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When authority given to functionary is exercised by wrong functionary, resulting decision is ultra vires, void: Delhi High Court

The Delhi High Court has ruled that when the wrong functionary exercises an authority given to a particular functionary, the resulting decision is ultra vires and void. (Jindal Steel & Power vs. RBI)

The order was passed by a Single Judge Bench of Justice Jayant Nath in a petition by Jindal Steel & Power (petitioner) against the Reserve Bank of India (RBI).

Petitioner had sought a direction to RBI to permit it to make USD 300 million payments to its wholly-owned subsidiary Jindal Steel and Power (Mauritius) Ltd for meeting its debt obligations.

In terms of Regulation 9 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004, every Indian party wishing to make a direct investment of above 1 billion USD in a joint venture or wholly-owned subsidiary outside India required prior approval of RBI.

After RBI refused to grant permission to the petitioner under the Regulation, a petition was preferred before the High Court.

Permission to carry out outward remittances was rejected RBI on account of objections by Enforcement Directorate that specific investigations and inquiries were pending against Jindal, including investigations relating to petitioner’s offshore investment in JSPML.

Petitioner argued that the refusal was contrary to RBI’s past conduct wherein permission was granted to remit certain funds and furnish a corporate guarantee.

On the other hand, RBI argued that the petitioner’s application was decided after necessary caution and diligence, keeping in mind the objectives enshrined in the Foreign Exchange Management Act.

The court noted that RBI turned down the petitioner’s request by a cryptic non-speaking order.

It further recorded that essentially, RBI refused to grant permission for making the additional financial commitment/payment of USD 300 million on account of the objection raised by the Enforcement Directorate.

Stating that a non-speaking order would not be tenable and is liable to be set aside, the court observed,

“The order has serious consequences for the petitioner since the commitments are undertaken abroad with the prior consent of the respondent would go into default causing huge losses to the petitioner. The reasons given latter in the counter-affidavit would normally not be accepted. It is settled position of law that the respondent cannot improve its case in this manner.”

Further, after perusing the Regulations, the court opined that the mere existence of an investigation by any investigation/enforcement agency or regulatory body ipso facto did not debar an Indian party from direct investment in a joint venture or wholly-owned subsidiary outside India, etc.

The court stated that RBI’s impugned order was wholly contrary to Regulation 9 and could not have been given at the behest of ED.

“It is settled position of law that an authority cannot share its power with someone else or allow someone else to dictate to it by declining an act or by submitting to their wishes or instructions, where the authority which is given to a functionary is exercised, at least in part, by the wrong authority, the resulting decision is ultra-virus and void.”

In the present case, since RBI acted at the behest of another agency while ignoring the past permissions, the impugned order was vitiated, the court concluded.

The matter was accordingly remanded back to RBI for reconsideration as per law and following the principles noted above.

Petitioner was represented by Senior Advocates Parag P. Tripathi, Gopal Jain with Advocates Saket Sikri, Vijay Aggarwal, Mahesh Agarwal, Naman Joshi, Manish Kharbanda, Priya Singh, Shailesh Pandey, Mudit Jain, Tarun Singla, Meera Menon.

Advocates Atul Sharma, Abhinav Sharma appeared for RBI.

Via Bar & Bench
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