Delhi HC: Ultra Vires Decision By Wrong Authority Given to Functionary Is Void

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The Delhi High Court considered when an authority given to a particular functionary was exercised by the wrong functionary. The resulting decision would be ultra vires and void. (Jindal Steel & Power vs RBI).

Brief Facts

Petitioner had sought a direction to the Reserve Bank of India to allow it to make payments of USD 300 million for its wholly-owned subsidiary Jindal Steel and Power (Mauritius) Ltd. This was on purpose for it to meet its debt obligations. 

Regulation 9 of the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 was considered. IT states that every Indian party wishing to make direct investment of above 1 billion USD required prior approval of the Reserve Bank of India. This was either in a joint venture or wholly-owned subsidiary outside India.

The Reserve Bank of India refused to grant permission to the Petitioner.  After it did so, a Petition was preferred before the High Court. The Reserve Bank of India rejected the permission to carry out outward remittances. It was on account of objections by the Enforcement Directorate. There were certain investigations pending against Jindal. These included investigations relating to Petitioner’s offshore investment in JSPML. 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 the Reserve Bank of India. 

Contentions

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

The RBI argued that the petitioner’s application was decided only to post necessary caution and diligence was taken. It stated that the objectives enshrined in the Foreign Exchange Management Act were kept in mind. 

Court’s Observations

A Single Judge Bench of Justice Jayant Nath had been set up. It was observed by the Court that the Petitioner’s request was rejected by a cryptic non-speaking order from the Reserve Bank of India. It recorded that the Reserve Bank of India refused permission due to the objection raised by the Enforcement Directorate. The Court stated that a non-speaking Order would not be tenable and was liable to be set aside. It observed that the Order had serious consequences for the Petitioner. The commitments undertaken abroad were with the prior consent of the Respondent. It would go into default causing huge losses to the Petitioner. The reasons given in the counter-affidavit would normally be unaccepted. It was a settled position of law that the respondent cannot improve its case in this manner. Authority can’t share its power with someone else or allow others to dictate to it. This was by declining an act or by submitting to their wishes or instructions. 

The Court opined that the mere existence of an investigation did not debar an Indian party from direct investment. This was either in a joint venture or wholly-owned subsidiary outside India or others. This investigation would be by any investigation/ enforcement agency or regulatory body ipso facto. The court stated that the impugned order passed by the RBI completely contradicting Regulation 9. It could not have been passed at the behest of ED. When a wrong authority exercises over a functionary, the resulting decision is ultra vires and void. The Reserve Bank of India acted at the behest of another agency, ignoring the past permissions. 

Court’s Decision

The Court concluded that the impugned Order was clearly vitiated.  The matter was remanded back to the Reserve Bank of India for reconsideration as per law and as per the principles stated.

Click here to view the Judgement.


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