Delhi High Court
R.K. Malhotra And Ors. vs Union Of India And Ors. on 11 September, 1995
Equivalent citations: 1995IVAD(DELHI)15, 1995(35)DRJ100
Author: D.P. Wadhwa
Bench: D.P. Wadhwa
JUDGMENT D.P. Wadhwa, J.
(1) The petitioners who number four have filed this petition under Article 226 of the Constitution seeking a writ of certiorari or any other appropriate writ, order or direction quashing the order dated 13 October 1993 by which order the Central Government in the Ministry of Industry, Department of Industrial Development (Secretariat for Industrial Approvals) granted approval to M/s. Gillette International, respondent No.6, in investing up to a maximum 49% of the equity capital of M/s. Harbans Lal Malhotra & Sons, Ltd. (HLM), the fifth respondent, subject to certain conditions. The petitioner respectively hold 4.17%, 2.29%, 2.25% and 22.78% shareholding in the HLM. There are eight respondents - respondents 1, 2, 3 and 4, respectively, the Union of India in the Ministry of Industry; Secretariat for Industrial Approvals; Principal Secretary to the Prime Minister, Chairman, Fipb - Foreign Investment Promotion Board; and Union Finance Minister, and the seventh and eighth respondents N.V.I. Engineering Company Pvt. Ltd. (NVI) and Malhotra International Pvt. Ltd, respectively.
(2) The impugned approval was granted on 13 October 1993 on an application dated 18 August 1993 of the sixth respondent (Gillette), admittedly a world leader in razor blade industry. The application was addressed to the Chairman, Fipb, and was filed in terms of the industrial policy dated 24 July 1991 of the Central Government. Gillette in this application had sought for the approvals as under :- "7.APPROVALS Requested a. The Gillette Company seeks permission : (i)To acquire up to a maximum of 49% of the equity of Hlm, commencing initially with 26% at a price and in a manner to be approved by HLM's (Harbans Lal Malhotra & Sons Ltd) shareholders. (ii)To grant Hlm a license for the use of our shaving technology & improvements from time to time and in consideration for the same to receive a net of tax Royalty of 3% on the domestic and export sales of HLM. (iii)For Hlm to import blade machinery of a Fob value not exceeding $ 4.3 million. The list of the equipment is attached. This machinery will be utilised to improve the product quality of HLM. (iv)To grant any and all approvals and permissions required for the attainment of the above. b.Gillette also seeks permission to establish a wholly- owned subsidiary in India for the following : -to act as a holding company for investment either by itself or in collaboration with Indian shareholders (Private and/or Public) in Gillette's new ventures in India. This will exclude Gillette's investments in ISPL. -to co-ordinate through the management and co- ordination of this wholly-owned; subsidiary the activities and management of all Gillette activities in India; -to provide common countrywide services including Training, Purchasing, Distribution, Quality Assurance, Marketing, Licensing, Construction, Engineering and Maintenance, Management Information Systems. -to co-ordinate joint ventures between Indian companies and international Gillette's suppliers to facilitate the transfer of technology and injection of capital. The result will be local sourcing of Gillette's products, as well as potential exports to Gillette and other customers throughout the world. "
HLM, with whom the "collaboration" was sought, by its letter dated 17 August 1993 addressed to the Chairman, Fipb, confirmed the approval of its Board of Directors for the foreign investment as proposed by Gillette, in so far it related to HLM. It was stated in the letter that acceptance off the proposal of Hlm was, however, subject to the company's compliance with all necessary legal formalities and obtaining of requisite approvals including the approval of the shareholders. The Central Government did grant approval to some of the proposals made by Gillette and that too subject to certain conditions and formalities to be complied with. Since a great deal of arguments had been addressed by the petitioner on this approval by the Central Government, we may set out this order in its entirety :-
"NO.FC.II.367(93)/491(93)Government of India Ministry of Industry Department of Industrial Development Secretariat for Industrial Approvals (FC.II Section) ..... New Delhi,the October 13,1993. To, M/s. Gillette International Amee Group Great West Road, Isleworth, Middlesex Tw 7, 5 Np England. Fax. No. 081 847 6141 Subject: Application for foreign collaboration (SIARegn. No. 491 dated 8.10.93.) Dear Sir, I am directed to refer to your application dated 18 August, 1993, and to hereby convey approval of Government of India to your proposal subject to the following terms and conditions in addition of those detailed in Annex I :- i) Proposal: a) For investment in the equity capital of M/s. Harbans Lal Malhotra & Sons Ltd, Calcutta, up to 49% of the paid up capital of the company. b) To establish a wholly owned subsidiary in India to act as a holding company for investment either by itself or in collaboration with Indian share holders. ii) The approval for foreign investment up to a maximum of 49% of the equity capital of M/s. Harbans Lal Malhotra & Sons Ltd., commencing initially with 26%, is subject to the condition that the issue and pricing of share will be in a manner to be approved by the share holders of the Indian Company. This will also be as per the prescribed guidelines of the Sebi, Bombay. The exact amount of foreign equity shall be intimated to Government for incorporating in the approval letter. iii) The approval for induction of foreign equity in the above mentioned Indian company is also subject to the condition that the remittance of dividends on the foreign equity shall be balanced through export earnings on the following basis : a) the balancing of the dividends would be over a period of 7 years from commencement of production. Balancing will not be required beyond this period. b) Remittance of dividends should be covered by earnings of the company from export of items covered by the foreign collaboration agreements. You are also permitted to cover remittance of dividends from earnings through export of items not covered by the agreement provided they recovered in the list of Industries in Annexure Iii of Statement of Industrial Policy of 24th July 1991. The amount of dividend payments may be covered by export earnings of such items covered in years prior to the payment of dividends or in the year of payment of dividends. iv) You are advised to follow the prescribed policy and procedure under the Exim Policy for import of machinery. v) It is noted that you will enter into a comprehensive technical collaboration agreement for use of internationally known brand names owned by Gillette with the Indian Company.
