IN THE HIGH COURT AT CALCUTTA Constitutional Writ Jurisdiction Original Side GA No.360 of 2007 WP No.1157 of 2004 Sajal Dutta versus Reserve Bank of India & ORS.For petitioners:- Mr.S.N.Mookerjee …Sr.Advocate Mr.Ratnanko Banerjee…Sr.Advocate Mr.Sounak Mitra.Advocate Mr.Tarun Aich….Advocate For Respondent No.6: Mr.S.K.Kapur…Sr.Advocate Mr.Jishnu Saha….Sr.Advocate Mr.Subhojit Roy… Advocate Mr.P.Gorai… Advocate For R.
B.I.: Mr.H.K.Mitra …Sr.Advocate Mr.D.D.Sen,….Advocate 16th March, 2016 Judgement On: - I.P.MUKERJI, J.
Ruby General Hospital is situated right at the crossing of Eastern Metropolitan Bypass and the Gariahat connector to it.
It was set up on the initiative of two brotheRs.Sajal, the writ petitioner and Kamal the respondent No.6 and a friend of Kamal, Binod Prasad Sinha.
Kamal and Binod are permanent residents of USA.
Both are doctORS.Sajal always resided in Kolkata.
This hospital was conceptualized to be technologically a most modern hospital with state of the art facilities.
It was named after Kamal’s deceased wife.
It started functioning around the middle of April, 1995.
It had the distinction of being inaugurated by Mr.Jyoti Basu, the Chief Minister of West Bengal.
In its application to the Secretary, Department of Industrial Development, Ministry of Industry made on 31st May, 1993 for approval of Foreign Non-resident Indian Investment in the public company which owned the hospital (Ruby General Hospital Limited).it was stated that the Non-resident Indian (NRI) shareholding in the company would be subject to a ceiling of Rs.8,00,00,000/-, not exceeding 88.88% of the total shareholding and was to be on repatriable basis.
Now, “repatriable basis” and “non-repatriable basis” are different.
According to Sajal who is now prosecuting this writ application, the investment had to be on repatriable basis.
These expressions assumed significance at the time of allotment of shares of the company between Kamal and Sajal.
Kamal, being a doctor was interested in causing to be sent to the company second hand medical equipments to be used in the hospital.
The value of the equipments was stated to be as Rs.3,05,53,290/-.
Kamal wanted this money to be treated as share application money on the basis of which shares in the company would be allotted to him.
This, in foreign exchange terminology was investment on a “non-repatriable basis” because equipments were imported into India with allotment of shares.
There was no outflow of foreign exchange from this country.
According to Sajal, investment could only be on a repatriable basis.
Foreign exchange had to come into the country, thereafter, the money would be remitted for the purchase of new equipments, against allotment of shares.
On 6th August, 1993 the Secretary to the Department of Industrial Development, Ministry of Industry granted approval for foreign equity participation subject to a ceiling limit of 88.88% amounting to Rs.8,00,00,000/- on repatriable basis out of which import of capital goods could be Rs.4.20 Crores.
It was for a period of two years from the date of issue of the letter.
The government clarified the shareholding approval by saying that the ceiling in equity and preference capital would be 44% each.
Between September, 1992 and October, 1995 second hand medical equipments were caused to be exported by Kamal and were duly imported by the company.
Sajal’s grievance was that no foreign exchange was remitted.
Kamal claimed to have paid the vendors of the equipments in the USA.
On 22nd March, 1997, Reserve Bank of India granted approval to the company under Section 19(1) (d) of the Foreign Exchange Regulation Act, 1973 (FERA) now repealed, to issue 30,55,329 equity shares of Rs.10/each to Kamal against the importation of the said medical equipments, on non-repatriable basis.
The relationship between the two brothers started deteriorating very rapidly after incorporation of the company.
It came to a head on 19th April, 1995 when a purported resolution was passed to issue and allot not more than forty lacks equity shares Rs.10/- each at par to persons, corporate bodies, banks, mutual funds, financial institutions.
