Delhi High Court
Putzmeister India Private Limited & Ors vs Union Of India & Ors on 29 October, 2024
Author: Sudhir Kumar Jain
Bench: Sudhir Kumar Jain
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: September 12, 2024
Decided on: October 29, 2024
+ W.P.(C) 8148/2010
PUTZMEISTER INDIA PRIVATE
LIMITED & OTHER .....Petitioners
Through: Mr. Dayan Krishnan, Senior
Advocate with Mr. Rishi
Agrawala, Ms. Niyati Kohli,
Mr. Abhay Agnihotri,
Mr. Aditya Bapat and
Mr. Sanjeev Seshadri,
Advocates
V
UNION OF INDIA & OTHERS .....Respondents
Through: Mr. Mukul Singh, CGSC
with Ms. Ira Singh and
Mr. Utsav Pokhriyal,
Advocates for R-1 & 2
Mr. H.S. Parihar,
Mr. Kuldeep S. Parihar and
Ms. Ikshita Parihar,
Advocates for R-3/RBI
Mr. Trideep Pais, Senior
Advocate with Mr. Sagar
Chawla, Ms. Shweta Yadav
and Ms. Sanya, Advocates
for R - 5 & 6
CORAM
HON'BLE DR. JUSTICE SUDHIR KUMAR JAIN
JUDGMENT
Signing Date:07.11.2024 W.P.(C) 8148/2010 Page 1
1. The petitioners filed the present petition with the following
prayers: -
(a) Issue a Writ of Certiorari or a writ, order or direction
in the nature of Certiorari calling for the papers and
proceedings in the matter and after examining the legality
and property thereof to quash and set aside the impugned
order viz., FC Approval No. 97(2010)210(2009) dated 29 th
September 2010 issued by respondent no.2 and the
Impugned Amendment viz., Amendment bearing No. FC.II
97(2010)210(2010) dated 10th November 2010 issued by
respondent no.2 to respondent no.5
(b) Issue a Writ of Mandamus or a writ, order or direction
in the nature of Mandamus ordering and directing
respondent no.2 to forthwith withdraw, cancel and revoke
the impugned order viz., FC Approval No.
97(2010)210(2009) dated 29th September 2010 issued by
respondent no.2 and the Impugned Amendment viz.,
Amendment bearing No. FC. II 97(2010)210(2010) dated
10th November 2010 issued by respondent no.2 to
respondent no.5
(c) issue an appropriate order or direction for enquiring
into the conduct of respondents no. 1 to 4 and to take such
action against them as is warranted in law.
(d) issue a writ of mandamus or a writ, order or direction
in the nature of mandamus ordering and directing the
respondents to act in accordance with law and confiscate
the illegal investment made by respondents no.5 and 6 in
breach of foreign Exchange Management Act. 1999 read
with Press Note Nos. 1 and 3 (2005 Series)
(e) for such further and other orders, directions and reliefs
as the nature and circumstances of the case may require.
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2. Briefly stated relevant facts are that the respondents no. 1 to 4 are
the authorities of the Government of India and are under a duty to
control and ensure the compliance of Foreign Direct Investment. The
petitioner no. 2 is the Managing Director and the petitioner no. 3 is
the director of the petitioner no. 1. The respondent no. 5 required the
contract and network of the petitioners no. 2 and 3 and Indian
partners to enter into the Indian market and manufacture its products.
The petitioners no. 2 and 3 along with respondent no. 5 entered into a
joint venture agreement on 19.12.1997. A Licensed Production
Agreement dated 19.12.1997 was also executed between the
petitioners no. 2 & 3 and the respondent no 5. The petitioner no.1
was the joint venture entity incorporated pursuant to the joint venture
agreement on 20.01.1998. The petitioners no. 2 and 3 are holding
76% of the issued, subscribed and paid-up capital of the petitioner
no.1 and the respondent no. 5 is holding balance 24% of the issued,
subscribed and paid-up share capital of the petitioner no.1. The
Department of Industrial Policy and Promotion, Ministry of
Commerce and Industry, Government of India issued Press Note.
18(1998 Series) dated 14.12.1998 pertaining to approval of foreign/
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technical collaboration under the automatic route with previous
ventures/tie-up in India. The Press Note No.18 (1998 Series)
stipulated that automatic route for FDI/or technology collaboration
would not be available to those who have or had any previous joint
venture or technology transfer/trade mark agreement in the same or
allied filed in India and in such cases the foreign investor/technology
supplier would have to necessarily seek FIPB/PAB approval route for
joint venture or the detailed technology transfer agreements. Press
Note No.18 (1998 Series) further stipulated that the onus was on the
investors/technology supplier to provide the requisite justification as
also to the satisfaction of FIPB/PAB that the new proposal would not
in any way jeopardize the interests of the existing joint venture or
technology/trade mark partner or other stake holders.
2.1. A new joint venture agreement was entered into on 04.11.2004
between the petitioners no. 2 and 3 and the respondent no. 5 whereby
the participation of the respondent no. 5 was increased to 65% and
the participation of the petitioners no. 2 and 3 was reduced to 35% in
the shareholding of the petitioner no. 1. The respondent no. 1
reviewed guidelines notified vide Press Note. 18 (1998 Series) dated
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14.12.1998 and issued Press Note No. 1 (2005 Series) dated
12.01.2005 setting out the guidelines for approval of
foreign/technical collaborations under the automatic route with
previous ventures/tie up in India. Press Note No. 1 (2005 Series)
stipulated that prior approval in cases where the foreign investor has
an existing joint venture or technology transfer/trade mark agreement
in the same field and the onus to provide requisite justification as
well as proof to the satisfaction of the Government that the new
proposal would or would not in any way jeopardize the interests of
the existing joint venture or technology/trade mark partner or other
stakeholders would be equally on the foreign investor/technology
supplier and the Indian Partner. The respondent no. 1 issued Press
Note. 3 (2005 Series) dated 15.03.2005 giving clarification regarding
guidelines for approval of foreign/technical collaboration under the
automatic route with previous ventures/tie-up in India. It is clear that
the joint venture was existing on 12.01.2005 and it was necessary for
the respondent no. 5 to seek prior approval of the Government of
India/ Foreign Investment Promotion Board before making any
investment in the same field.