2. It is noted that you also propose to develop an existing Indian tool room and machine building company, namely Nvi Engineering Company Pvt. Ltd., through a joint venture with 51% foreign equity participation. For this purpose you propose to obtain approval from the Reserve Bank of India in terms of Para 39(B)(i) of the Statement on Industrial Policy of 24th July, 1991. 3. It is noted that the proposed investment in the above mentioned two projects would result in foreign investment of around Us Dollar 20-25 Million. 4. I am also directed to convey approval of Government of India to your proposal to set up a wholly owned subsidiary in India to act as a holding company for investment either by itself or any collaboration with Indian share holders subject to the condition that the investment proposals made by the proposed Indian subsidiary shall be subject to subsequent approvals or clearances as required under the relevant Policy and procedures. 5. Condition No.2, 3 & 5 of Annexure I are not applicable. 6. This approval letter is made a part of the foreign collaboration agreement to be executed between you and the Indian Partner/company and only those provisions of the agreement which are covered by the said letter or which are not in variance with the provisions or the said letter shall be binding on the Government of India or Reserve Bank of India. 7. You may now proceed to finalise the agreement. 8. This approval is valid for a period of two years from the date of issue. Within this period, you are required to file the collaboration agreement with the Reserve Bank of India/Authorised Foreign Exchange Dealer. 9. In case the proposed activity is not exempted from the provisions of Industrial (Development & Regulation) Act, 1951, and the Foreign Exchange Regulation Act, 1973, it will be your responsibility to obtain such clearances as may be required under the said Acts. 10. The Administrative Ministry for this project is the Department of Industrial Development (Cons. Inds. Desk), New Delhi. II. You may approach your Regional Office of Exchange Control Department of Reserve Bank of India for necessary permission under section 19 of Fera, 1973, for allotment of shares to Non-Residents. III. You are requested to send Foreign Investment Remittance Certificate (FIRC) to the Regional Office, Reserve Bank of India, immediately on receipt of foreign remittance. IV. You are requested to furnish the information as per the questionairre at Annexure II on 1st January & 1st July every year till the receipt of approved foreign equity and commencement of production to the Secretariat for Industrial Approvals (FC.II Section), Udyog Bhavan, New Delhi. V. You are requested to acknowledge and confirm acceptance of the above terms and conditions to Secretariat for Industrial Approvals (FC.II Section) and the Administrative Ministry. VI. All future correspondence for amendments/changes in terms and conditions of the approval letter or for extension of its validity, if required, etc., may be addressed to the Entrepreneurial Assistance Unit of the Secretariat for Industrial Approvals, Udyog Bhavan, New Delhi-11. Yours faithfully, sd/- (HARIOM GUPTA) Under Secretary to the Govt. of India. Tel.No. 3012369 Fax No. 3011770 "
Two contentions were raised by Ms. Indira Jaising in support of the case of the petitioners : (1) that there was non-application of mind by the authorities concerned in granting approval to Gillette, and (2) the fourth respondent had no such authority in law to grant such an approval though it was communicated by the second respondent. In this connection it was submitted that it was only the Reserve Bank of India (RBI), constituted under the Reserve Bank of India Act, 1934, who was competent to take decision on the application of Gillette and the provision under which the Rbi was authorised was stated to be section 29 of the Foreign Exchange Regulation Act, 1973 (for short "the FERA"). The respondents have denied the allegations made by the petitioners and have questioned the bonafides of the petitioners in filing this petition. We have mentioned above that the application by Gillette was made in terms of the Industrial Policy Statement of 1991. If we refer to this policy statement it would be seen that various policy objectives have been mentioned and reference has also been made to various earlier Industrial Policy Statements/Resolutions. After setting out the policy objectives in detail, the Central Government took certain decisions mentioned in para 39 of the Policy. The relevant decisions would be as under:- "39.INview of the considerations outlined above Government have decided to take a series of measures to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control. These measures complement the other series of measures being taken by Government in the areas of trade policy, exchange rate management, fiscal policy, financial sector reform and overall macro economic management. A....... B. Foreign Investment i) Approval will be given for direct foreign investment up to 51 percent foreign equity in high priority industries (Annex.III). There shall be no bottlenecks of any kind in this process. Such clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods. Consequential amendments to the Foreign Exchange Regulation Act (1973) shall be carried out. ii) While the import of components, raw materials and intermediate goods, and payment of know how fees and royalties will be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India so as to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time. iii) Other foreign equity proposals, including proposals involving 51% foreign equity which do not meet the criteria under (i) above, will continue to need prior clearance. Foreign equity proposals need not necessarily be accompanied by foreign technology agreements. iv) To provide access to international markets, majority foreign equity holding up to 51% equity will be allowed for trading companies primarily engaged in export activities. While the thrust would be on