LlFE INSURANCE CORPORATION OF lNDlA v. ESCORTS LTD, & ORS.

A National Bank frankly confessed before us that the EGE House llranch of the Punjab National Bank which was monitoring NRE accounts and the purchase of shares by the Caparo Group of Companies was not aware of the remittances received by the Parliament Street Branch. In other words, the right hand did not know what the left hand was doing. It is surprising that in a B matter concerning valuable foreign exchange the Punjab National Bank, a nationalised bank and an authorised dealer under the Foreign Exchange Regulation Act, should have acted in such an irresponsible manner. Whatever else requires a probe by the Reserve Bank of India, the disappearance or the expending of the amount of L 1,20,000 without the knowledge of the Reserve Bank is a matter which requires thorough investigation. No one should be C allowed to break the law with impunity, if he has so done, and get away with it in this bizarre way.

The statements filed by Raja Ram Bhasin & Co. show that prior to 9.3.1983, the date of the first remittance as disclosed by Punjab National Bank to the Reserve Bank, Raja Ram i!hasin & Co. had purchased shares of Escorts Limited worth Rs.33,40,865.00 D from Mangla & Co. We have already mentioned that according to tbe correspondence which passed between the Punjab National Bank and the Reserve Bank, the remittances were made on 9.3.83, 24.3.83, 12.4.83, 15.4.83, 28.4.83 and 28.4.84. In the correspondence, there is no mention of any remittance having been made prior to 9.3.83. We may also notice here that the letter dated 4.3.83 from the Punjab National Bank seeking permission for investment in shares by three of the Caparo Group of Companies was actually despatched on 9th and received by the Reserve Bank on 14.3.83 only, while the letter dated 12.3.83 seeking permission on behalf of the remaining Caparo Group of Company was received by the Reserve Bank on 18.3.83. The statements of purchases of shares made by Raja Ram Bhasin & Co. show that even by 14.3.83, shares of Escorts Limited worth Rs. 3,85,920.00 had been purchased from Bharat Bhushan & Co. and shares worth Rs.45,81,677.00 had been purchased from MangLa & Co. Based on the circumstances that shares appeared to have been purchased even before remittances were received a seemingly serious complaint has been made that G Rupee funds must have been freely used to purchase shares for the Caparo Group under the Non-Resident Inve_stment Scheme. We do not think that there is any genuine basis for the complaint. Payments under the Stock Exchange Rules may be made within two weeks after the purchases contracted for. In the present case the remittances from abroad started coming in less than two weeks after the first purchase and there would have been no difficulty in making payments out of foreign remittances.

L.I.c. v. ESCORTS [CHINNAPPA REDDY, J.] 949

The Reserve Bank of India having been approached for permission to purchase shares on behalf of the thirteen Caparc Group of companies by the letters of 4th and 12th March, 1983, wrote to the Punjab National Bank on 29.4.83 seeking information regarding "the exact percentage of holding of (i) Mr. Swraj Paul and other Non-resident individuals of Indian 'origin (ii) Family Trusts and (iii) others separately in respect of each of the thirteen companies." Information was also sought .as to whether any shares of Indian Companies had already been purchased by or on behalf of their Indian clients. It is not clear why' the Reserve Bank wanted information as to "the exact percentage of holdings" etc. since the relevant information had already been furnished in the RPC and OAC forms sent along with the letters c dated 4.3.83 and 12.3.83. 'The letter dated 29.4.83 is also important: for the reason that the Reserve Bank merely wanted to know whether any shares of Indian Cmpani es bad already been purchased but did not give any indication that it -would be objec- tionable to do so without prior permission of the lleserve Bank. Thereafter the Punjab National Bank wrote three letters to the L Reserve Bank on 6.5.83, 19.5.83 and 25.5.83, the purport of which was that the Swraj Paul Family Trust held 61.6% of the share capital of Caparo Group Limited which in turn held 100 per cent of the Share Capital of eleven of the Companies and 98% of . the · share capital of the twelfth Company. The names of the benefi- ciaries of the Trust were given as Shri SWraj Paul, Mrs. Aruna E Paul, Mr. Amber Paul, Mr. Akash Paul, Miss Anjali Paul and Mr. Angad Paul. In all the three letters it was pointed out that the necessary RPC and OAC forms had already been submitted. The request for expedition of approval was reiterated. The Reserve Bank of India was also 'informed that their non-resident clients bad advised them that details of shares of Indian Companies pur- chased by or on their behalf would be supplied as soon as the F purchases were complete. On 25.5.83 the Reserve Bank of India wrote to the Punjab National Bank, in answer to the letter dated 23.4.83 and without reference to any of the later letters, asking for clarification as to how, without obtaining the Reserve Bank's permission for purchase of shares on behalf of thirteen overseas companies, the purchase consideration of the shares of Indian G Companies was paid to Indian sellers out of the Non-Resident External account of the overseas purchasers. Information was once again sought regarding the exact percentage of share holding of (i) Mr. Swraj Paul (ii) other non-resident individuals of Indian nationality/origin (if any), and· (iii) Family Trusc of such persons in Caparo Group Limited in U.K. separately. On 28.5.83, the Punjab National Bank sent a telegram to the Reserve Bank and H

950 SUPROO COURT REPORTS [1985] SUPP.3 S.C.R.

A followed it up with a letter dated 30.5.83 to the effect that the beneficial interest of Mr. Swraj Paul and his family trust in Caparo Group Limited was 61.6% as already clearly nientioned in forms RPG and certificates OAC delivered to the Reserve Bank in February, 83. The other non-residents of Indian origin who were members of the Family Trust were Mrs. Aruna Paul, Mr. Akash Paul, B Mr. Ambar Paul, Mr. Angad Paul and Miss Anjali Paul, all members of Mr. Swraj Paul's fal)lily. It was further pointed out in the letter that as required by the scheme which mentioned that the Reserve Bank of India will grant permission on application being made in the prescribed manner, the thirteen companies had submit- ted their applications complying with all the formalities. The letter of 23.4.83 was also referred to and it was mentioned that c all particulars were given therein. The Punjab National Bank further expressed its view that they were not required under the provisions of the scheme to await the clearance of the Reserve Bank before purchasing shares of Indian companies, once proper applications had been submitted. The Reserve Bank was infomed that the remittances from Caparo Group Limited were made in favour of Raja Ram Bhasin and Co., their designated brokers and power of Attorney holders.. So the operations were executed by Punjab National Bank through NRE account on various date upto 23.4.83 and thereafter. Payments were made according to the bye- laws and regulations of Delhi Stock Exchange. On 31.5.83, a further telegram was sent by the Punjab National Bank to the · Reserve Bank infoming them that they had been advised by the agent brokers that up till 28.4.83 they had purchased 80,000 equity shares of Delhi Cloth and General Company Limited and 75,000 equity shares of Escorts Limited on behalf of each one of the thirteen overseas companies predominantly owned by non- residents of Indian origin.

F On 1.6.83, the Assistant Controller, Reserve Bank of India, wrote to the Government of India informing them about the receipt of applications from the Punjab National Bank on behalf of thirteen overseas companies, eleven of which were wholly owned by Caparo Group Limited which in turn owned by Family Trust of Mr. Swraj Paul to the extent of 61.6%. In the twelfth company, Caparo G Properties Limited, Caparo Group Limited had a holding of 98 per cent. Caparo Group Limited was owned to the extent of 61.6% by the family trust of Mr. Swraj Paul, the other members of the family trust being Mrs. Aruna Paul, Mr. Akash Paul, Mr. Ambar Paul, Mr. Angad Paul and Miss Anjali Paul. The Reserve Bank pointed out that-it was to be noticed that even the Caparo Group H Limited was not directly owned by non-resident individuals of Indian origin but only indirectly to the extent of 61.6% through

L. I .c. v. ESCORTS [CHINNAPPA REDDY, J.] 951

the family trust whose beneficiaries were persons o_f Indian A origin. The Reserve Bank appeared to be of the view that the investment facilities under the scheme were intended to be extended to Overseas Companies, Family Trusts etc. owned predominantly non-residents of Indian Nationality/origin atleast to the extent of 61.6% and that it' was not the intention ' to open these investment facilities to overseas companies which were not directly owned by non-resident individuals of Indian nationality/ origin but owned by them indirectly via some other trust or company. It was observed that if investment facilities were to be extended to overseas companies indirectly owned by non-residents of Indian nationality/origin, it would be very difficult to enforce the scheme and the conditions of FERA. The Reserve Bank also informed the Government that their Legal Department c supported thair view that none of the thirteen overseas companies were eligible to invest in shares of Indian companies and the existing policy. They, ' therefore, proposed to reject the applications of all the thirteen overseas companies. They requested the Government of India to confirm by telex. To this the Government of India replied by telex on 8.6.83 in these words:

"REFERENCE D.O.NO. EC.co. FID (II) 294/344-82/83 DATED NIL JUNE 1983 REGARDING APPLICATION FROM THIRTEEN OVERSEAS COMPANIES FOR PURCHASING SHARES ON OF INDIAN E COMPANIES THROUGH THE STOCK EXCHANGE WITH REPATRIATION RIGHTS UNDER THE PORTFOLIO INVESTMENT SCHEME (.) IT IS REPORTED THAT SOME PURCHASES HAVE ALREADY BEEN MADE IN TERMS OF THE ABOVE PROPOSAl BY THE PUNJAB NATIONAL BANK( • ) ALTHOUGH IT DOES APPEAR THAT PRIOR TO SECOND MAY 1983 UNDER THE PORTFOLIO INVESTMENT SCHEME AUTHORISED DEALERS COULD WITHOUT RBI' S PRIOR APPROVAL F PURL11ASE SHARES THROUGH STOCK EXCHANGE ON BEHALF OF THEIR NON RESIDENT' CLIENTS, THE CIRCUMSTANCES IN WHICH SOME SUL'H PURCHASES WERE ALREADY MADE BEFORE THE CONCERNED COMPANIES GOT THE NECESSARY APPROVAL FROM THE R. B. I. DO NOT SEEN TO BE CLEAR ( • ) GI THE RBI IS REQUESTED TO ENQUIRE FURTHER INTO THE MATTER AND SUBMIT A DETAILED REPORT TO THE GOVERNMENT COVERING ALL ASPECTS OF THE MATTER INCLUDING THE DETAILS OF SUCH PURCHASES, THE FINANCIAL STATUS AND THE ACTIVITIES OF THE APPLICANT COMPANIES AND THEIR DATES OF INCORPORATION AND ALSO .THE GENERAL LEGAL ISSUE AS TO WHETHER SUC.'H PURCHASES ON THE STOCK li

p. 952

A EXCHANGE BY OVERSEAS NON RESIDENT INDIAN COMPANIES ETC. PRIOR TO SECOND MAY 1983 ARE VALID WITHOUT THE PRIOR SPECIFIC APPROVAL OF THE RBI(.) YOUR REPORT SHOULD REACH US QUICKLY AS POSSIBLE IN ORDER TO ENABLE THE GOVERNMENT TO TAKE DECISION(.)"