Although Kamal Dutta was shown to be present at the meeting, he later alleged that the resolution was fabricated at a later date.
Subsequent resolutions were passed.
On 7th February, 1996 Kamal was removed as Managing Director of the Company, succeeded by Sajal.
Therefore, when Reserve Bank of India gave permission on 22nd March, 1997 to allot shares to Kamal for importation of second hand medical equipments, he had ceased to be the Managing Director of the Company and in control of it.
Sajal assumed the control of the company and filed a writ application in this Court challenging the permission granted by the Reserve Bank of India.
On 20th May, 1998 the permission was withdrawn.
This Court directed personal hearing to be given to the parties before passing any order.
The Reserve Bank of India once again endorsed its earlier approval of allotment of shares in favour of Kamal.
A second writ followed.
Once again the High Court directed re-hearing by the Reserve Bank of India.
Once again, the bank on 7th May, 2004 confirmed its order granting permission to allot shares to Kamal against supply of second hand medical equipments.
The present writ is the third writ.
This Court directed, as an interim order, that any allotment of shares to Kamal would abide by the result of the writ.
It was filed in the year 2004.
For thirteen years it is pending.
Meanwhile, Kamal on or about 12th November, 1997 moved the Company Law Board complaining against Sajal that his action was oppressive to him.
It inter alia held that allotment of shares to Kamal on account of importation of second hand medical equipments would abide by the result of the pending writ application in the High Court.
On 29th October, 1999 the Company Law Board allowed the petition before it by inter alia holding that acts of oppression had been committed against Kamal and Dr.
Sinha.
On or about 14th December, 1999 the company as well as Dr.
Dutta preferred separate appeals before this Court against this judgment and order of the Company Law Board.
On 31st March, 2005 this Court reversed the Company Law Board’s judgment.
On 11th August, 2006, the Supreme Court to which an appeal had been preferred against the judgment of the Division Bench of this Court allowed the appeal by Kamal inter alia ordering status quo ante 19th April, 1995.
Fortified by the Supreme Court order the Company withdrew from the instant writ on 30th November, 2006.
It also took steps for allotment of 30,55,329 shares to Kamal on account of importation of second hand medical equipments.
It was subject to the result of the instant writ.
Kamal filed an application in the third writ being No.(G.A316of 2007) inter alia, challenging the locus standi of Sajal to continue the proceeding and for dismissal of the writ on various preliminary grounds.
This application was heard together with the writ.
Another petition before the Company Law Board was filed by Sajal being No.(C.P53of 2007).On 17th February, 2015 the Company Law Board upheld the decision of the company to allot shares to Kamal.
An appeal from the said order under Section 10(F) of the Companies Act, 1956 has been filed in this Court and is pending.
The position, as of now is like this.
Dr.
Kamal Kumar Dutta has been issued 30,55,329 equity shares of Rs.10/- each in the company against his investment of Rs.3,05,53,290/- in the form of second hand medical equiptments.
This allotment by the Company is subject to the result of the instant writ application.
If this allotment is taken into account then Sajal has a little over 10% share in the company.
If Sajal succeeds in declaring this allotment of shares as bad and in obtaining cancellation thereof, then immediately Sajal will have a substantial stake in the Company.
Hence, the urgency on behalf of the respondent No.5 to get the instant writ application dismissed and the effort on the part of the petitioner to maintain and succeed in it.
LOCUS STANDI Now I come to the law points.
After the order of this Court made on 30th November, 2006 deleting the name of the company from the cause title, Sajal proceeded with the writ as the sole petitioner.
At this point of time, he was only a shareholder in the company.
In 2007, the respondent No.6 made an application in the writ being No.(G.A360of 2007) wanting dismissal of the writ in the changed circumstances.
One of the grounds taken in the application was that Sajal as the shareholder did not have the locus standi to maintain the writ.
In the case of Calcutta Gas Company (Proprietary) Limited, Versus State of West Bengal and others reported in AIR1962SC1044 Mr.Justice Subba Rao said that a person could prefer an application under Article 226 of the Constitution of India to enforce a fundamental or a legal right.