export activities, such trading houses shall be at part with domestic trading and export houses in accordance with the Import-Export Policy. v) A Special Empowered Board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in select areas. This would be a special programme to attract substantial investment that would provide access to high technology and world markets. The investment programmes of such firms would be considered in totality, free from pre- determined parameters or procedures. C. Foreign Technology Agreements. i) Automatic permission will be given for foreign technology agreements in high priority industries (Annex III) up to a lumpsum payment of Rs.1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payments of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures. ii) In respect of industries other than those in Annex Iii, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. iii) All other proposals will need specific approval under the general procedures in force. iv) No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies. Payment may be made from blanket permits or free foreign exchange according to Rbi guidelines. D.......... E. Mrtp Act i) The Mrtp Act will be amended to remove the threshold limits of assets in respect of Mrtp companies and dominant undertakings. This eliminates the requirement of prior approval of Central Government for establishment of new undertakings, expansion of undertakings, merger, amalgamation and takeover and appointment of Directors under certain circumstances. ii) Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfair trade practices. Simultaneously, the newly empowered Mrtp Commission will be authorised to initiate investigations suo moto or on complaints received from individual consumers or classes of consumers in regard to monopolistic, restrictive and unfair trade practices. iii) Necessary comprehensive amendments will be made in the Mrtp Act in this regard and for enabling the Mrtp Commission to exercise punitive and compensatory powers. "
It was submitted with reference to a Bench decision of this Court in M.K.Agarwal and another v. Union of India and others, 1994 (2) Delhi Lawyer 79, that it was not for the court to lay down or formulate a policy for the executive to follow or call upon it to adopt a particular policy and further the court could not take upon itself the role of Legislature or of the executive. We do not think any such argument was raised by the petitioners. Ms. Jaising was quite categorical in her submission that the petitioners were not challenging the Policy but the approval granted under it which, according to the petitioners, was without taking into account the parameters laid by the Policy; without application of mind; and in contravention of the provisions of section 29 of the FERA. With reference to section 29 of Fera it was submitted that it was for the Rbi to grant or not to grant approval for equity participation of foreign company in an Indian company. Section 29 of Fera on which reliance was placed, in relevant part, is as under :- "29.Restrictions on establishment of place of business in India. - (1) Without prejudice to the provisions of Section 28 and Section 47 and notwithstanding anything contained in any other provision of this Act or the provisions of the Companies Act, 1956 (1 of 1956), a person resident, outside India (whether a citizen of India or not) or a person who is not a citizen of India but is resident of India, or a company (other than a banking company) which is not incorporated under any law in force in India or any branch of such company, shall not, except with the general or special permission of the Reserve Bank, - (a) .......... (b) acquire the whole or any part of any undertaking in India of any person or company carrying on any trade, commerce or industry or purchase the shares in India of any such company.
(3) The respondents, however, said that in whole body of the petition there was not even a whisper if provisions of section 29 of Fera had been violated and that the Central Government could take no decision in the face of these provisions. It was submitted that by mere grant of approval the Rbi had not been divested of any of its powers under FERA. It was then submitted that it was not section 29 and rather it would be section 19 of Fera which would be applicable in the present case. Respondents said that Gillette was not acquiring the whole or any part of the undertaking in India of any person or company and that section 29 was inapplicable. If we refer to section 19 it deals with regulation of export and transfer of securities. Under this section, notwithstanding anything contained in section 81 of the Companies Act, 1956, "no person shall, except with the general or special permission of the Reserve Bank - .... (b) transfer any security, or create or transfer any interest in a security, to or in favor of a person resident outside India; .... (d) issue, whether in India or elsewhere, any security which is registered or to be registered in India, to a person resident outside India". We need not refer to other sub-sections of section 19 as no argument was based on those provisions. Ms. Jaising said that in para 6 of the approval it had been clearly stated that the approval "shall be binding on the Government of India or Reserve Bank of India." Reference was made to a decision of the Supreme Court in Commissioner of Police, Bombay v. Gordhandas Bhanji where the court observed as under:- "It is clear to us from a perusal of these rules that the only person vested with authority to grant or refuse a license for the erection of a building to be used for purposes of public amusement is the Commissioner of Police. It is also clear that under R.250 he has been vested with the absolute discretion at any time to cancel or suspend any license which has been granted under the rules. But the power to do so is vested in him and not in the State Government and can only be exercised by him at his discretion. No other person or authority can do it."
