HIGH COURT OF BOMBAY

Prof. Krishnaraj Goswami

v.

Reserve Bank of India

DR. D.Y. CHANDRACHUD, J

AND SWATANTER KUMAR, CJ

WRIT PETITION NO. 45 OF 2007

August 23, 2007

Section 11, read with section 10(4) of the Foreign Exchange Management Act, 1999 - Reserve Bank’s Powers to issue directions to authorised person - Government of India took a policy decision and vide circular dated 22-12-2006, issued by Securities and Exchange Board of India, it decided to permit foreign investment subject to restrictions and classifications made in that Circular - After issuance of said circular - Reserve Bank of India issued impugned circular i.e. circular No.25 dated 22-12-2006 wherein it allowed foreign investment in infrastructure companies in security markets namely stock exchanges, depositories and clearing corporations - Petitioner challenged legality of said circular contending that same was unconstitutional, ultra vires, as no power was vested under sections 10(4) and 11(1) which empowered and authorized RBI to issue such circulars - It was further contended that stock exchange was not an infrastructure company but was a regulatory body and it could not be allowed to function for profit - Whether in terms of sections 10 and 11, RBI has power to issue directions to authorised persons and this power is wide enough to cover any kind of directions so far it provides for regulation of foreign exchange management - Held, yes - Whether, therefore, there could be no restriction in application of impugned circular to stock exchange (i.e. respondent No. 4) - Held, yes - Whether, consequently, instant petition was to be dismissed - Held, yes

Circular & Notification: A.P. (DIR Series) Circular No.25 dated 22-12-2006.

FACTS

The Government of India took a policy decision and vide circular dated 22-12-2006, issued by Securities and Exchange Board of India, it decided to permit foreign investment subject to the restrictions and classification made in that Circular. After issuance of said circular the Reserve Bank of India issued impugned circular, i.e., A.P. (DIR Series) Circular No. 25 dated 22-12-2006 by way of directions as contemplated under sections 10(1) and 11. The petitioner challenged the legality of the said circular contending that the same was unconstitutional, ultra vires, as no power was vested under section 10(4) and 11(1) which empowerd and authorised the RBI to issue such circulars. It was further contended that the Stock Exchange was not an infrastructure company but was a regulatory body and it could not be allowed to function for profit and that the impact of the impugned circular was putting restrictions on the trade activities of the general corporate sector which did not fall within the ambit and scope of the RBI.

HELD

The Reserve Bank of India had issued the impugned circular dated 22-12-2006 by way of directions as contemplated under sections 10(4) and 11(1). A bare reading of the provisions of sections 10(4) and 11(1) clearly shows that the Reserve Bank of India has the power to issue directions to the authorised persons and this power is wide enough to cover any kind of directions so far it provides for the regulation of the Foreign Exchange management. The contention of the petitioner that the Reserve Bank of India had no jurisdiction to issue such circulars could not be accepted. Section 10(4) clearly stipulates that an authorized person shall, as contemplated under section 10(1) in all his dealings is bound by the directions, general or special, issued by the Reserve Bank of India. Similarly, section 11(1) provides that the Reserve Bank of India may, for the purpose of securing compliance with the provisions of the Act and of any rules, regulations and directions made under the provisions of the Act, give to the authorized persons any direction in regard to making of payment or the doing or desist from doing of any act relating to foreign exchange or foreign security. [Para 4]

The respondent No.4 - The National Stock Exchange of India is a Limited Company duly incorporated under the previsions of the Companies Act. Under clause (2) of the impugned circular, the Reserve Bank of India in consultation with the Government of India allowed foreign investment in infrastructure companies in securities markets namely Stock Exchanges, depositories and clearing corporations. It is clear from the above that there could be no restriction in application of the circular to respondent No.4. The contention of the petitioner that the expression ‘infrastructure companies’ would have to be distinctly read from the expressions appearing immediately thereafter and that would result in its non-application to the respondent No.4 could not be accepted. [Para 5]

Furthermore, the instant petition would hardly satisfy the test of a public interest litigation. It needed to be examined as to what was the locus standi of the petitioner to file the instant litigation. The averments made in the petition were vague. The circular was issued as far back as on 22-12-2006, while the petition had been filed in June, 2007, after a considerable delay and that too without rendering any plausible explanation for such Inordinate delay. Obviously, the circular had been given full effect to by all concerned. The Reserve Bank of India had already Issued directions in furtherance to the policy decision taken by the Central Government. The petitioner had not challenged the policy decision of the Central Government but had merely questioned the incidental act i.e. the impugned circular. In any event, these are policy decisions which fall within the domain of the authorities concerned in the Central Government. The effects and repercussions of such policy decision can hardly be subject matter of judicial review. Policy decisions, unless and until are reversed or are inconsistent with the constitutional mandate or a patently abuse of power, judicial intervention would normally be not necessitated. [Para 6]

Thus, for the aforesaid reasons, the petition was to be dismissed. [Para 7]