Holding

Section 29(1)(a) of the Foreign Exchange Regulation Act imposes an unequivocal bar on foreign companies and foreign nationals from establishing a place of business in India without RBI permission, and the corporate veil may be lifted where the statutory purpose is frustrated.

Summary

The Union of India prosecuted M/s Maple Leaf Trading International Pvt. Ltd. and its foreign shareholders for trading imported gold coins without RBI permission, alleging violations of Sections 19(1)(a), 19(1)(d), 29(1)(b), 47(1), 49(1)(a) and 68 of the Foreign Exchange Regulation Act, 1973. The Adjudicating Authority found the respondents guilty, a decision upheld by the Appellate Tribunal and the Delhi High Court, which held no question of law arose. On appeal, the Supreme Court examined whether the company fell within the automatic approval route under RBI notifications and whether the corporate veil could be lifted to treat the foreign shareholders as controlling a foreign company prohibited by Section 29(1)(a). The Court held that the statutory language of Section 29(1)(a) is clear, the notifications require a specific declaration for export‑oriented trading activities, and the company’s NIC‑code 893 consultancy activity did not qualify for automatic permission. Consequently, the corporate veil was rightly lifted, the violations stood, and the penalty and confiscation orders were upheld, while the bank’s alleged breach of Section 6(5) was dismissed. The appeal was allowed, setting aside the High Court order and restoring the adjudicating authority’s powers.

Issues considered

The applicability of Section 29(1)(a) of FERA to an Indian company with foreign shareholding exceeding 51%.
Whether the automatic approval route under RBI Notification No. 180/98‑RB applies to the company’s alleged trading in gold coins.
The correct interpretation of the headings and language of Sections 19(1)(a), 19(1)(d) and 29(1)(b) of FERA.
The propriety of lifting the corporate veil to treat the foreign shareholders as a foreign company for purposes of FERA.
The liability of ABN Amro Bank under Sections 6(4) and 6(5) of FERA for selling gold coins without ‘reasonable satisfaction’ of the company’s RBI permission.

Legislation cited

Companies Act, 1956s. 81(1A)
Foreign Exchange Management Act, 1999s. 35
Foreign Exchange Regulation Act, 1973s. 19(1)(a), s. 19(1)(d), s. 29(1)(a), s. 29(1)(b), s. 47(1), s. 49(1)(a), s. 50, s. 54, s. 55, s. 56, s. 6(4), s. 6(5), s. 68

Subjects

Foreign Exchange Regulation ActSection 29(1)(a)Corporate veilRBI permissionAutomatic approval routeGold coin tradingPenalty and confiscationStatutory interpretation

Judgment

[2013] 13 S.C.R. 820

A UNION OF INDIA
v.
ABN ·AMRO BANK AND OTHERS
(Criminal Appeal No. 975 of 2007)
JULY 12, 2013
B
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.)

Foreign Exchange Regulation Act, 1973: ·~ +

c ss.19(1)(a), and (d), 29(1)(b), 47(1) and 49(1)(a) rlw. s.68
- Contravention of - Prosecution for - Alleging the company
and its foreign share-holder (holding 51% shares of the
Company) for carrying out business/trading activities of
imported gold coins, in contravention of above provisions -
Accused found guilty for contravention of the provisions by
D _.i,
Adjudicating Authority - Appellate Tribunal set aside the
order of Adjudicating Authority - High Court upheld the order
of appellate authority refusing to interfere with it on the ground
that no questions of law arose for its consideration - On
appeal, held: The trading activity of the company was without
E due approval under 19(1)(a) and (d) and 29(1)(b) - The
company was not covered under the Notification relaxing the
provisions of ss. 19 and 29(1)(b).
~

F Doctrine - Doctrine of 'Lifting of corporate veil' -

G
Applicability of, in cases of violation of provisions of Foreign
Exchange Regulation Act.

Interpretation of Statutes - 'Heading' of a provision - As
an aid to interpretation of the provision - Held: Heading of a '1--~
-
section can be regarded as a key to the interpretation of the
operative portion of the section - If the language in the
Section is plain, clear and unambiguous, the heading
strengthens that meaning.

H 820
•
UNION OF INDIA v. ABN AMRO BANK 821

The respondent Nos. 2 to 4 were charged for carrying · A
out business/trading activities of 'imported Maple Leaf
Gold Coins' in contravention of ss. 19(1 )(a) and (d),
29(1 )(b), 47(1 ), 49(1 )(a) r/w. s.68 of Foreign Exchange
Regulation Act, 1973. Proceedings were also initiated
against respondent No.1-Bank for violation of s.6 (4) and B
"(5) of the Act alleging that the Bank sold gold coins to the
company without being reasonably satisfied about the
nature of the business of the Company and without
ascertaining whether the Company had got necessary
permission from RBI in dealing with gold coins, and thus c
the Bank misused the permission granted to it by RBI for
importing gold coins. The Adjudicating authority found
the respondents guilty of the offences they were charged
with. The appeals against the order of adjudicating
authority was allowed by Appellate Tribunal for Foreign 0
Exchange. High Court dismissed the appeal filed u/s. 54
of the Act, on the ground that neither any question of law
nor any legal infirmity was found in the order passed by
the Tribunal.

In appeal to this Court, the respondents 2 to 4 E
. contended that respondent-Company was an Indian
Company under Indian Companies Act, 1956 consisting
of Indian shareholders as well as Directors, and such
Company having foreign shareholdings did not need
permission from RBI to carry on business or to establish F
a place of business in India; that the respondent-Swiss
Company cannot be said to have violated s. 29(1 )(a) and
indirectly tried to establish a place of business in India
merely because the Swiss Company held 51% shares of
the Company and initiated its incorporation; that by virtue G
of Foreign Exchange Regulation Amendment Act 29 of
1993, an Indian company in which non-resident interest
is more than 40% can carry on business in India without
any permission from RBI, that the company fell squarely
within the category of "newly setup trading company H
822 SUPREME COURT REPORTS [2013] 13 S.C.R. I,.
y.
A primarily engaged in export" which fell within the purview ' '
of the general permission granted by RBI under the ~

automatic approval route and hence there was no
contravention u/ss. 19(a) and (d), 29(1 )(b) or 49(1 )(a) of the
Act, and that while interpreting a statute, courts would lift
B the corporate veil more restrictively and FERA was not
expected to lift the veil under Section 29(1 )(a) after the
amendment Act of 1993.

The appellant contended that section 29(1 )(a) puts an ~ ..
injunction on the foreign companies and foreign
c nationals from establishing or carrying on any business ~

in India or opening any branch in India without obtaining
the permission of the RBI; that the Company was a
foreign Company set up by foreign nationals in violation
of s. 29(1 )(a); that the Adjudicating Authority rightly lifted
D the corporate veil and examined as to who were all in fact ,-4,
controlling the Company; that in view of Para 39(B) of
Industrial Policy, 1991 dealing with Foreign Investment,
and Press Notes dated 20.8.1991, 13.12.1991 and
31.12.1999, there is no concept of automatic approval for
E the companies erigaged primarily in trading and such
companies fulfilling certain conditions have to apply to
RBI for permission; and that the benefit of automatic
approval route allowed by RBI under Notification No.180/ '.lo(
98-RB dated 13.1.1998 is given to the Companies
F primarily "engaged in exports" and the companies who
claim the benefit under the Notification are required to
submit a declaration in Form FC (RBI), while the activities
of the company are the activities indicated in NIC Code
893.
-y-'-
G
Allowing the appeal, the Court

HELD: 1.1. Section 19(1 )(a) was intended to regulate
~
export and transfer of securities. Section 19 states that
no person shall except with the general or special
H permission of the Reserve Bank take or send any security
UNION OF INDIA v. ABN AMRO BANK 823

to any place outside India or to issue whether in India or A
elsewhere any "security which is registered or to be
registered in India to a person resident outside India.
Section 19 while intending to regulate export and transfer
· of securities, Section 29 placed restrictions on
establishment of place of business in India. It is in B
pursuance of clause (a) and clause (d) of sub-section (1)
of Section 19 read with clause (b) of sub-section (1) of
Section 29 of FERA, Notification No. 180/98 dated
13.01.1998 was issued by the RBI. [Para 48] [865-D-F]
_., 1.2. The language used in Section 29(1 )(a) of Foreign C
Exchange Regulation Act, 1973 (FERA) is unambiguous
and plain and calls for no interpretation or explanation.
Section 29(1 )(a) puts a specific bar on the foreign
companies and foreign nationals mentioned in Section
29(1) from establishing or carrying on any business in D
India or opening any branch in India without obtaining
permission of the Reserve Bank of India (RBI). Heading
of Section can be regarded as a key to the interpretation
of the operative portion of the Section and if there is no
ambiguity in the language or if it is plain and clear, then E
the heading used in the section strengthens that meaning.
Heading of Section 29 indicates restrictions and the
expression "shall not" "except with" general or special
permission of the Reserve Bank make the requirements
mandatory and the negative words used by the F
legislature shows its intention that if any act is done in
breach thereof, will be illegal. Reading the Press Note and
the Cabinet Note for the amendment under Section 29,
apart from the fact that the language used in Section
29(1)(a) is unambiguous clearly indicates that restrictions G
have only been liberalized, instead of 40% of the limit, it
was increased to 51% and 74% subject to fulfilment of.
certain conditions as set out in the industrial policy and
the various Press Notes. [Para 37] [859-G-H; 860-A-Dl·
H
824 SUPREME COURT REPORTS [2013) 13 S.C.R.

A 1.3. Restrictions imposed under Section 29(1 )(a) is
not applicable to an Indian company to establish a place
of business in India but, on the other hand, restriction has
been statutorily fixed in respect of foreign company
which wants to establish a place of business in India.
B Section 29(1 )(a) deals with following categories of foreign
entities: (i) A person resident outside India; whether a
citizen of India or not, (ii) A person who is not a citizen
of India but is a resident of India or (iii) A company, (other
than a banking company) which is not incorporated
c under any law enforced in India or (iv) Any branch of such
company. (Para 37] (860-D-G]

1.4. The Automatic Permission Route was found
·-
open by the Notifications dated 13.1.1998 and 20.1.1998
and those notifications have laid down certain conditions
D and parameters for automatic approval which were to be
complied with by the issuer company along with the filling
of declaration in Form FC(RBI). The Notification had
given relaxation to the provisions of Section 19 and
Section 29(1 )(b) to invest not exceeding 51 % to two
E categories namely all industries mentioned in Annexure
Ill to the Statement of Industrial Policy 1991 or to a trading
company primarily engaged in export and is registered
as an Export/Trading/Star Trading House with the Ministry
of Commerce, Government of India. To claim the benefit
F of the above-mentioned Notifications, it was essential
that a true declaration in Form FC(RBI) was required to
be filed and benefit of the general permission through
automatic route could be obtained only for the activity
specified in Form FC(RBI) and there was no·automatic
G approval for any activity not specified in the above-
mentioned form. [Para 55] (868-C-F]

1.5. Reading of Section 19(1 )(a), (d) and 29(1 )(b) with
the Notifications and the Press Notes, show that the
intention of the Legislature was to permit company
H

•.
UNION OF INDIA v. ABN AMRO BANK 825

incorporated in India which is engaged or proposing to A
engage in an activity specified in Annexure Ill or an Indian
Company which is a trading company, primarily engaged
in export and is registered as an export/trading/star
trading house with the Ministry of Commerce,
Government of India to issue equity shares, subject to the B
conditions mentioned in paragraph 3 of the Notification
dated 13.1.1998. The first proviso to Notification states
that a company existing on the date of the Notification,
which was not engaged in Annexure Ill activity would be

- eligible to issue shares if it had embarked upon
expansion programme, predominantly in Annexure Ill
activities, subject to the condition that foreign equity
c

raised by issue of equity shares to the foreign investors
was utilized for such expansion. The first proviso goes
along with clause (a) of the Notification. The second 0
proviso states that in the case of a newly set-up "trading
company", primarily engaged in export, issue of shares
shall be subject to the conditions that registration as an
export/trading/star trading house was obtained before the
dividend is declared to the foreign investors. These
provisos go along with clause (b) of the Notification. The E
Notification was intended to give relaxation to the
provisions of Section 19(1)(a), (b) and 29(b) of the Act to
the investments not exceeding 51% of the aforesaid two
categories, namely, (1) Industries in Annexure Ill to the
statement of Industrial Policy, 1991 or (2) a trading F
company primarily engaged in export and was registered
as an export/trading/star trading house with the Ministry
of Commerce, Government of India. Companies which do
not fulfill the conditions of the Notification dated
13.01.1998 and 20.01.1998 and all other companies which G
do not fulfill the conditions mentioned in those
Notifications are required to obtain prior permission from
FIBP for foreign equity investment. [Para 55] [860-F-H;
869-A-E]
H
826 SUPREME COURT REPORTS [2013] 13 S.C.R.