(4) In The State of Punjab and another v. Hari Kishan Sharma, , the court held that where the statute prescribed for grant of a license by a certain authority the State Government could not oust the licensing authority and itself usurp his functions.
(5) Reference may be made to another decision of the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. and others, , where the court observed as under (paras 70 & 84) :- "ACCORDING to Shri Nariman even if as found by us, the permission to purchase shares of an Indian company by a non-resident investor of Indian origin or nationality under Section 29(1)(b) of the Fera could be obtained after the purchase, the Reserve Bank ceased to have such power after the formulation of the Portfolio Investment Scheme since it did not reserve to itself any such power under the Portfolio Investment Scheme promulgated in exercise of its powers under Section 73(3) of the Foreign Exchange Regulation Act. We do not see any foundation for this argument in the scheme itself. The scheme does not talk of any prior or previous permission, nor are we able to understand how a power possessed by the Reserve Bank under a Parliamentary legislation can be so cut down as to prevent its exercise altogether. It may be open to a subordinate legislating body to make appropriate rules and regulations to regulate the exercise of a power which the Parliament has vested in it, so as to carry out the purposes of the legislation, but it cannot divest itself of the power. We are, therefore, unable to appreciate how the Reserve Bank, if it has the power under the Fera to grant ex post facto permission, can divest itself of that power under the scheme. The argument was advanced with particular reference to the forms prescribed under the scheme. We have already pointed out that the forms under the Scheme cannot abridge the legislation itself."
and also : "ON an overall view of the several statutory provisions and judicial precedents to which we have referred we find that a shareholder has an undoubted interest in a company, an interest which is represented by his shareholding. Share is movable property, with all the attributes of such property. The rights of a shareholder are (i) to elect directors and thus to participate in the management through them; (ii) to vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company in the shape of dividends; (iv) to apply to the court for relief in the case of oppression; (v) to apply to the court for relief in the case of mismanagement; (vi) to apply to the court for winding up of the company; (vii) to share in the surplus on winding up. .... On the other hand, where, for instance, the requisite permission under the Fera is not obtained, it is open to the company and indeed, it is bound to refuse to register the transfer of shares of an Indian company in favor of a non-resident. But once permission is obtained, whether before or after the purchase of the shares, the company cannot, thereafter, refuse to register the transfer of shares. Nor is it open to the company or any other authority or individual to take upon itself or himself, thereafter, the task of deciding whether the permission was rightly granted by the Reserve Bank of India alone to consider whether the requirements of the provisions of the Foreign Exchange Regulation Act and the various rules, directions and orders issued from time to time have been fulfillled and whether permission should be granted or not. ... As we said earlier, under the scheme of the Act, it is the Reserve Bank of India that is constituted and entrusted with the task of regulating and conserving foreign exchange. If one may use such an expression, it is the 'custodian- general' of foreign exchange. The task of enforcement is left to the Directorate of Enforcement, but it is the Reserve Bank of India and the Reserve Bank of India alone that has to decide whether permission may or may not be granted under Section 29(1) of the Act. The Act makes it its exclusive privilege and function. No other authority is vested with any power nor may it assume to itself the power to decide the question whether permission may or may not be granted or whether it ought or ought not to have been granted. The question may not be permitted to be raised either directly or collaterally. We do not, however, rule out the limited class of cases where the grant of permission by the Reserve Bank of India may be questioned, by an interested party in a proceeding under Article 226 of the Constitution, on the ground that it was mala fide or that there was no application of mind or that it was opposed to the national interest as contemplated by the Act, being in contravention of the provisions of the Act and the rules, orders and directions issued under the Act. Once permission is granted by the Reserve Bank of India, ordinarily it is not open to anyone to go behind the permission and seek to question it. It is certainly not open to a company whose shares have been purchased by a non-resident company to refuse to register the shares even after permission is obtained from the Reserve Bank of India on the ground that permission ought not to have been granted under the FERA. It is necessary to remind ourselves that the permission contemplated by Section 29(1) of the Foreign Exchange Regulation Act is neither intended to nor does it impinge in any manner on any legal right of the company or any of its shareholders. Conversely neither the company nor any of its shareholders is clothed with any special right to question any such permission. "
(6) It was, therefore, submitted that both section 19 and section 29 of Fera conferred power on Rbi to grant permission and the Central Government wrongly assumed jurisdiction, and that it would appear that for all practical purposes permission had been granted by the fourth respondent making the approval ultra vires the powers of respondents 1 to 4. We do not think the petitioners are quite right in their submission that the powers of Rbi under Fera have been ousted. Gillette had been specifically told to approach the Rbi for necessary permission under section 19 of Fera and further that it would be the responsibility of Gillette to obtain such clearance as may be required under the provisions of the Industrial (Development and Regulation) Act, 1951, and Fera if the proposed activity was not exempted from the provisions of these two Acts. We have to read the approval in its entirety. No exemption has been granted under the approval, as it would appear, from any of the provisions of FERA. Moreover, under section 75 of Fera, Central Government is empowered to issue such general or special directions to the Rbi as it thinks fit which Rbi is to comply in the discharge of its functions under FERA. Under section 76, the Central Government or the Rbi, as the case may be, shall while giving or granting any permission or license under Fera, have regard to all or any of the following factors, namely, :- (I)conservation of the foreign exchange resources of the country; (ii) all foreign exchange accruing to the country is properly accounted for; (iii) the foreign exchange resources of the country are utilised as best to subserve the common good; and (iv) such other relevant factors as the circumstances of the case may require.