The right should belong to the petitioner.
It should be a personal or individual right (See Paragraph 5).In the famous case of Rustom Cavasjee Cooper (in W.
ps Nos.222 and 300 of 1969).2.
T.M.Gurubaxani (in W.P.No.298 of 1969) Versus Union of India reported in AIR1970SC564 Mr.Justice Shah analysed the status of a company as a legal person and that of a shareholder as merely having an interest in the company under its articles and a director being an agent for managing it.
Hence, a shareholder did not have the right to move a writ application on behalf of the company (See Paragraph 12).That the existence of a legal right in the writ petitioner was a precondition was emphasised in Union of India and another Versus Arulmozhi Iniarasu and others reported in (2011) 7 SCC397 In Ayaaubkhan Noorkhan Pathan Versus State of Maharashtra and others reported in (2013) 4 SCC465 Mr.Justice B.S.Chauhan remarked that a person aggrieved by a legal injury could be said to have a legal right.
He could be termed as a person aggrieved.
(See paragraph 9).The Court had to be satisfied about the locus standi of the petitioner before entertaining the writ as held by the said Court in Rajasthan State Industrial Development and Investment Corporation Versus Subhash Sindhi Cooperative Housing Society, Jaipur and others reported in (2013) 5 SCC427(See Paragraph 14).These cases were cited by Mr.Kapur, learned Counsel for the respondent No.5.
Mr.S.N.Mookerjee, learned Counsel for the writ petitioner submitted that sometimes the shareholders are granted fundamental rights.
If those rights are impaired by state action a writ would lie to remedy the wrong as held by the Supreme Court in Bennett Coleman and Co.LTD.& Others.V.Union of India reported in AIR1973SC106 A fine analysis was made of the rights of shareholders and those of the company in Rustom Cavasjee Cooper (in W.
ps Nos.222 and 300 of 1969).2.
T.M.Gurubaxani (in W.P.No.298 of 1969) Versus Union of India reported in AIR1970SC564also cited by Mr.Mookherjee in the following manner.
“A measure executive or legislative may impair the rights of the company alone, and not of its shareholdeRs.it may impair the rights of the shareholders and not of the company, it may impair the rights of the shareholders as well as of the company.
Jurisdiction of the court to grant relief cannot be denied, when by State action the rights of the individual shareholders are impaired if that action impairs the rights of the company as well.
The test in determining whether the shareholder’s right is impaired is not formal; it is essentially qualitative; if the State action impairs the rights of the shareholders as well as of the company, the court will not, concentrating merely upon that technical operation of the action, deny itself jurisdiction to grant relief.” Now, this principle was reiterated by the said court in The Neptune Assurance Co.LTD.and others v.
Union of India and another reported in AIR1973SC602also cited by Mr.Mookherjee (see also Bennett Coleman and Co.LTD.& Others.V.Union of India reported in AIR1973SC106also cited by learned Counsel).In The Press Trust of India and another v.
Union of India and others reported in AIR1974SC1044the Supreme Court spelt out certain governmental actions which would affect the company as well as its shareholdeRs.“It appears to us that though it may be that no specific mention has been made in the petitions of any of the Articles which are alleged to have been infringed by the impugned order, the facts stated and the contentions urged in the petition entitle the petitioners to invoke also Article 19.
A shareholder can challenge the order if the restriction on his right under Article 19 (1) (f) is unreasonable.
If the impugned order places a heavy burden on the resources of the company or the wage has been fixed without taking into consideration the capacity to pay, or where the higher wage than what the journalists asked for is fixed without hearing the employer, then that burden will affect the shareholders also.
In such a case it will not be valid to contend that the right of a shareholder is not infringed.
We thing the petitioners can validly challenge the order under Article 19.” This case was also cited by learned Counsel.
Learned counsel also cited Hindustan Lever and another v.
State of Maharashtra and another reported in (2004) 9 SCC438to emphasise the dictum laid down in that case to the following effect.
“No individual living being owns the company.