A 1.6. The Notifications dated 13.01.1998 and 20.01.1998
cannot be read in isolation, but have to be read along with
Section 19(1)(a),(d), Section 29(1)(b), the Industrial Policy
of July 1991 especially parlii 39B(iv), Press Notes dated
2.0.08.1991, 13.12.1991, 31.12.1991 with specific reference
B to the trading companies primarily engaged in export
activities whether new or existing. Para 39B(iv) of the
Policy read with paras 5 and 6 of the Press Note dated
31.12.1991 indicate that a newly setup trading company
primarily engaged in the export will have to file
c application in prescribed form for approval of foreign
equity upto 51% equity. [Para 56) [869-F-H; 870-A]

1.7. Newly set-up trading company primarily engaged
in export has therefore also to satisfy the conditions laid
down in clause (b) of paragraph 1 of the Notification dated
D 13.01.1998 and the plea that a trading company is
primarily engaged in export be determined only when it
remits dividend, cannot be accepted. The expression
"further" used in the second proviso makes it more
explicit. "Further" as means "additional" meaning
E thereby a newly set up trading company is not a third
category as such but it goes along with second category
i.e. "a trading company primarily engaged in export". To
get the benefit of the general permission in the automatic
route a trading company should be primarily engaged in
F export, even if it is a newly set up company. A newly set
up company also could demonstrate the same by
specifying the same in Form FC(RBI) that it is a trading
company, whether new or old, and is at least intended to
be engaged primarily in export. [Para 57) [870-8-0]
G
1.8. FC(RBI) form specifically directs the applicants
to "carefully tick" the "appropriate" box. In the box
dealing with the application for approval for foreign
investment not to exceed 51 % for "service sector in
Annexure Ill", the company has put a tick mark which
H
.
UNION OF INDIA v. ABN AMRO BANK 827

would indicate that it sought to avail of the automatic A
route for service sector only as indicated in Annexure Ill.
Noticeably in the present case, no tick mark was put in
the next box referring to "not exceeding 51 % of the
trading companies engaged in exports. Para VII deals
with the "existing activities" which the 2"d respondent B
indicated as "not applicable" and no supplementary
sheet was also attached explaining as to whether it was
a newly set up trading company proposing to engage in
export activities. Para VIII referring to Item Code ITC (HS)
the company has indicated "893", which as per the Code c
deals with "Business and Management Consultancy
Activities". The company stated in the application as
"Business Management Consultancy for Trading,
Marketing and Selling of Goods and Services". Even
there, there is no indication whatsoever that the company
0
was set up for trading, but only indicated "consultancy
for trading". Further Para IX (iii) called for the description
of the products for export trading wherein the company
has stated as "not applicable". Resultantly, it is clear that
the purpose for which the company had sought for
foreign collaboration was not for trading in gold coins E
either for export or domestic purpose, but for the
activities mentioned in the NIC Code 893. [Para 58] (870-
E-H; 871-A-B]

1.9. The company cannot go back from the F
information already furnished by it in the application form
which are declared as 'true and correct'. Based on that
application RBI vide its communication dated 29.6.1998
granted registration No.FC98NDR1005. Registration,
pertains only to NIC code '893'. No permission was G
obtained by the second respondent company from the
RBI for 51% foreign equity induction, for trading, by way
of export. RBI, on the other hand, granted general
permission only for dealing with the activities mentioned
in NIC Code 893 and not for any trading activities leading H
828 SUPREME COURT REPORTS (2013) 13 S.C.R.

A to import or export. [Para 59) [871-C-E]

1.10. In a given situation if the authorities functioning
under FERA find that there are attempts to over-reach the
provision of Section 29(1)(a), the authority can always lift
the veil and examine whether the parties have entered
8
into any fraudulent, sham, circuitous or a devise so as
10 overcome statutory provisions like Section 29(1 )(a). It
is trite law that any approval/permission obtained by non-
disclosure of all necessary information or making a false
representation tantamount to approval/permission
....._..
C obtained by practicing fraud and hence a nullity. [Para
42) [862-G-H; 863-A]

New Horizons Limited and Anr. vs. Union of India (UOI) ~-
and Ors. 1995(1) SCC 478: 1994 (5) Suppl. SCR 310; Delhi
D Development Authority vs. Skiper Construction Company (P)
Ltd. and Anr. 1996(4) SCC 622: 1996 (2) Suppl. SCR 295;
+
Vodafone International Holdings 8. V. vs . Union of India (UOI)
and Anr. . 2012 (6) SCC 613: 2012 (1) SCR 573; Life
Insurance Corporation of India vs. Escorts Ltd. And Ors.
E (1986) 1 SCC 264: 1985 (3) Suppl. SCR 909; Union of India
vs. Azadi Bachao Ando/an (2004) 10 SCC 1: 2003 (4) Suppl.
SCR 222; Union of India and Ors. vs. Ramesh Gandhi (2012)
1 SCC 476: 2011 (16) SCR 126 - relied on.

Re. H. PC. Produce Ltd. (1962) 1 All ER 37 - referred
F to.

1.11. Trading in gold is not an activity covered under
Notification dated 13.01.1998 and 20.01.1998; perhaps for
that reason, fourth respondent also took some steps to
G establish its 100% subsidiary in India and an application
to that effect was filed on 24.08.1998 to FIPB by the
company but it was not pursued further, but sought to
achieve the same as if RBI had granted automatic
permission which cannot be sustained in the eye of law.
H [Para 63) [872-F]
UNION OF INDIA v. ABN AMRO BANK 829

-----,r 1.12. The High Court has committed an error in A
.... holding that no questions of law arose for its
consideration under Section 54 of FERA and has
completely misread and misinterpreted the Industrial
Policy, Press Notes and Section 19(1)(a) and (b), Section
29(1 )(a) and (b) etc. and issues raised in appeals, which B
are clearly questions of law which fell within the ambit of
Section 56 of FERA and the High Court committed a
serious error in rejecting the same holding no questions
of law arose for its consideration. [Para 60] [871-E-F]

Hindustan Lever Employees Union vs. Hindustan Lever
c
Ltd. 1995 Suppl (1) sec 499: 1994 (4) Suppl. SCR 723 -
distinguished.

- t-
Ghatge and Patil Concerns' Employees' Union vs.
Ghatge and Patil (Transports) Private Ltd. And Anr. AIR 1968
SC 503: 1968 SCR 300; Landon and Country Commercial
Investment Properties Ltd. vs. Attorney-General 1953 1 AER
D

436 - referred to.

2. The Bank had imported the gold on its own behalf
E
and sold the same to the company and if the Bank was
acting as an agent of the company, it would not have
sold the gold to the company, but would have charged
)- the commission for acting as an agent. No materials have
been placed to show that the Bank was acting as an
F
agent of the company. On facts, the Tribunal as well as
the High Court took the view that the Bank had not
misused the permission granted by the RBI for importing
gold coins. There is no reason to interfere with those
.. '1" finding of facts. There is no error in the view taken by the
Tribunal as well as the High Court that the proceedings G
initiated against the Bank that it had violated Sections
6(4) and (5) of FERA was illegal. The appeal filed by the
Union of India, so far as the Bank is concerned, stands ·
dismissed. [Para 61 and 62] [872-B-E]
H
830 SUPREME COURT REPORTS [2013] 13 S.C.R.
!'

A Case Law Reference: -r--
...
1994 (4) Suppl. SCR 723 distinguished Para 16
1968 SCR 300 referred to Para 16
1953 1 AER 436 referred to Para 16
B
1994 (5) Suppl. SCR 310 relied on Para 40
1996 (2) Suppl. SCR 295 relied on Para 40
2012 (1) SCR 573 relied on Para 40
_..,.
••
c 1985 (3) Suppl. SCR 909 relied on Para 41
2003 (4) Suppl. SCR 222 relied on Para 41
(1962) 1 All ER 37 referred to Para 41

D
2011 (16) SCR 126 relied on
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 975 of 2007.
Para 41

-+
..
From the Judgment & Order dated 21.09.2005 of the High
Court of Delhi at New Delhi in Crl. Appeal No. 380 of 2003.
E WITH
Cr!.A.No. 976 of 2007.
P.P. Malhotra, AAG, Ashok Panda, V. Giri, Jaideep .....
Gupta, Asha G. Nair, Abhishek Kumar Pandey, Lingaraj
F Sarangi (for B. Krishna Prasad), Subramonium Prasad, Koshy -
John, Manav Vohra, Amit Sibal, Jafar Alam (for Lawyer's Knit
& Co.), Kuldeep S. Parihar, H.S. Parihar for the appearing
parties.

G The Judgment of the Court was delivered by -.r---
K.S. RADHAKRISHNAN, J. 1. Crl. M.P. No.11274 of
2013 is allowed.
2. The Special Director of Enforcement, Enforcement
H Directorate, Government of India, New Delhi, exercising powers
UNION OF INDIA v. ABN AMRO BANK 831
[K.S. RADHAKRISHNAN, J.]
~<---( under Section 51 of the Foreign Exchange Regulation Act, 1973 A
(for short "FERA"), later repealed, initiated proceedings vide
order dated 22.9.2000 against M/s Maple Leaf Trading
International Pvt. Ltd. (for short 'the Company') for violation of
the provisions of Section 19(1)(a) and (d), 29(1)(b), 47(1) and
49(i)(a) read with Section 68 of FERA. Proceedings were also B
initiated against the other respondents, including 1 •1
respondent, ABN AMRO Bank NV (now called "Royal Bank of
Scotland NV") and 41h respondent - Mis Piccadily Invest AG,
Zurich, Switzerland (for short "Piccadily"). Respondents,
aggrieved by the above mentioned order, preferred four c
appeals before the Appellate Tribunal for Foreign Exchange,
New Delhi and the Tribunal allowed those appeals vide its order
dated 10.3.2003 and set aside the order of confiscation and
the penalty imposed.
3. Union of India, aggrieved by the said order, preferred D
t Criminal Appeal No. 380 of 2003 before the Delhi High Court
under Section 54 of FERA read with Section 35 of the Foreign
Exchange Management Act, 1999 which was, however,
dismissed, stating that neither any question of law nor any legal
infirmity had been found in the impugned order passed by the E
Tribunal. Aggrieved by the same, Criminal Appeal No. 975 of
2007 has been filed by the Union of India, which is treated as
the main appeal and being heard along with Criminal Appeal
).-
No. 976 of 2007, which was also filed by the Union of India and
another against the order of the High Court dated 12.9.2003
' F
setting aside the order confiscating the drafts deposited by few
investors in the 2nd company.
FACTS:
~ ~
4. M/s Maple Leaf Trading International Pvt. Ltd., the 2nd
respondent, was formed with the assistance of M/s J.C. Bhalla G
and Company, a Chartered Accountant firm having its office at
New Delhi, in the following circumstances. One Lambert
Kroger, Stefen Mayer and Cliff Roy, all foreign nationals, had
met Anil Bhalla of the above mentioned firm and expressed their
desire for establishing a company for trading in Maple Leaf H
832 SUPREME COURT REPORTS [2013] 13 S.C.R.