B The importance of 2nd May, 1983 so frequently mentioned in the tele>< message is apparently because 2nd May, 1983 was fixed as the cut-off date for the introduction of the ceiling of 5 per cent in shares of Indian companies by foreign investors of Indian origin by the Circular No. 12 dated May 16, 1983 issued by the Reserve Bank of India.

C In the meanwhile, on 31.5.83, Punjab National Bank wrote to Escorts Limited informing them that the thirteen overseas companies had been making investments in shares of Escorts Limited in terms of the scheme for investment by overseas corporate bodies predominantly owned by non-residents of Indian nationality/ origin to an extent to atlest 60 per cent and that the thirteen overseas had designated them as their banker and M/s D Raja Ram Bhasin & Co. had been designated as the brokers for the purpose of investment. The brokers had advised the bank that upto 28th April, 83, 75,000 equity shares of Escorts Limited had been purchased by them for each of the thirteen overseas companies. Out of the shares so purchased 35,560 shares purchased by each of companies had been lodged by the brokers with Escorts Limited in the names of H.C. Bhasin and Mr. Bharat Bhushan for the purpose Of transfer of the shares in the books of the company. 35,667 shares purchased for the 13th company were also lodged for the purpose of transfer in the name of Mr. H.C. Bhasin and Mr. Bharat Bhushan. Escorts Limited replied on June 1st, 1983 and requested the Punjab National Bank to furnish informations whether the non-resident companies had executed and handed over applications to be filed with Reserve Bank of India for prior permission to purchase the shares of the company through them as the designated bank and whether any permissi~n had been granted by the Reserve Bank of India to Punjab National Bank to purchase shares on behalf of the thirteen companies mentioned in the letter. Escorts G Limited did not refer in this letter to the circumstance that H.C. Bhasin and Bharat Bhushan had lodged the shares with them for transfer in their own names instead of the names of any of the overseas companies. Escorts Limited obviously did not think it strange that the brokers lodged the shares in their own names instead of their principals, for the simple reason that Bye-law H 242 of the Stock Exchange Re'(Ulations permit the brokers to do so if they are unable to complete the formalities before the cl0sing

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 953

of the books. They now seek to make a point of it. It is obviously without substance. In fact in their letter to Punjab National Bank, Escorts Limited did not even think it worthwhile mentioning that when they wrot~ to the brokers on 27.5.83 requesting information whether they were the beneficial owners of the shares and whether the shares had been purchased on behalf of non-residents of Indian origin with the requisite permission of the Reserve Bank of India they had been curtly refused the information by Mr. H.C. Bhasin and Mr. Bharat Bhushan who had also questioned their authority to ask for such information, and even threatened legal action of the transfer was not registered. We are unable to fathom the reason behind the attitude of the brokers. We can but make a guess. It was probably they were still c awaiting the permission of the Reserve Bank of India. That they had purchased the shares for overseas investors was no secret since they had already so informed the Punjab National Bank. They seem to have, thought that they were within their rights under the Stock Exchange Regulations in asking the shares to be trans- ferred in their names. It was suggested by the learned counsel D for Escorts Limited that the brokers were loath to disclose the names of their principals as they had utilised rupee funds and wanted to cover up that fact. The suggestion appears to be far fetched as the funds remitted till then from abroad were more than ample to cover the purchase of the shares until then lodged. We must, however, notice that the record does not disclose how E Bharat Bhushan came into the picture, who authorised him to purchase the shares on behalf of Caparo Group and who directed him to deposit the shares in his own name? He was not the stock broker designated to purchase shares on behalf of the overseas companies. If so, one wonders what authority he had to enter into transactions on behalf of. overseas companies! This is also a matter which may require investigation by the Reserve Bank. As F already mentioned the Punjab National Bank wrote to Escorts Limited on 31.5.83 about purchase of shares by each of the thirteen companies and the lodging of the shares with the company in the names of H.c. Bhasin and Mr. Bharat Bhushan for the purpose of transfer of shares in the books of the company. We have also referred to the reply of Escorts Limited to Punjab G National Bank on 1.6.83. Punjab National Bank immediately wrote to Escorts Limited on 2. 6. 83 that they had already informed the company that the purchase of shares for the thirteen companies had been handled by designated brokers M/s. Raja Ram Bhasin & Co. and wanted to know the purpose for which Escorts Limited was seeking information from them. They however, stated that they H

p. 954

A were designated as bankers of the thirteen companies and that they had acted in terms of the procedure laid down by the scheme. Without much further ado, that is, without making any further enquiry either from M/s. Raja Ram lihasin or from the Punjab National Bank or without seeking any information of guidance from the Reserve Bank of India, Escorts Limited proceeded to consider 8 the question of registering the transfer of shares. A Committee was constituted by Escorts Limited to scrutinize the transfer of the shares. After taking expert legal opinion, the Committee submitted a report to the Board of Directors of Escorts Limited recommending against the registration of the transfer of shares. The primary ground on which the recommendation was based and with c which we are now concerned is ground No.5 which stated,

"that the company is prohibited by the provisions of section 19 of FERA from registering transfer of shares in its books when it has reasons to suspect that there has been a violation of the provisions of section 19 D of FERA."

The Committee reported that it had reasonable ground to believe that the requisite permission of the Reserve Bank of India has not been obtained for the purchase of the shares in question. It was also mentioned in the report of the Committee that they took serious notice of 'attempts made to intimidate and coerce the E company to register the shares and to pre-empt the free and proper exercise of the Board's discretion in accordance with the Articles of Association of the Company and the provisions of Law.' However, the report did not mention what the attempts were that were made 'to intimidate and coerce the company to register the shares and to pre-empt the free and proper exercise on the Board's discretion.' F On 9.6.83, the Board of Directors of Escorts Ltd. considered the Conmittee's Report and passed a resolution refusing to register the transfer of shares. The resolution was in the following terms:- G "The Board considered the report of the Share Scrutiny and Transfer Committee of Directors. The Board further considered exhaustively all aspects of the matter, all the materials which were gathered and placed before the Board and legal opinions and records of legal advice which had been secured by the Company on the H points in issue. The Board further considered whether - having regard to the provisions of FERA and FERA

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.) 955

regulations and other relevant laws including the A Company Law, the Stamp Act, the Public Securities Act and other regulations relating to the Stock Exchange and transfer of shares - requirement of law have been complied with. The Board further considered the various statements reported in the Press and made by the non-resident concerned, as also by his associates B in Delhi which are contradictions to the policy of the Government underlying the liber.alised scheme for 'Portfolio Investment' by eligible residents. The Board further considered whether the purchases of the shares in question would qualify as 'Portfolio Investment' as envisaged under the RBI Scheme. The c Board further considered whether it is in the interest of the Company and its shareholders to approve of the proposed transfers and whether it is desirable in the aforesaid interests to accept the proposed transferees as Shareholders. Upon full discussion of the Share Scrutiny and Transfer Connnittee' s Report - the Board D in acceptance thereof adopted the same. Further after a full examination of the issues legal as well as factual and the circumstances and further on accot.int of the reasons contained in the Share Scrutiny and Transfer Connnittee' s Report ,and in the light of the said Committee's recommendations and further on account of the view of the Board of Directors that it would not be in the interest of, the company or the General Body of shareholders to register the transfer of the shares in question an4 on account of the Board's view that the transfere_es in question could not be approved for purposes of admitting them as members in view of the facts and circUIJlStances taken note of by the Board of Directors, the Board decided to refuse registration of the shares under consideration.

Accordingly it was - ( Resolved that the transfer of 2,88,390 Equity Shares in Rs.10 each fully paid-up lodged by Mr. Harish Chander Bhasin and Rs.1,73,947 Equity Shares of Rs.10 each fully paid-up lodged by Mr. Bharat Bhushan as per distinctive Nos. appearing in the lists marked Annexure A and B respectively placed before the Directors and initialled by the Chairman for the h purpose of identification ·be and is hereby refused.

p. 956

A Further resolved that Mr. Charanjit Singh, Vice- President and Secretary of the Company be and is hereby authorised to give and send notices of the refusal to the transferors under sec.111(2) of the Companies Act, 1956 and take such other steps as may be necessary and appropriate in the matter of the B above resolution.