(7) We do not think that Rbi will abdicate its functions under Fera while granting permission under Fera and there is no justifiable reason for the petitioners to contend that Rbi will not apply its independent mind and its functions will be circumscribed by the approval granted by respondent 1 to 4. We cannot comprehend a situation that even though no directions are issued by the Central Government though it is competent to do that, the authority constituted under an Act will not apply its mind independently in accordance with law. We will, therefore, reject the submission of the petitioners that by granting approval the Central Government has acted against the provisions of section 19 and/or section 29 of Fera and this would be particularly so when no basis have been laid in the petition to challenge the approval on this ground.
(8) A great deal of arguments had been addressed by the petitioners that the approval had been granted without any application of mind and rather there has been total non- application of mind. It is submitted that there were only two relevant considerations which were to be kept in view while granting approval and those very considerations were overlooked. These relevant considerations stated to be are: (1) whether the proposed investment will lead to technological upgrading, and (2) whether it would lead to net inflow of foreign exchange. Ms. Jaising was at pains to explain that the proposal submitted by Gillette did not contain the relevant material for grant of the approval and information which lacked was on the following issues :- A.Nature of technology intended to be transferred. B. Capital structure of the existing company and the proposed capital structure. C. Degree of control of the foreign/NRI share holders. D. Product intended to be manufactured. E. Export obligation and commitments. F. The in flow and out flow of foreign exchange on account of the collaboration. G. Presence of the already existing collaboration agreement of the respondent No.6 with ISPL. H. The monopoly position the respondent No.6 would acquire in the Indian market.
(9) It was then submitted that another important consideration to be taken into account before granting the approval was the price at which the shares of Hlm were agreed to be issued/sold and that unless fair value of the shares was fixed the country would be deprived of the valuable foreign exchange. A doubt was thrown if the shares are undervalued there was chance of unlawful consideration changing hands abroad. This argument would, however, appear to us to be more in the realm of imagination than fact. It was then submitted that the Securities and Exchange Board of India (SEBI) guidelines would not be applicable inasmuch as Hlm was a public limited company only in terms of section 43A of the Companies Act, 1956, and that its shares were not listed in any stock exchange. Thus, it showed that the respondents 1 to 4 did not even know if Sebi guidelines were at all applicable to HLM. This, again it was submitted, was instance of non-application of mind. Section 43A of the Companies Act prescribes as to when a private company may become a public company in certain cases. It is stated that Sebi does not come into picture inasmuch as Hlm, a private limited company, has been treated as a public limited company under the provisions of section 43A of the Companies Act. Even if that is so, the direction in the approval at best could be said to be mere surplusage and on that ground it cannot be said that there has been non-application of mind by FIPB. To arrive at the value of the shares it is not necessary that the shares of company should be listed on a stock exchange. There are other methods by which shares can be evaluated.
(10) A few judgments were referred to on the scope of judicial review and it was also submitted that though the petitioners were minority shareholders they had nevertheless right to be granted opportunity to represent their case against the grant of the approval. In answer to an objection raised by the respondents that the petitioners being the shareholders had no locus standi to file this petition, reference was drawn to the following observations of the Supreme Court in S.P. Gupta v. Union of India and another , :- "SIMILARLY,where a transaction is entered into by the Board of Directors of a company which is illegal or ultra vires the company, but the majority of the shareholders are in favor of it and hence it is not possible for the company to sue for setting aside the transaction, any shareholder may file an action impugning the transaction. Here it is the company which suffers a legal wrong or a legal injury by reason of the illegal or ultra vires transaction impugned in the action, but an individual shareholder is permitted to sue for redressing such legal wrong or injury to the company, because otherwise the company, being under the control of the majority shareholders would be without judicial review."
(11) Some of the judgments which have been referred to by the petitioners may briefly be noted at this stage.