A Gold Coins in India, which they were doing in Netherlands and
Germany. Anil Bhalla was informed that necessary approvals
would be obtained through M/s. Abascus Legal Group, New
Delhi. Anil Bhalla and Rajesh Sethi, Chartered Accountants of
that firm, became subscribers of the newly formed company.
B Cliff Roy, a foreign national and power of attorney holder of 4th
respondent - Piccadily informed him that from Abascus, one
Vikrant Singh Jafa and Rahul Krishna would be the Directors
of the company and ten shares of th1:: company each in the
name of Anil Bhalla and in the name of Rajesh Sethi were
c issued, which were transferred on 19.5.1998 in the name of
Vikram Singh Jafa and a sum of Rs.2,000/- was received in
cash from Cliff Roy. In the above background, the company was
incorporated on 5.4.1998 and, on the same date, Cliff Roy, a
foreigner, was appointed as the Director of the Company and
D on 17.4.1998 he became the Managing Director of the
company. Anil Bhalla, Rajesh Sethi (Chartered Accountants)
and Rahul Krishnan, then, resigned as Directors of the
company on 19.5.1998. Jafa resigned as Director on
11.1.1999. Jafa was holding 49% shares of the company and
on 16.4.1999 a Share Transfer Agreement was entered into by
E him with one A.R. Khan and Lambert Kroger, the Managing
Director of the company to transfer 9780 shares of the company
to A.R. Khan. The Adjudicating Officer says, ultimately, the
Indian company came under the control of Cliff Roy, Paul Singh

F
Clare, Lambert Kroger, all foreign nationals. For deciding the
various legal issues at this stage, a detailed analysis of the facts
are unnecessary and we do not want to burden our judgment
with further factual details, which are all part of the record.
-
5. We may, for the purpose of deciding these appeals, start
G from the stage at which Cliff Roy, a foreign national and power
of attorney holder of 4th respondent company, had submitted
an application in Form FC (RBI) on 21.5.1998 before the
Reserve Bank of India (for short "RBI") for approval of not
exceeding 51 % foreign investment for Service Sector in
Annexure Ill from the 4th respondent. Permission was sought for,
H for the foreign collaboration for "Business Management
UNION OF' INDIA v. ABN AMRO BANK 833
[K.S. RADHAKRISHNAN, J.]
.--r Consultancy for Trading, Marketing and Selling of Goods and A
Services" with specific reference to NIC Code 893. Details of
foreign investment resulting in foreign exchange inflow were also
given in para VI of the application. Para VIII (iii) called for the
description of products in the case of trading companies
primarily engaged in exports, to which the Company replied 8
stating that the same is not applicable. RBI, with reference to
that application, allotted Registration No. FC-98 NOR 1005 vide
---,..- letter dated 29.6.1998 and vide letter dated 29.6.1998 informed
the company that it would advise the foreign collaborator that
they would obey the laws of the land and there should be no c
compromise or excuse for the ignorance of the Indian Legal
System.
6. The Enforcement Directorate got information that the
company had started trading activity in gold coins on 27 .5.1998
and signed the first contract for trading in Maple Leaf Gold D
}-
Coins, which it was noticed, was contrary to the declaration
made by the company in its application Form FC (RBI) dated
21.5.1998 under NIC Code 893. RBI also got information from
the Economic Offences Wing of the Crime Branch, Delhi that
the Company was collecting money from the public on the E
pretext of distributing Maple Leaf gold coins misleading the
public that it had got RBI permission for such an activity. RBI
also got information from the Ministry of Industry, Government
}- of India, that the company had also applied for FIPB approval
for foreign equity induction beyond 51 % claiming that they had F
been given approval by RBI for equity induction under the
Automotive Approval Route for trading in gold coins. In the
application dated 24.8.1998 submitted by the Company for
FIRB approval, it was specifically stated that the existing activity
.~ .,... of the Company was Business Management Consultancy (NIC
G
No. 893)" and, therefore, not indulged in any trading activity.
7. RBI vide its letter dated 8.6.1999 informed the
Directorate of Enforcement that the company had filed
documents with RBI on 21.5.1998 for entering into a foreign
collaboration with Mis Piccadily under the general permission, H
834 SUPREME COURT REPORT.S. (2013] 13 S.C.R.

A in terms of FERA Notification no. 180/98-RB dated 13. 1.1998
under NIC Code 893 i.e. Business management, consultancy
for trading, marketing and selling of goods and services and
not for trading in gold coins. RBI, it was pointed out, issued the
registration number FC 98 NOR 1005 dated 29.6.1988 based
B on that request. It was pointed out that, under the General
Permission, when a company gives a declaration in form FC
(RBI) stating that it is engaged in an eligible activity and later
the company is found doing a different activity, the company is
deemed to have violated the provisions of the notification issued
c under FERA.
8. RBI also vide letter dated 8.6.1999 also informed the
Government of India, Ministry of Industry stating that it had
granted registration number for a foreign collaboration
agreement in terms of notification NO. 180 dated 13.1.1998
D and that the foreign collaboratipn covered activities under NIC
Code Group 893, published in Annexure Ill to the Press Note
No. 2, 1997 series dated 17.1.1997. RBI pointed out that the
claim of the company that it had been given approval by RBI
for 51% foreign equity induction under automatic approval route
E for trading in gold coins, was incorrect.
9. The Special Director, Enforcement Directorate, on
getting various information of the violation of the provisions of
FERA, along with other officers, searched the business
premises of the company on 2.7.1999, which resulted in the
F recovery and seizure of various documents and articles and a
panchnama dated 2.7.1999 was prepared. The search at the
office premises of Group-A Securities at National Highway No.
8, Mahipalpur, New Delhi also resulted in the recovery and
seizure of articles as per panchnama dated 3. 7.1999.
G 10. Lambert Kroger, the third respondent herein, in his
statements under Section 40 of FERA dated 2/3. 7.1999,
5.7.1999, 6.7.1999, 7.7.1999, 8.7.1999 and 24.8.1999, stated
· that he is a German National and he came to India on
16.12.1997 to give suggestions to Cliff Roy, the power of
H attorney holder of 4th respondent, as well as the then Director
UNION OF INDIA v. ABN AMRO BANK 835
[K.S. RADHAKRISHNAN, J.]
·'----f of Maple, who applied to RBI on 21.5.1998 for approval of 51% A
foreign financial collaboration under the automatic route.
Further, it was also stated that A.R. Khan was in possession
of 49% of the shares of the company and the seller of those
49% shares V.S. Jafa had entered into with an understanding
...: with 4th respondent to transfer the share of 49% under the B
direction of the Swiss company and he had also signed on that
agreement. Anil Bhalla also gave statements under Section 40
of FERA on 12.7.1999, 13.7.1999 ahd 14.7.1999, stating that
-;--. he had explained the procedure for applying for setting up
100% trading company through FIPB to Cliff Roy and Lambert c
-{ Kroger and the 2nd respondent company was formed at their
instance. He was informed that necessary approvals would be
obtained by Mis Abascus Legal Group. Jafa also gave
statements on 16.8.1999, 31.8.1999 and 30.9.1999, explaining
the circumstances under which he had entered into the Share D
J· Transfer Agreement with A.R. Khan and Lambert Kroger as the
confirming party. Statement of the Vice President of the
erstwhile ABN Amro Bank was also recorded on 18.10.1999.
. Bank stated that it is an authorized agency for import of gold
and that gold is sold to customers of the Bank as a practice,
E
after necessary documents are obtained and after getting
purchase orders from the customers. The Bank places orders
on the supplier and the price is fixed on the basis of the invoice
>- sent by the suppliers. Bank has followed the said procedure in
respect of the 2nd respondent company as well.
F
11. The Special Director, Directorate of Enforcement, after
recording the statements and examining various documents,
issued a show-cause-notice dated 29.12.1999 to the company,

.
'
·r
Lambert Kroger, Cliff Roy - Directors of the company, 4th
respondent - Piccadily, Paul Abraham - Director of the 2nd
respondent company, for contravention of Sections 6(4) and (5),
G

... 9(1)(e), 47(1), 19("i)(a) and (e), 29(1)(a) and (b), 30(1), 49, 63
-<, and 68 of FERA and to show cause why the amounts blocked
_,
in the accounts of noticee no 1 (bank) to the tune of 12.5 Crores
approximately, seized 466 drafts, totalling 2.14 crores and
H
836 SUPREME COURT REPORTS [2013] 13 S.C.R.

A seized yellow metal coins appearing to be gold, should not be y;
confiscated in terms of Section 63 of FERA and Cliff Roy and
Paul Clare were issued notice to show cause why they should
not be directed to bring back the foreign exchange remitted
outside· India into India in terms of Section 63 of the Act.
·-·
B Following are the brief details of the show-cause-notice:

"CHARGE

On the basis of the above investigations, a Show Cause -1"'
Notice No. T-$/9-D/99 dated 29.12.99 was issued to:
c
1. Maple Leaf Trading For failure to comply with the
International (P) Ltd. S- provisions and declarations
485, GK-II, New Delhi- subject to which approval
42 -said noticee No. 1, under automatic route was
its directors the said granted by the RBI and by
"0
noticee No. 2,3 & 6. engaging themselves in the
t
trading activities of imported
Maple Leaf Gold Coins in
contravention of the
provisions of sec. 19(1)(1) &
E
(d), 29(1}(b) read with sec. 49
& 68(1) & (2) of FERA, 1973
and by entering into contracts/
agreements in violation of
provisions of section 47(1) of
F FERA, 1973 and by collecting
a sum of Rs.25 Crore approx.
and placing this amount
without any general or special
exemption of RBI to the .credit
G of persons resident outside
--r-- '""
India in contravention of
section 9(1 )(e) of FERA,
1973 read with section 68(1)
.
& (2) of the said Act.
H
UNION OF INDIA v. ABN AMRO BANK 837
[K.S. RADHAKRISHNAN, J.]
2. Mis. Picadily Invest AG, By their carrying ouf· the A
Post FAch 284, 8034, business of imported Maple
Zurich, Switzerland, Mr. Leaf Gold Coins in India in
Cliff Roy, Mr. Lambert name & style of notice No. 1
Kroger & Mr. Paul without any general or special
Singh Clare the said permission of RBI in B
notices No. 4, 3, 2 & 6. contravention of the
provisions of section 29(1 )(a)
of FERA, 1973 and by the
unlawful trading collected a
sum of Rs.25 crores c
approximately in the account
of M/s. Mapl Leaf Trading
International (P) Ltd.

3. Mr.Cliff Roy, Lamber By opening bank accounts
with repatriation facility D
Kroger & Mr. Paul
Singh Clare the said without prior permission of
notices No. 2, 3 & 6. RBI and engaging in the
trading of imported Maple
leaf gold coins without any
ground of special permission E
of RBI in contravention of
section 30(1) of FERA, 1973.

They were also asked as to why the amounts blocked in
,,• the accounts of the Noticee No. 1 to the tune of Rs.12.5 F
"' crores approx., seized 466 drafts totalling to Rs.2.14
crores approx. And seized yellow metal coins appearing
to be gold should not be confiscated in terms of section
63 of the said Act and Mr. Cliff Roy and Mr.Paul Singh
Clare are also required to show cause as to why they G
should not be directed to bring back foreign exchange
remitted outside India into India in terms of section 63 of
the said Act."
•• 12. Detailed reply was submitted by all the partie,s and the H
838 SUPREME COURT REPORTS (2013] 13 S.C.R.