The resolution was passed with all the 13 Directors (out of total 15 Directors of the Company) present and voting for the resolution excepting Mr. D.N. Davar, who did not take part of the discussion and voting on the resolution. There was no dissenting vote." c In respect of another block of shares lodged with Escorts Ltd. on 19th and 22nd August, 1983 for registration in the name of the thirteen foreign non-resident companies, a similar report was submitted by the committee on 29. 9. 83 and a similar resolution was passed by the Board of Directors on the same day. D Escorts Limited, although they had already refused to register the transfer of shares, nonetheless, wrote to the Punjab National Bank for information on various points as they desired to make a representation to the Reserve Bank of India in the enquiry being conducted by the Reserve Bank under the directions of the Government. The Company wanted to know whether the remittances were received from M/s. Caparo Group Limited only and from none of the other twelve foreign companies. The company also wanted to know why 4,62,337 shares only had been lodged with them for transfer although it had been stated that 9.75 lakhs shares had been purchased by thirteen non-resident comPanies. The Company further wanted to know whether instructions to purchase the shares were given to the brokers by the Punjab National Bank and whether the non-resident companies indicated the maximum price at which the shares might be bought. The company further desired to know to whom the share scripts should be returned as they had decided to refuse registration of the transfer of shares. The Punjab NatiGnal Bankt, we may state here, refused to receive the share scripts and suggested to Escorts Limited that they should return the scripts to those that had lodged them with the Company.

More important still is the fact that Escorts Limited,. having already rejected the registration of the transfer of shares, wrote to the Reserve Bank of India on 14th June, 1983, 20th June, 1983 and 23rd July, 1983 purporting to give informa- tJ.r.m regarding various illegalities committed in the matter of

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 957

purchase of shares of their company by the thirteen foreign companies, Caparo Group Limited, etc. It was stated that the information was being furnished to the Reserve Bank because it was understood that the Reserve Bank was holding an enquiry in the matter of the purchase of shares in Indian companies by the Caparo Group Companies. One remarkable feature about the letters is that for some reason best known to themselves, Escorts Limited B did not disclose to the Reserve Bank the circumstance that they had already refused to register the transfer of shares. In the first letter, it was stated that their information revealed that Caparo Group Limited was the holding company and the remaining twelve companies were its subsidiaries and that a majority of them we~e in no financial position to make such large C investl'ients. The Reserve Bank was particularly requested to cons5.der whether it was ever intended that an overseas company could circumvent the stipulated cei Ung of one per cent by channelling inveatment through a dozen subsidiaries. It was pointed out that a colourable device of that nature would def eat the very purpose of the ceiling. The Reserve Bank was also L requested to take serious notice of the fact that while the scheme permitted repatriation benefits to investments upto the maximum of one per cent in an Indian company, shares to the twle of over 7 per cent had been acquired in the names of thirteen companies though funds were remitted only by one company. It was also mentioned that the stock-brokers and not the bank purchased the shares and that the stock brokers unauthorisedly lodged for registration their own names, the shares purchased on behalf of non-residents. The Reserve Bank was requested to enquire into the dates and rates of the purchases of the shares, whether the shares were purchased on the floor of the stock exchange, whether the delivery of shares was taken, whether the bank had a day-to- day record of the transactions and so on. The Reserve Bank was also requested to seize the scrips and the books of account in the possession of the stock exchange. The next letter dated 20th June, 1983 drew attention to the circumstances that though 9,75,000 shares were purported to have been purchased before 28th APril, 1983, only 4,62,337 shares had been lodged by 13th May, 1983 and therefore, it appeared that there were forward transac- G tions and the purchases were not in accordance with the scheme. In their third letter dated 23rd July, 1983, Escorts Limited asserted that a large amount of money to the tune of about Rs.2.61 crores were remitted from overseas to the Punjab National Bank and was utilised to purchase shares in addition to the shares purchased in the names of thirteen companies. The provisions of the FERA were violated and the ceilings of one per R

p. 958

cent and 5 per cent imposed under the scheme were also circumvented. Rupee funds to the tune of Rs.4.0 crores appeared to have been unauthorisedly diverted for the purchase of the shares for and on behalf of the thirteen non-resident companies in the two Indian Companies, that is, Escorts Limited and Delhi Cloth and General Mills Limited. Though the purchases made on behalf of the thirteen non-resident companies were said to have been purchased before 28th April, 1983, only 4,62,337 shares were lodged with the company for registration of transfer, leaving a shortfall of 5,12,663 shares. The non-lodgment of these shares raised a doubt whether those shares had been purchased in accor- dance with the scheme. It was pointed out that the share transfer deeds lodged with Escorts Limited bore the date 28th April, 1983 and disclosed consideration of Rs.65 per share although the c highest rate at which sales of Escorts shares were transacted at the Stock Exchange upto 28th April, 1983 was Rs.55 only per share. This fact demonstrated that an incorrect statement had been made that the shares had been purchased prior to 28th April,

1983. Further the share transfer deeds lodged with the companies in regard to the 9,75,000 shares of Escorts Limited and 10,30,000 shares of Delhi Cloth Mills Limited said to have been purchased on behalf of non-resident Indian companies showed that a total amount of Rs.6,33,75,000 of non-resident funds was spent for purchasing the shares of Escorts Limited and a sum of Rs.9,88,69,020 of non-resident funds was spent of purchasina shares of Delhi Cloth Mills Limited making ~ grand total of Rs.16,22,44,020. As against this a sum of Rs.13 crores only had been remitted from abroad for the purchase of shares. Out of the Rs .13 crores , a sum of Rupee One crore had been frozen by the Reserve Bank of India making only a balance of Rs .12 crores of non-resident funds available for purchase of shares. There was thus a short-fall of Rs.2.61 crores which was unaccounted. It was also brought to the notice of the Reserve Bank that the brokers had lodged the shares for registration of the transfers in their names of the foreign companies • When asked by the company to disclose the names of the principals, the brokers had refused to do so. The company cherefore, suggested various steps that should be taken by the Reserve Bank to detect the several illegalities committed and to prevent the circumvention of the one per cent limit imposed by the scheme for acquisition of shares by any single non-resident individual or company.

To none of these letters did the Reserve Bank of India deign a reply or even the courtesy of an acknowledgement. Though the Reserve Bank did not choose to write or make any further enquiry from Escorts Limited, there is no doubt that the Reserve Bank did

L.1.c. v. ESCORTS. [CHINNAPPA REDDY, J.] 959

enquire in its own way into the allegations made by Escorts A Limited against the Cap!ro Group of Companies. It was not as if the Reserve Bank want only refused to worry itself in regard to the allegations against the Caparo Group of Companies. The Punjab National Bank was the designated bank of the Caparo Group of Companies and i t was an authorised dealer under the FERA, owing a serious responsibility to the Reserve Bank under the FERA and the B Portfolio Investment Scheme. It was, therefore, to the Punjab National Bank that the Reserve Bank turned for elucidation in the matter.

On llth June, 1983, the Reserve Bank of India wrote to the Punjab National Bank advising them that mere submission of an C application under sec. 29 (l) (b) of FERA was not sufficient to enable the non-resident Indian company to purchase shares without the general or special permission of the Reserve Bank. Reserve Bank's permission had to be obtained before buying.any shares of Indian companies. The contention of Punjab National Bank that submission of an application was sufficient to enable a o non-resident company to purchase shares was not accepted as correct and the bank was told that they had committed a serious irregularity in purchasing shares. The Punjab National Bank was also asked to explain as to how they had allowed the Non-Resident External Account of Caparo Group Limited to be debited in contra- vention of the provisions of paragraph 28B.9 of the, Exchange E. Control Manual. The Punjab National Bank was informed that the applications of all the companies for approval of opening of Non-Resident Accounts were pending with them and that until specific permission for purchase of shares was granted, no payment should be made out of the accounts for purchasing shares on behalf of any of the thirteen companies. On the same date, another letter was written by the Reserve Bank of India to the F Punjab National Bank asking for particulars of the thirteen companies purchased by them and the dates of remittances so far received from the thirteen companies. On 17th June, 1983 and 23rd June, 1983, the Punjab National Bank sent their reply to the Reserve Bank by telex and by letter. They stated in the telex message that consequent on the letter of the Reserve Bank, they G had withheld payment of a sum of Rs.107,22,610 in favour of the brokers and that they had advised the remitter about the same. It was stated that the brokers had written to them asking for payment stating that it would amount to default i f payment pertained to shares purchase prior to 2nd May; 1983 under the portfolio investment scheme. By their letter dated 23rd June, 1983, they informed the Reserve Bank that upto December 1982 and h from 1st January, 1983 to 28th February, 1983 no shares on behalf

960 SUPREME €0URT REPORTS (1985] SUPP.3 s.c.R.

of the thirteen non-resident companies were purchased. Between A 1st March, 1983 and 2nd May, 1983, 80,000 shares of Delhi Cloth and General Mills Company Limited and 75,000 shares of Escorts Limited were purchased for each of the thirteen companies. After 2nd May, 1983 no share was purchased. All remittances were received through their London 8ranch for the credit of M/s. Raja Ram Bhasin & Co., for purchase of shares on behalf of the thirteen companies. On 9th March, 1983, 24th March, 12th April, 15th April, 28th April and 28th April, 1983 remittances of lls.1,35,36,000 lls.1,31,38,681, Rs. 2,36,59,900, Rs.76,35,000, Rs.1,56,76,QOO and Rs.1,56,80,000 were received and transferred to the account of Raja Ram Bhasin & Company from the account of Caparo Group IJ.mited. A balance of Rs.38,682 in the NRE account of Caparo Group Limited was allocated pro rata to the thirteen accounts on 2nd June, 1983 in terms of the letter of their broker M/s.Raja Ram Bhasin & Company. The broker derived his authority in terms of the investors' letters which were annexed to the letter of the bank. The Punjab National Bank also stated that the broker had confirmed by their letter dated 22nd June, 1983, a copy of which was enclosed, that apart from the shares mentioned they had not purchased any other shares for the thirteen companies. Along with their letter the Punjab National Bank also sent to the Reserve Bank, copies of the certificates of incor- poration, the memoranda of articles of associations and the balance sheets of the thirteen companies. One, of the letters enclosed with the letter of the Punjab National Bank was a letter from the Caparo Group IJ.mited to the Punjab National Bank E confirming that they had appointed M/s. Raja Ram Bhasin & Company as their designated brokers and that the bank was autho- rised to act upon the instructions of the aforesaid brokers, entirely at the risk and responsibility of Caparo Group Limited. On 24th June, 1983, the Punjab National Bank again wrote to the Reserve Bank in reply to their letter of 11th June, 1983, they stated that they were under the impression that the clause 11 • • • • • • • RBI will grant permission to designated bank. •••••• meant 11

that permission would automatically be granted on the submission of applications in the prescribed form by the NRE Investors, accompanied by auditors' certificates of the eligibility. As a matter of abundant caution they had intimated the NRE investors and their brokers that the transactions were being put through entirely at their risk and responsibility. Details of the remit- tances received and transferred to the account of Raja Ram Bhasin & Company were once again given and the request for permission was reiterated.