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2.2. The respondent no. 5 attempted to withdraw from the Joint
Venture. The dispute has been arisen between the parties. The
respondent no. 5 on 23.06.2005 attempted to withdraw from the joint
venture by way of letters and terminated the License Production
Agreement. The respondent no. 5 wanted to set up its own competing
entity in India i.e. the respondent no. 6 and contemplated to do the
business as done by the petitioner no. 1. The respondent no. 5 in
flagrant breach and in total disregard to the second Joint Venture
Agreement and Licensed Production Agreement and the guidelines
laid down in Press Note. 1 and Press Note No 3 set up a new
company i.e. the respondent no 6 on or about 14.06.2005 and made
investment therein by subscribing to its entire share capital on
22.07.2005. The respondent no. 5 on 08.08.2005 filed a false
declaration in the form FC-GPR that it does not have any other joint
venture entities or technical collaboration or trade mark agreement in
same or allied field in India and, therefore, can invest through
automatic route without Foreign Investment Protection Board (FIPB)
approval. The respondent no. 5 in FC-GPR stated about activity of
the respondent no. 6 as manufacture and sale of construction
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machinery. The respondent no. 5 in violation of second Joint Venture
Agreement sought to transfer its shareholding in the petitioner no. 1
to one Sanjeev Bhakat. The Company Law Board vide judgment
dated 19.06.2007 set aside the transfer of shares by the respondent
no. 5 to Sanjeev Bhakat.
2.3 The respondent no. 5 was not permitted to make an investment
being a foreign company through the automatic route in terms of the
Press Note no.1 (2005 Series) read with Press Note no. 3 (Series
2005) due to the reason that the respondent no. 5 had existing joint
venture in India. The petitioners no. 2 and 3 made numerous
representations to the relevant statutory authorities i.e. the
respondents no. 1 to 3 to bring in their notice infraction of foreign
direct investment policy by the respondent no. 5. The petitioners no.
1 to 3 filed a writ petition bearing no 5633-35 of 2006. The
Department of Industrial Policy and Promotion/DIPP on 02.04.2007
after agreeing with the petitioners held that prima facie, a case of
violation of FDI policy had occurred in the investment of the
respondent no. 5 while setting up a wholly owned subsidiary in India
i.e. the respondent no 6 under the automatic route while having an
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existing joint venture in India in the same field. The respondents no.
5 and 6 challenged the order dated 02.04.2007 by filing a writ
petition bearing W.P.(C)No. 3443/2007 before this court which was
dismissed by the learned Single Judge vide order dated 1.07.2008.
The respondents no. 5 and 6 filed LPA bearing no. 387/2008 titled as
Putzmeister AG, Germany & others V UOI & others and vide
order dated 04.08. 2008, the authorities were restrained from taking
any coercive action in pursuance of order dated 02.04.2007. The
Division Bench of this court without expressing any opinion on the
right of the respondent no. 5 to approach The Foreign Investment
Promotion Board allowed LPA to be dismissed as withdrawn vide
order dated 11.08.2019 on the basis that the respondents no. 5 and 6
would be approaching the Foreign Investment Protection Board for
ex post facto approval and directed that the application for approval
would be decided in accordance with law. Accordingly, order dated
02.04.2007 passed by the respondent no. 1 became final and as such
the respondent no. 5 accepted, admitted and acknowledged the
violation of the public policy and guidelines laid down in Press Note
1 and 3 by assessing the automatic route.
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2.4 The respondent no. 5 filed an application/proposal bearing Ref.
No. 210/2009-FC 1 dated 6.10.2009 before the respondent no. 2 for
grant of ex post facto approval under the Press Note 1 (2005 Series)
for the investment made by it in the respondent no. 6. The respondent
no. 2 by letter dated 16.10.2009 forwarded said letter to the petitioner
no 1 for comments on said application/proposal which was replied by
the petitioner no. 1 vide replies dated 23.10.2009. The respondent no.
2 vide letter dated 01.01.2010 requested the petitioner no. 1 to make a
representation on the issues subject matter of the proposal before
Director, FIPB on 05.01.2010 and accordingly the petitioner no. 1
made presentation. The respondent no. 2 vide letter dated 16.02.2010
addressed to the petitioner no. 1 and the respondent no. 5 informed
about examination of the contentions of the petitioner no. 1 and the
respondent no. 5 by a Committee under Chairmanship of AS (DEA).
The Committee constituted as per decision of the Foreign Investment
Promotion Board in its meeting held on 18.01.2010 was comprising
Ms. L.M. Vas, Additional Secretary, Department of Economic
Affairs-Chairman; Mr. Govind Mohan, Joint Secretary (I and I); Mr.
Prabodh Saxena. Director (FIPB), Mr. P. K. Bagga, Officer on
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Special Duty (CM&I), Mr. Deepak Narain, Director, Department of
Industrial Policy and Promotion and Mr. Sushil Lakra. Industrial
Adviser, Department of Heavy Industry which accorded hearing to
the petitioner no. 1 and the respondent no. 5 and written submissions
were also furnished by the petitioner no. 1 and the respondent no. 5.
The respondent no. 2 vide letter dated 30.09.2010 forwarded copy of
FC Approval no. 97(2010)210(2009) dated 29.10.2010 issued to the
respondent no. 5 granting post facto approval to the proposal of the
respondent no. 5 (hereinafter referred to as "the impugned order").
The respondent no. 5 vide letter dated 01.10.2010 addressed to the
respondent no. 2 requested for amendment of the impugned order and
the respondent no. 2 vide its Amendment bearing No. FC. II
97(2010)/210(2010) dated 10.11.2010 amended Clauses 1 and 8 of
the impugned order. The petitioners made various applications to
various authorities, officers and ministries and also received replies.
The respondent no. 2 by Office Memorandum dated 05.04.2010
sought opinion of The Department of Legal Affairs, Ministry of Law
and Justice, Government of India regarding grant of ex post facto
approval under Press Note No. 1to investment of the respondent no 5
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in the respondent no 6 and it was opined that ex post facto approval
can be given.
