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2024 Supreme(Online)(DEL) 32543
HIGH COURT OF DELHI
Sanjeev Narula, J
Times Internet Limited – Appellant
Versus
Directorate Of Enforcement – Respondent
W.P.(C) 15242/2023 | W.P.(C) 15471/2023 | CM APPL. 52797/2024 | CM APPL. 48137/2024
For the Appellants/Petitioners: R.K. Handoo, Yoginder Handoo, Ashwin Kataria
For the Respondents: S.V. Raju, Anurag Ahluwalia, Samrat Goswami, Abhigyan Siddhant, Gaurav Sarkar
Mere issuance of investigative summons under FEMA, 1999, without formal charges or progress in proceedings, cannot serve as a valid ground to indefinitely deny a 'No Objection Certificate' for overseas investment, especially when such rejection lacks substantive reasoning and transparency.
Headnote:(A) Foreign Exchange Management Act, 1999 - Sections 13, 37, 37A - Foreign Exchange Management (Overseas Investment) Rules, 2022 - Rule 10 - Rejection of No Objection Certificate (NOC) by Directorate of Enforcement (ED) - Mere issuance of summons under Section 37(1) without formal findings of contravention does not constitute 'investigation' justifying indefinite denial of NOC - Rejection lacking substantive reasoning is arbitrary and violates principles of natural justice. (Paras 23, 27)
(B) Overseas Investment - Bona fide business activity - Regulatory Compliance - Authorized Dealer (AD) banks, not investigative agencies, hold primary responsibility for scrutinizing compliance of overseas remittances under existing FEMA framework - Financial penalties under FEMA are fiscal, and prolonged investigative limbo without charges cannot block legitimate business operations. (Paras 27, 28)
Facts of the case:
Petitioners, Indian corporate entities, sought NOCs under Rule 10 of FEMA OI Rules, 2022 to remit funds for overseas investments. ED rejected these applications citing ongoing investigations related to past share transactions and overvaluation allegations from 2015-2020. No formal proceedings or charges had been initiated against the Petitioners despite summons issued in 2021.
Findings of Court:
The court held that the impugned rejection orders were devoid of reasons and arbitrary. The court found that the mere issuance of summons does not validate a perpetual investigative hold on business activities. The regulatory framework shifts the burden of compliance scrutiny to Authorized Dealer banks, and the ED failed to establish a nexus between the alleged past irregularities and the currently proposed investments.
Issues: Whether the Directorate of Enforcement’s rejection of NOC based on long-pending investigations, without specific charges, satisfies legal reasonableness and transparency requirements.
Ratio Decidendi: An investigation, to justify restricting commercial rights or denying regulatory approvals, requires concrete progress or charges; indefinite, dormant investigations cannot operate as a blanket bar to business activities under the codified FEMA overseas investment regime.
Result: Writ petitions allowed; impugned rejection letters quashed.
| Table of Content |
|---|
| 1. overview of parties' business structure and the procedural history leading to noc rejection. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10) |
| 2. summary of contentions regarding the scope of investigation and compliance requirements under fema. (Para 11 , 12) |
| 3. legal analysis of the shift from the 2004 regulatory regime to the 2022 fema overseas investment rules. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22) |
| 4. court's findings on the insufficiency of dormant investigations as grounds for denial of regulatory approval. (Para 23 , 24 , 25 , 26 , 27 , 28 , 29) |
| 5. final direction quashing orders and allowing petitioner to proceed with investments. (Para 30 , 31) |
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J.
1. Times Internet Limited, (“TIL”, Petitioner in W.P.(C) 15242/2023) is a subsidiary of Bennet Coleman & Co. Ltd, (“Bennet Coleman”, Petitioner in W.P.(C) 15471/2023), who are widely recognized as the Times of India Group, which is one of India’s largest media conglomerates. As a digital venture of the Times of India group, TIL is engaged in providing information technology-based internet/digital services, digital content, on-line advertisement services on an international scale, operating diverse portals and websites. Both the Petitioner companies have Wholly Owned Subsidiaries, (“WOS”) abroad by the names of Times Internet Inc. and BCCL Worldwide Inc., respectively. These WOSs were established by the Petitioners to facilitate international operations and investments. As part of their business strategy, the Petitioners are required to remit funds to these WOS in the form of overseas direct investments.
2. For this purpose, both the Petitioners sought No Objection Certificates, (“NOC”) from Respondent No. 1 – Directorate of Enforcement, (“ED”) under Rule 10 of the Foreign Exchange Management (Overseas Investment) Rules, 2022, (“FEMA OI Rules, 2022”). However, their request was denied. The Petitioners argue that the non-grant of NOC has prevented them from transferring funds to their WOS entities, thereby hampering their investment plans and disrupting global operations. Thus, through the present writ petitions, the Petitioners seek to challenge the impugned communications issued by the Respondent, rejecting their applications for NOCs.
FACTS
3. Both the Petitioner companies are Indian entities classified as “person resident in India” in terms of Section 2(b)(ii) of the Foreign Exchange Management Act, 1999, (“FEMA, 1999”). Over the years, the Petitioners have consistently engaged in overseas investments by establishing various WOSs, Subsidiaries, and Special Purpose Vehicles in various jurisdictions while strictly adhering to the applicable foreign exchange laws.
4. To meet their expanding business requirements and facilitate outbound investments, TIL incorporated a WOS by the name of ‘Times Internet Inc.’, on 27th December, 2006 under the laws of the United States of America. Registered in New Jersey, USA, this WOS was envisaged as a central hub to manage TIL’s overseas investments in innovative digital ventures, whether independently, in collaboration with existing subsidiaries, or through the acquisition of operational entities. The purpose was to streamline investment operations and ensure ease of management, profitability, and commercial viability.
5. Between 2006 and 2015, TIL invested a total of USD 30.90 million in Times Internet Inc. in multiple tranches through its Authorized Dealer, Citi Bank, New Delhi (now Axis Bank Ltd.), under the Automatic Route for Overseas Direct Investment, (“ODI”), as per the regulations of Reserve Bank of India, (“RBI”). For these transactions, a Unique Identification Number, (“UIN”) was duly allotted to TIL and they assert that they have consistently complied with requisite reporting and filing requirements, as mandated under FEMA Act, 1999 and the associated rules and regulations.
6. Similarly, in 2015, Bennett Coleman established its own WO