(12) In Ranjit Singh etc. etc. v. Union of India, , the petitioner had prayed for restoration of quota originally granted to him in his license for the manufacture of fire arms. The court considered the Industrial Policy Resolution of 1956 of the Government and observed as under :- "Under that Resolution, however, it was decided that no objection would be taken to the continuance of the manufacture of arms and ammunition by existing units in the private sector already licensed for such manufacture provided the operation of those units was strictly restricted to the items already manufactured by them and that no expansion of their production or increasing the the capacity of the items already produced was undertaken without the prior sanction of the Government of India. Plainly, that was envisaged was a prohibition against an increase in the quota, not its curtailment. Purporting to implement the Industrial Policy Resolution, the Government issued instructions that the quota fixed should be such that the market was not flooded with arms and ammunition. No objection can be raised to that. It is as it should be, but with that primary consideration defining the outer limits, there are other factors which govern the fixation of the actual quota. There is the production capacity of the factory, the quality of guns produced and the economic viability of the unit. The Government is bound to keep these in mind while deciding on the manufacturing quota. There is need to remember that the manufacture of arms has been the business of some of these units for several years and the Industrial Policy Resolution contains a specific commitment to permit the continuance of those factories. On the other side, the Government is entitled to take into consideration the requirements of current administrative policy pertinent to the maintenance of law and order and internal security. Any curtailment of the quota must necessarily proceed on the basis of reason and relevance. If all relevant factors are not considered, or irrelevant considerations allowed to find place, the decision is vitiated by arbitrary judgment."
(13) In Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust and others v. V.R. Rudani and others, , the court considered the scope of Article 226 of the Constitution defining powers of the High Court to issue certain writs.
(14) In Barium Chemicals Ltd. and another v. Company Law Board and others, , the court said that if it was shown that circumstances did not exist or that they were such that it was impossible for any one to form an opinion there from suggestive of the aforesaid things, the opinion was challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute. The court here was considering sub-clauses (i), (ii) or (iii) of clause (b) of Section 237 of the Companies Act where the Central Government (now Company Law Board) may have the affairs of a company investigated.
(15) In M/s. Kasturi Lal Lakshmi Reddy and others v. State of Jammu and Kashmir and another, , the court considered the scope of Government action, whether it was under the authority of law or in exercise of executive power without making of law. The court observed that where any governmental action failed to satisfy the test of reasonableness and public interest and was found to be wanting in the quality of reasonableness or lacking in the element of public interest, it would be liable to be struck down as invalid. It was also pointed out that the ground of invalidity, namely, that the governmental action was unreasonable or lacking in the quality of public interest, was different from that of mala fides though it may, in a given case, furnish evidence of mala fides.
(16) Dr. Ghosh, appearing for respondents 5 and 7, questioned the bonafides of the petitioners in filing this petition. He said petitioners had already moved the Company Law Board (CLB) on a petition filed under sections 397 (application to Company Law Board for relief in cases of oppression) and 398 (application for relief in cases of mis- management) of the Companies Act and on an application by the petitioners there Gillette had also been ordered to be made a party. Dr. Ghosh said with reference to the order dated 25 May 1995 of the Clb that petitioners had stated there that the present proceedings related only to approval given by Fipb and that the decision of the High Court would only cover the allegations against approval given by Fipb and that Fipb did not apply its mind before granting approval and that the High Court was not likely to go into the allegations relating to the outdated technology and oppression and mis-management in that regard. By this order the Clb allowed the petitioners to amend its petition to challenge the proposed agreement entered into by Hlm with Gillette. Petitioners had sought therein for termination of the agreement [section 402(e) of the Companies Act]. The application of the petitioners was allowed and another application, by the same order by Clb, was also allowed by which Gillette was added as a respondent in the proceedings before the CLB. The Clb had observed that it might be necessary to add Gillette as a party as one of the issues before it was with regard to the acquisition of outdated technology by Hlm and Gillette being party to the supply of the technology it was only Gillette which would be in a position to throw light as to whether the technology was outdated or not. Dr. Ghosh said that whatever rights the petitioners had were all protected under provisions of the Companies Act and the petitioners were already taking recourse to those provisions.