A Adjudicating Officer passed the final order on 22.2.2000
recording the finding that Lambert Kroger, Cliff Roy and
-
f ,..
Piccadily had established business activities in India and,
therefore, would fall within the ambit of Section 29(1 )(a) of
FERA, 1973, for which they required a general or special
B permission from RBI, which they had not obtained and,
therefore, liable to penalty under Section 50 of the Act. Further,
it was also pointed out that the facts of the case had clearly
indicated that, virtually, it is they who had established the
company in India and that instead of following the route of
--1-
c Section 29(1 )(a), they followed the route of Section 29(1 )(b),
by incorporating Maples, but indicated that foreign investment
would be up to 51% for service sector in Annexure Ill. The
Adjudicating Officer also recorded a· finding that the 2nd
respondent company had faulted the provisions of Section '•
29(1)(b) of FERA read with Notification No. 180/98 RB dated
D
13.1.1988. Findings have also been recorded as against the -+
1•1 respondent bank for not ascertaining the genuineness of the
2nd respondent compahy and as to whether the Company had
the requisite permission from RBI for trading in gold and that
the Bank has violated the provisions of Sections 6(4) and 6(t)
E
of FERA and is liable to penalty under Section 50 of the Act.
After holding so, the Adjudicating Officer passed the following
order:
~
"In view of my findings that Noticee No. 1 has contravened
F the provisions of Section 19(1 )(d) and 29(1 )(b) read with l"
Section 49(1)(a) and Section 47(1) of FERA, 1973 and
Noticee NO. 2, 3 and 4 have contravened the provisions
of Section 19(1)(a) of FERA, 1973,ln am inclined to
confiscate these gold coins seized under Panchnama
~--.,....
G dated 02.07.99 and 03.07.99 because these were
acquired/specifically imported against foreign exchange by ,,__
Noticee No. 1 for an activity which was contrary to the
automatic approval route allowed by RBI under Notification
No. 180/98-RB dated 13.01.1998 issued under Section 9( .,.
H 1)(d) and Section 29(1)(b) of FERA, 1973, out of funds
\
'
UNION OF INDIA v. ABN AMRO BANK 839
[K.S. RADHAKRISHNAN, J.]
·--· generated in violation of Section 29(1)(a) of the said Ad. A
and gold coins being also liable to confiscation under
Section 63 of FERA, 1973. The route adopted by them
was to protect themselves from action as is evident from
, FAX dated 04.02.98 referred on page 66.
B
The SCN also proposed the confiscation. of blocked
amounts in bank accounts of Noticee No. 1 and fixed
deposits maintained with following banks:-

(1) ABN AMRO BANK : DLF Centre, Sansad Marg,
c
-- (2)
New Delhi.

HDFC BANK LTD; Greater Kailash, Part 11,.New
Delhi.

(3) BANK OF AMERICA: Barakhamba Road, New .
Delhi. D
1-
The evidence on record reveals that Noticee No. 1
collected amounts from various individuals known as
business partners in accordance with the contracts
executed with them for purchase of Maple Leaf gold coins E
in accordance with terms of such contracts. Since the
activity under the contracts has been held by me
illegitimate under the provisions of Section 29(1 )(a) and
29(1)(b) read with Section 49(i)(a) and Section 47(1) of
FERA, 1973, so I hold these amounts and fixed deposits F
liable to confiscation under Section 63 of FERA, 1973 as
their collection and usage was for financin.g activities which
were contrary to the said provisions of the FERA, 1973.
The SCN also proposes to confiscate 466 bank drafts
""·r seized under Panchnama dated 02.07.99. these drafts are G
given by the said business partners in terms of the said
contracts for aforesaid activity which has been held by me
in violation of the provisions of Section 29(1 )(a) and
29(1)(b) read with Section 47(1) and 49(i)(a) and·
therefore, for the same reasons, I hold these drafts also H
I

840 SUPREME COURT REPORTS [2013] 13 S.C.R.

------
A liable to confiscation under the provisions of Section 63
of the said Act.
Further, I also hold that all these Noticees, except No. 5,
--..
are liable to penalty under Section 50 of the FERA, 1973
for the reasons and observations recorded hereinabove.
B In view of the aforesaid, I pass order as under:-
"O R D E R
1. I order confiscation of 35 gold coins seized from the

c
business premises of Noticee No. 1 under
Panchnama dated 02.07.99 and 630 gold coins
seized from M/s. Group 4 Securities, Mahipalpur,
--
New Delhi, under Panchanama dated 03.07.99
under Section 63 of FERA, 1973, on the grounds
mentioned hereinabove.
D ~-
2. I also order confiscation of amounts blocked in
following accounts including the fixed deposits
along with the interest accrued thereon:-

SI. Name of the Ba.nks Account No. (A) Amount (Rs.)
E No. Fixed Deposits (B)
----------------------------------------------------------------~---------------

A. Bank of America, 261157(A) 3,88,089.22
Barakhamba Road 317177(A) 78,043.00
F New Delhi.

B. ABN Amro Bank 6362400(A) 6,19,17,244.88
DLF Centre 6362559(A) 41,89,460.66
Sansad Marg, 6414389(A) ,44,98,474.00
G
New Delhi 6372694 (A) 14, 73,340.00
312330040115(B) 77,10,103.80
~""""~
f
-
312330045196(B) 1,00,00,000.00
312330045729(B) 2,65,444.97
31233045778(B) 1,00,00,000.00

H C. HDFC Bank 0272000005409(A) 10,000.00
[ · UNION OF INDIA v. ABN AMRO BANK 841
[K.S. RADHAKRISHNAN, J.]
~ 3. I order confiscation of the sale proceeds of the 466 A
bank drafts/pay orders seized from the business
premises of Noticee No. 1 under Panchanama
dated 02.07.99 under Section 63 of FERA.
However, for 3 drafts/pay orders bearing no.
"'
~ 326191, 326192 and 326193, the order is subject B
• to the outcome of Writ Petition pending before the
Hon'ble High Court of DeJhi in repaired to these.
t-- 4. I also order confiscation of following amounts lying

- NAME
in the following accounts of Noticee No. 3 and 6 with
ABN Amro Bank, New Delhi:-

ACCOUNT NO. AMOUNTS IN RS.
c

Cliff Roy 000006368697 1,99,666.13
-).. D
Pau Singh 000006467689 60,104.32

Clare

Under Section 63 of the FERA, 1973 on the
grounds referred hereinabove. E
5. I impose penalty of Rs.15,00,000/- (Rs. Fifteen
lakhs only) on M/s. Maple Leaf International Pvt.
Ltd., Greater Kailash, Part-II, New Delhi, under
Section 50 of FERA, 1973 for the reasons
mentioned hereinabove. F

6. I also impose penalty of RS.5,00,000 (Rs. Five
lakhs only) on M/s. Picadily Invest AG, Switzerland
.... y under Section 50 of FERA, 1973 for the reasons
mentioned hereinabove. G
7. I also impose personal penalty on Noticees No. 2,
3 and 6 under Section 50 of FERA, 1973, as per
details below:

H
842 SUPREME COURT REPORTS [2013) 13 S.C.R.

A SL.NO. NAME AMOUNT (IN RS.)

1. Cliff Roy 10,00,000/- ,_
(Rs. Ten lakh only)

2. Lambert Kroger 10,00,000/-
B (Rs. Ten lakh only)

3. Paul Singh Clare 5,00,000/-
(Rs. Five lakh only)

I also direct Mr. Cliff Roy and Mr. Paul Singh Clare to bring
c ._
back to India the foreign exchange indicated below which . !-
was remitted from their personal bank accounts with notice
No. 7 under Section 63 of the FERA, 1973 as these
amounts were earned by them on account of the activities
undertaken by them in violation of the abovesaid provisions
D of FERA, 1973:-

NAME AMOUNT REMITED (IN RS.)

Cliff Roy 8,84,449.00
E
Paul Singh Clare 18,85,000.00

8. I also impose personal penalty of Rs.1,00,000 (Rs.
One Lakh only) on ABN Amro Bank, Sansad Marg,
New Delhi under Section 50 of FERA, 1973 on the
F grounds mentioned hereinabove.

9. In view of my observations hereinabove, I drop the
charges alleged against Mr. Paul Abraham,
Noticee no. 5.
G The Penalty imposed should be deposited in the office of
Deputy Director, Enforcement Directorate, Hqrs. Office, 6111
Floor, Lok Nayak Bhawan, Khan Market, New Delhi- 110
003, in the form of Demand Draft to be drawn in favour of
the Pay & Accountants Officer, Department of Revenue,
H New Delhi, within 45 days of the receipt of order.
UNION OF INDIA v. ABN AMRO BANK 843
[K.S. RADHAKRISHNAN, J.]
-~
SEALED SIGNED AT NEW DELHI ON THIS 22N° DAY A
OF SEPTEMBER TWO THOUSAND."

ARGUMENTS

13. Shri P.P. Malhotra, Additional Solicitor General of India,
submitted that the High Court has committed an error in B
rejecting the appeal filed by the Union of India holding that no
questions of law arose for its consideration and that there was
.... no illegality in the order passed by the Tribunal. Shri Malhotra
also submitted that the High Court h.as not properly appreciated

- or understood the scope of Sections 19(1)(a) and (d), 29(1)(a)
and (b) of FERA. Shri Malhotra also submitted that no
permission was either granted or sought for by Lambert Kroger
or Cliff Roy - 4th respondent under Section 29(1 )(a) of FERA
c

for establishing, carrying on or opening any branch in India from
RBI. Adjudicating authority, it was pointed out, clearly found on D
facts that the 4th respondent and the above mentioned persons
who are foreign nationals had established a place of business
in India in the name of Maple and for reaching that conclusion,
the Adjudicating Officer has rightly lifted the corporate veil and
examined as to who were all in fact controlling the Maple. E
14. Mr. Malhotra submitted that the High Court has also
,not examined the scope of Section 29(1 )(b) of the Act read with
notifications dated 13.1.1998 and 20.1.1998 issued by the RBI.
Learned counsel submitted that from the reading of the above
mentioned notifications, it is clear that any company whose F
activities fell within the ambit of the notification dated 13.1.1998
and which claims the benefit of the notification, was required
to submit a declaration in Form FC(RBI). Learned Additional
.... Solicitor General also referred to the statement on the Industrial
·y G
Policy, 1991 with reference to paragraph 39(B) dealing with
Foreign Investment and also to the Press Note no. 11 dated
20.8.1991 dealing with changes in procedures for foreign
investment approvals and also to paras 3(A), 4, 6 etc ..
Reference was also made to the Press Notes dated 13.12.1991
and also 31.12.1991 and stated that, according to the Press H
844 SUPREME COURT REPORTS [2013) 13 S.C.R.

A Notes, there is no concept of automatic approval for the
companies engaged primarily in trading and such companies
fulfilling certain conditions have to apply to the RBI for
permission. Referring to the judgment of this Court in Hindustan
Lever (Infra), it was submitted that this Court had no occasion
B to consider the scope of various clauses of Section 29 and
hence the observation~ made in that judgment are only obiter.
Shri Malhotra also submitted that the grant of permission under
the automatic route is an "activity specific" and under the policy -~
only those trading companies primarily "engaged in exports",
C have been given the benefit of automatic route. On the other
hand, the respondent company, it was pointed out, has
indicated in the application that the company's activities are the
-
activities indicated in NIC Code 893.