2.5 The Foreign Investment Promotion Board in meeting held on
18.01.2010 has directed for constitution of the Committee under
Chairmanship of Ms. L. M. Vas, Additional Secretary, Department of
Economic Affairs with representation from the Department of
Economic Affairs, Department of Industrial Policy and Promotion
and Department of Heavy Industry as its members. The petitioners
and the respondents no 5 were given personal hearing on 17.03.2010
by the Committee comprising Ms. L.M. Vas, Additional Secretary,
Department of Economic Affairs-Chairman; Mr. Govind Mohan,
Joint Secretary (I and I); Mr. Prabodh Saxena. Director (FIPB), Mr.
P. K. Bagga, Officer on Special Duty (CM&I), Mr. Deepak Narain,
Director, Department of Industrial Policy and Promotion and Mr.
Sushil Lakra. Industrial Adviser, Department of Heavy Industry. The
said Committee was reconstituted by Office Memorandum dated
29.07.2010 and Shri. Bimal Julka, Director General (DG), Director of
Currency (DoC) has taken charge of I &I Division in the rank of
Additional Secretary and he shall be chairing the meetings of the
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Committee. The Committee which has given the recommendation on
04.08.2010 was comprising different members from the Committee
which accorded personal hearing to the petitioners and the respondent
no. 5. Accordingly, recommendation given 04.08.2010 was bad,
inconsequential and without any effect. The petitioners prayed that
impugned order and subsequent amendment are erroneous and bad in
law and deserve to be quashed. The petitioners being aggrieved filed
the present petition and challenged the impugned order and
subsequent amendment on various grounds as stated and mentioned
in the petition.
3. The respondent no. 5 filed reply wherein stated that the present
petition is not maintainable. The respondent no.5 had filed its
proposal for grant of ex post facto approval for the investment made
in the respondent no 6 in exercise of its right as observed by the
Division Bench of this court in LPA. The respondent no. 2 has
considered and evaluated comments, objections and allegations of the
petitioners in great details and thereafter the respondent no. 2
accorded ex post facto approval and issued FC Approval dated
29.09.2010 in accordance with law. As per current Foreign Direct
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Investment Policy of India (FDI Policy), 100% foreign direct
investment is permitted under automatic route of the Reserve Bank of
India without approval of the respondent no. 2 in the area of activity
and business of the respondent no. 6. The prior approval of the
Government as per Press Note no.1 was required where the foreign
investor has an existing joint venture in the same field. The
Government has examined and evaluated the relevant facts and
evidence furnished by the respondent no. 5 and the petitioners and
also deliberated upon the proposal at length and thereafter came to
categorical finding and satisfaction that the investment proposal of
the respondent no. 5 shall not jeopardize the interests of the
petitioners. The respondent no. 5 sought FC Approval only in
compliance with the provisions of the Press Note No. 1 (2005 Series).
The FC approval has been granted for the foreign investment by the
respondent no. 5 in the respondent no. 6 in conformity with FDI
policy of India. The Press Note No 1 has been repealed and scraped
with effect from 01.04.2011 and as such no approval is required by
the respondent no. 5 for investment in the respondent no. 6. The
respondent no. 2 is an expert and high-powered executive agency and
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empowered to examine foreign investment proposals and to take
appropriate decisions in the matter connected with foreign direct
investment. FIPB is consisting of senior government officials and
functionaries. FIPB has considered the foreign investment proposal
of the respondent no. 5 carefully and judiciously. FIPB Committee
arrived at conclusion that the respondent no. 5 and the petitioners no.
2 & 3 parted their ways in July, 2005 in acrimonious fashion and
based on various findings opined that no jeopardy caused to the
petitioners. The Report of FIPB Committee was placed before 158th
meeting of FIPB held on 10.09.2010 and FIPB considered
background of the proposal in detail. The proposal of the respondent
no. 5 and the objections and comments of the petitioners were
considered and examined by FIPB in comprehensive manner. The
decision of FIPB was based on objective, reasonable and transparent
considerations. The decision of the respondent no. 2 was based on
advice, deliberations and recommendation of multiple specialized
agencies which had examined the proposal of the respondent no. 5.
The decision of FIPB and specially constituted FIPB Committee to
accord ex post facto approval to the proposal of the respondent no. 5
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was well reasoned. FIPB has power to grant ex post facto approval.
The Department of Legal Affairs of the Ministry of Law and Justice
also opined that FIPB has power to grant ex post facto approval to the
investment proposal of the respondent no 5. The respondent no. 2 has
considered the proposal with sufficient details and accorded proper
hearing to the petitioners before granting the approval. The FC
approval granted to the respondent no. 5 is in interest of the Indian
Economy and the public interest. The grant of FC Approval is valid
and completely justified. The respondent no. 5 had withdrawn from
joint venture legally and is no longer associated with the petitioners
in any manner. The petitioners also misappropriated funds and
legitimate dues of the respondent no 5.
3.1 The respondent no. 5 in preliminary submissions stated that the
respondent no. 5 entered into a Joint Venture Agreement dated
19.12.1997 with the petitioners no. 2 and 3 and a License Production
Agreement was also executed on 19.12.1997. The petitioner no. 1
was incorporated on 23.01.1998 in pursuance of Joint Venture
Agreement and the petitioners were holding 76% of total issued and
paid-up share capital of the petitioner no. 1 whereas the respondent
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no. 5 was holding 24% of share capital. A new Joint Venture
Agreement was also signed on 04.11.2004 which could not be
executed or implemented due to differences between the petitioners
no. 2 and 3 and the respondent no. 5. The respondent no. 5 has
decided to invest in the respondent no. 6. The respondent no. 5
withdraw from second Joint Venture Agreement and License
Production Agreement on 12.06.2002 and transferred its shareholding
to the petitioner no. 1. The petitioner no. 1 as a joint venture has
become defunct and sick. The arbitration proceedings were invoked
and initiated.
3.2 The respondent no. 5 filed a Writ Petition (Civil) bearing no 3443
of 2003 to impugn and challenge the letter dated 02.04.2007 as
illegal, unreasonable and arbitrary and to restrain the respondents no.