(17) On the basis of records, however, it could not be said that by filing this petition the petitioners are seeking two parallel remedies. It may not be within the domain of Clb to question the grant of approval by the Central Government which is impugned before us. Sections 397 and 398 of the Companies Act do not debar the petitioners from questioning the grant of approval in these proceedings before us. In coming to this view we get support from the decision of the Supreme Court in S.P.Gupta's case . It was then submitted by Dr. Ghosh that the present petition was rather premature inasmuch Hlm had to call for a meeting of its shareholders for issue of equity to Gillette and for fixation of value of the shares. He said final stage for collaboration between Hlm and Gillette had not reached and only preparatory steps were being taken. It was submitted that the Industrial Policy 1991 of the Central Government was not a statutory resolution and that it was not necessary to file an application for grant of approval under the Policy in the proforma prescribed if the necessary particulars were available with Fipb to consider the grant of approval in terms of the Policy. Dr. Ghosh said Gillette was renowned company known internationally for high quality in manufacture of razor blades. In its application to Fipb it had asked for various approvals, but the Fipb did not grant all such approvals and approval was granted only for foreign investment in India. As a matter of fact, on October 15, 1993 Gillette wrote a letter to the Central Government and raised this issue, which letter we reproduce hereunder :- "DEARSir, We thank you for your letter dated 13th October 1993, giving us approval for our foreign investment into India. However, we would like to point out that there are a couple of points that need correction. These are : i) In our proposal we had asked for two permissions, which are not included in your approval letter. These are : -To receive a net of tax Royalty of 3% on the domestic and export sales of Hlm, in return for granting Hlm a license for the use of our shaving technology. -Allow Hlm to import blade machinery of a Fob value not exceeding Us $ 4.3 million. ii) In "Point 2" of your letter, you have mentioned that we propose to take a 51% equity in Nvi Engineering Company Pvt.Ltd. Please note that this is incorrect, our intention is to take up 49% equity not 51%. We would appreciate if you could please issue an additional letter, confirming the above points. Thanking you, "
(18) Dr. Ghosh said that this itself would show that there had been proper application of mind by respondents 1 to 4. It was also submitted that petitioners had also been taking proceedings before the Monopolies and Restrictive Trade Practices Commission under the Monopolies and Restrictive Trade Practices Commission Act. 1969, respecting the same issues. Dr. Ghosh said the only purpose of the petitioners is to thwart the progress of Hlm and they were putting obstacles at every step. He said when the concerned parties were all bound by the terms of the approval granted, the petitioners were just busy bodies to say otherwise. Dr. Ghosh said the petitioners were in fact rivals of Hlm as they were having their own company in the name of Vidyut Metallics Limited. who were manufacturing blades in the brand name "Super-Max". He said the petitioners were not, thus, interested that Hlm should have higher technology in collaboration with Gillette as in that case the interest of the company of the petitioners was going to suffer. This argument was also addressed by Mr. Rajive Sawhney, learned counsel appearing for the eighth respondent, who also said that this petition was not bonafide filed by the petitioners. In this connection Mr. Sawhney did refer to an application filed by the petitioners in the Clb wherein they had stated that the proposed agreement between Hlm and Gillette was against the interest of Hlm, shareholders, employees and general public as twin blade technology was already available with Hlm for the last 12 years and that Hlm was a leader in Indian market in blade industry and that it was inconceivable and it was not prudent Commercial Management that a leading company like Hlm making huge profits should be sold or handed over to a competitor multinational company. The petitioners also said in that application that their company viz., Vidyut Metallics Ltd., developed in its in-house R&D the requisite twin technology and that it was the first razor blade company to introduce twin blades in India and "today it is the largest manufacturer of Twin Blades in India", and that the twin blades under the brand name "SUPERMAX" was the largest selling twin blades in India which were also exported to several developed counties, namely, U.K., Usa, France, etc. The petitioners, therefore, had contended therein that there was no need for Hlm to look for foreign technology when the same was available with M/s. Vidyut Metallics Ltd., a company of the petitioners. Mr. Sawhney said that that would show that the petition had been filed only to save the business interest of the petitioners themselves and for no other reason.
(19) Mr. Ashok Desai, learned counsel appearing for Gillette, also supported the stand of the respondents that the petitioners who were rival in trade could not maintain the petition. It was submitted that approval was within the guidelines laid in the Industrial Policy and that the approval so granted was subject to applicability of other laws in the country. Mr. Desai said that approval was valid for a period of two years and that that time limit was fast approaching and it was all due to the fact that the petitioners were only interested in spoiling game. He said although the court did not grant any stay to the approval so granted, Gillette could not go ahead in terms of the approval due to pending litigation. Mr. Desai said that no special resolution of Hlm could be passed for allotment of shares unless 75% of the shareholders approved the same. He said petitioners were having 33% shareholding in Hlm and they had already gone to the CLB. Mr. Desai also referred to the scope of judicial review in such matters.
(20) Mr. Jayaraman, learned Additional Solicitor General, also said that the petitioners could not have two parallel proceedings. We have already said that to challenge the approval the petitioners could certainly file a petition under Article 226 of the Constitution and perhaps Clb could not have granted the relief sought by the petitioners in the present case. Mr. Jayaraman said that the Industrial Policy was formulated to cut out the bureaucratic control and all the proposals could not be examined with microscopic intensity otherwise the whole purpose of liberalisation is lost. He said other countries of the world were in competition with each other in inviting foreign investment and it was in the interest of the country that more and more foreign investment should be there. Mr. Jayaraman said that the approval was within the scope of Industrial Policy and with due and proper application of mind. He referred to the constitution of the Fipb and said it was a high powered body and then also to the constitution of the Empowered Committee headed by the Finance Minister. Mr. Jayaraman said the approval was granted after due consideration of all the relevant factors.