Each shareholder is the owner of the company to the extent of his shareholding.” Hence on examination of these authorities it is plain that a person individually affected by an action of the State or one of its instrumentalities can file an application under Article 226 of the Constitution of India.
The injury must be personal.
A company is a juristic entity.
It is different from its shareholdeRs.An action of the government or its instrumentality should cause injury to the company, for it to found an action under Article 226 of the Constitution of India.
Normally, if an act affects the company, a shareholder, is not an affected party and does not have the right to challenge the action.
He has no locus standi to challenge it.
Sometimes the action complained of is such that both the company and the shareholder can assail it, as it affects both of them.
In those circumstances, a writ application by a shareholder is maintainable.
Look at the situation in this case.
At the time of incorporation Kamal had 52% shares and Sajal had 48% shares.
There was a decision by the company to import medical equipments.
The equipments actually imported were second hand.
Kamal wanted an allotment of shares in his favour for providing the equipments to the company.
On 22nd March, 1997 the necessary permission in this behalf was granted by the Reserve Bank of India.
Sajal felt aggrieved by grant of this permission because if shares were allotted Kamal it would further enhance his shareholding.
Sajal, as we all know by now, thought that his brother Kamal could not seek permission of the Reserve Bank of India to import second hand machinery on a non-repatriable basis and claim shares for it.
At one point of time the Reserve Bank of India withdrew the permission it granted.
Again on 17th May, 2004 it granted it.
No matter what may be said, if one shareholder is claiming shares on the basis of importation of second hand machinery, it is likely to alter the shareholding percentage of other shareholdeRs.In this company there are principally only two shareholdeRs.Allotment of shares to Kamal would have tipped the balance of control of the Company in his favour.
Therefore, Sajal was likely to be directly affected by the allotment of shares to Kamal.
Therefore, even after deletion of the name of the company, continuance of the proceeding by Sajal was permissible.
In other words, the Reserve Bank of India may have given permission to the company to import medical equipment on its application.
It also may have allowed the company to issue shares to Kamal on a non-repatriable basis for financing this equipment.
Undoubtedly, the Company would be affected by any decision of the Reserve Bank of India to grant licence or to revoke it.
It is also equally true as held by the Supreme Court in LIC v.
Escorts Limited reported in (1986) 1 SCC264that the Reserve Bank of India is the sole judge of whether the licence is to be granted or not and no other authority can take this burden upon itself.
But, on examination of the above facts the licence to import was vitally connected with the shareholding of Kamal Kr.
Datta and the percentage shareholding of his brother Sajal Datta.
If the number of shares issued to Kamal increased on the basis of importation of those iteMs.the percentage shareholding of Sajal was likely to fall.
Therefore, both the company and its principal shareholders Kamal and Sajal had an interest in the grant of the licence or revocation of it, by the Reserve Bank of India.
As far as the decision Life Insurance Corporation of India v.
Escorts LTD.and others is concerned, none doubts the authority of the Reserve Bank of India to grant the licence.
But it should be remembered that the Reserve Bank of India, like other creatures of the Constitution and the Statutes is amenable to a writ of mandamus commanding it to do its duty.
In the two previous writ applications orders were passed by this court directing the Reserve Bank of India to consider the issue of grant or revocation of grant of licence upon hearing Kamal and Sajal.
Therefore, both the brothers had the right to approach the court complaining of failure on the part of the Reserve Bank of India to discharge this duty, by refusing to pass an order or by passing a wrong order.
Therefore, this point raised by Mr.Kapur fails.
RES JUDICATA Next I come to the question of res judicata.
Mr.Kapur submitted that the disputes raised in this writ were already in issue or deemed to have been issue in the Supreme Court judgement in Kamal Kr.
Datta v.
Ruby General Hospita Limited and Others reported in (2006) 7 SCC613 He submitted that if there was not actual res judicata, there was constructive res judicata, in terms of explanation IV of Section 11 of the Code of Civil Procedure.
I am unable to agree.
I have carefully examined the judgement of the Supreme Court.
