{"id":243899,"date":"1991-04-03T00:00:00","date_gmt":"1991-04-02T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/burn-standard-company-limited-vs-mcdermott-international-inc-and-on-3-april-1991"},"modified":"2017-07-11T05:32:07","modified_gmt":"2017-07-11T00:02:07","slug":"burn-standard-company-limited-vs-mcdermott-international-inc-and-on-3-april-1991","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/burn-standard-company-limited-vs-mcdermott-international-inc-and-on-3-april-1991","title":{"rendered":"Burn Standard Company Limited vs Mcdermott International Inc. And … on 3 April, 1991"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Burn Standard Company Limited vs Mcdermott International Inc. And … on 3 April, 1991<\/div>\n
Equivalent citations: 1991 AIR 1191, \t\t 1991 SCR (2)\t 67<\/div>\n
Author: Ahmadi<\/div>\n
Bench: Ahmadi, A.M. (J)<\/div>\n
           PETITIONER:\nBURN STANDARD COMPANY LIMITED\n\n\tVs.\n\nRESPONDENT:\nMcDERMOTT INTERNATIONAL INC. AND ANOTHER\n\nDATE OF JUDGMENT03\/04\/1991\n\nBENCH:\nAHMADI, A.M. (J)\nBENCH:\nAHMADI, A.M. (J)\nRAMASWAMI, V. (J) II\nFATHIMA BEEVI, M. (J)\n\nCITATION<\/a>:\n 1991 AIR 1191\t\t  1991 SCR  (2)\t 67\n 1991 SCC  (2) 669\t  JT 1991 (2)\t 95\n 1991 SCALE  (1)587\n\n\nACT:\n     Foreign Exchange Regulation Act 1973 \/ Foreign Exchange\nManual\t1978-Section 28(1) Paragraphs 24A.11(1)\t and  25A.2-\nIndian\t Company-Technical  Collaboration   agreement\twith\nforeign\t corporation-General or special permission  of\tRBI-\nColloboration\tapproved  by  Secretariat   for\t  Industrial\nApprovals-Agreement  taken on record  by  Government-Whether\nsepartate permission of RBI necessary-Decision taken by RBI,\nbut  approval not communicated-Whether failure to  discharge\nministerial  duty obliterates conscious decision  taken-Non-\nfiling\tof FNC5 form for grant of permission-Whether  erases\ndecision already taken.\n     Arbitration Act, 1940; Sections 14,17,30 and 33-Foreign\ncollaboration  agreement-RBI's approval-Whether\t arbitration\nclause\trendered  void by virtue of agreement  itself  being\nvoid  ab  initio for want of RBI  permission  under  Section\n28(1) of Foreign Exchange Regulation Act,1973.\n     Administrative   Law:   Administrative   action-Whether\ndecision becomes binding.\n\n\n\nHEADNOTE:\n     The  appellant,  a Government company, entered  into  a\nTechnical  collaboration  agreement with the  respondent,  a\nforeign\t corporation,  under  which the\t respondent  was  to\nprovide\t technical  know-how  to  the  appellant,  and\t the\nappellant was to pay the respondent fee in foreign  currency\nin three installments.\tThe appellant was required to  apply\nfor  registration and\/or Governmental approval\tand  furnish\nsatisfactory  evidence\tof receipt of  such  approval.\t The\neffective  date of the agreement was the date on  which\t the\nnotification  was  received  by\t the  respondent  that\t all\ngovernmental approvals in that regard had been secured.\t The\nagreement  was\tentered\t into  with  the  approval  of\t the\nSecretariat for Industrial Approvals.  The agreement as well\nas   the  supplementary\t agreement,  incorporating   certain\nchanges\t suggested  by the Government, were filed  with\t the\nGovernment, which took the same on record, by its letter  of\napproval, A copy of the letter of approval and also the\n\t\t\t\t\t\t       68\ncollaboration agreement was sent to the RBI.\n     After  obtaining  the  necessary  order  under  Section\n195(2) of the Income Tax Act from the Income Tax Officer and\nthe  permit from the RBI, the appellant remitted  the  first\ninstallment  of\t fee  to the  respondent.   Thereafter,\t the\nrespondent, alleging non-payment of subsequent installments,\nand consequent breach of terms of contract, sought to invoke\nclause\t8.2 of the agreement for terminating the  agreement.\nThe appellant questioned respondent's right to invoke clause\n8.2.   Thereafter  the\trespondent  invoked the\t arbitration\nclause, clause 12.1 of the agreement, for referring disputes\nand  difference to the arbitration of International  Chamber\nof  Commerce  and claimed certain amount  for  the  services\nactually  rendered  and also informed the  ICC\taccordingly.