Calcutta High Court Upholds RBI’s Statutory Discretion under FERA in Share Allotment Dispute

The Calcutta High Court has delivered a landmark ruling regarding the limits of judicial intervention in regulatory decisions. A division bench comprising Justice Madhuresh Prasad and Justice Supratim Bhattacharya dismissed an intra-court appeal filed by Sajal Dutta, affirming that the Reserve Bank of India (RBI) acted within its statutory discretion under the Foreign Exchange Regulation Act (FERA) when authorizing share allotments.

A Long-Standing Corporate Feud

The dispute stems from the incorporation of Ruby General Hospital Company Limited in 1991. The company, founded by non-resident Indians (NRIs) Dr. Kamal Dutta and Binod Prasad Sinha, along with Sajal Dutta, sought to establish a hospital in Kolkata. The project was heavily financed by NRI participation. Throughout the late 1990s and early 2000s, the company was embroiled in intense litigation regarding management control and share allotment.

At the heart of this specific appeal was an order dated May 7, 2004, in which the General Manager of the RBI granted permission for the issuance of over 3 million shares to Dr. Kamal Dutta. These shares were allotted in exchange for imported, second-hand medical equipment. Sajal Dutta, as a shareholder, challenged this, claiming the approval violated the original Secretariat of Industrial Approval (SIA) framework, which he argued necessitated new capital goods.

The Arguments: Standing and Regulatory Scope

Counsel for the appellant, Sajal Dutta, argued that the RBI’s decision was legally unsustainable as it deviated from the SIA approval and the broader Foreign Trade policy. He contended that the unauthorized allotment diluted his equity and shifted control of the company unfairly.

Conversely, the respondent argued that the writ petition was not maintainable, citing the company’s own withdrawal from the challenge. Furthermore, the respondent emphasized that the RBI, as the competent statutory authority under FERA, had acted in good faith based on a 1994 Department of Finance directive, which explicitly permitted the capitalization of second-hand capital goods on a non-repatriable basis.

The Court’s Analysis

The High Court underscored that while judicial review under Article 226 of the Constitution is a powerful tool, it is not an avenue for the court to act as an appellate body over the merits of an expert regulator’s technical decisions.

The court noted that the RBI had correctly assessed the evolving "modus of investment" of the company. Because the company opted to import second-hand machinery directly rather than utilizing foreign exchange through traditional banking channels, the strict conditions of the 1993 SIA approval were rendered inapplicable.

Key Observations

The bench offered critical insights into the scope of judicial review:

> "We are conscious of the limited scope of judicial review in such circumstance where there is no lack of jurisdiction in a statutory authority... we, therefore, considering the settled law circumscribing the scope of judicial review in such matters, refrain from sitting in appeal over the decision of a statutory body such as RBI."

> "Merely because the injury/right sought to be remedied/enforced is in some way also effecting the company, the individual shareholder, in our opinion, cannot be deprived of legal remedies."

> "In an appropriate case where decision of a statutory authority is perverse without any basis, without taking into consideration relevant material and without jurisdiction, then it cannot be said that a Constitutional court... would be powerless to interfere."

Final Decision: Limiting Judicial Overreach

The court concluded that the RBI’s decision was based on relevant materials and the government’s policy directives. Finding no evidence of perversity, mala fide intent, or lack of jurisdiction, the Court dismissed the appeal.

This ruling reinforces the principle that courts will show high deference to regulatory bodies when decisions are grounded in valid policy directives and statutory frameworks, effectively insulating the RBI’s technical functions from perpetual litigation by aggrieved shareholders.