Delhi High Court Rejects RBI Appeal Against Order For Reconsideration Of JSPL Plea For $300 mln Remittance To Mauritius Subsidiary

The Delhi High Court today dismissed an appeal by the Reserve Bank of India (RBI) against an earlier order of a Single-Judge which had directed the RBI to reconsider an application by Jindal Steel and Power Ltd (JSPL) to transmit $300 million to its wholly owned subsidiary Jindal Steel and Power (Mauritius) Ltd (JSPML).

Directing the central bank to reconsider its decision on JSPL's application, the court's earlier order had 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 judgment was passed by a Division Bench of Chief Justice DN Patel and Justice Jasmeet Singh in an appeal preferred by the RBI against the Single Judge bench remand order of Justice Jayant Nath.

The Single Judge Bench of Justice Jayant Nath had 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.

Sr. Adv. Parag Tripathi appearing for JSPL, had submitted before the Chief's bench that the company had given a guarantee on a loan to its subsidiary by a consortium of international lenders and any further default on payment on the guarantee beyond Mar 30, would "destroy" the company.

Tripathi had also submitted that it was forced to take loans from the international lenders as the rates of interest of Indian banks on commercial loans was substantially higher.

While Sr. Adv. Jayant Bhushan for RBI opposed the plea inter alia on the ground that this would result in foreign exchange going out of the country, which was rebutted by Tripathi saying that this ground was not raised by the RBI before the Single Bench at all.

Chief Justice Patel had then asked the company as to how much foreign exchange it was getting in its bank accounts annually, responding to which Tripathi said that an approximate answer was $500 mln in financial year 2019-20.

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.