1 to 4 from taking any action in pursuance of letter dated 02.04.2007
issued by the respondent no 1. The writ petition was dismissed vide
order dated 01.07.2008. The respondent no. 5 and 6 filed LPA
bearing no 387/2008 to challenge order dated 01.07.2008 wherein the
respondent authorities were restrained from taking any coercive
action in pursuance of letter dated 02.04.2007. The respondent no 5
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decided to withdraw LPA and to approach FIPB in the matter. The
Division Bench allowed the respondent no. 5 to withdraw the writ
petition and LPA vide order dated 11.08.2009. The respondent no. 5
decided to file its investment proposal for consideration and approval
by FIPB and on 06.10.2009 made an application with complete
disclosure of details to FIPB for grant of ex post facto approval under
erstwhile Press Note No. 1 of 2005 for investment made in the
respondent no 6. The Department of Economic Affairs (FIPB Unit)
forwarded application of the respondent no. 5 to the petitioners for
comments. The respondent no. 5 also furnished additional
information. The petitioners no. 2 and 3 submitted their comments on
20.11.2009 to the respondent no 2 which were also forwarded to the
respondent no. 5 on 12.12.2009. The respondent no. 5 also filed
detail reply on 01.01.2010. The representative of the respondent no. 5
also had a meeting with Director, FIPB on 05.01.2010 to explain the
proposal and on that day the petitioners were also given a hearing by
the Director, FIPB. FIPB in its meeting held on 18.01.2010 to
consider and evaluate proposal of the respondent no. 5 in greater
detail directed that a Committee under the Chairmanship of the
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Additional Secretary, Department of Economic Affairs be constituted
to examine rival contention of the respondent no. 5 and the
petitioners. Accordingly, Committee was constituted as detailed
herein above comprising representatives from DIPP i.e. the
respondent no 1, Department of Economic Affairs (DEA or the
respondent no 2) and the administrative ministries. The petitioners
and the respondent no. 5 made their respective submissions before
FIPB Committee. The various communications were also exchanged.
The proposal was also referred to Department of Legal Affairs vide
Office Communication dated 05.04.2010 and opined that the
respondent no. 2 is competent to grant ex post facto approval. FIPB
in its 158th meeting held on 10.09.2010 after deliberations and
considerations of material placed before it observed that ex post facto
approval can be given to the proposal of the respondent no. 5 subject
to conditions and compounding by the Reserve Bank of India. The
respondent no. 2 vide letter dated 29.09.2010 notified the respondent
no. 5 regarding ex post facto approval of proposal of the respondent
no 5. The respondent no. 5 on 01.10.2010 issued a letter to the
respondent no. 2 seeking certain corrections and amendments in FC
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Approval dated 29.09.2010. The respondent no. 2 accordingly issued
letter dated 10.11.2010. The respondent no. 2 exercised its
administrative discretion in appropriate and legal manner. The
respondent no. 5 on reply on merits denied allegations levelled
against the respondent no. 5 by the petitioner.
4. The respondent no. 1 and 2 also filed their counter affidavit. It is
stated that as per dispute the respondent no. 5 had equity investment
in existing Joint Venture Company i.e. the petitioner no. 1 but
without obtaining NOC from the Joint Venture partner as Press Notes
1 and 3 invested in another Indian Company i.e. the respondent no. 6
which was in violation of FDI Policy. The respondent no. 1 which is
the nodal Department for FDI policy vide letter dated 02.4.2007 has
opined that the violation of FDI Policy has occurred by the
respondent no. 5 by setting up of a wholly owned subsidiary in India
in same field. The respondent no 5. filed writ petition bearing no
3443 of 2007 which was dismissed by the learned Single Judge of
this court vide judgment dated 01.07.2008. The respondent no. 5
preferred LPA which was allowed to be dismissed as withdrawn
along with writ petition vide order dated 01.07.2008 and without
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expressing any opinion on merit of the case allowed the respondent
no. 5 to approach the respondent no. 2 for relief. The respondent no.
2 received a proposal from the respondent no. 5 and comments were
called from the respondent no. 5 and the petitioner no. 1. The
respondent no. 2 in its 149th meeting held on 18.01.2010 directed for
constitution of a committee under Chairmanship of Additional
Secretary, Department of Economic Affairs to examine the rival
contentions of the respondent no. 5 and the petitioners and to make
recommendations. The Committee also included representatives from
Department of Industrial Policy & Promotion, Department of
Economic Affairs and Administrative ministries. Accordingly,
Committee was constituted. Notices were issued to both the parties to
represent their case. Ms. L.M. Vas, AS (DS) was the Chairperson of
the Committee while Sh. Govind Mohan, Joint Secretary, DEA; Sh.
Prabodh Saxena, Director, DEA; Sh. P. K. Bagga, OSD (CM&I),
DEA, Sh. Deepak Narain, Director, DIPP and Sushil Lakra,
Industrial Advisor, DHI were other members of the Committee. The
second meeting of the Committee was held on 11.06.2010 in
presence of above-mentioned Chairperson and members.
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4.1. Sh. Bimal Julka, Director General, Directorate of Currency took
over charge of Investment & Infrastructure Division in place of Ms.
L. M. Vas. The Committee was reconstituted under the chairmanship
of Sh. Bimal Julka and third meeting of the Committee was held on
04.08.2010 under Chairmanship of Sh. Bimal Julka and other
representatives as mentioned herein above. The respondent no
2/FIPB on basis of opinion of the Committee observed that ex post
facto approval can be granted and accordingly ex post facto approval
was issued to the respondent no. 5 vide letter dated 29.09.2010 which
was subsequently amended vide letter dated 10.11.2010. The
respondents no. 1 and 2 also denied other allegations of the
petitioners.
5. Sh. Dayan Krishnan, the learned Senior Counsels for the
petitioners in backdrop of above stated facts argued that the
petitioners were heard on 17.03.2010 by a committee headed by Ms.
L. M. Vas, Additional Secretary Department of Economic Affairs
which considered case of the petitioners while the third meeting of
the Committee which was held on 04.08.2010 and made final
recommendation to the FIPB was reconstituted Committee headed by
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Sh. Bimal Julka, Director General, Directorate of Currency. Sh.
Krishnan further argued that due to change in the Committee, two
members who heard the petitioners were not part of the Committee
on 04.08.2010. Accordingly, it is gross violation of principles of
natural justice and defeats very purpose of fair hearing. He further
argued that FIPB Committee was not having power to grant ex post
facto approval. The approval and subsequent amendment perpetuated
illegality as it was subjected to compounding by RBI. The
approval/amendment granted by the respondent no. 2 on
recommendation of FIPB did not record any reason and was contrary
to the Principles of Natural Justice.