H On 6th July, 1983, the Controller Foreign Exchange, Reserve Bank of India, wrote to the Government of India informing them that the relevant documents had been called for and examined and

L.r.c. v. ESCORTS [CHINNAPPA REDDY, J.] 961

the report which was desired by the Government's telex dated 8th A June, 1983 was being submitted along with the letter. It was stated that they had taken the legal opinion 'an eminent jurist and senior counsel' ~lr. H.M. Seervai, whtch was to the effect that the circular did not grant general permission to non-residents or their designated banks and that overseas bodies where they were not directly owned by non-resident individuals were not eligible to invest under the liberalised scheme. It was, therefore) stated that none of the thirteen overseas companies was eligible to invest in shares of Indian companies under the scheme. The question of further action in the matter of failure of the Punjab National Bank to follow the relevant Exchange Control Regulations would be taken up separately after a final decision was taken on the applications, that is, the applications of the overseas companies for permission to purchase shares. The Report of the Reserve Bank of India which was sent along with their letter was not produced before the High Court, nor has it. been placed before us. The Goverrunent of India, on 11th August, 1983, replied the Reserve Bank's letter of 6th July, 1983 D colllll1Unicating to the latter the opinion given by the Attorney General and asked the Reserve Bank to dispose of the applications made by the Punjab National Bank in the light of the opinion of the Attorney General. The G6vernment of India also mentioned that they agreed with the opinion of the Attorney Genera~ who had given primary importance of the intention behind the Government E policy which was spelt out in the report of the working group. By another letter dated 17th September, 1983, the Government of India clarified the position and it was pointed out that the portfolio investment scheme by companies and overseas bodies owned by non-residents of Indian nationality/origin was introduced as part of a package of measures to facilitate remit- tances and investments by non-residents of Indian nationality/ t origin in India in the overall context of the difficulties of our balance of payments. It was pointed out that in formulating the scheme, there were three paramount considerations~

(a) as much flexibility as possible should be available to non-residents for bring foreign exchange '7 into India and the concern should be the purpose of investments rather than legal entity of the non-resident investor of Indian origin;

(b) it was to be ensured that the benefits of the scheme should not be available to non-resident persons or overseas bodies other than those of Indian H nationality/origin; and

SU~REME COURT REPORTS [1985] SUPP.3 s.c.R.

A (c) the investrnent of funds iinder the scheme should n:)t lea.j to take over of existing companies through ope:rdtions in the stock market.

It was in the contex:t of the f.irst two considerations that it was insisted that the overseas companies etc. should be owned by non-residents of Indian nationali.ty/or1.gin to the extent of at least 60% and it was in the context of the third consideration that a ceiling of one per cent of paid up capital for eacb investor "{as imposed. Further to ,the same considerations, in May, 1983, a ceiling of ) per cent on aggregate investment was also imposed. The Government of India pointed out that the question of direct or indirect ownership should be considered ln the context of these considerations. It was pointed out:

"In many countries there is no bar on the number of companies an individual can pre-dominantly own directly or indirectly. A person of Indian origin could, if he wished, set up a nLUUber of companies directly owned by him and investment through each of these companies upto one per cent of the paid up capital of a company in India within the framework of our portfolio Investment Scheme. This situation is not different in its economic implications than if the same amount of investment was made by the same person in the same companies in India by the same number of companies, which were indirectly (and not directly) owned by him. As such having regard to the objectives of the scheme and the intention of the Government, the fact whether a company is predominantly directly owned or predominantly indirectly owned is not a material consideration. F Taking the above consideration into account, and in order to remove any doubt regarding the eligibility of companies, it is clarified that overseas bodies, whether owned directly or indirectly, are eligible to invei:;t under the scheme so long as it is clear that the ultimate ownership to the extent of at least 60 per cent is in the hands of non-residents of Indian nationality/origin. Each such applicant company is eligible to make investment subject to the existbg ceiling of one per cent irrespective of whether the ultimate ownership is in the hands of one or more individuals.

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 963

• Since this clarification merely reflects the original intention of the Goverrunent, the investments made by the applicants before 2nd May, 1983 but pending for approval should not be subject to five per cent ceiling. Pending applications may be disposed of accordingly." · E

This letter was apparently delivered personally to Dr. Man Mohan Singh, Governor of the Reserve Bank of India and he made the following endorsement on the letter :

c "I have discussed this case with FS and FM. This matter has been approved by CCPA. As such we should faithfully carry out consequential action. I have discussed with FS, FM and Principal Secretary to PM the issue of Press Note regarding clarification by the Government regarding the NRl Scheme. It has been D agreed that the Press Note will be issued at 6.30 PM by RBI in Delhi itself."

We are told that the letters FS stand for Finance Secretary, FM for Finance Minister and CCPA for Cabinet Committee on Political E Affairs.

As mentioned in the note of Dr. Marunohan Singh, a Press release was issued by the Reserve Bank the same day to the effect that the Government, having regard to the objectives of the scheme for investment by non-residents of Indian nationality/ origin had clarified that their original intention was that the facilities of direct and portfolio investments in shares/ debentures of Indian companies and deposits with public limited companies should be available to lhe overseas companies, partnership firms, trusts, societies and other bodies in which the ownership/beneficial interest was indirectly but ultimately held to the extent of at least 60 per cent by non-resident individuals of Indian nationality or origin. It was further stated in the Press release that the Government had also clarified that each overseas body was eligible to invest up to one per cent of the equity capital under the portfolio investment scheme irrespective of whether the ultimate ownership/beneficial interest in such body was in the hands of one or more Ii

p. 964

A non-resident individuals of Indian nationality/origin subject to an overall ceiling of 5 per cent of the total paid up equity capital if the investment was made after 2nd May, 1983. The overseas bodies desiring to make investment under the scheme were required to sulxnit their applications to the Controller, Reserve Bank of India, Exchange Control Department, Bombay. The overseas B bodies were required to maintain accounts with banks authorised to deal in foreign exchange in India under the Non-resident (External) Account Scheme. '

On 19.9.1983, the Reserve Bank also issued Circular No. 18 under sec. 73(3) of FERA. We have already referred to the C Circular earlier. On the same day (19.9.1983), the Re&erve Bank by a telex message, conveyed to the Punjab National Bank their permission to release the money remitted by the Caparo Group of companies from abroad for making payment against shares of DCM and Escorts Limited purchased on behalf of the 13 Caparo Group of Companies provided the shares in question were purchased up to and incluaive to 2nd May, 1983. It was also mentioned that the purchase of shares shall be deemed to have taken place up to and inclusive of 2nd May, 1983 if firm purchase commitments as evidenced by brokers' contract notes had been entered into and the shares had been/would be taken deli very of pursuant to such firm commitments at the price mentioned in the relative brokers' contract notes. The letter granting permission for purchase of shares was stated to follow. A letter did follow on the same day by which the 13 group of companies were given the approval of the Reserve Bank 'to make investments in and hold shares of Delhi Cloth and General Mills Limited and Escorts Limited to the extent of one per cent of the paid up capital of the respective companies subject, where the purchase had been made after 2nd F May, 1983 subject to an overall ceiling of 5 per cent of paid up equity capital of each of the investee companies.' Purchases made up to and inclusive of 2nd May, 1983 were not subject to the 5 per cent ceiling. Information was requested as to the number of face value of the shares purchased up to 2nd May, 1983 as also details of shares, if any, purchased after 2nd May, 1983. G Permission was also accorded for purchase of shares/debentures cf other Indian companies on behalf of 13 non-resident companies, through stock exchanges in India at the ruling market price subject to the condition that the shares/debentures would be purchased out of fresh remittances received from abroad and/or out of the funds held in the applicant companies' Non-Resident H (External) Account to be opened with the banker. Purchases of equity shares with repatriation benefits could be purchased up to

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 965

one per cent of the total paid up equity capital of the company, A subject to the overall ceiling of 5 per cent. Another condition was that the shares acquired under · the permission should be retained by the non-resident investor company for a minimum period of one year from the date of their registration with the Indian company. The permission was to be valid for a period of three years from the date of the letter. B

In the meanwhile, Escorts Limited wrote several frantic letters to the Reserve Bank of India and the Government of India on 23.7.83, S.9.1983, 16.9.1983 and 17.9.1983 reiterating the allegations in regard to the purchase of shares by the 13 C non-resident companies. Although the Reserve Bank granted the requisite permission to the non-resident companies on 19.9.83, the Reserve Bank of India, on 22.10.1983, perhaps in view of the persistence with which Escorts Limited continued making allegations against the non-resident companies and perhaps with a view to further satisfy itself, wrote to the Punjab National Bank D asking them for a report on the issues raised in the letters of Escorts Limited dated 5th and 17th September'83, the DCM's letters dated 11th and 24th August '83 and the letters of their advocates. Copies of the letters were forwarded to the Punjab National Bank who in turn asked the brokers Raja Ram Bhasin & co. to submit a report to them about the various issues raised in the E Reserve Bank's letter. Raja Ram Bhasin & Co. replied on 12.12.1983 and expressed their surprise that these questions were being raised after the Reserve Bank had granted its permission on

19. 9 .1983. However, they explained that no illegality had been counnitted by them or their clients the caparo Group of Companies with regard to the purchase of shares before 2.5.1983. The queries raised by the companies did not dispute the date of purchases made by them up to 28.4.1983. The queries were misleading and were merely an attempt to create a confusion. The Reserve Bank had satisfied itself and declared the eligibility of th~ companies to invest. All contracts for the sale or purchase of shares were made subject to the rules, bye-laws and regulations of the stock exchange and delivery could be made and accepted pursuant to the contracts earlier entered into. It was not essential that the transfer deeds must bear the date of stamp of the Registrar of Companies as the date of the contract. Deliveries could be taken even after 28.4.1983 • The dates stated in the transfer deeds were the dates of execution of the deeds of transfer by the transferee and had no relevance to the date of fl

966 SUPREME COURT REPORTS (1985] SUP~. 3 s.c.R.

A purchase of the date of delivery. The sale consideration shown in the transfer deed was for the purpose of computation of the stamp duty had to be paid at the rate prevalent on the dates stated on the transfer deeds and not as on the actual date or purchase. No shares were purchased in the benami names. The queries for which answers were now sought, were already before the Reserve Bank of B India and considered by them before permission was granted.

