatically make payment to the extent of 400% of its net worth without approval of RBI.

Ruling in favour of JSPL, the Single Judge Bench of Justice Jayant Nath stated that, the RBI had failed to assign any reasons for rejection of JSPL's application in its original order and supplied reasons for the same only in its counter affidavit submitted later. Relying on the case of Mahender Singh Gill Vs. Chief Election Commissioner, (1978) 1 SCC 405, the court upheld that, "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," and said the RBI's order was vitiated by the lack of reasons and liable to be set aside.

The court also held that, in the reasons for rejection stated in the counter-affidavit also, "no reference" had been made by RBI to any of the factors stipulated in Regulation 9(3) of the 2004 Regulations, and that while "the criteria stated in Regulation 9(3) may not be exhaustive and other issues may be taken into account if facts so warrant, no such facts either were stated by RBI." Therefore, it held that RBI's rejection order was also in violation of Regulation 9.

Importantly, the Court also held that facts and counter-affidavit by the RBI itself had revealed that RBI had "acted at the behest and saying of the Enforcement Directorate" and rejected JSPL's application in that light, therefore, the same "amounted to the Respondent (RBI) acting at the behest of another Agency. The impugned order is clearly vitiated."

The court relied on the judgments in the cases of Ajantha Transports (P) Ltd., Coimbatore vs. T.V.K. Transports, Pulampatti, Coimbatore District, AIR 1975 SC 123, Dipak Babaria & Anr. vs. State of Gujarat & Ors. (2014) 3 SCC 502, Chintpurni Medical College & Hospital & Anr. Vs. State of Punjab & Ors., AIR 2018 SC 3119, to hold that RBI acting at the behest of ED vitiated its order.