(21) If we refer to the Statement on Industrial Policy it is stated therein that foreign investment would bring attendant advantages of technology transfer, marketing expertise, introduction of modern managerial techniques and new possibilities for promotion of exports, and that this was particularly necessary in the changing global scenario of industrial and economic cooperation marked by mobility of capital. The statement said that the Government would "therefore welcome foreign investment which is in the interest of the country's industrial development." From one of the decisions on foreign investment in terms of the Industrial Policy, which we have quoted above, it would be seen that foreign equity proposal need not necessarily be accompanied by foreign technology agreements. It appears to us that the petitioners are raking up all the objections because they are rival in trade and do not want Hlm to flourish by inviting foreign investment, they being the minority shareholders in the HLM.
(22) The provisions of the Foreign Exchange Regulation Act and the Monopolies and Restrictive Trade Practices Act have not been given a complete go-by by the approval. The issues which have been mentioned above and which, according to the petitioners, were not adverted to while granting approval and which issues were expanded in detail in the course of arguments do not affect the working of Hlm and the rights and interests of shareholders. As a matter of fact, we are not concerned and it cannot also be argued that the approval harm the interest of Hlm or the right of the petitioners as shareholders as these are being looked into by the Clb at the instance of the petitioners themselves. The proposed agreement or the agreement of collaboration between Hlm and Gillette has also been made subject-matter of consideration before the Clb and that too by the petitioners. The only argument with which we are concerned and which has been squarely raised is that the approval is in violation of the Industrial Policy inasmuch as the guidelines and objectives and decisions as mentioned in the Industrial Policy were not kept in view. What issues were not kept in view, according to the petitioners, in summary form we have mentioned above. The petitioners want us to examine threadbare if all these questions were in the mind of the authority and considered before granting the approval. Arguments were addressed in considerable detail and various judgments cited but we do not think it is necessary for us to consider them all. In arriving at decision in this case we are certainly guided by the principles set out in all these judgments. The fact remains that the proforma which has been prescribed under which application is to be filed before the Fipb for approval is not statutory in nature and even otherwise the application gives all the relevant details and the authorities need not insist on strict compliance of the application being submitted in the form prescribed. Then the authorities would be entitled to see the application if filed did meet in substance the requirements for grant of necessary approval under the Industrial Policy and the authorities need not examine the whole matter in the form of question paper and its answers. Substance of the matter is to be seen. The grievance of the petitioners is to the grant of approval for foreign investment up to a maximum of 49% of equity capital of Hlm commencing initially with 26%, and this approval on this count is subject to various conditions. Under the Policy, the Government welcomes foreign investment which is in the interest of country's industrial development. It is also a matter of policy that the Government has taken decision that foreign equity proposals need not necessarily be accompanied by foreign technology agreements. Respondents 1 to 4 are right in their submissions that foreign investment will itself bring the attendant advantages of upgrading of Indian technology, the need for increasing availability of better quality products to consumers at competitive prices, likely inflow of foreign exchange and expected export earnings. Gillette is a world leader in razor blade industry having latest technology available to it. What type of technology Gillette will bring to India has again been made a subject-matter of an issue before the Clb where Gillette has also been added as a party and all at the instance of the petitioners. It is difficult to understand what the petitioners are complaining about in the present petition. No right of their has been infringed nor Hlm made to suffer on any count by granting the approval. Petitioners have not at all addressed themselves to this aspect of the matter that how the company or they are going to suffer on account of grant of approval, their consideration for various issues raised notwithstanding. This gives strength to the argument of the respondents that this petition is not bonafide and the only desire of the petitioners is to have the approval lapsed so that there is no collaboration between Gillette and Hlm as otherwise the petitioners would not be able to meet the competition. It has been said that earlier a good number of industrialists had been making profits unmindful of quality of their products because they did not have to fear competition in a protected, closed-door economy.
(23) It is not always that the court must interfere in all matters in exercise of jurisdiction under Article 226 of the Constitution. The scope of judicial review does not encompass each and every action of the Government or the authority concerned. If we interfere in the matter like this the whole object of Industrial Policy which is to invite foreign investment in India by international companies will fail. It is a matter of common knowledge that there is a global competition among the developing countries and they are competing with each other in inviting foreign capital. The economy of the country is opening up and it is an era of de- control, de-licensing and liberalisation. Petitioners want the clock to turn back by raising pleas against the grant of approval with which we do not think they are concerned as shareholders, and their right as shareholders and the interest of the Hlm of which they are minority shareholders is already being looked into by the CLB. The Industrial Policy does not merely envisage foreign investment in high technology area only. The Industrial Policy framed by the Central Government is a step towards open economy for India to become a major player in the global economy. It is a policy with which the court would not interfere and we find the approval granted is in terms of that policy. Petitioners have been unable to correlate their objection to the grant of approval with the industrial policy as to how the policy has been violated. They cannot devise their own parameters outside the policy to challenge the approval. Petitioners, and it has quite amply been demonstrated from the facts of the case, are afraid of competition and that would appear to be the motivation for filing this petition.
(24) Petitioners have made out no case for us to interfere. Their challenge to the grant of approval also does not appear to us to be bonafide. We would, therefore, dismiss the petition with costs. Counsel fee Rs. 5,000.00. Rule is discharged.