6. Sh. Trideep Pais, the learned Senior Counsel for the respondents
no 5 and 6 argued that first meeting of the Committee was held on
17.03.2010 wherein a personal hearing was granted to the petitioners
and the respondent no. 5. The parties also filed their written
submissions before the Committee and the Committee in third
meeting held on 04.08.2010 after dealing with the issues raised by the
petitioners and the respondent no. 5 in detail decided to recommend
to FIPB to accord ex post facto approval to the respondent no. 5 with
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certain conditions and also referred names of the members present in
the meeting held on 04.08.2010. He argued that there was a change in
the composition of the Committee but four members of the
Committee remained the same and as such there was no violation of
Principles of Natural Justice and placed reliance on Madhya
Pradesh Industries Ltd. V Union of India & others, 1965 SCC
OnLine SC78 and Union of India & another V Jesus Sales
Corporation, (1996) 4SCC 69. He further stated that the Committee
considered the arguments advanced by the petitioners in its meeting
held on 04.08.2020. He further argued that the petitioners have failed
to demonstrate whether any prejudice was caused to the petitioners.
The petitioners were well aware about change in the constitution of
the Committee and never raised any objection before 158th meeting
held on 10.09.2010. Sh. Pais also countered argument advanced by
Sh. Krishnan that the Committee was not having power to grant ex
post facto approval and the respondent no. 5 was entitled to make
investment as there was no existing joint venture on 22.07.2005. Sh.
Pais also rebutted other arguments advanced by Sh. Krishnan who
also advanced arguments in rebuttal.
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7. The principles of natural justice involve a procedural requirement
of fairness and have become an essential part of any system of
administrative justice. Natural Justice is considered to be part of rule
of law. The Supreme Court in Sangram Singh V Election Tribunal
Kotah, AIR 1955 SC 425 observed that one should not be
condemned unheard and decision should not be reached behind the
back. The Supreme Court in Maneka Gandhi V Union of India,
AIR 1978 SC 597 emphasized that natural justice is an essential
element of procedure established by law and state action must be
right, just and fair and not arbitrary, fanciful and oppressive. It was
held that Article 14 of the Constitution strikes at arbitrariness of state
action and ensures fairness and equality of treatment. The Supreme
Court in Mohinder Singh V Chief Election Commissioner, AIR
1978 SC 851 observed that the principles of natural justice are bones
of healthy government.
7.1. The Supreme Court in Indian Oil Corporation Limited and
others V Shashi Prabha Shukla and another, (2018) 12 SCC 85
observed as under:-
33. (a) public authority in its dealings has to be fair,
objective, non arbitrary, transparent and non
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discriminatory. The discretion vested in such an authority,
which is a concomitant of its power is coupled with duty
and can never be unregulated or unbridled. Any decision or
action contrary to these functional precepts would be at the
pain of invalidation thereof. The State and its
instrumentalities, be it a public authority, either as an
individual or a collective has to essentially abide by this
inalienable and non negotiable prescriptions and cannot act
in breach of the trust reposed by the polity and on
extraneous considerations. In exercise of uncontrolled
discretion and power, it cannot resort to any act to fritter,
squander and emasculate any public property, be it by way
of State largesse or contracts, etc. Such outrages would
clearly be unconstitutional and extinctive of the rule of law
which forms the bedrock of the constitutional order.
7.2. The Supreme Court in Southern Power Distribution Company
Limited of Andhra Pradesh (APSPDCL) & another V M/s
Hinduja National Power Corporation Limited & another, 2022
Livelaw (SC) 117 and observed as under:-
Every action of a State is required to be guided by the
touchstone of non arbitrariness, reasonableness and
rationality. Every action of a State is equally required to be
guided by public interest. Every holder of a public office ·is
a trustee, whose highest duty is to the people of the country.
The Public Authority is therefore required to exercise the
powers only for the public good.
7.3. The principles of natural justice are equally applied in purely
administrative functions. The Supreme Court in A.K. Kraipak V
Union of India, AIR 1970 SC 150 observed that the principles of
Signing Date:07.11.2024 W.P.(C) 8148/2010 Page 25
natural justice are applicable to administrative inquiries and
established that observance of principles of natural justice in decision
making process of the administrative body having civil
consequences. The Supreme Court again in Neelam Mishra V
Harinder Kumar Paintal, AIR 1990 SC 1137 observed that
administrative order involving civil consequences must be passed in
accordance with notions of fairness.
7.4. The purpose of the principles of natural justice is to prevent
miscarriage of justice. The expression audi alteram partem implies
that a person must be given an opportunity to defend himself and
ensures that no one should be condemned unheard. Audi alteram
partem makes it obligatory for an authority that a party should not
suffer in person or in purse without an opportunity of being heard and
implies that before an order is passed against any person real,
reasonable and effective opportunity of being heard must be given to
him. The rule of fair hearing is consisting of two components which
are notice and hearing. It is basic principle of natural justice that the
authority should give to the affected party a notice of the case against
him so that he may defend himself adequately. The administrative
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authority is also required to afford reasonable opportunity to the party
to present his case. A real, rationale and effective hearing includes
disclosure of all relevant material or information which the authority
wishes to use against the individual in arriving of its decision. The
administrative authority cannot take a decision on the basis of any
material unless the person against whom it is sought to be utilised is
given an opportunity to rebut or explain the same.
8. The factual position is more or less admitted by the contesting
parties. The petitioner no. 1 was outcome of Joint Venture
Agreement between the petitioners no. 1 and 2 and the respondent no.
5 and the respondent no. 5 were having equity investment in the
petitioner no. 1. The respondent no. 5 without any approval or NOC
from the petitioner no. 1 in terms of Press Notes 1 and 3 made
investment in the respondent no. 6 which was found to be in violation
of FDI Policy by the respondent no. 1 vide letter dated 02.4.2007 and
opined that the respondent no. 5 had violated FDI Policy by setting
up of a wholly owned subsidiary in India in same field. The
respondent no. 5 filed writ petition bearing no. 3443 of 2007 but
without any success as per judgment dated 01.07.2008. LPA filed by
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the respondent no. 5 was allowed to be dismissed as withdrawn along
with writ petition vide order dated 01.07.2008 and the respondent no.