15. Shri Malhotra also submitted that 1•1 respondent bank
D was not discharging its functions as an authorized dealer in gold
and ought to have ensured that 2nd respondent was a trading
company primarily engaged in exports and had the requisite
permission from RBI for the same. It was pointed out that the
Bank had acted contrary to the provisions of the notifications
E dated 13.1.1998 and 20.1.1998 and was also a party to the
fraudulent transaction and hence clearly violated the mandate
of the second proviso to Section 6(5) of FERA.

16. Shri Amit Sibal, learned counsel appearing for
F respondents 2 to 4, submitted that they had not violated the
provisions of Section 29(1 )(a) of FERA and that the 2nd
respondent is an Indian company consisting of Indian
shareholders as well as Directors. Learned counsel submitted
that an Indian company incorporated under the Indian
Companies Act, 1956, with foreign shareholding, does not
G need the permission from RBI to carry on business or establish
a place of business in India. Learned counsel also submitted
that merely because Picadily, a Swiss company, held 51 %
shares in the 2nd respondent company and initiated its
incorporation, does not lead to the conclusion that the Swiss
H
UNION OF INDIA v. ABN AMRO BANK 845
[K.S. RADHAKRISHNAN, J.]
~
company sought to circumvent Section 29(1 )(a) of FERA and A
indirsctly tiicd to establish a place of business in India. Learned
counsel referred to the Foreign Exchange Regulation
Amendment Act no. 29 of 1993 and submitted that the words
"or in which non-resident interest is more than 40%" were
omitted from Section 29(1) with effect from 8.1.1993, which B
would indicate the Legislative intention was to encourage
foreign initiative in investment in India and in Indian companies
without obtaining permission from RBI. In support of his
contention, reference was made to the judgment of this Court
in Hindustan Lever Employees Union v. Hindustan Lever Ltd., c
1995 Suppl (1) sec 499. Learned counsel submitted that
respondents 2 to 4 could not be said to have violated the
provisions of FERA merely because they sought to arrange the
affairs of Maple so as to not to fall foul of Section 29(1 )(a) so
. long as the.y did not violate any other law. Reliance was also
~ placed on the. judgment of this Court in Ghatge and Patil
D
Concerns' Employees' Union v. Ghatge and Patil (Transports)
Private Ltd. And another AIR 1968 SC 503 and Landon and
Country Commercial Investment Properties Ltd. v. Attorney-
General 1953 1 AER 436.
E
17. Learned counsel submitted that respondents 2 to 4
have not violated the provisions under Section 19(1 )(a) and (d),
· 29(1)(b) and Section 49(i) of FERA. Referring to the notification
no. 180/98, learned counsel submitted that the company had
issued 51% of its share to 4th respondent in accordance with F
the general permission granted vide second proviso to
paragraph 1 of the n'otification No. FERA 180/98. Learned
counsel also submitted that the notification itself has given
. y- general permission to "newly set up trading company primarily
engaged in export" and, therefore, no further permission was G
required by a company before issuing shares to a foreign
investor. Learned counsel submitted that 2"d respondent
squarely falls within the category of "primarily engaged in export"
and its business plan had all along been to export various
products made in India, attain export stock/trading/star trading
H
846 SUPREME COURT REPORTS [2013] 13 S.C.R.
..
A house and only then pay dividends to shareholders, including ~--
foreign investor. Reference was made to the various
documents in support of this contention. Learned counsel also
submitted that in any view the second proviso to the notification
FERA 180/98 does not require a newly set up trading company
B to be engaged in exports, at the time of issue of shares and
all that can be said is that the issuer cannot remit dividend to
the foreign investor until it has achieved the status of export
trading/star trading house.
18. Learned counsel referring to the judgment of this Court
c in Life Insurance ·corporation of India v. Escorts Ltd. And
Others (1986) 1 SCC 264 submitted that the primary policy or
purpose of FERA is to permit inflow of foreign exchange and
maintain a balance between inflow and outflow of foreign
exchange and such a balance would be lost if the stand of the
D appellant - Union of India - is accepted. Learned counsel,
...
therefore, submitted that, even if the company had not been ~
primarily engaged in exports, at the time its business was shut
... down by the Enforcement Directorate, it was still not in violation
of any provision of the Notification No. FERA 180198 since it
1
E had not remitted any dividends to the 4 h respondent. The
learned counsel, therefore, submitted that the company is
covered by the general permission granted under the automatic
route and that the respondents 2, 3 and 4 have not acted in
contravention of Section 19(1)(a) and (d), 29(1)(b) or 49(i)(a)
of FERA.
F
19. We vide our order dated 30.4.2013, directed RBI to
file an affidavit to explain as to how they understood the scope
of Sections 19 and 29( 1)(b) of the Act and also the notification
dated 13.1.1998 issued by RBI. RBI, in response to our
--r -
G direction, filed an affidavit to that effect on 7.7.2013. Shri
Jaideep Gupta, learned senior counsel appearing on behalf of
RBI, submitted that the RBI had come to know that the company
after obtaining the registration for carrying on activities under
NIC Code 893, had started trading in gold coins in the name
of Maple, an activity which was not permitted by RBI. Learned
H
UNION OF INDIA v. ABN AMRO BANK 847
[K.S. RADHAKRISHNAN, J.]
---r---1 senior counsel submitted that the company was misleading the A
'
public that it had got RBI permission to carry on the above
mentioned activity. Referring to Form FC (RBI), learned senior
counsel submitted that the company had specifically sought for
permission for foreign investment with regard to NIC Code 893
and with regard to the items mentioned in para IX(iii). The B
company stated that it was not applicable, therefore, it was not

,. seeking the automatic route, as a trading company primarily
engaged in export.

20. Shri V. Giri, learned senior counsel appearing for 1•1

- respondent, submitted that the Bank had imported the gold on
its own behalf and sold the same to the company and that the
bank was engaged in that activity as an authorized dealer, for
c

which it had obtained permission from RBI. Learned senior
counsel submitted that in order to attract Section 6(5) of FERA,
• D
;... 1973, it is necessary that an authorized de.iler must have
conducted a transaction in foreign exchange and it had only
imported gold and sold the same to the company incorporated
in India against Indian currency, consequently, there is no
violation of Section 6(5). Learned senior counsel submitted that
"reasonable satisfaction" contemplated under Section 6(5) E
does not impose an obligation on the authorized dealer to
require a person on whose behalf the authorized dealer is
)l entering into the said transaction to furnish information and
declarations to satisfy itself that the transaction will not
contravene the provisions of FERA. Further, in the instant case, F
it was pointed out that the Bank did not enter into any
transaction "on behalf" of the company and therefore the
Tribunal and the High Court have rightly found that the Bank had
not committed any illegality in selling the gold coins to the
-
' r company.
G
INDUSTRIAL POLICY 1991

Foreign Investment Initiative

21. The Government of India had decided to take up H
848 SUPREME COURT REPORTS [2013] 13 S.C.R.

A series of initiatives in respect of policies relating to the areas
of Industrial Licencing, Foreign Investment, Foreign Technology
Agreements, Public Sector Policy, MRTP etc. in the Industrial
Policy of July 24, 1991. For achieving social and economic
justice to end poverty and unemployment and to build a
8 modern, democratic, socialist, prosperous forward looking
India, it was felt necessary that India should also grow as part
of the world economy and not in isolation. Paragraph 24 of that
policy stated that the Government would welcome foreign -'°'l
investment in high priority industries requiring large investments
C and advance technology for which approval for direct foreign
investment upto 51% foreign equity was permitted. Paragraph '-
26 of that policy noted that promotion of exports of Indian
products called for a systematic explorations of world markets
through intensive and highly professional marketing activities,
for which it was found necessary that the Government would "
D encourage foreign trading companies to assist us in export ""'°' '
activities. Paragraph 398 of that Policy dealt with "Foreign
Investment", the portions which are relevant for the purpose are
given below:

E "398. Foreign Investment

(i) Approval will be given for direct foreign investment
upto 51% foreign equity in high prioritv industries
(Annex Ill). There shall be no bottlenecks of any kind
in this process. Such clearance will be available, if
F
foreign equity covers the foreign exchange
requirement for imported capital goods.
Consequential amendments to the Foreign
Exchange Regulation Act (1973) shall be carried
out. -r· .
G
(ii) While the import of components, raw materials and
intermediate goods, and payment of knowhow fees
and royalties will be governed by the general policy
applicable to other domestic units, the payment of
H
UNION OF INDIA v. ABN AMRO BANK 849
[K.S. RADHAKRISHNAN, J.]
\" dividends would be monitored through the Reserve A
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 B
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.
c
(iv) To provide access to international markets, majority
foreign equity holding upto 51% equity will be
allowed for trading com1;1anies Qrimarill'. engaged
in export activities. While the thrust would be on
. .,.._ export activities, such trading houses shall be at par D
with domestic trading and export houses in
accordance with Import-Export Policy.

(v) A Special Empowered Board would be constituted
to negotiate with a number of large international
E
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
F
·' considered in totality, free from pre-determined
parameters or procedures."

22. Policy referred above would show that it was focusing
,..- on foreign equity on high priority industries as per para 39B(i)
and for other foreign equity proposals including proposals G
involving 51 % foreign equity as per para 39B(iii), prior
clearance from FIPB was required to be obtained as in the
past. In other words, there was no change in the industrial policy
for other items except for the items covered under para 39B(i).
H
850 SUPREME COURT REPORTS [2013) 13 S.C.R.

y'
A 23. Press Note No.11 dated 20.08.1991 dealt with some
changes in the Procedures for Foreign Investment Approvals.
Paragraph 3 of the Press Note dealt with approvals for foreign
investments upto 51% foreign equity in high priority industries
(Annexure Ill - List of Industries for Automatic Approval
•
B Technology Agreement and for 51% Foreign Equity Approvals).
Press Note stated that applications for approval under
provisions in para 39B(i) and 39B(ii) of the Statement on
Industrial Policy would be filed with the RBI. Para 3(A) of the
Press Note is of some relevance, hence noted below:
c "Procedures for Approvals

Applications for approval under the provisions in paras
39B(i) and 39B(ii) of the Statement on Industrial Policy will
be filed with Reserve Bank of India. The application shall
.D state clearly the description of the article to be ~-
manufactured in ITC (HS classification). The proposal shall
be a composite one including detailed information on the
capital goods to be imported for the project. Under the
provisions of the policy the proposed foreign equity must
E cover the import of capital goods required for the project.

The Reserve Bank of India will issue the necessary
permission for the foreign equity investment under the
-~
Foreign Exchange Regulation Act, 1973 (FER('.). This
permission will include exemption from the opeEation of ,,
F Sections 26(7), 28, 29 and 31 of FERA. Simultaneously
the Reserve Bank of India will confirm that the import of
capital goods is covered by the foreign equity. Based on
this confirmation the Chief Controller of Imports & Exports
shall issue the relevant import licence for capital goods ·---r
G imports.

Under the procedure outlined above the plant and
machinery proposed to be imported must be new and not
second hand. There will be no indigenous clearance of
H these capital goods."
UNION OF INDIA v. ABN AMRO BANK 851
[K.S. RADHAKRISHNAN, J.]
24. RBI was, therefore, permitted to issue necessary A
permission for equity investment under FERA and that
permission would include exemption from the operation of
Sections 26(7), 28, 29 and 31 of FERA, 1973.