The resolution taken in the meeting held on 19th April, 1995 to issue 40 lakhs equity shares of Rs.10/- each, which resolution was alleged to be fabricated was set aside.
So were the resolutions at subsequent meetings.
On 7th February, 1996 Kamal was removed as Managing Director of the company and replaced by Sajal.
The Supreme Court came to the following findings: “********************************************************* The company which is floated by the elder brother and which has been run by the younger brother in the absence of the elder brother, the younger brother manages the whole company and that the Managing Director is totally ousted and shares are being cornered substantially so as to have full control of the company, is oppression being squarely covered by Section 397 (1) (b) of the Act.
These attempts speak volumes in the subtle design on the part of Respondent 2 to somehow see that the holding of Appellant 1 from the office of the Managing Director by purchasing majority of shareholding pursuant to the resolution passed on 19.4.1995; he wanted to Co.troll the entire company.
The filing of repeated writ petitions in the Calcutta High Court at the expense of the company adversely affected the interest of the company.
If this is not the oppression of the member under Section 397 and bringing material change in the management under Section 398 then what could be the better case than this.
As we fail to understand the view taken by the learned single Judge of the High Court directing the appellants to file suit for redressal of all grievances, we cannot sustain this order.
We are of the opinion that the view taken by the Calcutta High Court cannot be sustained.
We are satisfied that this is the case of oppression of the member as well as would amount to bringing about material change in the management of the company.” In my opinion, the Supreme court did not even go into the question of the allotment of 30,55,329 equity shares of Rs.10/- each.
The shares had been allotted to Kamal subject to the outcome of the writ.
No, doubt, the Hon’ble Judge had expressed his utter disgust at Kamal in preferring the writ applications to nullify the allotment of shares in favour of Kamal but nowhere it confirmed the said allotments.
It certainly held oppression of Kamal by Sajal and set aside the order of this High Court in the Company Law Board appeal dated 31st March, 2005 and also all resolutions of the board from 19th April, 1995 onwards.
It reversed the decision of the Board of Directors alloting additional shares of Rs.40 lakhs and so on.
But not even for a moment did the court even make any comment with regard to the 30,55,329 equity shares issued to Kamal provisionally pending the writ.
The passing observation of the Court is not even obiter dicta.
Therefore, the point of res judicata raised by Mr.Kapur also fails.
FEMA v.
FERA Now, I come to the last point, but the most vital and decisive.
The Foreign Exchange Management Act, 1999 came into force on 1st June, 2000.
The repeal and savings clause of this Act is very important.
It is Section 49 which is set out below: 49.
Repeal and saving--- (1) the Foreign Exchange Regulation Act, 1973 (46 of 1973) is hereby repealed and the Appellate Board constituted under sub-section (1) of Section 52 of the said Act (hereinafter referred to as the repealed Act) shall stand dissolved.
(3) Notwithstanding anything contained in any other law for the time being in force, no court shall take cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under section 51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act.
(4) Subject to the provisions of sub-section (3) all offences committed under the repealed Act shall continue to be governed by the provisions of the repealed Act as if that Act had not been repealed.
(5) Notwithstanding such repeal, --(a) anything done or any action taken or purported to have been done or taken including any rule, notification inspection, order or notice made or issued or any appointment, confirmation or declaration made or any licence, permission, authorisation or exemption granted or any document or instrument executed or any direction given under the Act hereby repealed shall, in so far as it is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the corresponding provisions of this Act; Mr.Kapur submitted that after the sunset period of two yeaRs.which is long over, no irregularity or illegality in the purchase of second hand medical equipments by the company could be alleged or proved.
Moreover, after repeal of FERA, no permission was required to import medical equipments.
Therefore, assuming that any equipment was illegally imported before that period, in the absence of any action it became legally imported after the sunset period.
Mr.Mookerjee, learned Senior Advocate appearing for the writ petitioner submitted that the rights of his client under Section 6 of the General Clauses Act, 1897 were preserved despite the sunset provision.