5 for appropriate relief was allowed to approach the respondent no. 2.
The respondent no. 5 made a proposal to the respondent no. 2 and
thereafter comments were invited from the respondent no. 5 and the
petitioner no. 1. A Committee was constituted as per decision taken
by the respondent no. 2 in its 149th meeting held on 18.01.2010 under
Chairmanship of Additional Secretary, Department of Economic
Affairs to issues between the respondent no. 5 and the petitioners and
to make recommendations. Ms. L.M. Vas, AS (DS); Sh. Govind
Mohan, Joint Secretary, DEA; Sh. Prabodh Saxena, Director, DEA;
Sh. P. K. Bagga, OSD (CM&I), DEA, Sh. Deepak Narain, Director,
DIPP and Sushil Lakra, Industrial Advisor, DHI were the
Chairperson/ members of the Committee and the second meeting of
the Committee was held on 11.06.2010. Sh. Bimal Julka, Director
General, Directorate of Currency replaced Ms. L. M. Vas as
Chairperson of the Committee. The third meeting of the Committee
was held on 04.08.2010 under Chairmanship of Sh. Bimal Julka and
the respondent no. 2/FIPB on basis of opinion of the Committee
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accorded ex post facto approval to the respondent no. 5 vide letter
dated 29.09.2010 which was subsequently amended vide letter dated
10.11.2010.
9. The petitioners did not allege that proper, appropriate and
meaningful opportunity of being heard was not afforded to them or
that they were denied to make representation/written submissions and
from submitting documents. It is apparent from respective pleadings
of the parties that they were called for personal hearing on
17.03.2010 and submitted written submissions on 19.03.2010. The
main grievance of the petitioners is that the Committee under the
Chairmanship of Sh. Bimal Julka which recommended to FIPB
regarding grant of ex post facto to the respondent no. 5 for investment
in the respondent no 6. on 04.08. 2010 was not the same Committee
which heard the petitioners no. 2 and 3 and the respondent no. 5 on
17.03.2010 regarding grant of ex post facto approval to the
respondent no. 5 and said Committee was headed by Ms. L. M. Vas.
It means that Committee under Chairmanship of Ms. L. M. Vas
which heard the petitioners no. 2 and 3 and the respondent no. 5 on
17.03.2010 on issue of grant of ex post facto to the respondent no. 5
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on its proposal did not recommend grant of ex post facto to the
respondent no. 5 rather it was recommended by the Committee
headed by Sh. Bimal Julka. The composition of both the Committees
i.e. one which heard the petitioners no. 2 and 3 and the respondent
no. 5 on 17.03.2010 and the Committee which recommended grant of
approval to the respondent no. 5 on 04.08.2010 was different and said
factual position is not under dispute or disputed by either of the
parties and the respondents no. 1 and 2 in counter affidavit have
admitted this factual position. The learned Senior Counsel for the
petitioners under these circumstances alleged gross violation of the
Principles of Natural Justice and the learned Senior Counsel for the
respondents no. 5 and 6 stated that no prejudice was caused to the
petitioners as the petitioners were having knowledge about the
change in the constitution of the Committee and were given proper
opportunity of being heard by the Committee. Sh Pais also argued
that Sh. Prabodh Saxena and Ms. L. M. Vas were not part of the
Committee on 04.08.2010 and one member Sh. Bimal Julka did not
personally hear the petitioners but four members of the Committee
remained same.
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10. The Supreme Court in Gullapalli Nageswara Rao & others V
Andhra Pradesh State Road & another and also relied on by the
learned Senior Counsel for the petitioners considered Motor Vehicles
Act, 1939 and the Rules framed thereunder which imposes a duty on
the State Government to give a personal hearing and the procedure
prescribed by the Rules impose a duty on the Secretary to hear and
the Chief Minister to decide. It was observed that the divided
responsibility is destructive of the concept of judicial hearing and
such a procedure defeats the object of personal hearing. The personal
hearing enables the authority concerned to watch the demeanour of
the witnesses and clear up its doubts during the course of arguments
and the party appearing to persuade the authority by reasoned
arguments to accept this point of view. It was further held that if one
person hears and another decides, then personal hearing becomes an
empty formality. The Coordinate Bench of this court in Hyundai
Rotem Company V Delhi Metro Rail Corporation which is also
cited by the learned Senior Counsel for the petitioners also observed
that if one authority is hearing and another authority is passing the
order then it defeats the very purpose of personal hearing.
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11. In the present case, the respondents no. 1 and 2 in counter
affidavit alleged that it is not the general practice to ask the parties to
participate in FIPB meetings but in cases where personal hearing of
the parties is considered to be necessary then the parties are called to
present their case either before the Board or before a committee
especially constituted to consider a particular issue. In the present
case a committee was constituted vide letter dated 16.02.2010 issued
by DEA then the petitioners and the respondent no. 5 were called to
present their respective case before committee. It is further stated that
once the committee gave its report then no need was felt to call the
parties again before FIPB. It is also reflecting from the counter
affidavit filed on behalf of the respondents no. 1 and 2 that the first
meeting of Committee was to be held on 03.03.2010 and
subsequently held on 17.03.2010. The notices were also issued to the
concerned parties. The first meeting was chaired by Ms. L. M. Vas,
AS (DEA) and Sh. Govind Mohan, Joint Secretary, DEA; Sh.
Prabodh Saxena, Director, DEA; Sh. P. K. Bagga, OSD (CM & I),
DEA, Sh. Deepak Narain, Director, DIPP and Sh. Sushil Lakra,
Industrial Director, DHI were present as representatives of the
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Administrative Ministries. It is further stated that second meeting of
the Committee was held on 11.06.2010 which was chaired by Ms. L.
M. Vas and attended by Sh. V. Bhaskar, Joint Secretary, DIPP, Sh.
Govind Mohan, Joint Secretary, DEA; Sh. Prabodh Saxena, Director,
DEA; Sh. P. K. Bagga, OSD (CM & I), DEA, Sh. Deepak Narain,
Director, DIPP and Sh. Sushil Lakra, Industrial Director, DHI. It was
further stated that Sh. Bimal Julka, Director General, Directorate of
Currency (DEA) took over the charge of Investment & Infrastructure
Division under FIPB and thereafter Committee was reconstituted
under Chairmanship of Sh. Bimal Julka vide OM dated 29.07.2010.