Trading Companies primarily engaged in Export
B
25. Paragraph 4 of the above mentioned Press Note dealt
with 'Foreign lnvestmentin Trading Companies' which provided
t-· that foreign investment in trading companies upto 51 %,
primarily engaged in export activities, were required to file
applications with the RBI in the prescribed form. Para 6 of C
Press Note dealt with Other Foreign Investment Proposals,
those paragraphs are relevant for the purpose, hence given
below:

"4. FOREIGN INVESTMENT IN TRADING D
COMPANIES

Under the provisions of para 39B(iv) foreign equity holdings
upto 51 % equity will be allowed in trading companies
primarily engaged in export activities. Applications for
foreign investment under this clause will be filed with the E

-
Reserve Bank of India in the form to be prescribed by the
RBI. Such trading houses shall be at par with the domestic
trading and export houses and shall operate in accordance
with the Import Export Policy.
F
6. OTHER FOREIGN INVESTMENT PROPOSALS

All other foreign investment proposals will be subject to the
existing procedures. Applications will be made to the
Secretariat of industrial Approvals in the Department of
Industrial Development in the prescribed form. These G
proposals will be considered according to usual
procedures. This will include proposals involving 51 %
foreign equity which do not meet any or all of the criteria
under paras 39 B(i) and (ii) of the Policy. Proposals of
foreign investment; foreign technology agreements not H
852 SUPREME COURT REPORTS [2013] 13 S.C.R.

A covered by the automatic facility, and import of capital ~
goods may, if desired, continue to be made on a
composite basis."

26. Above mentioned paragraphs of Press Note indicate
that the trading companies covered under 39B(iv) were required
B to make an application for foreign investment to the RBI in the
prescribed form meaning thereby even after the Press Note,
filing of applications with RBI for trading houses primarily
engaged in export was essential even for 51% foreign equity. -~

c 27. In this connection, it is useful to refer to para 9 of the
Press Note No.17 dated 19.11.1991 dealing with procedure
for increase in foreign equity up to 51% in existing companies
as well as to para 10 and 13. On reading of those paragraphs,
it is clear that all other foreign proposals for raising of foreign
D equity levels in existing companies would be subject to usual
procedures and applications and would be made to the
Secretariat of Industrial Approvals in the Department for
Industrial Development in the prescribed form which would
. include proposal involving increase in foreign equity upto 51%
E which did not meet any or all the criteria outlined above.
28. Government of India also issued a Press Note No. 20
dated 13.12.1991 revising the form for Foreign Investment I
Technology Investments. Para 3 of the Note refers to FC(RBI) ~
with reference to permission under para 39B(i), 39B(iv), 39C(i)
F and 39C(ii). ,,,
29. Press Note No. 23 dated 31.12.1991 dealing with the
procedure for foreign investment in trading companies is also ,.
of considerable relevance and the same is given below for easy
G reference: ·-r ~

Procedure for Foreign Investment in Trading Companies

"1. Government tabled a Statement on Industrial Policy in
both the Houses of Parliament on July 24, 1991. The
H Statement has substantially liberalised the provisions and
'•
I--

/,

854 SUPREME COURT REPORTS [2013] 13 S.C.R.
;;,;

A (a) Such a company will register itself with the Ministry
.,.......--
of Commerce (Office of CCl&E) as a registered
exporter/importer.

(b) The repatriation of dividend will be permissible only
..,.
I-
B after the company has registered itself with the
Ministry of Commerce (office of CCl&E) as an
Export House/Trading House/Star Trading House
under the provisions of the prevailing Import Export
Policy. --';
c (ii) Existing Companies .......

In the case of existing companies already
registered as Export Trading/Star Trading House,
the Reserve Bank will give automatic approval on
D an application for foreign investment upto 51%
~·
foreign equity. The approval will be subject to the
following requirements:

(a) On receipt of RBI approval the company must pass
a special resolution under Section 81 (1A) of the
E
Companies Act proposing preferential allocation of
the required volume of fresh equity to the foreign
investor.
~ ~
(b) The CCI will allow preferential allocation of equity
F in favour of the foreign investor on the basis of the
RBI approval for expansion of foreign equity and the
adoption of the special resolution by the company.
For such cases, the price of new equity will be fixed
by the CCI on the basis of market prices, computed
G on the basis of the average price for the six months ---r ~

period preceding the date on which the application
is received in the CCI, with a discount of upto 10% .....
if requested by the shareholders resolution. The
market price will take into account any bonus issue ,...
H which rnay·have been declared in this period and
UNION OF INDIA v. ABN AMRO BANK 855
(K.S. RADHAKRISHNAN, J.]
~ adjust for the same. For companies undertaking A
such equity expansion disinvestment, if it occurs in
future will also be at market price computed on the
same basis.

6. Application Procedure B
Applications for approval under the provisions of
para 5 above will be filed with the Reserve Bank
-t of India in the prescribed form. The Reserve Bank
of India will issue the necessary permission for the
-·' foreign equity investment under the Foreign c
Exchange Regulation Act, 1973(FERA). Inter alia,
this permission will include exemption from the
operation of sections 26(7), 28, 29 and 31 of
FERA.
D
1-.. 7. Dividend Balancing:

The outflow of foreign exchange on account of
dividend payments are to be balanced by export
earning over a period of time in respect ;of all
E
approvals given under the provisions outlined in
para 5 above. Monitoring will be done by the
Reserve Bank of India. The balancing will be done
> on the following basis:

(i) The balancing of dividend would be over a period F
of 7 years reckoned from the date of recognition as
Export House/Trading House/Star Trading House
for new companies, and from the date of allotment
of the shares raising the level of foreign equity to
.,
"
-,.- the approved level in the case of existing G
companies.

(ii) The amount of dividend payment should be covered
by export earnings recorded in years prior to the
payment of dividend in years prior to the payment
H
856 SUPREME COURT REPORTS [2013] 13 S.C.R.

A of dividend or in the year of payment of dividend.

The Reserve Bank of India will issue appropriate
instruetions to give effectto these provisions."

30. Press Note mentioned above has, therefore, dealt with
B para 39B(iv) and stated that majority of foreign equity holding
upto 51 % equity would be allowed for trading companies
primarily engaged in export activities while the thrust would be
on export activities. Such trading houses, itwas also stated,
should be at par with domestic trading and export houses in
C accordance with the Import-Export Policy.

31. Press Note also indicated that no general permission
for investment under automatip route would be given and, on
the other hand, an application for permission will have to be
0 filed before the RBI" as per para 6 which takes in both new and
existing companies. Clause 6, therefore, clearly indicates that
the application for approval by RBI is mandatory for the new
as well as existing companies. Therefore, if a new trading
company indulging in export primarily also will have to make
E an application to the RBI for automatic approval for foreign
investment upto 51% foreign equity and the t~rust would be on
export activities. Registration of the company as an exporter l
importer withthe Ministry of Commerce and registration of an
export house is also a pre-requisite. In other words, according
to the Notification then in .existence and the Press Note upto
F 31.12.1991, the companies engaged primarily in trading
activities whether new or existing will have to fulfill certain
conditions by applying to the RBI for permission for foreign
investment up to 51%.

G 32. We may now examine the scope of the Notification No.
FERA 180/98 dated 13.01.1998 (as amended upto
14.07.1998) and Notification dated 20.01.1998 in the above-
mentioned factual background.

33. Notifications referred above have laid down certain
H

•
UNION OF INDIA v, ABN AMRO BANK 857
[K.S. RADHAKRISHNAN, J.]
conditions and parameters to be complied with by the A
companies registered in India for automatic approval and those
notifications have to be read .along with Section 19(1)(a) and
(d), Section 29(1) (b) of FERA, the Industrial Policy and the
Press Notes. Before examining the scope of Sections 19(1 )(a),
19(1)(b) and Section 29(1)(b), let us examine the arguments B
advanced by the Union of.India as to whether respondent Nos.
2 to 4 had violated Section 29(1 )(a) of the Act. It was contended
that Maple was in reality a foreign company set up by 4th
respondent, Lambert Kroger as well as Cliff Roy in violation of
Section 29(1 )(a). Admittedly, neither permission was sought for c
nor any .permission had been granted by the RBI with regard
to Section 29(1)(a) of the FERA. But arguments were
addressed by the learned counsel on either side with regard
to the scope of the above mentioned provisions and also on
the principle of lifting the corporate veiL
D
34. Mr. Amit Sibal, as already indicated, submitted thatby
the Foreign Exchange Regulation Amendment Act 29.of 1993
the bar to having more than 40% shares in an Indian Company
by a non-resident has been removed with a view to. invite
foreign persons to invest in India and I or Indian Companies E
and allow them to do business in India and to deal with assets
in India with greater freedom and therefore by virtue of the
amendment, Indian company in which non-resident interest is
more than 40% can carry on business in India without any
permission from .RBI. Learned counsel also laid considerable F
stress on paragraphs 74 to 76 of the judgment of this Court in
Hindustan Lever (supra).

35. Shri .P.P. Malhotra, on the other hand, submitted that
section 29(1 )(a) puts an injunction on the 'foreign companies G
and foreign nationals from establishin~ or carrying on any
business in India or opening any branch in India without
obtaining the permission ofthe RBI. Learned senior counsel
also submitted that by virtue of the amendment restrictions were.
removed only with regard to FERA companies, however, with : H
858 SUPREME COURT REPORTS [2013] 13 S.C.R.

A regard to the foreigners and foreign companies restrictions
f
remained to exist even after the amendment made in the year
1993 and they also required prior approval of the RBI for the
purpose of establishing place of business in India.

36. We may examine whether the judgment in Hindustan
B
Lever concludes the issue as to the interpretation of Section
29(1)(a) of the Act and also the question whether a company
in which non-resident interest is more than 40% can carry on
business without permission from the RBI. For easy reference, -+
we may extract the above-mentioned paragraphs of that .._
c judgment which are as follows:

"74. Under Section 29 of the Foreign Exchange Regulation
Act (as it stood originally), a person resident outside India
or a company (other than banking company) which was
D not incorporated in India or in which the non-resident ~
.-
interest was more than 40%, could not carry on business
in India or establish in India a branch office or other place
of business. Nor could such a person or company acquire
the whole or any part of any undertaking in India of any
E company carrying on any trade, commerce, or industry or
purchase the shares in India of any such company. The
object of Section 29, inter alia, was to ensure that a
company (other than banking company) in which the non
resident interest was more than 40% must reduce it to a
F level not exceeding 40%. (Needle Industries (India) Ltd. v.
Needle Industries Newey (India) Holding Ltd.) But, now this
restriction of 40% has been removed by an amendment

G
by Act 29 of 1993. A company in which non-resident
interest is more than 40% can carry on business without
having to obtain permission from the Reserve Bank of
India. The underlying idea of this liberalisation is clear.
-""( .. ~

Non-resident persons were being invited to invest in India
and I or in Indian companies. If any non-resident invests
in an India company, it is ~ut natural that dividends payable
by an Indian company will be enjoyed by the non-resident.
H
UNION OF INDIA v. ABN AMRO BANK 859
[K.S. RADHAKRISHNAN, J.]
.l A
! All other rights that a shareholder enjoys by virtue of the
shareholding will be enjoyed by the non-resident. Merely
because a foreign shareholder acquires 51 % shares in an
Indian company, it cannot be said that this is against public
interest of public policy.
B
76. In view of all these, it is difficult for us to uphold the
contention that the Scheme of Amalgamation is against
t public interest. .Merely because 51 % of the shares of HLL
are being given to a foreign company, the Scheme cannot
be said to be against public interest. The foreign Exchange
r'
Regulation Act has been amended specifically to
c
encourage foreign participation in business in India. The
bar to having more than 40% shares in an Indian company
by a non resident has been lifted. The Amending Act 29
-j. of 1973 is not under challenge. In order to give greater
D
freedom to the companies for doing business in India, the
MRTP Act has been amended. Prior approval of
Government of India is not necessary for amalgamation of
companies any more. In fact, it is in public interest that
TOMCO with its 60,000 shareholders and also a very large
workforce does not deteriorate into a sick company." E

37. Above mentioned paragraphs cannot be read out of
~ context. Hindustan Lever was a case dealing with disputes
between the employees of Hindustan Lever and the company.
The question was with regard to the amalgamation of two F
companies namely Hindustan Lever Ltd. and Tata Oil Mills
Company Ltd. giving specific reference to the scheme of
amalgamation of a company with a subsidiary of a multiple level
y company. Observation referred to in paragraphs 74 and 76
have to be seen in that context and this Court has not ruled that G
no permission whatsoever is required from RBI by an Indian
Company where non-resident interest is more than 40%. The
language used in Section 29(1)(a) in our view is unambiguous
and plain and calls for no interpretation or explanation. Section
29(1 )(a) puts a specific bar on the foreign companies and
H
860 SUPREME COURT REPORTS [2013] 13 S.C.R.

