Case: Union of India Vs. ABN Amro Bank &amp; Others

have to file application in prescribed form for approval of foreign equity upto 51% equity. 57. Newly set-up trading company primarily engaged in export has therefore also to satisfy the conditions laid down in clause (b) of paragraph 1 of the Notification dated 13.01.1998 and the contention that a trading company is primarily engaged in export be determined only when it remits dividend cannot be accepted. The expression "further" used in the second proviso makes it more explicit. "Further" as means "additional" meaning thereby a newly set up trading company is not a third category as such but it goes along with second category i.e. "a trading company primarily engaged in export". To get the benefit of the general permission in the automatic route a trading company should be primarily engaged in export, even if it is a newly set up company. A newly set up company also could demonstrate the same by specifying the same in Form FC[RBI] that it is a trading company, whether new or old, and is at least intended to be engaged primarily in export. A reference to the Form FC (RBI) duly submitted by the 2nd respondent is useful. 58. FC[RBI] form specifically directs the applicants to "carefully tick" the "appropriate" box. In the box dealing with the application for approval for foreign investment not to exceed 51% for "service sector in Annexure III", the company has put a tick mark which would indicate that it sought to avail of the automatic route for service sector only as indicated in Annexure III. Noticeably no tick mark was put in the next box referring to "not exceeding 51% of the trading companies engaged in exports. Para VII deals with the "existing activities" which the 2nd respondent indicated as "not applicable" and no supplementary sheet was also attached explaining as to whether it was a newly set up trading company proposing to engage in export activities. Para VIII referring to Item Code ITC (HS) the company has indicated "893", which as per the Code deals with "Business and Management Consultancy Activities". 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. 59. We are of the view that the company cannot go back from the information already furnished by it in the application, form which are declared as true and correct. Based on that application RBI vide its communication dated 29.6.1998 granted registration No.FC98NDR1005. Registration, in our view, pertains only to NIC code 893. No permission was obtained by the second 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.60. 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. and issues raised in appeals, which are clearly questions of law which fell within the ambit of Section 56 of FERA and the High Court committed a serious error in rejecting the same holding no questions of law arose for its consideration.ABN Amro Bank NV (Royal Bank of Scotland NV)61. We will now examine whether the above Bank has contravened Section 6(5) of FERA and misused the permission granted to it by RBI for importing gold coins. Proceedings were initiated against the company and others as per directions given by RBI dated 8.6.1999 and it was noticed that the bank had also sold gold coins to the company without being reasonably satisfied about the nature of the business of the company. The adjudicating authority took the view that the Bank as an authorized dealer, should have ascertained whether the company had got necessary permission from the RBI in dealing with the 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.62. In such circumstances, we find no error in the view taken by the Tribunal as well as the High Court that the proceedings initiated against the Bank that it had violated Sections 6(4) and (5) of FERA was illegal. The appeal filed by the Union of India, so far as the Bank is concerned, stands dismissed.63. We notice trading in gold is not an activity covered under Notification dated 13.01.1998 and 20.01.1998; perhaps for that reason, fourth respondent also took some steps to establish its 100% subsidiary in India and an application to that effect was filed on 24.08.1998 to FIPB by the company but it was not pursued further, but sought to achieve the same as if RBI had granted automatic permission which cannot be sustained in the eye of law.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]59. We are of the view that the company cannot go back from the information already furnished by it in the application, form which are declared as true and correct. Based on that application RBI vide its communication dated 29.6.1998 granted registration No.FC98NDR1005. Registration, in our view, pertains only to NIC code 893. No permission was obtained by the second 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.60. 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. and issues raised in appeals, which are clearly questions of law which fell within the ambit of Section 56 of FERA and the High Court committed a serious error in rejecting the same holding no questions of law arose for its consideration.ABN Amro Bank NV (Royal Bank of Scotland NV)61. We will now examine whether the above Bank has contravened Section 6(5) of FERA and misused the permission granted to it by RBI for importing gold coins. Proceedings were initiated against the company and others as per directions given by RBI dated 8.6.1999 and it was noticed that the bank had also sold gold coins to the company without being reasonably satisfied about the nature of the business of the company. The adjudicating authority took the view that the Bank as an authorized dealer, should have ascertained whether the company had got necessary permission from the RBI in dealing with the 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.62. In such circumstances, we find no error in the view taken by the Tribunal as well as the High Court that the proceedings initiated against the Bank that it had violated Sections 6(4) and (5) of FERA was illegal. The appeal filed by theso far as the Bank is concerned, stands dismissed.63. We notice trading in gold is not an activity covered under Notification dated 13.01.1998 and 20.01.1998; perhaps for that reason, fourth respondent also took some steps to establish its 100% subsidiary in India and an application to that effect was filed on 24.08.1998 to FIPB by the company but it was not pursued further, but sought to achieve the same as if RBI had granted automatic permission which cannot be sustained in the eye of law.