The third meeting of the Committee was held on 04.08.2010 which
was attended by Sh. Bimal Julka. Director General, Directorate of
Currency (DEA), Sh. Govind Mohan, Joint Secretary, DEA; Sh. P.
K. Bagga, OSD (CM & I), DEA, Sh. Deepak Narain, Director, DIPP
and Sh. Sushil Lakra, Industrial Director, DHI. The said Committee
accorded ex post facto approval to the respondent no 5.
12. It is not stand of the respondents no. 1 and 2 that the petitioners
no. 2 and 3 and the respondent no. 5 were called for personal hearing
or accorded personal hearing on 04.08.2010 which reflects that
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reconstituted Committee accorded approval to the respondent no. 5
on its proposal for investment made in the respondent no. 6 only on
basis of submissions oral and documentary and documents already
submitted to Committee prior to reconstitution till 17.03.2010. The
reconstituted Committee under chairmanship of Sh. Bimal Julka
should have afforded or given a fresh personal hearing to the
petitioners no. 2 and 3 and the respondent no. 5 before according ex
post facto approval to the respondent no 5. Although four members
were common in Committees on 17.03.2010 and 04.08.2010 but on
both occasions, Chairpersons of the Committee were different and
reconstituted Committee without affording fresh opportunity to the
parties and despite fact that personal hearing was given by the earlier
Committee has accorded the approval to the respondent no. 5 which
was in gross violation of the right to personal hearing and in turn
Principles of Natural Justice. The approval to the respondent no. 5
either should have been granted by the Committee which was chaired
by Ms. L. M. Vas or a fresh personal hearing must have given by the
reconstituted Committed under chairmanship of Sh. Bimal Julka and
failure to do so was gross violation of Principles of Natural Justice.
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Although it is stand of the respondents no. 1 and 2 that the parties
were not required to be given personal hearing but once it was
afforded to the petitioners no. 1 and 2 and the respondent no. 5 then it
must have been meaningful and in accordance with observation of
Principles of Natural Justices. The act of the respondent no. 1 and
2/FIPB in according approval to the respondent no. 5 by reconstituted
Committee without affording a fresh opportunity of being heard to
the parties was in gross violation of the Principles of Natural Justice.
There is force in arguments advanced by the learned Senior Counsel
for the petitioners that recommendation of grant of approval to the
respondent no. 5 on 04.08.2010 was in violation of Principles of
Natural Justice. The contrary arguments advanced by the learned
Senior Counsel for the respondent no. 5 & 6 are misplaced even no
prejudice might have caused to the petitioners.
13. Sh. Dayan Krishnan, the learned Senior Counsels for the
petitioners also argued that the respondent no. 2 while granting
approval/amendment to the respondent no. 5 on recommendation of
FIPB did not record reasons and is contrary to the Principles of
Natural Justice. He further argued that amendment dated 10.10.2010
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wherein it was recorded that no jeopardy has been caused to the
petitioners no. 1 and 2 was made without affording any opportunity
of being heard to the petitioners no. 2 & 3. Sh. Trideep Pais, the
learned Senior Counsel for the respondents no. 5 and 6 argued that
amendment in FC Approval does not materially alter impugned order
dated 29.09.2010. The respondent no. 2 on 29.09.2019 accorded ex
post facto approval to the respondent no. 5 on its proposal. FIPB in
its 158th meeting held on 10.09.2010 considered objections raised by
the petitioners in detail and thereafter had decided to accord ex post
facto approval to the respondent no. 5 for investment in the
respondent no. 6. He argued that there was no denial of the Principles
of Natural Justice to the petitioners. Both learned Senior Counsels
cited case law in support of their arguments.
14. The Supreme Court in Engineer and Manufacturing Co. V
Union of India, AIR 1976 SC 1785 reiterated the principle with an
emphasis that the rule requiring reasons to be given in support of an
order is a basic principle of natural justice which must inform the
quasi-judicial process. It should be observed in its proper spirit and
"mere pretence of compliance with it would not satisfy the
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requirement of law". It was observed in Maneka Gandhi V Union of
India, AIR 1990 SC 1984 that giving of reasons is a healthy check
against abuse or misuse of power. The requirement of duty to give
reasons was further crystallized in S.N. Mukherjee V Union of
India, AIR 1990 SC 1984 and reasons due to which a reasoned
decision must be passed were discussed. It was observed that
reasoned decision: (i) guarantee consideration by the authority; (ii)
introduce clarity in decisions; and (iii) minimize chances of
arbitrariness in decision-making thereby ensuring fairness in the
process. It was observed as under:
In our opinion, therefore, the requirement that reason must
be recorded must be recorded should govern the decisions
of govern the an administrative authority exercising quasi
judicial functions irrespective of fact whether the decision
is subject to appeal, revision or judicial review. It may,
however, be added that it is not required that the reasons
should be as elaborate as in the decision of a court of law.
The extent and nature of the reasons would depend on
particular facts and circumstances. What is necessary is
that the reasons are clean and explicit so as to indicate that
the authority has given due consideration to the points in
controversy.
14.1 The Supreme Court in Rani Lakshmi Bai Kshetriya Gramin
Bank V Jagdish Sharan Varshney & others, (2009) 4SCC496 held
that the purpose of disclosure of reasons is that people should have
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confidence in judicial and quasi-judicial authorities and minimize
chances of arbitrariness. It was held as under:-
The purpose of disclosure of reasons, as held by a
Constitution Bench of this Court in the case of S.N.
Mukherjee vs. Union of India reported in (1990) 4 SCC
594, is that people must have confidence in the judicial or
quasi-judicial authorities. Unless reasons are disclosed, how
can a person know whether the authority has applied its
mind or not? Also, giving of reasons minimizes chances of
arbitrariness. Hence, it is an essential requirement of the
rule of law that some reasons, at least in brief, must be
disclosed in a judicial or quasi-judicial order, even if it is an
order of affirmation.
14.2 The Supreme Court in the case of Namit Sharma V Union of
India, (2013) (1) SCC 745 regarding duty to give reasons held as
under: -
It is not only appropriate but is a solemn duty of every
adjudicatory body, including the tribunals, to state the
reasons in support of its decisions. Reasoning is the soul of
a judgment and embodies one of the three pillars on which
the very foundation of natural justice jurisprudence rests.