\nThe  appellant challenged the legality and validity  of\t the\nagreement as void ab initio, and also clause 12.1 as non-est\nand  legally  unforceable, and filed  an  application  under\nSection\t 33  of\t the Arbitration Act,  contending  that\t the\nagreement  being  a  contingent\t one,  commencing  from\t the\neffective  date,  and  necessary approval  having  not\tbeen\nsecured,  the agreement had not commenced and,\tconsequently\nthe  arbitration  clause,  being  part\tof  the\t very\tsame\nagreement,  the\t respondent was not entitled to\t invoke\t the\nsaid  clause, and that in the absence of a valid  permission\nfrom the RBI under Section 28(1) (b) of the Foreign Exchange\nRegulation Act, 1973, the agreement was clearly void by\t the\nthrust of Section 28(2) of the Act.\n     The respondent contended that the necessary  Government\napprovals  were obtained and hence the `effective date'\t was\nreached and that under the Exchange Control Manual only\t the\nIndian Company could apply to SIA for approval and once such\napproval  was  accorded,  the foreign  collaborator  to\t the\ncontract was not expected to secure the RBI permission under\nSection 28(1) (b), since under the manual, SIA approval\t was\nto be deemed to be RBI's permission also; and therefore, the\nagreement  was\tlegal  and  valid  and\tthe  respondent\t was\nentitled to seek its enforcement.\n     The  High Court held that on a true  interpretation  of\nthe  contract,\tit  must  be held  to  be  voidable  at\t the\ndiscretion  of either party, that even if the  contract\t was\nterminated or rendered void, the arbitration clause  therein\ndid  not  perish  ipso facto, that the\tapplication  to\t the\nIncome\tTax Officer for making payment of first\t installment\ncould not have been made unless the necessary approvals were\nobtained,  that the RBI had granted permission to remit\t the\ninstallment  money (fee), after the Income Tax\tOfficer\t had\nmade the order under Section 195(2) of the\n\t\t\t\t\t\t       69\nIncome Tax Act, and it was only on account of this  payment,\nthat  the respondent furnished the technology  and  provided\ntechnical  services,  and that, on  account  of\t appellant's\nfailure\t to  pay  subsequent  installments,  a\tdispute\t had\nclearly arisen which had to be resolved through arbitration.\n     In\t the  appeal before this Court it was  contended  on\nbehalf of the appellant company that paragraph 25A.2 of\t the\nExchange  Control Manual, 1978, provided  that\tapplications\nfor permission under Section 28(1)(b) should be made in FNC5\nand  since  no such application in FNC5 was  made,  a  clear\ninference  could  be  raised that the RBI  had\tnot  granted\npermission   under  Section  28(1),  and   accordingly\t the\nagreement and the arbitration clause forming part of it were\nvoid ab initio by the  thrust of Section 28(2), and that the\nprescribed form for SIA approval under paragraph 24A.11\t was\nnot  the same as FNC5 prescribed under paragraph  25A.2\t and\nadministrative\t direction  in\tparagraph  24A.11  that\t  no\nseparate permission under Section 28(1) was necessary  could\nnot override the statutory requirement of the Section.\n     It\t was  contended\t on behalf of  the  respondent\tthat\nrequirements  of Section 28(1) were fully complied with\t and\nthe RBI's sanction, being essentially administrative, it was\nenough\tto  show  that the RBI had  granted  permission,  no\nmatter\twhether it had followed the procedure  of  paragraph\n24A.11(i) or 25A.2 of the Exchange Control Manual.\n     Dismissing the appeal, this Court,\n     HELD:  1.1\t Section  28(1)\t of  the  Foreign   Exchange\nRegulation  Act, 1973 places restrictions on appointment  of\ncertain individuals and companies as technical or management\nadvisers  in  India unless the RBI approves the\t same  by  a\ngeneral or special permission.\tThe section is silent on the\nmode and manner of securing such permission.  However,\tsub-\nsection (4) of Section 73 provides that where any  provision\nof the Act requires the RBI's permission for doing  anything\nunder such provision, the RBI may specify the form in  which\nan  application\t for such permission shall be  made.   