Case Note & Summary
The petitioners, Sterlite Industries (India) Limited and its directors, filed a writ petition challenging a show cause notice dated 19th February 2009 issued by the Special Director of Enforcement under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 (FEMA) and Regulation 3(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. The notice alleged that the petitioners had violated the said provisions by remitting Rs.203.82 crore (US$43.5 million) to acquire 100% equity stake of Monte Cello B.V., Netherlands without prior approval from the Reserve Bank of India. The petitioners contended that the acquisition was of shares of a foreign company by a resident Indian company, which does not require prior approval under the regulations, and that the show cause notice was issued beyond the limitation period of 16 years under Section 6(3)(b) of FEMA. The court analyzed the provisions of FEMA and the regulations and held that the acquisition of shares of a foreign company by a resident Indian company is not covered under Regulation 3(1) and does not require prior approval. The court further held that the show cause notice was barred by limitation as it was issued beyond the period of 16 years from the date of the alleged contravention. The court quashed the show cause notice and allowed the writ petition.
Headnote
A) Foreign Exchange Management Act, 1999 - Limitation - Section 6(3)(b) - Show Cause Notice - The show cause notice issued under Section 6(3)(b) of FEMA was held to be barred by limitation as it was issued beyond the period of 16 years from the date of the alleged contravention. The court held that the limitation period under Section 6(3)(b) is mandatory and cannot be extended. (Paras 1-23) B) Foreign Exchange Management Act, 1999 - Acquisition of Shares - Regulation 3(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 - The acquisition of 100% equity stake of Monte Cello B.V., Netherlands by Sterlite Industries (India) Limited did not require prior approval under Regulation 3(1) as the acquisition was of shares of a foreign company by a resident Indian company, which is not covered under the said regulation. (Paras 1-23) C) Foreign Exchange Management Act, 1999 - Show Cause Notice - Limitation - The court held that the show cause notice issued under Section 6(3)(b) of FEMA was barred by limitation and quashed the same. (Paras 1-23)
Issue of Consideration
Whether the show cause notice issued under Section 6(3)(b) of FEMA and Regulation 3(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 was barred by limitation and whether the acquisition of 100% equity stake of Monte Cello B.V., Netherlands by Sterlite Industries (India) Limited required prior approval under the said regulations.
Final Decision
The court allowed the writ petition and quashed the show cause notice dated 19th February 2009.
Law Points
- Limitation period for issuance of show cause notice under FEMA
- Interpretation of Section 6(3)(b) of FEMA
- Regulation 3(1) of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations
- 2000
- Acquisition of shares of a foreign company by a resident Indian company
- Prior approval requirement for acquisition of shares of a foreign company