Raja Ram Bhasin & Co. wrote a further letter on ·27.12.1983 with regard to the query whether shares were purchased from rupee loan raised in India from the Reserve Bank of India. It was stated that a remittance of about Rs.107 crores was with-held by the Punjab National Bank without disclosing any reason. Shares c had already been purchased and consequently, the brokers had to take delivery from the seller broker and monies had to be paid to them. Otherwise the brokers would be declared as defaulters for non-payment. In the premises, the brokers had to take deliveries and arrange payments. Reserve Bank's permission was not necessary for this purpose.

D Thereafter, the Punjab National Bank wrote to the Reserve Bank of India answering the queries raised by them and reiterating that they had acted in accordance with the instructions and guidelines contained in the Reserve Bank's letter dated 19.9.1983. All the other points raised by the Escorts Limited and DCM Limited required answers from the E brokers. So they wrote to the brokers and the brokers had replied to them stating that no illegality had been committed. The conments of the brokers were summarised and it was then added that a sum of Rs.1,05,30,000 was released to the brokers in accordance with the directions of the RBI as conveyed by their telex message and letter dated 19.9.1983. F Subsequent to the grant of permission by the Reserve Bank of India another attempt was made to have the transfer of shares registered. The request was turned down once again by the Escorts Ltd. who by their letter 13.10.83 stated that apart from the question of obtaining the permission of the Reserve Bank of India G the decision of the Board of Directors to refuse to register the transfer of shares was based on other grounds also which continu- ed to be valid. We may mention here that before the High Court, all the other grounds mentioned by the Board of Directors were abandoned except the ground relating to want of permission of the Reserve Bank of India. Before the High Court, a resolution passed by the Directors by Circulation was filed and it was to this effect:-

L.I.c. v. ESCORTS [ClllNNAPPA REDDY, J.J 967

"Resolved that it is not the Board's intention to get adjudicated in some other proceeding the grounds of rejection contained in para 7 of the Share· Scrutiny and Transfer Comnittee of Directors Report· dated 8th June, 1983 or in paras 6, 7 and 8 of the Report dated 29th August 1983 and the Board hereby resolve not to rely on the said grounds in any proceeding."

The High Court also recorded the concession in the following words:

"Para 214 : In the rejoinder affidavit filed by petitioner No.2 it vas specifically pleaded that the c petitiouers do not want adjudication on the other giouuds of refusal of registration of shares, and as such failure to obtain prior permission under section 29 of the FERA reulned the sole grouud for rejection. The respondents urged that since other grounds of refusal to register the shares are not now pressed and are not required to be adjudicated in this Writ Petition, the Court should refuse to go into this question. That would amount to piece-meal adjudication on the validity of the purchase and refusal to register, which is not permissible even in the case of E a suit, which principle, according to the learned Attorney-General, also applies to Writ Petition mutatis mutandis.

Para 215 : Whether there is a live issue for adjudication and whether the petitioners have locus standi cannot be viewed in isolation or in the abstract, divorced from the facts and circumstances of the case.

Para 216 : In our view, in raising this contention certain relevant factors are being overlooked. The Union of India, the RBI and PNll and the other respondents dispute the correctness of the decision taken by the petitioners not to reglster the transfer of shares purchased by respondents Nos • 4 to 17 • Respondent No.19 has preferred an appeal under section H

p. 968

111 of the Companies Act before the Company Law Board A and the same is still pending. Respondent Nos. 20 and 21, the stock-brokers, continue to insist upon reconsideration of the decision taken by the Board of Directors in regard tQ registration of the shares, D.N. Davar, on behalf of the financial institutions, put in written note on 6.1.1984 signed by him B demanding the Eoard of Directors to reconsider its decision. Further the petitioner-company has to pay dividend on these shares accruing from time to time to the holders of these shares. The dividend on these shares amounting to Rs.7,50,000 per·annum is obviously payable to those in whose names the shares stand registered in the books of the company. If the divi- C· dend is not paid within the stipulated time, the petitioner-company and its Directors would be exposed to penalties under the Companies Act. The question of payment of dividend would recur year after year. In fact, on the question·of payment of interim dividend arose, while the respondent-companies claim to be entitled to the payment of the dividend because they D have purchased the shares, the petitioners object to payment because the registration of transfer of shares purchased without prior permission could not be effected and the dividend cannot be paid to persons whose shares are not registered. When petitioner No.2 addressed a letter dated 2nd December 1983 to D.N. Davar, Executive Director, IFCI, inviting his comments on the decision to withhold the interim dividend with respect to shares purchased by the respondent-compani- es, he replied through his letter dated 17th December, 1983 inter alia as follows: F "Since the payment of di v1dend in question, as referred to in your letter under reply pertains to interim dividend as resolved by the Board of Directors on the 20th July 1983 there does not appear to be legal bar in withholding the same according to the G second opinion. However in view of the conflicting legal opinions on the issue, we are referring the mattor to the Ministry of Law, Department of Company Affairs for their clarHication. On hearing from them, we shall revert to you, on the subject".

H

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 969

Tilus the matter was under reference to the GOvernment A of India and the question whether registration of transfer of shares should be effected or not and who would be entitled to receive dividend on these shares was a live is sue even on 17th December 1983 and was not decided even by the time the writ petition was filed. None of the respondents has taken back the B shares lodged with the petitioner-company for registration of transfer. Upon the sale of the shares and lodging of application for ~their transfer with the petitioner-company, it had to take a decision. The Company has rejected the request for registration on grounds which, according to the well considered c opinion of their legal advisers, are valid and justified. The RBI as well as the other respondents and their legal advisers seem to hold a different view. Of course, as discussed above, that legal opini- on has not been placed before the court; nor is the Court entitled to require them to disclose it. It IIDJSt D be recorded that petitlooers' learned counsel, Hr. Nariman, fairly conceded that it was an error on the part of the petltiooers to have referred in t:be petitioner No.2' s affidavit to the legal advice tendered to t:be respondents and requested that i t may be treated as withdrawn. I t was not pressed at the hesrlng of the writ petition. Be that as it may, the fact remains that the respondents held a different view on this legal issue and have pressed the same before this court. The question whether prior pennis- sion is necessary or not is thus not concluded by the rejection of transfer of the shares purchased by respondents Nos.4 to 16. It would arise from time to time as and when such purchases are made in future. The petitioner-company itself would have to consider the same whenever such shares are presented for registration. Even the Solicitors of respondent Noel8 in their letter dated 27th February 1984 addressed to the Petitioners' Solicitors stated : G

"• • • • .. the controversy regarding tran.Sfer of shares has been raging throughout the length and breadth of

R

970 SUPREME COURT REPORTS [1985] SUPP, 3 S.C.R.

the country and various forums including the A shA.reholders associations, chambers of commerce and other public bodies have been making observations and suggestions on such issues . ••••• "

They also specifically said in that letter that they would refer to that letter at the hearing of the writ B petition. This legal issue would arise for decision whenever the action of the petitioners not to register the shares is questioned by any of the transferors or transferees of the shares. If the respondents could still insist upon the registration of the shares and claim that permission granted to the respondent- companies by the respondent No.z subsequent to the c purchase of shares is valid which claim is strongly supported by the stand taken by respondents Nos.1 and 2, the petitioners are certainly entitled to seek a declaration in this behalf, Whether such a declaratory relief in this behalf could be granted or not will be considered in due course, but certainly it cannot be said that the petitioners have no cause of action for seeking a declaration. Notwithstanding the decision taken by the Board of Directors, the company continues to be under pressure to transfer the shares. If the stand taken by the petitioners is incorrect, then they would be bound under the statute as well as under the directions of the RBI, to register the transfer of shares in the books of the Company even now. While forwarding the copy of the letter dated 27th September 1983 addressed by the PNB to the respondent No.4 Company, Haresh Bhasin (respondent No.20) by his letter dated 8th October 1983 addressed to the petitioner-company and sent by Registered Post A.D., F had requested that the decision of the Board of Directors dated 29th August 1983 refusing to register the shares be reviewed. In reply the petitioner- company conveyed through its letter dated 13th October 1983 that notwithstanding the impugned Circular and the letter of the RBI, the refusal to register continued to hold good for various other reasons. In that letter the petitioners-company also disputed the claim that the thirteen non-resident companies had purchased the shares prior to 2nd May 1984. The petitioner-company thus maintained that the permission granted subsequently is not valid and that the refusal to register the shares for other reasons