On  a\nplain  reading of paragraph 24A.11 Exchange Control  Manual,\n1978.,\tit becomes clear that the intention is to  introduce\nthe single counter or window procedure to avoid\t duplication\nand  hardship  to the foreign collaborators,  and  once\t the\ncollaboration  is  approved  by SIA, and  the  agreement  is\n`taken\ton  record' there is no need to\t obtain\t a  separate\npermission  from the RBI. Paragraph 9 of the Guidelines\t for\nIndustries  stipulates that after the agreement is taken  on\nrecord,\t a copy thereof has to be sent to the RBI to  enable\nit to\n\t\t\t\t\t\t       70\nauthorise   remittances\t  to   the   foreign   collaborator.\n[82E,84C,85A]\n     1.2  In the instant case, the appellant had sought\t the\nSIA  approval,\twhich was granted subject to the  terms\t and\nconditions  set out in the letter of approval.\tIt was\tonly\nthereafter  that the agreement was executed.  The  appellant\nthen sent a copy of the agreement to the Government of India\nwhich  was  duly  examined in the light\t of  the  terms\t and\nconditions on which the approval was granted by the SIA\t and\ncertain\t discrepancies\twere communicated to  the  appellant\nwhich necessitated the execution of supplementary agreement.\nIt was only thereafter that the appellant was informed\tthat\nthe collaboration agreement and the supplementary  agreement\n`have been taken on record.  This was then forwarded to\t the\nRBI.  The matter was processed by the RBI and the remittance\nof  the\t first instalment of the fees took place  after\t the\nincome-tax was duly recovered at source.  [85A-D]\n     1.3 The affidavits filed on behalf of the RBI leave  no\ndoubt  that the remittance was permitted only after the\t RBI\nwas  satisfied that all the terms and conditions  were\tduly\nsatisfied,  though  the\t RBI's\tapproval  `remained  to\t  be\ncommunicated' to the appellant company. Failure to discharge\nthe   ministerial  duty\t cannot\t obliterate  the   conscious\ndecision taken by the RBI after application of mind. [85E,G]\n     1.4   The RBI had applied its mind to the\tquestion  of\ngrant  of  permission  and  had\t only  thereafter  permitted\nremittance  of the first instalment of the fees\t payable  to\nthe  foreign collaborator.  Merely because  application\t for\nsuch  permission was not made in FNC5 form cannot cloud\t the\nfact that the decision to grant the permission was  actually\ntaken,\tbut  the ministerial function of  communicating\t the\nsame  remained to be done by oversight.\t This  lapse  cannot\nerase the decision already taken. [86H,87A]\n     2.1  The prescription of the form is merely to aid\t the\nRBI to process the application for permission. Emphasis must\nbe  laid  on substance and not on mere form.  If  there\t has\nbeen  substantial compliance mere lapse on the part  of\t the\nRBI  in failing to communicate its decision should  make  no\ndifference.   Paragraph\t 25A.2\tis  not\t in  derogation\t  of\nparagraph  24.A.11(i) nor does it dilute the requirement  of\nSection 28(1).\tFactum of permission, and not the  procedure\nfollowed, is relevant. [86G]\n     2.2  The RBI had granted the permission contemplated by\nSection\t 28(1) and hence the agreement cannot be  voided  by\nvirtue of Section 28(2) of FERA.  Once the decision to grant\nthe permission is taken,\n\t\t\t\t\t\t       71\nwhether through the course charted by paragraph 24A.11(i) or\n25A.2,\tthat  decision\tstands\tunless\trescinded  and\t the\nauthorities are bound to act in aid thereof.[87B-C]\n     3.\t In the circumstances it is unnecessary\t to  examine\nthe  question  whether clause 12.1 of  the  agreement  would\nstand  or  perish if the agreement is  rendered\t void  under\nSection 28(2) for failure to secure permission under Section\n28(1).[87D]\n     M\/s.  Dhanrajmal  Gobindram v. M\/s.  Shamji  Kalidas  &\nCo.,<\/a> [1961] 3 SCR 1020; LIC of India v. Escorts Ltd. & Ors.,\n[1986]\t1 SCC 264 at 318 and Shri Sitaram Sugar Co.  Ltd.  &\nAnr.  v. U.P. State Sugar Corporation Ltd. &  Anr.,<\/a>  [1990]3\nSCC 222 at page 246-247, referred to,\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE JURISDICTION : Civil Appeal No.1423  of
\n1991.\n<\/p>\n
