G K MURALIKRISHNA Vs. SPECIAL DIRECTOR

JUDGEMENT

(1.) Heard Mr. T.S. Sridharan learned counsel appearing for both the writ petitioner and Mr. M. Ravindran, learned Additional Solicitor General of India appearing for Mr. M. Dhandapani, learned Additional Government Pleader who takes notice for the respondents. What is challenged in these writ petitions is a show cause notice dated 21.01.2010 issued by the adjudicating authority namely the 1st respondent herein.

(2.) Petitioner in W.P. No: 15059 of 2010 is the Managing Director of the Company by name M/s. Helios and Matheson Information Technology Ltd., a Public Limited Company, hereinafter referred to as "H & M.I.T.L.", and the petitioner in W.P. No: 15060 of 2010 is the former Chairman of the said Company. It is petitioners' case that the contravention alleged to have been committed by the petitioner in furnishing the bank guarantee to a non resident was on the ground of applicability of Section 6 (3) (1) (J) of the Foreign Exchange Management Act, hereinafter referred to as FEMA, is not sustainable in law and the issue of guarantee by a resident in India to a non-resident is permissible under Section 6 (2) of the said Act and the regulations made thereunder. The company H & M.I.T.L., in order to expand its business activities agreed to purchase 100% shares of vMoksha entities and on 11.05.2005 entered into a share purchase agreement, subscription agreement and Escrow agreement with vMoksha Technologies Ltd., Mauritius and 7 others. As per the terms of their share purchase agreement a like amount will be retransferred to the petitioner company which in turn will issue its redeemable preference shares in favour of vMoksha, Mauritius which will be redeemed 18 months from the date of the issue. For the above share purchase agreement M/s. Price Waterhouse Coopers Pvt. Ltd. acted as advisers to the transaction. vMoksha deposited the original share certificate and the share transfer form duly signed with the Escrow agents as per the terms of the agreement. The terms of the share purchase agreement provides that the petitioner shall apply and secure the approval from the Foreign Investment Promotion Board for the said investment in non-convertible preference shares in the Company by a non resident. The Government of India, in its proceedings dated 20.06.2005 granted approval for the aforesaid collaboration agreement subject to the condition that the consideration for the investment will be paid out of the inward remittance of foreign exchange through normal banking channels and to follow the procedure prescribed by the Government of India in Press Note No: 9 of 99 under which foreign companies will have to bring the requisite funds from abroad and not leverage the same from the funds from the domestic market.

(3.) While that being so, vMoksha, Mauritius, in order to remit US $ 13.5 million equivalent to Rs. 58,37,75,195/- being the consideration for the allotment of preference shares of the petitioner, availed credit facilities from the State Bank of Mauritius at Mauritius. In order to comply with the terms of the share purchase agreement, petitioners gave a letter of lien and guarantee by both Mr. G.K.Muralikrishna and Mr.V.Ramachandran in favour of Chennai Branch of State Bank of Mauritius. The entire sum of Rs.58,37,75,185/- was remitted to the account of the petitioner company at the Chennai Branch of State Bank of Mauritius on 29.06.2005 and it was credited to the account of H & M.I.T.L. and then re-transmitted to the account of vMoksha, Mauritius, towards the consideration for the purchase of three subsidiaries of vMoksha and thereby the petitioners have fulfilled the terms and conditions of the contract and in that situation vMoksha committed breach of contract and on such account dispute arose between Rajeev Shawney and Pawan Kumar, the C.E.O. of the said company. Petitioner, therefore, initiated arbitration proceedings to resolve the disputes that arose between H & T.I.M.L. and vMoksha and the same is still pending.