L.I.c. v. ESCCRTS [CHINNAPPA REDDY, J.] 971

still holds good. Of course, at the hearing of the writ petition, having regard to the decision of the Supreme Court in Bajaj Auto Ltd. v. N.K. Firodia A.I.R. 1971 s.c. 321 the learned counsel Mr. Nar1man conceded that the other grounds for not registering the shares ""re not being pressed in support of the refusal of registration. It was, therefore, argued for the respondents that this letter would indicate that even the petitioners at that stage accepted that the permission granted under Exh."B" and Ext."C" validated the purchase and no longer stood in the way of registration of the shares. We are unable to agree with this content:l.on; firstly because if under sec·.29 c prior permission was require for a valid purchase, any such statement made in the letter on behalf of the petitioner-company cannot validate such transfer so as to entitled the purchase to claim registration of the shares. Any registration of transfer by the petitioner-company would steel be in contravention of section 19 read with section 29 of the FERA; secondly the letter cannot be interpreted to mean that the stand taken by the company and its Board of Directors unanimously that the purchase is invalid for not obtaining prior permission was given up. Further even if Exh. 'B' and Ex:h. 'C' are construed as a grant of permission, i t would amount to granting permission subsequent to the purchase. When the letter of the petitioner-company expressly states that "notwith- standing grant of the permission by the RBI as refer by you", it could only mean the grant of permission subsequent to the purchase could not hold good and that they were not prepared to transfer the shares on the basis of that permission. The fact that they actually proceeded to challenge the very permission granted by way of Writ Petition fully establishes that the company repudiated its liability to transfer the shares on the strength of the impugned Circular and letter. While so, it is the case of the petitioners that D.N. Davar one of the Directors, armed with the authority to speak for all the Financial institutions including the LIC continued to insist that the writ petition be withdrawn. Apart from the other pressures exerted on the petitioner-company and its Managing Director, already discussed above, at the meeting of the Board of Directors of the petitioner-company held on 6th January 1984, D.N. Davar tableo four pages of

p. 972

signed note inter alia insisting upon the Board of A Director to recall the cheques lodged with the insti- tutions towards repayment of loans and to withdraw the writ petition filed in the court and not to take note of the correspondence exchanged between the financial institutions and the management. The Board of Director, however, did not concur with his proposal; B on the contrary, it ratified the filing of the writ petition. Apart from petitioner No.2 each of the other nine Directors filed an affidavit in this court supporting the filing of the writ petition. It is also the allegation of the petitioners that financial institutions, finding that notwithstanding the unani- mous request made on their behalf by D.N. Davar at the c meeting of the Board of Directors, the Company and its Managing Director were refusing to withdraw the Writ Petition and effect the transfer of shares, with the ulterior purpose of obtaining registration of shares, requisitioned an EGM of the petitioner-company so that they may secure a controlling majority in the Board of Directors. The petitioners allege that the D acfion of the LIC (respondent no. 18) which by itself holds 30% of the shares and along with this other financial institutions, collectively represented by Davar, holds 52% shares, is malafide and is calculated to secure the registration of the shares which were purchased in contravention of FERA. In the circum- E stances referred to above, it cannot be said that the company and its Managing Director had no cause of action to file this Writ Petition hold that there was no longer any live issue to be adjudicated. The petitioner-company thus maintained that the permission granted subsequently is not valid and the refusal to register the shares for other reasons still hold good. Of course, at the hearing of the Writ Petition, having regard to tbe decision of tbe Supreme Court in Bajaj Auto Ltd. v. N.K. Firodia, the learned counsel Mr. Iiar1-n conceded that the other grounds for not registering the shares were not being pressed in support of tbe refusal of registration. "

In view of the rejoinder and the concession made before the High Court, in regard to the refusal of the company to register the transfer of shares, the ouly ground which it is necessary for H

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 973

us to consider is whether the permission granted by the Reserve A Bank of India was in order.

Escorts Limited having refused permission to register the transfer of shares, one would have thought that it was thereafter upto the purchasers or the sellers of the shares, if they were so winded to proceed to take further appropriate action in the B matter to have the transfer of shares registered. However it was not they that moved but it was the Escorts Limited that filed the writ petition out of which the present appeals arise. They explain that the pressure of circumstances was such th/it they had no option except to go to court under Art.226 of the Constitution. It appears that on 18.10.83, Escorts Limited met c with the representatives of the Financial Institutions, the ICICI, the U'C, the IDBI and the UTI. It has to be mentioned here that 30 per cent of the shares of Escorts Limited are held by the Life Insurance Corporation, 16 per cent by the Unit Trust of India and 6 per cent by the General Insurance Corporation and its subsidiaries. According to Escorts Limited, at this meeting L their representatives gave full particulars of the various illegalities committed by the Caparo Group of Companies in the· purchase of shares of Escorts Limited but they were repeatedly pressed by the representatives of the institutions to get their Board of Directors to reconsider their earlier refusal to register the transfer of shares. It was said that Mr. Patel the Chairman of the Unit Trust of India even said that the Financial Institutions who owned 52 per cent of the shares were in a position to remove the managemeri:t at will. There were other meetings also with the representatives of the Financial Institutions. Mr. Nanda, the Chairman of Escorts Limited was requested to meet with Mr. Punja, Chairman of IDBI, and a Director of Life Insurance Corporation who had just returned from F abroad. At this meeting also, it was said, Mr. Punja insisted that the transfer of shares purchased by the thirteen Caparo Companies should be registered. Again on 1.11.83 there was a meeting between the lawyers of Escorts and the legal advisers of the Financial Institutions. There was a further meeting between Mr. Nanda and Mr. Punja on 9.11.83 when Mr. Nanda of Escorts G Limited requested Mr. Punja to expedite the proposal for merger of goetze lridia Limited with Escorts Limited and the proposal for pre-payment of the outstanding loans of Escorts Limited to the Financial Institutions at the inter-institutional meeting to be held on the afternoon of 9th. Mr. Nanda was later informed by Mr. Davar that the proposals of Escorts Limited had been discussed R

p. 974

and accepted but the formal clearance would have to await Mr. A Punja's discussion with Mr· Nanda. Thereafter, it was said, Mr· Nanda was informed by Mr. Punja that Escorts Limited must register some shares purchased by the Caparo Group of Companies. In answer Mr. Nanda informed Mr. Punja that the RBI itself was enquiring into the purchase of shares by Caparo Group of Companies and therefore Mr· Punja should await the outcome of the B investigation. On 10.11.83 Mr. Sen Gupta, the Controller of capital issues telephoned to Mr. Nanda and insisted that Escorts Limited should atleast register some shares purchased by the Caparo Group immediately. On 12.11.83 Mr· Punja once more insisted that some shares atleast should be registered imniediate- ly. On 16.11.83 Mr. Nanda met Mr. Nadkarni, the Chairman of ICICI who informed him that Mr. Punja was most upset at the refusal of c Escorts Limited to register the transfer of shares. Thereafter in the first week of December, the Unit Trust of India wrote a letter to Escorts Limited to induct their Dy. General Manager as a nominee Director on the Board of Directors of Escorts Limited. On 13th December, 83 there was a meeting between Mr. Nanda and the representatives of Financial Institutions when once again there was renewed insistence that the transfer of shares should D be registered. On 20.12.83 Mr. Nanda telephoned and had a discus- sion with Mr. Punja who, it was said, informed him that the question of clearance of the proposal of Escorts Limited for merger, for pre-payment of loans and issue of debentures were inter-linked with the question of register of transfer of shares purchased by the Caparo Group of Companies. According to Mr. E Nanda this conversation was contemporaneously recorded by him in a letter addressed by him to Mr. Punja that very day.

While so the 'Telegraph' and the 'Financial Express' published a statement by Mr. Swraj Paul that the fight was now between the Government and the management of Escorts Limited and that he would consider himself defeated if the Government cleared the proposal of Escorts for the issue of debentures without first settling the matter of registration of transfer of the shares purchased by him. Mr. Swraj Paul was also reported to have said that the Governor of the Reserve Bank (Dr. Man Mohan Singh, a highly respected Civil Servant of our country) was applying double standards and was feeding wrong information to the Union Finance Minister. (If the reported statement is correct, we can only characterise it as saucy, rude and impudent coming as it does from a foreign national seeking the permission of the Reserve Bank to invest in shares of Indian Companies. Perhaps those are the ways of the markets in which he operates. People H

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 975

afflicted witi?"double vision are reaay to see double standards in others. We appreciate r1either his conduct nor his statements. Dr. A Man Mohan Singh, we presume, could not and did not think it proper to go to the press as readily as Mr. Swraj Paul and involve himself in an unsavoury controversy). On 24.12.83, there was a report of a speech of the Union Finance Minister (Mr. Pranab Mukherjee), at the Platinum Jubilee Celebration of the Galcutta Stock Exchange in which he referred to the dominant B position held by the Financial Institutions in the equity shares of some large private companies and added, "I have a very effective instrunent under my command to erid the uncertainty." According to Escorts Limited it was in this factual background, that they were compelled to file the writ petition in the High Court of Bombay. One remarkable tactic of Mr. Nanda of Escorts c deserves special mention here. The Writ Petition was filed on 29.12.83 and some interim directions were also sought on the same day. On that very day Mr. Nanda also had a meeting with the representatives of the Financial Institutions at the Office of Mr. Punja at which Mr. Nanda was asked to arrange for the induction of a representative of the U.T.I. on the Board of L Escorts and was further informed that the proposal for merger of Goetze Limited may not be acceptable as it would reduce the holding of the financial institutions from 52 per cent to 49 percent but that the matter was still under consideration. What is remarkable and what may even be considered dubious conduct on the part of Mr. Nanda is his failure to inform the representatives of the financial institutions about the filing of the Writ Petition that very day.