     From  the\tJudgement  and\tOrder  dated  6.12.1989\t  of
\nCalcutta High Court in Case No.5696 of 1988.\n<\/p>\n
     Soli  J.  Sorabjee, Deepanker Ghosh,  R.M.\t Chatterjee,
\nA.K. Ghose, S. Mandal and Ms. Madhukhatri for the Appellant.\n<\/p>\n
     Dipankar Gupta, O.P. Khaitan, A.K. Bhatnagar, Ms. Kiran
\nChoudhary and Ms. B. Gupta for the Respondents.\n<\/p>\n
     H.N.  Salve  and H.S. Parihar for the Reserve  Bank  of
\nIndia.\n<\/p>\n
     The Judgement of the Court was delivered by
\n     AHMADI,J. Special leave granted.\n<\/p>\n
     The principal question which this Court is called\tupon
\nto  answer  in this appeal by special leave is\twhether\t the
\narbitration clause contained in Article XII (Paragraph 12.1)
\nof  the\t Technical Collaboration Agreement entered  into  at
\nDubai, United Arab Emirates, on September 25, 1984,  between
\nthe  appellant Burn Standard Company Ltd., a  Government  of
\nIndia\t Undertaking,\tand   the    respondent\t   Mcdermott
\nInternational, Inc., a foreign company, is rendered void  by
\nvirtue of the agreement itself being ab-initio void for want
\nof  general  or special permission of the  Reserve  Bank  of
\nIndia (RBI) under
\n\t\t\t\t\t\t       72<\/span>
\nSection\t 28  of The Foreign Exchange  Regulation  Act.\t1973
\n(FERA).\t The  relevant part of the said provision  reads  as
\nunder :\n<\/p>\n
\t  “28(1)-Without  prejudice  to\t the  provisions  of
\n\t  Section  47 and notwithstanding any  contained  in
\n\t  any other provisions of this Act or the  Companies
\n\t  Act,\t 1956,\ta  person  resident  outside   India
\n\t  (whether  a citizen of India or not) or  a  person
\n\t  who  is not a citizen of India but is resident  in
\n\t  India, or a company (other than a banking company)
\n\t  which\t is not incorporated under any law in  force
\n\t  in India or in which the non-resident interest  is
\n\t  more\tthan  forty percent or any  branch  of\tsuch
\n\t  company,  shall  not, except with the\t general  or
\n\t  special permission of the Reserve Bank,-\n<\/p><\/blockquote>\n
\t  (a) act, or accept appointment, as agent in  India
\n\t  or  any  person  or company,\tin  the\t trading  or
\n\t  commercial transactions of such person or company;
\n\t  or\n<\/p><\/blockquote>\n
\t  (b)  act, or accept appointment, as  technical  or
\n\t  management  adviser  in  India or  any  person  or
\n\t  company; or\n<\/p><\/blockquote>\n
\t  (c)\tpermit\tany trade mark, which he  or  it  is
\n\t  entitled  to\tuse,  to be used by  any  person  or
\n\t  company for any direct or indirect consideration.
\n\t  (2)\tWhere any such person or company  (including
\n\t  its  branch) as it referred to in sub-section\t (1)
\n\t  acts\tor  accepts appointment as  such  agent,  or
\n\t  technical  management adviser, or permits the\t use
\n\t  of any such trade mark, without the permission  of
\n\t  the  Reserve\tBank, such  acting,  appointment  or
\n\t  permission, as the case may be, shall be void.\n<\/p><\/blockquote>\n
The  petitioner is a Government Company\t incorporated  under
\nthe  Companies\tAct, 1956, having its registered  office  at
\n10C, Hungerford Street, Calcutta, whereas the respondent  is
\na  Corporation organized and existing under the laws of\t the
\nRepublic  of  Panama with its executive office at  P.O.\t Box
\n61961,\t1010 Common Street, Near Orleans, Louisiana  701610,
\nU.S.A.,\t with a branch office at P.O. Box 3098, Dubai,\tUAE.
\nOn  25th  September,1984 the said parties  entered  into  an
\nagreement,  styled “Technical Collaboration Agreement”,\t for
\nthe  fabrication of off-shore platform structure,  including
\nbut not limited to Jackets, Piles, Decks, Modules,  Platform
\n&  pipeline components, including their sub-components,\t for
\nthe oil and gas industry which
\n\t\t\t\t\t\t       73<\/span>
\nrequired the high degree of expertise and experience as well
\nas the technical know-how possessed by the respondent.\t The
\nduration of the agreement was fixed under Article VIII to be
\nfive  years  from  the effective date or  five\tyears  after
\ncommencement of commercial production, whichever is greater,
\nor  until otherwise terminated earlier under the  Agreement.
