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2014 (4) TMI 516 - HC - FEMAViolation of the Foreign Contribution (Regulation) Act, 1976 - Donations made to political parties for the period up to the year 2009 - Violation of Section 293(a) of the Companies Act, 1956 - Receipt of donations from the State Trading Corporation and Metals & Minerals Trading Corporation of India - Respondent contends that M/s Sterlite Industries India Ltd and M/s Sesa Goa Ltd. are not foreign companies and are Indian companies - Held that:- The Foreign Contribution (Regulation) Act, 1976 was enacted by the Parliament to serve as a shield in our legislative armoury, in conjunction with other laws like the Foreign Exchange Regulation Act, 1973, and insulate the sensitive areas of national life like - journalism, judiciary and politics from extraneous influences stemming from beyond our borders - The interpretation of the term Foreign Source as defined under Section 2(e) lies at the heart of the present controversy and begs for judicial consideration - The term Foreign Source is not exhaustively defined under the Act and it assumes significance that the legislature has chosen to employ the word includes, which signifies that the entries contained in the said provision are only illustrative of what could constitute a Foreign Source. Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976 treats Foreign Company within the meaning of Section 591 of the Companies Act, 1956, its subsidiaries and multi-national corporations as a Foreign Source for the purpose of the Act. The term Foreign Company is not defined in the Foreign Contribution (Regulation) Act, 1976, however it prescribes that a Foreign Company within the meaning of Section 591 of the Companies Act, 1956 would be treated as a Foreign Source for the purpose of the Act - A company, incorporated outside India, however in a sense domiciled within the territory of India by establishing a place of business therein, should be brought within the regulatory framework of the Companies Act, 1956 and in public interest be saddled with some rudimentary obligations. In light of the legislative mandate flowing from clause (1) of Section 591 of the Companies Act, 1956, Vedanta is unquestionably a Foreign Company by virtue of the fact that Vedanta is incorporated outside India, i.e., in the United Kingdom and has established its place of business in India, as it operates in the territory of India through its subsidiary companies like Sterlite and Sesa - A careful analysis of Section 591(2) reveals that if more than one-half of the share-capital of a company incorporated outside India and having an established place of business in India (A 'Foreign Company', within the meaning of section 591(1) of Companies Act, 1956) is held by one or more citizens of India or by one or more bodies corporate incorporated in India, or by one or more citizens of India and one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with such of the provisions of this Act as may be prescribed with regard to the business carried on by it in India, as if it were a company incorporated in India. Therefore, by virtue of the fulfilment of the conditions prescribed in clause (2) of Section 591 of the Companies Act, 1956, a fiction of law operates, and even a Foreign Company as defined is clause (1) is obliged to scrupulously comply with all the provisions of the Companies Act, 1956 as if it were a company incorporated in India and not merely comply with sections 592 to 602 of the 1956 Act - The nationality of a company is determined exclusively on the touchstone of the situs of its incorporation and there exists a profusion of judicial authorities to this effect. The nationality of its shareholders or directors have no bearing upon the nationality of a company, the company being a distinct jural entity having an existence independent of its constituents. Thus, Vedanta is a Foreign Company within the meaning of Section 591 of the Companies Act, 1956 and therefore, Vedanta and its subsidiaries – Sterlite and Sesa are a Foreign Source as contemplated under Section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976. However, in view of the operation of clause (2) of the Section 591 of the Companies Act, 1956, Vedanta would be required to comply with the provisions of the Companies Act, 1956 like a company incorporated in India. Since more than one-half of the nominal value of the share-capital of Sterlite and Sesa is held by Vedanta and Vedanta is a corporation incorporated in a foreign country or territory within the meaning of section 2(e)(vi)(c) of the Foreign Contribution (Regulation) Act, 1976, the present case is also squarely covered under Section 2(e)(vi)(c) of the Foreign Contribution (Regulation) Act, 1976 - Prima-facie the acts of the respondents inter-se, as highlighted in the present petition, clearly fall foul of the ban imposed under the Foreign Contribution (Regulation) Act, 1976 as the donations accepted by the political parties from Sterlite and Sesa accrue from 'Foreign Sources' within the meaning of law – Decided in favour of appellants.
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