RESERVE BANK OF INDIA Vs. VASANTHI RAMAN

JUDGEMENT

(1.) MRS. Vasanthi Raman, the wife of a high executive in Messrs. Best and Company (Private) Ltd., whose husband was at the time in the United Kingdom on official business, applied to the Reserve Bank of India (here appellant) in the Exchange Control Department, for the issue of permission in Form "P" for passage to the United Kingdom by an airline. In her affidavit, in paragraph 4 and the following paragraphs, she states that her first cousin, Dr. R.Sridhar, employed in America on a large salary in Purdue University, was himself proceeding to the United Kingdom, and desired her to go over there to meet him, for certain domestic consultations of a very private character. Dr. Sridhar was very advantageously situated to defray all the expenses of her stay in the United Kingdom, particularly as her intended period of stay was not to exceed a month. Certain letters from Dr. Sridhar were produced by MRS. Vasanthi Raman (respondent), as evidence of his undertaking to defray her expenses of stay, and also thereby demonstrating that she would not require any release of foreign exchange for her tour. Notwithstanding these facts, she alleged that the Reserve Bank of India, purporting to act in accordance with the revised policy approved by the Government of India, declined the permission. According to the Reserve Bank, clearance for passage abroad will not be granted in respect of what is known as the "guest hospitality" or "private hospitality" scheme, except for meeting parents, sons and daughters. As all attempts by her to persuade the Reserve Bank to adopt a different attitude to her case proved futile, she instituted a petition under article 226 of the Constitution, praying for the issue of a writ of mandamus or other appropriate writ constraining the Reserve Bank to grant clearance of passageThe Reserve Bank of India, Madras, opposed the writ proceeding, and contended, briefly stating the pleas that their refusal to grant the permission in Form "P" was perfectly justified, and in accordance with the latest policy adumbrated by the authorities of the bank at the highest level, and approved by the Government of India, in regard to the regulation of foreign exchange. The Reserve Bank of India (here appellant) pointed out that there was no legal obligation or duty on their part to grant such a permission in that sense, the prayer for the issue of a writ of mandamus was misconceived. There was a contention, apparently urged at one stage, that the attempt of the respondent to proceed to the United Kingdom was more for the purpose of a holiday to be spent with her husband (Mr. K.Raman), now there on official business, than for really any urgent objective connected with Dr. Sridhar. But, in the arguments before us, this was not further pressed. The main contention before us, as before the learned judge (Srinivasan J.), who heard the writ petition and directed the issue of a writ, was that the policy was adumbrated in order to conserve the foreign couragement of travel abroad upon this kind of "guest hospitality" scheme, though it had been permitted to some degree earlier, was essential for such conservation. The indirect consequence of the free grant of permission in such cases, was in the analysis undertaken by the authorities of the bank, to shrink the remittances in foreign currency to this country to a very marked extent, and to adversely affect the foreign exchange position, already unsatisfactory

(2.) THE learned judge (Srinivasan J.) referred to section 18B of the Foreign Exchange Regulation Act, VII of 1947, and also to certain other sections of that Act. THE power of the Reserve Bank to regulate foreign exchange by the modes contemplated by the Reserve Bank of India Act, 2 of 1934, and the Foreign Exchange Regulation Act, VII of 1947, has never been in dispute at any stage of the proceedings. After broadly defining the position, the learned judge (Srinivasan J.) examined in some detail the arguments addressed before him by the learned Advocate-General on behalf of the Reserve Bank, on the conceivable adverse effect on foreign exchange resources, of the permission in this case, if granted, and in similar cases. THE learned judge found these possibilities to be conjectural, remote and quite unsubstantial. He also referred to the present principles of regulation of foreign exchange with regard to passage clearances by the Reserve Bank embodied in Circular No.3 dated April 15, 1965, and the current press note dated May 21, 1964. In this view, these did not appear to interdict the clearance of passage in cases where to release of foreign exchange, even for any incidental expenses, was sought. THE criterion, as enunciated by the learned judge, was as follows

(3.) THE Reserve Bank of India has instituted this appeal. Apart from the merits of the present case, it is strenuously contended for the appellant-bank that a very vital power to the exercised by the bank, to safeguard the foreign exchange resources of this country, is affected by the decision for, in all likelihood, such a decision may, in its wake, lead to the institution of many applications of this kind, on the ground that the expenses of travel abroad will be met in foreign currency by some person resident abroad, and, in consequence, that the case directly involves no foreign exchange. It is this precise category of cases that has been carefully considered by the authorities, and placed under a ban, in the context of the present unsatisfactory foreign exchange position that such instances may involve. THE entire problem is of considerable interest and of some importance, and hence we propose, at the outset, to set forth the legal position relating to the Reserve Bank and its powers to regulate foreign exchange, before proceeding further to analyse the grounds on which the bank claims the right to withhold its consent, in this category of instancesTHE preambles to both the Reserve Bank of India Act, 2 of 1934, and the Foreign Exchange Regulations Act, VII of 1947, are themselves of interest on this aspect. THE preamble to the former Act states that it is expedient to constitute a Reserve Bank for India to regulate the issue of bank notes and the keeping of reserves with a view to securing monetary stability in India, and generally to operate the currency and credit system of the country to its advantage. THE second clause of the preamble refers to a doubt, in the disorganised state of the monetary systems of the world, whether it would be feasible to immediately determine a permanent basis for the Indian monetary system. Similarly, the Foreign Exchange Regulation Act states, in its preamble, that it is