\nThe  expression\t `effective date’ as defined  in  Article  1
\nmeans  the  date of which notification is  received  by\t the
\nrepondent  that all Governmental approvals relating  to\t the
\nagreement have been secured; provided that if such approvals
\nare  not  secured within 180 days from the  signing  of\t the
\nagreement,  the agreement, upon notice pursuant\t to  Article
\nXVII   of  the\tagreement  by  either  party  may  be\tmade
\nineffective whereupon the agreement shall be treated as null
\nand  void.   Obviously the purpose of the agreement  was  to
\nestablish the basis whereunder the respondent was to provide
\nand  the  appellant was to receive  technology\tand  special
\ntechnical   services  related  to  the\t establishment\t and
\noperation  of  Fabrication Yard\t for  fabricating  off-shore
\nplatform   structures  and  additional\t special   technical
\nservices  for any contracts related to\tmarine\tconstruction
\nactivities that are  awarded to the appellant.\tArticle X of
\nthe  agreement\tenjoins\t upon the  appellant  to  apply\t for
\nnecessary  registration and\/or governmental approval of\t the
\nagreement  in  India within 60 days after the  agreement  is
\nsigned by both parties and is delivered to the appellant.  A
\nduty  is  cast\ton the\tappellant  to  furnish\tsatisfactory
\nevidence  to receipt of the required governmental  approval.
\nThe next important clause in the contract which needs to  be
\nnoticed at this stage is Article XII which reads as under:\n<\/p>\n
\t  “Article XII-Arbitration
\n\t  12.1 Any claim, dispute or controversy arising out
\n\t  of  or relating to this Agreement, or\t the  breach
\n\t  thereof, shall be finally settled by\tarbitration,
\n\t  pursuant  to\tand in accordance with the Rules  of
\n\t  Conciliation and Arbitration of the  International
\n\t  Chamber   of\tCommerce  by  three(3)\t arbitrators
\n\t  appointed in accordance with said Rules. Judgement
\n\t  upon the award rendered by the Arbitrators may  be
\n\t  entered in any court having jurisdiction  thereof.
\n\t  The situs of Arbitration shall be New Delhi, India
\n\t  or  an  alternate location if\t the  parties  shall
\n\t  mutually  agree  and the  arbitration\t proceedings
\n\t  shall be conducted  in the English language.”\n<\/p><\/blockquote>\n
Under Article XII the validity, construction and performance
\nof the agreement was to be governed by the Indian laws.\n<\/p>\n
\t\t\t\t\t\t       74<\/span><\/p>\n
     The  aforesaid agreement was entered into after it\t was
\napproved  by the Secretariat for Industrial Approvals  (SIA)
\nby their letter dated 18th June, 1984.\tAfter the  execution
\nof  the agreement it was filed with the Government of  India
\non  5th October, 1984.\tBy the letter dated  15th  December,
\n1984  of  the  Ministry of  Industry,  Department  of  Heavy
\nIndustry,  New\tDelhi,\taddressed to the  appellant  it\t was
\npointed out that clauses 3.2. and 4.2 of the agreement\twere
\nnot   consistent   with\t  the  terms   and   conditions\t  of
\ncollaboration  approved\t by Secretariat\t letter\t dated\t18th
\nJune, 1984. in that, clause 3.2 should contain a clause that
\nany additional payment made for specific Technical  Services
\nwould  be subject to prior approval of Government  of  India
\nand  in\t clause 4.2 the payment expressed  in  U.S.  Dollars
\n298,200\t should\t be  298,500  and  the\tfigure\tof  the\t 3rd
\ninstalment should be 99,450 instead of 99,400 U.S.  dollars.