It is informative to the claimant of the basis for rejection of
his claim, as well as provides the grounds for challenging
the order before the higher authority/constitutional court.
The reasons, therefore, enable the authorities, before whom
an order is challenged, to test the veracity and correctness
of the impugned order. In the present times, since the fine
line of distinction between the functioning of the
administrative and quasi- judicial bodies is gradually
becoming faint, even the administrative bodies are required
to pass reasoned orders. In this regard, reference can be
made to the judgments of this Court in the cases of Siemens
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Engineering & Manufacturing Co. of India Ltd. v. Union of
India &Anr. [(1976) 2 SCC 981]; and Assistant
Commissioner, Commercial Tax Department Works
Contract and Leasing, Kota v. Shukla & Brothers [(2010) 4
SCC 785].
14.3 Any authority when conferred with a discretionary power must
exercise that power after applying its mind to the facts and
circumstances of the case. The authority should not act mechanically
in exercise of discretion. The Supreme Court in East Coast Railway
V Mahadev Appa Rao, (2010) 7 SCC 2794 observed that every
order passed by a public authority must disclose due and proper
application of mind by the person making the order.
15. Even at risk of repetition, it is stated that the petitioner no. 1 was
incorporated due to execution of Joint Venture Agreement between
the petitioners no. 2 and 3 and the respondent no. 5. The respondent
no. 5 set up the respondent no. 6 on or about 14.06.2005 and made
foreign investment therein. The petitioners made complaints to the
respondents no. 1 to 3 for violation of Press Notes No. 1 & 3. The
respondent no. 1 passed an order dated 02.04.2007 holding that the
respondent no. 5 had violated FDI Policy in setting the respondent
no. 6. The respondent no. 5 vide order dated 11.08.2009 passed in
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LPA bearing no 387 of 2008. LPA was permitted to approach FIPB
for appropriate relief. Thereafter the respondent no. 5 filed an
application/proposal on 6.10.2009 for grant of ex post facto approval
under Press Note No. 1 (2005 Series) for investment made in the
respondent no. 6. FIPB in its meeting held on 18.01.2010 directed for
constitution of a committee to examine rival contentions of the
petitioners and the respondent no. 5 and said Committee was set up
under Chairmanship of Ms. L. M. Vas. The Committee gave a
hearing to the petitioners no. 2 and 3 and the respondent no. 5 on
17.03.2010 and written submissions were also submitted by them.
The Committee was reconstituted under chairmanship of Sh. Bimal
Julka and said reconstituted committee made recommendation on
04.08.2010 for grant of ex post facto approval and said
recommendation was considered by FIPB in its meeting held on
10.09.2010 and thereafter the respondent no. 2 granted ex post facto
approval to the respondent no. 5.
16. The perusal of Approval dated 29.09.2010 reflects that the
Department of Economic Affairs, FIPB (FC SECTION), Ministry of
Finance conveyed to the respondent no. 5 about grant of ex post facto
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approval by the Government of India subject to certain terms and
conditions. The clause 10 of said Approval detailed about
circumstances which were necessary for grant of approval to the
respondent no. 5. The ex post facto approval dated 29.09.2010 was
result of deliberations made in FIPB on the basis of recommendation
made by Committee constituted by FIPB to examine rival contentions
of the petitioners no. 2 and 3 and the respondent no. 5 about foreign
investment made by the respondent no. 5 in the respondent no. 6. The
petitioners no. 2 and 3 were given personal hearing by the Committee
and written submissions were also submitted by the petitioners no. 2
and 3. It cannot be said that ex post facto Approval dated 29.09.2010
was granted without any reason although those reasons may not be
specifically mentioned in Approval dated 29.09.2010. The argument
advanced by the learned Senior Counsel for the petitioners that
Approval dated 29.09.2010 was without any reason or passed without
reasons does not have legal force. The contrary arguments advanced
by the learned Senior Counsel for the respondents no. 5 and 6 carry
legal force.
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17. However, in view of the fact that reconstituted Committee which
recommended grant of approval to the respondent no. 5 on
04.08.2010 was not the Committee comprising same
Chairperson/members which heard the petitioners no. 2 and 3 and the
respondent no. 5 on 17.03.2010. Accordingly grant of approval on
29.09.2010 by the respondent no. 2 to the respondent no. 5 needs
fresh reconsideration again by the Committee which shall be hearing
the petitioners no. 2 and 3 and the respondent no. 5 on the proposal of
the respondent no. 5 and shall be taking decision on the proposal
made by the respondent no. 5. Accordingly, the respondent
no.2/Ministry of Finance/FIPB is directed to constitute fresh/new
Committee to hear afresh on proposal of the respondent no. 5 stated
to have been made on 06.10.2009 vide application bearing Ref. No
210/2009-FC.1 within six weeks from date of this judgment and said
Committee shall hear the petitioners no. 2 and 3 and the respondent
no. 5 on proposal of the respondent no. 5 and thereafter same
committee shall take appropriate decision on the proposal of the
respondent no. 5. It is made clear that there shall not be any change in
composition of the Committee or reconstitution of the Committee in
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any circumstance. The new Committee shall afford opportunity of
being heard to the petitioners and the respondent no. 5 which shall
also include filing of written submissions if any by the petitioners no.
2 and 3 and the respondent no. 5. The freshly constituted Committee
shall take appropriate decision on recommendation about proposal of
the respondent no. 5 within a period of eight weeks from date of
constitution and shall be at liberty to take independent decision
without being influenced by previous recommendation made on
04.08.2010. It is made clear that there is no stay or injunction on
operation of ex post facto approval dated 29.09.2010 till newly
constituted committee takes appropriate decision on proposal of the
respondent no. 5. The parties to the petition shall also be at liberty to
initiate appropriate legal proceedings in case they feel aggrieved by
any decision/recommendation made by the Committee or by the
respondent no. 2/FIPB thereafter or in any altered circumstance.
18. The present petition along with pending applications, if any, stand
disposed of.
DR. SUDHIR KUMAR JAIN
(JUDGE)
OCTOBER 29, 2024 sk/tk
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