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2013 (7) TMI 505

Head Note:
FDI - foreign investment for Service Sector - Nature and business of the company - whether the company was a trading company and also whether it was primarily engaged in export for availing of the automatic route - Held that:- If a new trading company indulging in export primarily also will have to make an application to the RBI for automatic approval for foreign investment upto 51% foreign equity and the thrust would be on export activities. - Registration of the company as an exporter / importer with the Ministry of Commerce and registration of an export house is also a pre-requisite - according to the Notification then in existence and the Press Note upto 31.12.1991 the companies engaged primarily in trading activities whether new or existing will have to fulfill certain conditions by applying to the RBI for permission for foreign investment up to 51% - No permission was obtained by the respondent company from the RBI for 51% foreign equity induction, for trading, by way of export. RBI, on the other hand, granted general permission only for dealing with the activities mentioned in NIC Code 893 and not for any trading activities leading to import or export.

Lifting of Corporate Veil - Held that:- in a given situation the authorities functioning under FERA find that there are attempts to over-reach the provision of Section 29(1)(a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous or a devise so as to overcome statutory provisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non- disclosure of all necessary information or making a false representation tantamount to approval/permission obtained by practicing fraud and hence a nullity.

Whether the company violated the provisions of Section 19(1)(a) and (d) and Section 29(1)(b) r.w Sections 9(1)(e), 49 and 68(1) and (2) of FERA leading to penal consequences Held that:- The company violated the provisions and thus would be liable for the consequences premises of the company ordered to be seized amounts present in various bank accounts confiscated personal penalties were also imposed.

Permission and Registration with RBI - Held that:- The company stated in the application as "Business Management Consultancy for Trading, Marketing and Selling of Goods and Services". Even there also, there is no indication whatsoever that the company was set up for trading, but only indicated "consultancy for trading". Further Para IX (iii) called for the description of the products for export trading wherein the company has stated as "not applicable". Resultantly, it is clear that the purpose for which the company had sought for foreign collaboration was not for trading in gold coins either for export or domestic purpose, but for the activities mentioned in the NIC Code 893. - The High Court, in our view, has committed an error in holding that no questions of law arose for its consideration under Section 54 of FERA and has completely misread and misinterpreted the Industrial Policy, Press Notes and Section 19(1)(a) and (b), Section 29(1)(a) and (b) etc. - Decided against the company.

Whether the above Bank has contravened Section 6(5) of FERA and misused the permission granted to it by RBI for importing gold coins - The Bank, it is seen, had imported the gold on its own behalf and sold the same to the company and if the Bank was acting as an agent of the company, it would not have sold the gold to the company, but would have charged the commission for acting as an agent. No materials have been placed before us to show that the Bank was acting as an agent of the company. On facts, the Tribunal as well as the High Court took the view that the Bank had not misused the permission granted by the RBI for importing gold coins. We do not find any reason to interfere with those finding of facts. - Decided in favor of Bank.


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