\nTo  carry  out\tthese changes, the parties  entered  into  a
\nsupplementary agreement on 29th December, 1984\tand filed it
\nwith the Government of India on 9th January, 1985.\n<\/p>\n
     Under Article IV of the agreement, in consideration  of
\nthe respondent having agreed  to transfer technology to\t the
\nappellant,  the\t latter\t undertook  to pay  a  lump  sum  of
\n$298,200 in three installments, the first payment of U.S.  $
\n99,400\twithin\tthirty\t(30)  days of  the  signing  of\t the
\nagreement  or  receipt of approval from\t the  Government  of
\nIndia,\twhichever  is later; the second payment\t of  U.S.  $
\n99,400\tupon  completion of items 1 to 10 of clause  3.4  of
\nArticle III and the third payment of U.S. $ 99,400 upon\t the
\ncommencement  of  commercial production of  the\t Fabrication
\nYard  or four years after the effective date,  whichever  is
\nearlier.   As  stated  earlier\tthe  figure  `298,200′\t was
\nreplaced by the figure `298,250′ and the amount of the third
\ninstalment was raised  from U.S.$99,400 to U.S.$99,450 under
\nthe  supplementary agreement dated 9th January, 1985.  After
\nthis  suuplementary agreement was filed with the  Govt.,  of
\nIndia, the latter took the collaboration agreement on record
\nunder  the communication dated 15th January,1985. A copy  of
\nthe  Govt.  of\tIndia’s\t letter along with  a  copy  of\t the
\ncollaboration  agreement  was received by the  RBI  on\t21st
\nJanuary,  1985.\t   In  para 7 of its  affidavit\t dated\t18th
\nSeptember, 1990, the RBI has clarified as under:\n<\/p>\n
\t  “However,  the  Bank’s  letter  of   authorization
\n\t  indicating   the  terms  and\tconditions   to\t  be
\n\t  fulfilled   for  remittances\tfalling\t due   under
\n\t  collaboration\t agreement remained to be issued  to
\n\t  the petitioner company.  Hence the Bank’s approval
\n\t  under\t Section 28(1) (b) of the Act for  rendering
\n\t  technical  etc. services under  the  collaboration
\n\t  agreement also re-\n<\/p><\/blockquote>\n
\t\t\t\t\t\t       75<\/span><\/p>\n
\t  mained  to  be  communicated\tto  the\t  petitioner
\n\t  company.   Later,  when  the\tpetitioner   company
\n\t  applied  for\tremittance of the  first  instalment
\n\t  under the collaboration agreement, the Bank  being
\n\t  satisfied  that  the remittance  was\tstrictly  in
\n\t  accordance with the terms and conditions  approved
\n\t  by the Government, allowed the same.”\n<\/p><\/blockquote>\n
On 5th February, 1985, the appellant made an application  to
\nthe  income tax authorities for determination of income\t tax
\ndeduction  for the payment of the first instalment of  fees.
\nThe order passed under Section 195(2) of the Income-Tax\t Act
\ndetermining the tax at 40% of the consideration proceeds  on
\nthe   premise  that  the  agreement  was  approved  by\t the
\nGovernment of India.  Soon thereafter the appellant  applied
\non  14th  February,1985\t to the United\tBank  of  India\t for
\nremitting the first instalment of fees minus 40%  chargeable
\nas income tax. The United Bank of India\t intimated the\trate
\nof  exchange on the very next date.  The Income-tax  Officer
\nissued\tthe  `No-objection certificate’ on  19th   February,
\n1985  whereupon the RBI issued the permit dated\t 6th  March,
\n1985 for remittance of U.S. $ 59,640 ($ 99,640-40%=$59,640).
\nBy  the\t appellant’s  letter  dated  18h  March,  1985\t the
\nappellant  enclosed  a\tdraft for the  said  amount  to\t the
\nrespondent.\n<\/p>\n
     After  the payment in respect of the  first  instalment
\nwas  thus  made, the respondent wrote a\t letter\t dated\t16th
\nSeptember, 1986 invoking clause 8.2 of the agreement.\tThat
\nclause reads thus :\n<\/p>\n
\t  ” In the event of any breach of this Agreement not
\n\t  cured\t within sixty (60) days\t after\tnotification
\n\t  thereof,  in\taddition  to  all other\t rights\t and
\n\t  remedies  which  either party may have in  law  or
\n\t  equity, the party not in default may at its option
\n\t  terminate this Agreement by written notice.\tSuch
\n\t  termination shall become effective on the date set
\n\t  forth\t in  such notice of termination, but  in  no
\n\t  event\t shall\tit be earlier than sixty  (60)\tdays
\n\t  from the mailing thereof.  Any waiver of the right
\n\t  of termination for default shall not constitute  a
\n\t  waiver  of  the right to claim  damages  for\tsuch
\n\t  default   or\tthe  right  to\tterminate  for\t any
\n\t  subsequent breach.”\n<\/p><\/blockquote>\n
By the said letter the respondent laments lack of payment of
\ninstallments due from the appellant and consequential breach
\nof the terms of the contract.  The respondent then puts\t the
\nappellant  to notice as per clause 8.2 reproduced  above  of
\nits right to terminate the agreement if
\n\t\t\t\t\t\t       76<\/span>
\nthe appellant fails to cure the breach within 60 days of the
\nreceipt\t of the communication.\tThe appellant by  its  reply
\ndated 12th December, 1986 questioned the respondent’s  right
\nto  invoke  clause 8.2 of the agreement since  in  its\tview
\nthere  was  no\tbreach\tof agreement  and  called  upon\t the
\nrespondent to discharge its obligations under clause 3.4  of
\nthe agreement and  receipt payment of the second  instalment
\nthereafter.  On\t receipt of this reply,\t the  respondent  by
\ntheir  Advocate’s letter date 27th September,  1988  invoked
\nthe  arbitration clause extracted earlier for referring\t the
\ndisputes and differences to the arbitration of International