Writ Petition No.3063 of 83 thus filed in the High Court of Bombay was perhaps both protective and a pre-emptive strike. The writ petition is at once remarkable for its length and the number of prayers. The Writ Petition runs to as many as 172 pages and innumerable documents running into several volumes are now placed before us. There were originally thirteen prayers(a) ••• to (m). To these prayers four more prayers were added subsequently. Prayer (a), (b) and (c) seek declarations that Circular No.18 dated 19.9.83 are illegal and void as contrary to the provisions of the G Foreign Exchange Regulation Act as arbitrary and issued for collateral purposes, as const:i.tuting an abuse of statutory authority and as violative or Articles 14, l'\l)\cj and 19(l)(g) of the Constitution. Prayer (d) is for a declaration that the purchases of shares made by and/or on behalf of the Caparo Group

Ii

976 SUP!{EME COURT REPORTS [1985] SUPP. 3 S.C.R.

A Limited are illegal and violative of the Foreign Exchange Regulation Act, the circulars of the Reserve Bank of India issued from time to time and the provisions of the Securities Contracts Regulation Act and the bye-laws of the Stock Exchange. Prayers (e),(f),(g),(h),(i) again relate to Circular No. 18 dated 19.9.83 and the letter dated 19.9.83. Prayer (j) is directed towards B securing the relevant documents. Prayer (k) is to restrain the first respondent (Union of India) from pressuring the company to register the transfer of shares. Prayer (1) is for ad-interim reliefs in terms of prayers (j) and (k). Prayer (m) is for costs of the Petition. It will be of interest to notice at this juncture that the learned single judge before whom the writ petition came up for preliminary hearing thought fit not to issue c a rule nisi in regard to prayer(d). The learned judge made a speaking order refusing to issue a rule nisi in regard to prayer (d). There was no appeal against that order by Escorts Limited and the order became final so far as prayer(d) was concerned. The · entire cause of action of the petitioner centres round the purchase of shares made by and on behalf of Caparo Group Limited and if those purchases are left unquestioned, one is left D .,,ondering what survives in the writ petition, particularly in view of the fact that the Board of Directors of the Company had already refused their permission to register the transfer of shares. The prayers relating to Circular No. 18 dated 19.9.83 and the letter dated 19.9.83 were only in aid of prayer (d) which, as we see -it, was 'the main prayer in the writ petition. But we do not propose to dispose of the case on .any such preliminary ground. Apparently, when the learned single judge refused to issue a rule nisi in regard to prayer(d) what he meant was that transactions of purchase of shares would not be allowed to be separately and individually questioned as that would involve adduction of evidence in regard to each of the transactions and would be ordinarily outside the province of a court exercising jurisdiction under Article 226 of the Constitution. This becomes clear from what the learned judge has himself stated• He has referred to the objection to prayer(d) in the following words:

G "It was also submitted that prayer (d) should not be • entertained and if the Petitioners wanted tu urge the contentions beyond those restricted to Exhibit 'B' and 'C' they should be relegated to an ordinary action or to urge these contentions in the pending appeal before the Company Law Board." H He has dealt with the objection and concluded

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.] 917

"As stated earlier I think what is sought for in A prayer(d) must be regarded as ordinarily beyond the function of the Writ Court but this should not be taken to imply that there is no warrant in the various complaints made by Escorts and Petitioner No.2 in connection with this aspect of the matter. Indeed it would be clear that what had been stated by Petitioner B No. 2 in his letter dated 19th September 1983 was substantial and serious but these allegations have not been gone into either by the Government of India or the Reserve Bank of India."

Ex.B we may mention in the Circular dated 19.9.83 and Ex-C in the c peraiission granted by the Reserve Bank of India •

. Subsequent to the filing of the Writ Petition the Life Insurance Corporation of India (who later was impleaded as the 18th respondent in the Writ Petition) who _along with other D financial institutions held as many as 52 per cent of the total number of shares in the Company, issued a requisition dated 11.2.84 to the company to held an extraordinary general meeting for the purpose of removing nine of the part-time Directors of the Company and for nominating nine others in their place. Alleging that the action of the Life Insurance Corporation of E India was malaf ide and part of a concerted action by the Union of India, the Reserve Bank of India and the Gaparo Group Limited to coerce the company to register the transfer of shares and to withdraw .the Writ Petition, the Writ Petitioners sought to suitably amend the Writ Petition and to add prayers (ia), (ib), (ic) and (id) to declare the requisition to hold the meeting arbitrary, illegal, ultra vires etc. The writ petition was F amended. Paragraphs 149A(l) to (44) were added as also prayers (ia), (ib), (ic) and (id).

The High Court after an elaborate enquiry summarised their conclusions and granted reliefs in the following manner: G "Rule nisi is made absolute as under :

Section 29(l)(b} of FERA is mandatory. No NRl Investor is authorised to purchase shares in an Indian company. without prior permission of the RBI under section 29(l}(b) of FERA; any purchase of share_s without such Ii

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p. 978

A prior permission is illegal. Neither the Union of India nor the RBI is empowered to order otherwise either by issuing directions under section 75 or under section 73(3) of the FERA; nor are they empowered to grant permission after the shares are purchased so as to validate such purchases or to'permit holding of the B shares purchased without obtaining prior permission. The press release dated 17th September, 1983 (Exh. 'A'), the Circular dated. 19th September, 1983 (Exh. 'B') and the letter dated ! 9th September, 1983 (Exh, 'C ') cannot operate retrospectively so as to validate the purchase of shares made by NRI Companies which were ineligible on the date of purchase; nor can they c authorise purchase of shares without obtaining prior permission of the RBI under section 29(l)(b) of the FERA. In so far as the ifupugned press release, circular and the letter permit the respondent- companies to hold the shares purchase without obtain- ing prior permission of the RBI, they are .ultra vires of section 29(1)(b) of the FERA and the powers vested in the union of India under section 75 and the RBI under sec. 73(3) of the FERA. To that extent, they are void and inoperative both prospectively and retrospec- tively. The impugned press release and the Circular, however amount to amending the Portfolio Investment Scheme with full repatriation benefits introduced under Circular No. 9 dated 14th April, 1982 (Exh.'G') and such amendment operates only prospectively. A writ of mandamus shall issue restraining respondents Nos. l and 2 from issuing any directions -

(a) to register transfer of shares purchased by the respondent-companies (which form the subject-matter of this writ patition) pursuant to the letter dated 19th September, 1983 (Exh.'C'); and '

(b) to further forbear from implE\menting the said G Circular dated 19th September 1983 (Exh. 'B') and the said letter dated I 9th September 1983 (Exh. 'C') with respect to the shares purchased by the respondent- companies which form the subject-matter of this writ petition.

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L.I.c. v. ESCORTS [CHINNAPPA REDDY, J.] 979

There shall be a declaration that the action of respondent No.18 b issuing the impugned requisition notice is contrary to the provisions of sec.284 of the Companies Act and ultra vires the powers vested in the LIC under section 6 of the LIC Act aild contrary to the intendment of the provisions of the LIC · Act. The impugned requisition notice offends the principles of natural justice. The action of the LlC in issuing the impugned requisition notice is an arbitrary and mala fide action taken for collateral purpose; it is violative of Article 14 of the Constitution of India. The Union of India and the RBI, respondents Nos.l and 2, are in no way responsible for the action of the LIC in this regard. The allegation of this mala fides made c against them and the Union Finance Minister are unsubstantiated. The requisition notice and the reso- lutions passed at the meeting held in pursuance of the said notice are quashed. A writ of mandamus shall issue restraining the respondents from taking any ]) steps or action in pursuance of the resolutions passed any meeting held pursuant to that notice any step or action on or under or in furtherance of the imptigned requisition notice."

From what has ·been narrated above, one of the principle E questions to be considered is seen to be whether the Reserve Bank of India had the power or authority to give ex-post· ·facto permission under sec.29(l)(b) of the Foreign Exchange Regulation Act for the purchase of shares in India by a company not incorporated in India or whether such permission had necessarily to be "previous" permission. F We do not propose to refer to any dictionary to find out the meaning of the word 'permission', whether the word is compre- hensive enough to include subsequent permission. We will only refer to what Sir Shah Sulaiman, CJ. said in Shakir llUBsain v. Cbandoo Lal & Ors., A.t.R. 1931 Allah, 567. G

"Ordinarily the difference between approval and permission is that in the first the act holds good until disapproved, while in the other case, it does not become affective until permission is obtained. But permission subsequently obtained may all the same validate the previous act." H

p. 980

A We have already extracted sec.29(1) and we notice that the expression used is "general or special permission of the Reserve Bank of India" and that the expression is not qualified by the word "previous" or "prior". While we are conscious that the wrd "prior" or "previous" may be implied if the contextual situation or the object and design of the legislation demands it, we find B no such compelling circumatances justifying reading any such implication into sec.29(1). On the other hand, the indications are all to th·, contrary. We find, 0" a perusal of the several, different sections of the very Act, that the Parliament has not been unmindful of the need to clearly express tts intention by using the expression "previous pemission" whenever it ins thought that "previous permission" was necessary. In sec•• 27(1) c and 30, we find that the expression 'permission' is qualified by the word 'previous' and in sections 8(1), 8(2) and 31, the expression 'general or special permission' is qualified by the word "previous", whereas in sections 13(2), 19(1), 19(4), 20, 21(3), 24, 25, 28(1) and 29, the expressions 'perioission' and 'general' or 'special permission' remain unqualified. The distinction made by Parliament between permission simpliciter and o previous permission in the several provisions of tk 3ame Act cannot be ignored or strained to be explained away by us. That is not the way to interpret statutes. The proper way i1 to give due weight to the use as well as the omission to use the qualifying words in different provisions of the Act. The significance of the use of the qualifying in one provision and its non-use in another provision may not be disregarded. In our view, the Parliament deliberately avoided the qualifying word 'previous' in sec.29(1) so as to invest the Reserve Bank of India with a certain degree of elastic! ty in the matter of granting permission to non-resident companies to purchase shares in Indian companies. The object of the Foreign Exchange Regulation Act, as already explained by us, undoubtedly, is to earn, conserve, regulate and stored foreign exchange. The entire scheme and design of the Act is directed towards that end. Originally the Foreign Exchange Regulation Act, 1947 was enacted as a temporary measure, but it was placed permanently on the Statute Book by the Amendment Act of 1957. The Statement of Objects and Reasons of the 1957 Amend- G ment Act expressly stated, "India still continues to be short of foreign exchange and it is neceasary to ensure that our foreign exchange resources are conserved in the national interest." In 1973, . the old Act was repealed and replaced by the Foreign Exchange Regulation Act, 1973, the long title of which reads : "An Act to consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, tran-

L.I.C. v. ESCORTS [CHINNAPPA REDDY, J.J 981

sactions indirectly affecting foreign exchange and the import and export of currency and bullion, for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interest of the econcmic developDent of the country.• We have already referred to sec. 76 which emphasises that every permission or licence granted by the Central Govern- ment or the Reserve Bank of India should be animated by a desire to conserve the foreign exchange resources of the country. The Foreign Exchange Regulation Act is, therefore, clearly a statute enacted in the national economic interest. When construing statutes enacted in the national interest, we have necessarily to take the broad factual situations contemplated by the Act and interpret its provisions so as to advance and not to thwart the c particular national interest whose advancement is· proposed by the legislation. Traditional norms of statutory interpretation must yield to broader notions of the nstionsl interest. If the legis- lation is viewed and construed from that perspective, as indeed it is imperative that we do, we find no difficulty in interpret- ing 'permission' to mean 'permission' , previous or subsequent, L and we find no justification whatsoever fer limiting the expres- sion 'permission' to 'previous permission' only. In our view what is necessary is that the permission of the Reserve Bank of India should be obtained at some stage for the purchase of shares by non-resident companies.