There is no dispute that no permission is required from the Reserve Bank of India to allot shares on importation of capital goods to Non-Resident Indians, under the Foreign Exchange Management Act, 1999.
Now, even if I assume that the decision dated 7th May, 2004 was wrongly made by the Reserve Bank of India and also assume that the Foreign Exchange Regulation Act, 1973 is still inforce, the following courses of action are open to the court.
(a) Dismiss the writ application on the ground that no case has been made out by the writ petitioner regarding violation of the principles of natural justice by the Reserve Bank of India or that its order is otherwise erroneous.
(b) Holding there was violation of the principles of natural justice by the Reserve Bank of India and that the impugned order was erroneous and remit the matter back to the Reserve Bank of India to consider afresh.
Under this subsection, only this couRs.of action is open to me, in view of the dictum of the Supreme Court in Life Insurance Corporation of India v.
Escorts LTD.and others reported in (1986) 1 SCC264that the power vested in the Reserve Bank of India can only be exercised by it and nobody else.
Let us also assume that the decision of this court is (b).In that event, the Reserve Bank of India, assuming that it rules in favour of the writ petitioner, will have to rule that the permission to import the medical equipment was wrongfully obtained from it by the company, represented by Kamal.
The Reserve Bank of India will have to refer the matter to the authorities under the Foreign Exchange Regulation Act, 1973 to deal with the company and Kamal.
In addition to imprisonment Kamal will have to pay penalty under Section 51 read with Section 50 of the Foreign Exchange Regulation Act, 1973 for violation of Section 19 (1) (b) of the 1973 Act.
No greater punishment is contemplated.
Now, the General Causes Act, 1897 comes into play.
I quote Section 6 (a) (c) (d) and (e).“a.
revive anything not in force or existing at the time at which the repeal takes effect; or c.
affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or d.
affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or e.
affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.” What rights and obligations under FERA, 1973 were preserved and for how long need to be investigated.
Neither adjudication of penalty nor criminal prosecution can be undertaken as the period of two years from the date of commencement of the 1999 Act has long elapsed.
Either a civil proceeding for penalty had to be started by issuance of a show cause notice or cognizance of the offence should have been taken by a criminal court within two years of commencement of the Act, 1999, under Section 49 of FEMA, 1999.
Since it came into effect on 1st June, 2000 any action should have been taken by 31st May, 2002.
The preservation of old rights and liabilities under the FERA, 1973 was restricted for this period and to this extent only.
At this point of time, even if it is assumed that the importation was wrongful, no action can be taken, by operation of law.
If a new statute after repeal of an Act does not contemplate any action in relation a past illegal act under the repealed statute, then the new statute has the effect of legitimising that illegality.
Mr.Justice Krishna Iyer said in Rameshwar and others v.
Jot Ram and others reported in AIR1976SC49that the Court had to take note of the change in law.
Furthermore, the Reserve Bank of India in its written submission as well as through oral argument made by counsel in Court has categorically stated that the second hand medical equipments of Rs 3,05,53,290/were accompanied by proper documents and cleared by the Customs Authority.
Therefore, approval was rightly given by the Reserve Bank of India to issue 3,30,55,329 equity shares of Rs.10/- each to Kamal.
As the Supreme Court has said in the Escorts case, only the Reserve Bank of India can exercise the power vested in it and no other authority has got any right to interfere with the exercise of that power.
It is very plain from the stand taken by Reserve Bank of India that the importation was perfectly lawful.
Lastly, the importation was made more than 20 years ago.
These capital goods have spent their life.
Their value, now after depreciation is nil.
At the time of their importation their declared value was Rs.3,05,53,290/-.
Against this value, shares were allotted to Kamal.
Even if Sajal now succeeds, the equipments, cannot be returned to Kamal.
The monetary value has to be refunded with interest from the other assets of the Company.
That is plainly not permissible or feasible.
In all those circumstances this writ application fails.
It is dismissed.
No order as to costs.
The connected application G.A.360 of 2007 is accordingly disposed of.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P.MUKERJI, J.)