\nChamber\t of  Commerce.\t At the\t same  time  the  respondent
\nclaimed\t that it was entitled to recover U.S.  $  621,777,09
\nwith 15% per annum interest from the appellant for  services
\nactually rendered.  On the same day the respondent wrote  to
\nthe  International Chamber of Commerce informing it  of\t its
\ndecision to invoke the arbitration agreement.  The appellant
\nresponded  by its letter dated\t11th October,  1988  stating
\nthat the collaboration agreement dated 25th September,\t1984
\nwas  void ab-initio and not binding on the  parties  thereto
\nand  therefore, clause 12.1 of Article XII of the  agreement
\nwas  non-est and legally unenforceable.\t On the\t other\thand
\nthe appellant blamed the respondent for breach of  contract,
\nin that, there was failure to comply with clause 3.4 of\t the
\nagreement, and stated that no disputes or differences of the
\ntype  which  could  be referred to  arbitration\t had  arisen
\nbetween\t the parties.  Thus by challenging the legality\t and
\nvalidity of the agreement and branding it void ab-initio the
\nappellant   also  challenged  the  arbitration\t clause\t  as
\nsimilarly  void.  This was followed by the appellant  filing
\nan application under Section 33 of the Arbitration Act inter
\nalia  contending (i) that the agreement in question being  a
\ncontingent  one\t which was to commence from  the  `effective
\ndate’  and  since  the\tnecessary  approvals  had  not\tbeen
\nsecured,  the  agreement  had  not  commenced  and  as\t the
\narbitration clause was a part of the very same agreement  it
\ntoo  had  not  commenced and hence the\trespondent  was\t not
\nentitled to invoke the said clause and (ii) since under\t the
\nagreement  the\trespondent  was appointed  as  Technical  or
\nManagement  Adviser in India within the meaning\t of  Section
\n28(1) (b) of FERA, in the absence of a valid permission from
\nthe  RBI,  the\tagreement was clear void by  the  thrust  of
\nSection\t 28(2)\tof  the\t said  enactment.   The\t  respondent
\ncountered  these  contentions (i) by pointing out  that\t the
\nnecessary  Government approvals were obtained and hence\t the
\n`effective  date’  was reached and (ii) under  the  Exchange
\nControl Manual (1978 Edition) only the Indian company  could
\napply  to  SIA\tfor  approval and  once\t such  approval\t was
\naccorded as in the present case, the foreign collaborator to
\nthe contract was not expected  to secure the RBI  permission
\nunder Section 28(1) (b) since under the
\n\t\t\t\t\t\t\t77<\/span>
\nmanual SIA approval was to be deemed to the RBI’s permission
\nalso.\tIt was, therefore, contended that the agreement\t was
\nlegal and valid and the respondent was entitled to seek\t its
\nenforcement.   The  arbitration clause being a part  of\t the
\nagreement,  it was imperative on the part of the  respondent
\nto  follow  that  course  in  the  event  of  a\t dispute  or
\ndifference arising between the parties concerning any matter
\ncovered by the agreement.\n<\/p>\n
     The  High Court on a proper construction of clause\t 8.1
\nof  the\t agreement  held  that\tthe  principal\tduties\t and
\nobligations  incorporated  in clauses 1.3 and  1.4  commence
\nafter governmental approvals are obtained. The obligation to
\nsecure necessary  registration and governmental approvals is
\ncast  by virtue of clause 10.1 on the  appellant.  Obviously
\nthe  said  clause comes into operation\timmediately  on\t the
\nexecution   of\tthe  agreement\tsince  clause  1.2   clearly
\ncontemplates that if governmental approvals are not obtained
\nwithin 180 days, the parties will be entitled to put an\t end
\nto the agreement.  It is thus manifest from the terms of the
\nagreement  that some of its provisions come into  effect  on
\nthe  execution of the agreement and remain in force for\t 180
\ndays  till the contract is terminated by either party.\t But
\nif  the parties choose to continue the contract even  beyond
\nthe  period  of\t 180  days  notwithstanding  the  right\t  to
\nterminate  the\tsame,  there is\t nothing  in  the  agreement
\nprohibiting   the   same   and,\t  therefore,   on   a\ttrue
\ninterpretation\tof  the\t contract  it must  be\theld  to  be
\nvoidable at the discretion of either party.  The High  Court
\nfurther\t held  on  a reading of Sections 39 and\t 56  of\t the
\nContract  Act  that even if the contract  is  terminated  or
\nrendered void the arbitration clause therein does not perish
\nipso facto for even in contingent  contracts there exists  a
\ndistinction  between  principle\t obligation  and  subsidiary
\nobligations.  After referring to the case law in detail, the
\nHigh Court observed:\n<\/p>\n
\t  In  my  opinion  the\tarbitration  clause  in\t the
\n\t  instant case is wide enough to include “any claim,
\n\t  dispute or controversy arising out of or  relating
\n\t  to this agreement” so as to mean any dispute as to
\n\t  the  interpretation itself including the  validity
\n\t  thereof.   Therefore,\t if  there  is\tany  dispute
\n\t  relating  to the interpretation of Article 8.1  of
\n\t  the agreement the same can also be decided by\t the
\n\t  arbitrator.”\n<\/p><\/blockquote>\n
Pointing  out  that an agreement of  arbitration,  though  a
\ncontract, is different in its nature from the main  contract
\nof  which it may form a part, the High Court held  that\t the
\nbreach\tof the obligation and liabilities arising under\t the
\nmain contract may bring about termination
\n\t\t\t\t\t\t       78<\/span>
\nof  the main contract but not of the arbitration  agreement.