An argument was strenuously pressed before us by Shri F.S. Nariman, learned Senior Advocate for the company, was that the very scheme of the Act shows that the permission contemplated by Sec. 29(1) could only be previous permission, notwithstanding the circumstance that the word 'previous' does not qualify the expression 'general or special permission' in sec.29(1) though it does in several other provisions. According to Sri Nariman, the Act was designed not merely to attract but also to regulate the inflow of Foreign Exchange. That was why, he said, the provisions were very stringent. We have no hesitation in agreeing with Mr. Nariman that while the inflow of Foreign Exchange is welcomed by the . Act, the inflow is also subject to stringent checks as otherwise in no time the economy of the country will be swamped with Foreign money and taken over by giant multinationals. But that really does not affect the interpretation of the expression 'permission' in Sec.29(1). The Reserve Bank of India is not bound to give ex-post-facto pennission whenever it is found that business has been started or H

p. 982

shares have been purchased without its previous permission. In A such cases, wherever the Reserve Bank of India suspects an oblique motive, we presume that the Reserve Bank of India will not only refuse pemission but will further resort to action under sections 50, 61 and 63, not merely punish the of fender but also confiscate the property involved. We do not think that the scheme of the Act makes previous permission imperative under B sec.29(1) though the failure to obtain prior permission may expose the foreign investor to prosecution, penalty, conviction and confiscation if permission is ultimately refused. Even if permission is granted, it may be made conditional. The expression 'special pemission is wide enough to take within its stride a 'conditional permission', the condition being relevant to the purpose of the statute, in this case, the conservation and c regulation of foreign exchange. For example, ex-post-facto permission may be granted subject to the condition that the person purchasing the shares will not be entitled to repatriation benefits.

Snri Nariman then suggested that even if we look at the D provisions of s.29 by themselves it would clear that the permis- sion contemplated by s .29 could only be 'previous'. He pointed out to us that while secs. 29(2) and 29(4) made due provision for applying for permission to continue to carry on any activity of the nature mentioned in s.29(l)(a) and continue to hold shares of a company of the character mentioned in s.29(l)(b) if such acti- E vity was carried on and such shares were held on the date of the commencement of the act, no such provision was found for the application for permission to carry on such activity or to hold such shares if such activity was commenced or if such shares were acquired after the commencement of the Act but without the previ- ous permission of the Reserve Bank of India. It was suggested that the very absence of any prescribed fora for the grant of permission for an activity started or shares acquired subsequent to the commencement of the Act without previous permission of the Reserve Bank of India, were clearly indicative of the imperative nature of the need for previous pemission. It was submitted that whatever argument was possible in regard to the acquisition of shares it was clear that no activity of the nature mentioned in sec.29(l)(a) could be commenced without the previous pemission of the Reserve Bank. Since the word 'general or special permis- sio"' of the Reserve Bank occuring in sec.29(1) qualified both

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L.I.C. v. ESCORTS [CRINNAPPA REDDY, J,] 983

clauses (a) and (b) the expression had to be given the same meaning with reference to clause (b) as it had to be given with A reference to clause (a) and that was that previous permission was necessary. The argument is attractive and not altogether without substance but it proceeds on the assumption, for which there is no basis, that permission required for carrying dn business under sec.29(l)(a) must necessarily be previous permission. We do not think that the Parliament intended to lay down in absolute te""18 B that the permission contemplated by sec.29(1) had necessarily to be previous permission. The principal object of sec. 29 . is to regulate and not altogether to ban the carrying on in India of the activity contemplated by clause (a) and the acquisition of an undertaking or shares in India of the· character mentioned tn· clause (b). The ultimate object is to attract and regulate the c flow of Foreign Exchange into India. If that much is obvious, it becomes evident that the Parliament did not intend to adopt too rigid an attitude in the matter and it was, therefore, left to the Reserve Bank of India, than whom there could be no safer authority in whom the power may be vested, to grant permission, previous or ex-post-facto, conditional or unconditional. The L Reserve Bank could be expected to use the discretion wisely and in the best interests of the· country and in furtherance of declared Governmental fiscal policy in the matter of Foreign Exchange. E It was contended on behalf of Escorts Limited that sec. 13 of the Foreign Exchange Regulation Act which enable the Central Government, by a notific;:ation in the gazette, to order that no person shall except with the general or special permission of the Reserve Bank bring or send into India any gold or silver or any Foreign Exchange or Indian currency, would be rendered ineffective if the expression 1 general or special permission' F accuring in sec. 13 could be construed to include subsequent permission. So, it was urged, both in s.13 and secs. 19 and 29 the expression should be construed to exclude subsequent permission. There is no force in this submission. Section 67 of the Foreign Exchange Regulation Act provides that the restriction imposed by or under sec. 13 is to be deemed to have been imposed G under sec. 11 of the Customs Act, and, further, makes the provisions of the Customs Act applicable accordingly. Section 11 of the Customs Act empowers the Central Government to prohibit absolutely or subject to conditions the import or export of goods of any specified description. Reading together sections 13 and 67 H

p. 984

A of the Foreign Exchange Regulation Act and Section 11 of the Customs Act, it is seen that an order under sec. 13 of the Foreign Exchange Regulation Act operates as a prohibition and there, can, therefore, be no question of the Reserve Bank granting subsequent permission to validate the importation of the prohibited goods and avoid the consequences prescribed by the B Customs Act. It is, therefore, not possible to accept the analogy of section 13 to interpret sections 19 and 29.

Our attention was drawn to the very serious nature of the consequences that follow the failure to obtain the permission of the Reserve Bank, and the circumstance that even the burden of c proof that requisite permission had been obtained, was on the person prosecuted or proceeded against for contravening a provision of the Act or rule or direction or order made under the Act thus ruling out mensrea as an essential ingredient of an offence. It is true that the consequences of not obtaining the requisite permission where permission is prescribed are serious and even severe. It is also true that the burden of proof is on the person proceeded against and that mensrea may consequently be interpreted as ruled out. But that cannot lead to the inevitable conclusion that the permission contemplated by section 29 is necessarily previous permission. Action under section 50 or under section 56 is not obligatory and in the case of a prosecution under section 56, the delinquent is further protected by the requirement that the complaint has to be made by one or other of the officers specified by section 61(2)(ii) only and even then only after giving an opportunity to the person accused of the offence of showing that he had the necessary permiseion. We presume that when called upon to show that he had the n~cessary permission, the person accused of the offence could satisfy the officer concerned that he had applied for permission as that there was a reasonable prospect of his obtaining the permission. We may further add here that ordinary prudence would warn a foreign national who is man of the world, particularly of the coomercial world, to seek and obtain permission before venturing to invest his money in shares of Indian Companies. If not he would chance a refusal of permission and risk other conse- G quences. The chance and the risk, of course, would not be there if everything was clean. Even i f permission is granted, it may be subject to a c~nuition such as withholding of repatriation benefits, which may nor be pl.atable to him. That is another chance that he take8 W-' -!n he seeks ex-post-facto permission. f-·1e

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' / L.I.c. v. ESCORT~ (CHINNAPPA REDDY, J.] 985

of the subnissions of Shri Nariman was that the Parliament took care to use the word 'confirmation' as distinguished from the A "°rd 'permission' where it thought such confirmation was suffi- cient, as in sec. 19(5). The Parliament, according to Shri Nariman, could well have made a provision for confirming transac- tions coming into existence after the comnencement of the Act, if it was so minded, but since, it did not do so, but chose the word permission', it must follow that sec. 29 contemplates previous B permission only. We see no true foundation for this subnission. A reference to any dictionary or any book of synonyms will show that every word has different shades of meaning and different words may have the same meaning. It all depends upon the context in which the word· is used. If it was the intention of Parliament to comprehend both previous and subsequent permission, the word c 'confirmation' would not do at all. While it may be permissible to construe the word 'permission' widely the word .'confirmation' could never be used to convey the meaning 'previous permission'. The word confirmation would be totally misplaced in sec.29.

D It was also subnitted on behalf of the company that if the 1 word perm1Ssion' was construed to include ex-post-facto permission, it would ,really amount to giving retrospective operation to the permission. The Reserve Bank, it was said was not competent to grant permission with retrospect effect. In our view, the rule against retrospectivity cannot be imported into E the situation presented here. The rule against retrospectivity is a rule of interpretation aimed at preventing interference with vested rights unless expressly provided or necessarily implied. To invoke the rule against retrospectivity in s situation where no vested rights are involved is to give statutory status to a rule of interpretation forgetting the reason for a rule. F

One of the subnission very strenuously urged before us was that the very authority which was primarily entrusted with the task of administering the Foreign Exchange Regulation Act, namely, the Reserve Bank .of India was itself, of the view that the 'permission' contemplated by sec. 29(l)(b) of the Foreign G Exchange Regulation Act wse 'prior permission. Our attention was invited to paragraph 24-A.l of the Exchange Control Manual where the first three sentences read as follows :-

"'In terms of sec. 29(l)(b) of Foreign Exchange Ii

p. 986