1991 (5) TMI 237 - HC - Companies Law

Regulation of export and transfer of securities, Restrictions on establishment of place of business in India, Power to adjudicate, Burden of proof

Summary

Issues Involved
1. Jurisdiction to inquire under section 29(1)(b) of the Foreign Exchange Regulation Act, 1973.
2. Revival of adjudication proceedings after abandonment.
3. Bona fide exercise of statutory powers and reasonableness of delay.
4. Requirement for production of vital documents from the Reserve Bank of India and the Company Law Board.

Detailed Analysis

Jurisdiction to Inquire under Section 29(1)(b) of the Act
The petitioners contended that the respondents lacked jurisdiction to inquire into the purchase of shares of R. G. Shaw Companies by Carrasco under section 29(1)(b) of the Act. The court noted that section 29(1)(b) restricts a person resident outside India or a non-resident company from acquiring shares in India without RBI permission. However, the court concluded that the purchase of shares of R. G. Shaw Companies, registered in the UK, did not constitute the purchase of shares in India of Shaw Wallace. The court emphasized that "the undertaking of a company is not the same thing as shares of that company" and that the agreement did not refer to the purchase of shares in India but to acquiring indirect control of Shaw Wallace shares. Thus, section 29(1)(b) was deemed inapplicable.

Revival of Adjudication Proceedings
The petitioners argued that the adjudication proceedings had been dropped or abandoned after January 21, 1987, and could not be revived. The court found no evidence to support the claim that the proceedings were dropped. The court noted that while the prosecution and opportunity notice were withdrawn, the adjudication proceedings were explicitly stated to continue. The court held that the delay in reviving the proceedings was not fatal and that the proceedings were never formally abandoned.

Bona Fide Exercise of Statutory Powers and Reasonableness of Delay
The petitioners contended that the revival of adjudication proceedings after over two years was not bona fide and was unreasonable, unfair, and oppressive. The court examined the records and found that the delay was due to administrative processes and changes in the Special Directors. The court concluded that the delay did not indicate mala fide intentions or abuse of power. The court emphasized that a statutory authority must act within the scope of its powers, and there was no evidence of improper conduct by the Special Director.

Requirement for Production of Vital Documents
The petitioners requested the production of documents from the Reserve Bank of India and the Company Law Board to support their defense. The court agreed that these documents were material and relevant to the petitioners' case. The court criticized the Special Director for not summoning the records, stating that this failure caused serious prejudice to the petitioners. The court emphasized that the burden of proof was on the petitioners to show they had the requisite RBI permission, and they were entitled to request the production of relevant official records.

Conclusion
The court quashed the show-cause notice dated October 16, 1985, and all subsequent proceedings, restraining the respondents from proceeding thereunder. The court held that the provisions of section 29(1)(b) and section 47(1) of the Act were not applicable in this case. The court concluded that the adjudication proceedings were initiated without jurisdiction and that the petitioners were denied a fair opportunity to defend themselves due to the non-production of vital documents. The writ petition succeeded, and the rule was made absolute, with no order as to costs.