A foreign nationals mentioned in Section 29(1) from establishing ,--·.
or carrying on any business in India or opening any branch in
India without obtaining permission of the RBI. Heading of
•
Section can be regarded as a key to the interpretation of the
operative portion of the Section and if there is no ambiguity in
B the language or if it is plain and clear, then the heading used
in the section strengthen that meaning. Heading of Section 29
indicates restrictions and the expression "shall not" "except with"
general or special permission of the Reserve Bank make the
requirements mandatory and the negative words used by the
c legislature shows its intention that if any act is done in breach
thereof will be illegal. Reading the Press Note referred to
earlier and the Cabinet Note for the amendment under Section
29, apart from the fact that the language used in Section
· 29(1 )(a) is unambiguous clearly indicates that restrictions have
only been liberalized, instead of 40% of the limit, it was
0
increased to 51 % and 74% subject to fulfilment of certain
conditions as set out in the industrial policy and the various
Press Notes. Restrictions imposed under Section 29(1 )(a) is
not applicable to an. Indian company to establish a place of
E. business in India but, on the other hand, restriction has been
statutory fixed in respect of foreign company which wants to
establish· a place of business in India. Section 29(1 )(a) deals
with following categories of foreign entities:

(i) A person resident outside India; whether a citizen
F of India or not.

(ii) A· person who is not a citizen of India but is a
resident of India or

(iii) A company, (other than a banking company) which
G is not incorporated under any law enforced in India
or

(iv) Any branch of such company.

38. Restrictions have therefore been .cast on the above
H
UNION OF INDIA v. ABN AMRO BANK 861
[K.S. RADHAKRISHNAN, J.]
-r,
mentioned entities and they cannot establish a place of A
business in Indict ~xcept with the general or special permission
of the RBI. Subsection (b) of Section 29(1) also puts further
restrictions on foreign citizens and foreign companies from
acquiring the whole or any part of undertaking in India of any
person or company, trade or industry or purchase of shares in B
India ofanysuch company except with the general or special
permissionof RBI. Even after the amendment under Section
t- 29, the restrictions continued to apply post amendment to
foreign companies and foreign nationals as set out in Section
29(1 )(a). c
39. We, therefore, find no error in the views expressed by
the adjudicating authority on the interpretation of Section
29(1)(a) and the observation made in Hindustan Lever is of
., no assistance to the company and made on different facts/
D
~ situations and not to be understood in the way that company
sought to interpret.

Lifting of Corporate Veil

40. Shri P.P.. Malhotra submitted that the adjudicating E
authority was justifiep in reaching the conclusion that Noticees
No. 2, 3 and 4 i.e. Lambert Kroger, Cliff Roy and Picadly Invest
)(.· AG had established a place of business in India in the name
and style of Maple Leaf to carry on b\,lsiness activities in. India
and they fell within the ambit of Section 29(1 )(a) for which they
F
required general or special permission from the RBI. Reference
was made to the various correspondence and statements
exchanged between the parties which according to the learned
senior counsel would indicate that they had established the
~y
place for busiri.ess in India without obtaining permission from
the RBI. Shri Malhotra also submitted that the second G
respondent company is virtually a foreign company and a clock
of foreigners Cliff Roy, Lambart Kroger and 4th respondent arid
through the Maple Leaf Trading International Pvt. Ltd., they have
in fact established a company in India by adopting .a dubious
route knowing fully well that this route was not permissible by H
862 SUPREME COURT REPORTS [2013] 13 S.C.R.

A the law of this country and hence the adjudicating authority was
justified in lifting the corporate veil so as to examine whether
they had indulged in any dubious methods so as to overcome
statutory provision i.e. Section 29(1)(a) of the Act. In support
of his contention, reference was made to the judgments of this
B court in New Horizons Limited and Anr. v. Union of India (UOI)
and Ors. 1995(1) SCC 478, Delhi Development Authority v.
Skiper Construction Company (P) Ltd. and another 1996(4)
SCC 622 and Vodafone International Ho/1.1ings 8 . V . vs . -+
Union of India ( UOI) and Anr .2012 (6) SCC 613.
c 41. Shri Amit Sibal, learned counsel appearing for the
respondents on the other hand contended that Indian courts had
consistently held that when interpreting a statute, courts would
lift the corporate veil more restrictively and that too only if the
statute explicitly requires or the purpose of statute necessitates
0 it. Learned counsel also submitted that FERA used to lift the
veil under Section 29(1 )(a) before the amendment but was not
expected to do so after the amendment especially in the light
of the judgment in Hindustan Lever. Learned counsel also
pointed out that lifting the corporate veil in order to apply Section
E 29(1 )(a) to an Indian company militates against the purpose of
the amendment of Section 29(1 )(a). Reference was also made
to the judgments of this Court in Life Insurance Corporation of
India v. Escorts Ltd. And Others (1986) 1 SCC 264, Union of
India v. Azadi Bachao Ando/an (2004) 10 SCC 1 and also to
F the judgment of the English Court in Re. H. PC. Produce Ltd.
(1962) 1 All ER 37.

42. We are of the view that in a given situation the
authorities functioning under FERA find that there are attempts
G to over-reach the provision of Section 29(1 )(a), the authority can
always lift the veil and examine whether the parties have
entered into any fraudulent, sham, circuitous or a devise so as
to overcome statutory provisions like Section 29(1 )(a). It is trite
law that any approval/permission obtained by non-disclosure
H of all necessary information or making a false representation
UNION OF INDIA v. ABN AMRO BANK 863
[K.S. RADHAKRISHNAN, J.]
--r tantamount to approval/permission obtained by practicing fraud A
and hence a nullity. Reference may be made to the judgment
of this Court in Union of India and Others v. Ramesh Gandhi
(2012) 1 sec 476. ·

43. Even in Escorts case (supra), this court has taken the
view that it is neither necessary nor desirable to enumerate the B
classes of cases.where lifting the veil is permissible, since that
must necessarily depends on the relevant statutory or other
t provisions, the object sought to be achieved, the impugned
conduct, the involvement of the element of the public interest,
the effect on parties who may be affected etc. In Escorts case c
(supra), this Court held as follows:

"Generally and broadly speaking, we may say that the
corporate veil may be lifted where a statute itself
contemplates lifting the veil or fraud or improper conduct
~ D
is intended to be prevented or a taxing statute or a
beneficent state is sought to be evaded or where
associated companies are inextricably connected as to
be, in reality, part of one concern."

44. In Vodafone judgment (supra), this court has taken the E
view that once the transaction is shown to be fraudulent, sham
circuitous or a device designed to defeat the interests of the
)t shareholders, investors, parties to the contract and also for tax
evasion, the court can always lift the corporate veil and examine
the substance of the transaction. This court further held lifting F
the corporate veil doctrine can be applied in tax matters even
in the absence of any statutory authorization to that effect. FERA
Amendment Act 29 of 1993 has no effect on the principle of
lifting the corporate veil and the question as to whether it was
er- established so as to circumvent the provision of Section G
29(1)(a) can always be examined.

45. Learned counsel appearing for respondent Nos. 2 to
4 also contended that even if the corporate veil is lifted, it would
only reveal that 51 % of Maple Leaf issued share capital, is only
H
864 SUPREME COURT REPORTS [2013) 13 S.C.R.

A held by the foreign company, Picadily and such a share holding
will not render Maple Leaf a branch; office or place of business
of a foreign company within the meaning of Section 29(1 )(a).
We find it unnecessary to express any opinion on the alternative
argument raised by the learned counsel, since the High Court
has rejected the appeals mainly on the ground that no question
B
.
of law arose for its consideration .

46. The main allegation against the company Maple Leaf
was that it had violated the provisions of Section 19(1 )(a) and
(d) and Section 29(1 )(b) read with Sections 9(1 )(e), 49 and
c 68(1) and (2) of FERA leading to penal consequences.

47. We will now examine whether the second respon~ent
company has .obtained general permission under Section
29(1 )(b) through the automatic route as per Notification dated
D 13.01.1998 read with Press Notes dated 20.08.1991 and ~
31.12.1991. For answering the above question, it is necessary
to examine the scope of Section 19(1)(a) and (d), Section
29(1)(b) of FERA along with Notification dated 13.01.1998 and
the various Press Notes referred to earlier. For easy referenc~.
those provisions are given below:- ·
E
"Section 19~ Regulation of export and transfer of
securities
·W.
19. (1) Notwithstanding anything contained in section 81
of the Companies Act, 1956, no person shall, except with
F
the general or special permission of the Reserve Bank,
a. take or send any security to any place outside India;
d. issue, whether in India or elsewhere, any security which
· is registered or to be registered in India, to a person
G ·resident outside India;"
. . ~ . . .
Restrictions on establishment of place of business
in India

29. (1) Without prejudice to the provisions of section 28
H
UNION OF INDIA v. ABN AMRO BANK 865
[K.S. RADHAKRISHNAN, J.]
and section 47 and notwithstanding anything contained in A
any other provisions of this Act or the provisions of the
Companies Act, 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 in India or a company (other
than a banking company) which is not incorporated under B
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)---
c
(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.
D
48. Section 19(1)(a) was intended to regulate export and
transfer of securities. Section 19 states that no person shall
except with the general or special permission of the Reserve
Bank take or send any security to any place outside India or to
issue whether in India or elsewhere any security which is
E
registered or to be registered in India to a person resident
outside India. Section 19 while intending to regulate export arid
transfer of securities, Section 29 placed restrictions on
establishment of place of business in India: It is in pursuance
of clause (a) and clause (d) of sub-section (1) of Section 19
read with clause (b) of sub-section (1) of Section 29 of FERA F
Notification No. 180/98 dated 13.01.1998 was issued by the
RBI.

49. Much of the arguments on either side related to. the
question as to whether the company has obtained any general G
permission under Section 29(1 )(b) read with Notification dated
13.01.1998 and if so in what activity? With regard to the
question whether the company was a trading company and also
whether it was primarily engaged in export for availing of the
H
866 SUPREME COURT REPORTS (2013] 13 S.C.R.

A automatic route, the Union of India's stand was that the
company did not obtain any general permission from the RBI
vide Notification NO. FERA 180/98 dated 13.01.1998 and that
no declaration stating that the company was a trading company
or was primarily engaged in exports was indicated in the above
B mentioned statutory form, assuming, it was a new trading
company. Further, it was also stated that there was neither an
application for approval nor any form FC[RBI] filled up or filed
with RBI by the company for approval for undertaking trading
activities for export, a condition precedent for automatic
c approval for any business specified in the Notification dated
13.01.1998 for an existing and new company. Consequently,
the company was not entitled to get the benefit of a trading
company primarily engaged in export either new or existing. On
the other hand, the company has specifically referred to NIC
code 893 which stipulated business and management ...
0
consultancy, and that the company has not obtained the benefit ~·
of automatic route in trading in gold coins in the domestic
market.

