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2016 (11) TMI 1529 - SC - Indian LawsCorporate Guarantee - proof of substantial defence - offence under FEMA - Held that:- As observed it is clear that a sum of ₹ 418 crores has been paid by FMO, the Dutch company, to Vinca for purchase of shares as well as compulsorily convertible debentures. This transaction by itself is not alleged to be violative of the FEMA regulations. The suit is filed only on invocation of the Corporate Guarantee which on its terms is unconditional. It may be added that it is not the defendant's case that the said Corporate Guarantee is wrongly invoked. Payment under the said Guarantee is to the debenture trustee, an Indian company, for and on behalf of Vinca, another Indian company, so that prima facie again there is no infraction of the FEMA Regulations. Since FMO becomes a 99% holder of Vinca after the requisite time period has elapsed, FMO may at that stage utilise the funds received pursuant to the overall structure agreements in India. If this is so, again prima facie there is no breach of FEMA Regulations. At the stage that FMO wishes to repatriate such funds, RBI permission would be necessary. If RBI permission is not granted, then again there would be no infraction of FEMA Regulations. The judgment in Immami Appa Rao’s [1961 (9) TMI 87 - SUPREME COURT]case would be attracted only if the illegal purpose is fully carried out, and not otherwise. Based on the aforesaid, it cannot be said that the defendant has raised a substantial defence to the claim made in the suit. Arguably at the highest, as held by the learned Single Judge, even if a triable issue may be said to arise on the application of the FEMA Regulations, nevertheless, we are left with a real doubt about the Defendant’s good faith and the genuineness of such a triable issue. Rs.418 crores has been stated to be utilized and submerged in a building construction project, with payments under the structured arrangement mentioned above admittedly being made by the concerned parties until 2011, after which payments stopped being made by them. The defence thus raised appears to us to be in the realm of being ‘plausible but improbable’. This being the case, the plaintiff needs to be protected. In our opinion, the defendant will be granted leave to defend the suit only if it deposits in the Bombay High Court the principal sum of ?418 crores invested by FMO, or gives security for the said amount of ₹ 418 crores, to the satisfaction of the Prothonotary and Senior Master, Bombay High Court within a period of three months from today. The appeal is accordingly allowed, and the judgment of the Bombay High Court is set aside.
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