50. Learned counsel for respondent Nos. 2 to 4 submitted
E that RBI vide notification No. FERA 180/98 gave general
permission inter alia for a "newly set up trading company
primarily engaged in export" incorporated in India to issue 51 %
of its equity capital to a company incorporated abroad and that )I(
the second respondent company has issued 51 % of its shares
F to respondent No.4 in accordance with the said notification.
Further, it is also pointed out by the learned counsel that the
UOI has failed to consider the second proviso to the notification
which related to a third category companies namely newly setup
trading companies which might acquire export/trading house/
G star trading house status before they could remit dividends to
the foreign investors.

51. Learned counsel pointed out until January 1998, an
application for prior clearance from RBI was required for
issuance of shares by companies like the second respondent
H
UNION OF INDIA v. ABN AMRO BANK 867
[K.S. RADHAKRISHNAN, J.]
to the foreign investor and the above mentioned notification had A
further simplified the procedure by stating that prior clearance
was no longer required instead within thirty days of the issuance
of shares, the issuer was required to file certain documents
listed in para 3(viii) of the above mentioned notification.
B
52. Shri Sibal submitted that the company fell squarely
within the category of "newly setup trading company primarily
engaged in export" which fell within the purview of the general
t permission granted by RBI under the automatic route hence
there was no contravention under Sections 19(1 )(a) and (d),
29(1-)(b) or 49(i)(a) of FERA. c
53. Learned counsel also submitted that there was no
mistake or omission in Form FC [RBI] and submitted that the
notification only required companies that conduct activities
covered under Annexure Ill to fill in Form FC [RBI] which did D
not require trading companies to fill out Form FC [RBI].
Reference was also made to para 3(viii)(a) of the notification
and submitted which required the issuer company to file not
later than thirty days from the date of issue of one copy of form
FC [RBI] duly completed containing NIC code and description E
of activity in accordance with the said Annexure Ill. Learned
counsel further pointed out that the second respondent had
made reference to Notification code 893 since it also provided
)t business consultancy services for a fee to its customers who
wished to become partners in his business by promoting the
F
sale of gold coins. In short, contention of the counsel was that
the company fell within the notification N0.180/98 as it was a
newly trading company primarily engaged in export and the
permission was a general permission therefore respondents
•-t. 2 to 4 could not be held to have contraverted any provision of
the FERA in that respect in Form FC[RBI]. G

54. We have examined in detail the historical background
of the Industrial Policy dated July 24, 1991, Press Note No.11
dated 20.8.1991 dealing with the changes in procedures for
H
868 SUPREME COURT REPORTS (2013] 13 S.C.R.

A foreign investment approvals, Press Note No.23 dated y-
31.12.1991 dealing with the procedure for foreign investment
in trading companies and also Appendix Ill of Press Note No.10
dealing with Industries for 51 % foreign equity approvals, Press
Note No.14 dealing with the revised consolidated list for
B automatic approval for foreign equity upto 50% I 51% I 74%
etc. so as to understand the scope of Section 19(1). (d) and
Secticm 29(1)(b) read with Notification dated 13.1.1998 and
20.1.1998.

55. The Automatic Permission Route was found open by
C the Notifications dated 13.1.1998 and 20.1.1998 and those
notifications have laid down certain conditions and parameters
for automatic approval which were to be complied with by the
issuer company along with the filling of declaration in Form FC
(RBI]. Notification had given relaxation to the provisions of
D Section 19 and Section 29(i)(b) to invest not exceeding 51% ~-
to two categories namely all industries mentioned in Annexure
Ill to the Statement of Industrial Policy 1991 or to a trading
company primarily engaged in export and is registered as an
Export/Trading/Star Trading House with the Ministry of
E Commerce, Government of India. To claim the benefit of the
above-mentioned notifications, it was essential that a true
declaration in Form FC [RBI] was required to be filed and
benefit of the general permission through automatic route could
be obtained only for the activity specified in Form FC [RBI] and
F there was no automatic approval for any activity not specified
in the above-mentioned form. Reading Section 19(1)(a), (b) and
29(1 )(b) read with the notifications and the Press Notes show
that the intention of the Legislature was to permit company
incorporated in India which is engaged or proposing to engage
G in an activity specified in Annexure Ill or an Indian Company
which is a trading company, primarily engaged in export and
is registered as an export/trading/star trading house with the
Ministry of Commerce, Government of India to issue equity
shares, subject to the conditions mentioned in paragraph 3 of
H the Notification dated 13.1.1998. The first proviso to Notification
UNION OF INDIA v. ABN AMRO BANK 869
[K.S. RADHAKRISHNAN, J.]
states that a company existing on the date of the notification, A
which was not engaged in Annexure Ill activity would be eligible
to issue shares if it had embarked upon expansion programme,
predominantly in Annexure Ill activities, subject to the condition
that foreign equity raised by issue of equity shares to the foreign
investors was utilized for such expansion. The first proviso goes s
along with clause (a) of the Notification. The second proviso
states that in the case of a newly set-up "trading company",
primarily engaged in export, issue of shares shall be subject

- to the conditions that registration as an export/trading/star
trading house was obtained before the dividend is declared to
the foreign investors. These provisos go along with clause (b)
c
of the Notification. The Notification, it is clear.)Nas intended to
give relaxation to the provisions of Section 19(1 )(a), (b) and
29(b) of the Act to the investments not exceeding 51 % of the
aforesaid two categories, namely, (1) Industries in Annexure Ill
.. ~- 0
to the statement of Industrial Policy, 1991 or (2) a trading
company primarily engaged in export and was registered as
an export/trading/star trading house with the Ministry of
Commerce, Government of India. Companies which do not fulfill
the conditions of the Notification dated 13.01.1998 and
20.01.1998 and all other companies which do not fulfill the E
conditions mentioned in those Notifications are required to
obtain prior permission from FIBP for foreign equity investment.

56. We cannot read the notifications dated 13.01.1998 and
20.01.1998 in isolation, but have to be read along with Section F
19(1 )(a),(d), Section 29(1 )(b), the Industrial Policy of July 1991
especially para 39B(iv), Press Notes dated 20.08.1991,
13.12.1991, 31.12.1991 with specific reference to the trading
companies primarily engaged in export activities whether new
or existing. We have extensively dealt with the same in the G
earlier part of this judgment and hence not repeated. Para
39B(iv) of the Policy read with paras 5 and 6 of the Press Note
dated 31.12.1991 which indicate that a newly setup trading
company primarily engaged in the export will have to file
application in prescribed form for approval of foreign equity upto H

-
870 SUPREME COURT REPORTS [2013) 13 S.C.R.

A 51% equity. "
~
57. Newly set-up trading company primarily engaged in
export has therefore also to satisfy the conditions laid down in
clause (b) of paragraph 1 of the Notification dated 13.01.1998
and the contention that a trading company is primarily engaged
B
in export be determined only when it remits dividend cannot be
accepted. The expression "further'' used in the second proviso
makes it more explicit. "Further'' as means "additional" meaning ~·
thereby a newly set up trading company is not a third category
as such but it goes along with second category i.e. "a trading
c company primarily engaged in export". To get the benefit of the
general permission in the automatic route a trading company
should be primarily engaged in export, even if it is a newly set
up company, A newly set up company also could demonstrate
the sarne by specifying the same in Form FC[RBI] that it is a
D trading company, whether new or old, and is at least intended
to be engaged primarily in export. A reference to the Form FC
(RBI) duly submitted by the 2"d respondent is useful.
58. FC[RBI] form specifically directs the applicants to
E "carefully tick" the "appropriate" box. In the box dealing with the
application for approval for foreign investment not to exceed
51% for "service sector in Annexure Ill", the company has put a
tick mark which would indicate that it sought to avail of the ....
)(
automatic route for service sector only as indicated in Annexure
Ill. Noticeably no tick mark was put in the next box referring to
F
"not exceeding 51 % of the trading companies engaged in
~
exports. Para VII deals with the "existing activities" which the
2"d respondent indicated as "not applicable" and no
supplementary sheet was also attached explaining as to
whether it was a newly set up trading company proposing to ~
G engage in export activities. Para VIII referring to Item Code ITC
(HS) the company has indicated "893'', which as per the Code
deals with "Business and Management Consultancy Activities".
The company stated in the application as "Business
Management Consultancy for Trading, Marketing and Selling
~
H

-
UNION OF INOIA v. ABN AMRO BANK 871
[K.S. RADHAKRISHNAN, J.]
of Goods and Services". Even there.also, there is no indication A
whatsoever that the company was set up for trading, but only
indicated "consultancy for trading". Further Para IX (iii) called
for the description of the products for export trading wherein
the company has stated as "not applicable". Resultantly, it is
clear that the purpose for which the company had sought for . 8
foreign collaboration was not for trading in gold coins either for
export or domestic purpose, but for the activities mentioned in
the NIC Code 893.
59. We are of the view that the company cannot go back
from the information already furnished by it in the application, C
form which are declared as 'true and correct'. Based on that
application RBI vide its communication dated 29.6.1998
granted registration No.FC98NDR1005. Registration, in our
view, pertains only to NIC code '893'. No permission was
obtained by the second respondent company from the RBI for o
51% foreign equity induction, for trading, by way of export. RBI,
on the other hand, granted general permission only for dealing
with the activities mentioned in NIC Code 893 and not for any
trading activities leading to import or export.
60. The High Court, in our view, has committed an error E
in holding that no questions of law arose for its consideration
under Section 54 of FERA and has completely misread and
'-< misinterpreted the Industrial Polley, Press Notes and Section
19(1)(a) and (b), Section 29(1)(a) and (b) etc. and issues
raised in appeals, which are clearly questions of law which fell F
within the ambit of Section 56 of FERA and the High Court
committed a serious error in rejecting the same holding no
questions of law arose for its consideration.
ABN Amro Bank NV (Royal Bank of Scotland NV)
G

•
61. We will now examine whether the above Bank has
contravened Section 6(5) of FERA and misused the permission
granted to it by RBI for importing gold coins. Proceedings were
initiated against the company and others as per directions given
by RBI dated 8.6.1999 and it was noticed that the bank had H
872 SUPREME COURT REPORTS [2013] 13 S.C.R.

A also sold gold coins to the company without being reasonably
satisfied about the nature of the business of the company. The
adjudicating authority took the view that the Bank as an --
authorized dealer, should have ascertained whether the
company had got necessary permission from the RBI in dealing
B with the gold coins. The Bank, it is seen, had imported the gold
on its own behalf and sold the same to the company and if the
Bank was acting as an agent of the company, it would not have
sold the gold to the company, but would have charged the
commission for acting as an agent. No materials have been
C placed before us to show that the Bank was acting as an agent
of the company. On facts, the Tribunal as well as the High Court
took the view that the Bank had not misused the permission
granted by the RBI for importing gold coins. We do not find any
reason to interfere with those finding of facts.
o 62. In such circumstances, we find no error in the view
taken by the Tribunal as well as the High Court that the
proceedings initiated against the Bank that it had violated
Sections 6(4) and (5) of FERA was illegal. The appeal filed by
the Union of India, so far as the Bank is concerned, stands
E dismissed.
63. We notice trading in gold is not an activity covered
under Notification dated 13.01.1998 and 20.01.1998; perhaps
for that reason, fourth respondent also took some steps to
establish its 100% subsidiary in India and an application to that
F effect was filed on 24.08.1998 to FIPB by the company but it
was not pursued further, but sought to achieve the same as if
RBI had granted automatic permission which cannot be
sustained in the eye of law.
64. The appeals are accordingly allowed as above and the
G order of the tribunal, affirmed by the High Court, is set aside
and the Adjudicating Authority is free to proceed in accordance
with law.

Kalpana K. Tripathy Appeals allowed.
•