\nIndeed, the arbitration agreement would be invoked only when
\ndisputes   arise  under\t the  main  contract   including   a
\nrepudiation  of the main contract by any of the parties\t and
\nin  that sense the arbitration agreement is  remedial  while
\nthe   main  contract  is  substantive.\t The   High   Court,
\ntherefore,  held  that\tin  law\t the  jurisdiction  of\t the
\narbitrator  under  the arbitration clause  would  cover\t the
\ndecision  as to voidability of the main contract also.\t The
\nHigh Court then concluded as under:\n<\/p>\n
\t  “It  is  apparent  from  the\tsequence  of  events
\n\t  appearing  from the list of dates already    noted
\n\t  hereinbefore\tthat the petitioner really  made  an
\n\t  application  to  the\tsecretariat  for  Industrial
\n\t  Approvals,   Department of Industrial\t Development
\n\t  and  a letter of approval was issued.\t  Thereafter
\n\t  the\tagreement  dated  September  25,  1984\t was
\n\t  executed.   The  Government  pointed\tout  certain
\n\t  deficiencies\t as   a\t  result   of\twhich\t the
\n\t  supplementary\t agreement dated September 28,\t1984
\n\t  was  executed.  The said documents were all  filed
\n\t  with the Govt. and thereafter the Government\ttook
\n\t  the  agreement  on record and nothing\t was  really
\n\t  required to be done by the repondent.\t In fact the
\n\t  paragraph  11\t at Chapter III\t of  Guidelines\t for
\n\t  industries of the Government of India provide\t for
\n\t  such\ta  procedure  for taking  the  agreement  on
\n\t  record  after\t the approval is given\tfor  Foreign
\n\t  Collaboration.”\n<\/p><\/blockquote>\n
After  quoting paragraph 11 of the said guidelines the\tHigh
\nCourt referred to the appellant’s application to the Income-
\ntax Officer for payment of the first instalment under clause
\n4.1 of the agreement and concluded that such an\t application
\ncould not have been made unless the necessary approvals were
\nobtained.  After the Income-tax Officer made the order,\t the
\nRBI  granted permission to remit the instalment money  (fee)
\non 6th March, 1985.  It was only on account of this  payment
\nthat the repondent furnished the technology and provided the
\ntechnical services to the appellant in pursuance of  Article
\nIII   of  the  contract.   The\tHigh  Court  dismissed\t the
\napplication  holding that on the appellant’s failure to\t pay
\nthe  subsequent installments, a dispute had  clearly  arisen
\nbetween\t the  parties  which  had  to  be  resolved  through
\narbitration.\n<\/p>\n
     Mr.  Soli Sorabjee, learned counsel for the  appellant,
\nplaced\tthe  appellant’s case thus: Under Section  73(4)  of
\nFERA,  where  permission  of  RBI  is  required\t under\t any
\nprovision of the said statute for doing anything thereunder,
\nthe RBI has to specify the form in which
\n\t\t\t\t\t\t       79<\/span>
\nthe application for such permission must be made.  Paragraph
\n25A.2  of the Exchange Control Manual, 1978 (Manual)  refers
\nto  permission\tto be obtained under Section 28(1)  (b)\t and
\nprovides  that\tapplications for such permission  should  be
\nmade in form FNC5.  Indisputably the respondent had made  no
\nsuch   application  in\tthe  prescribed\t form  seeking\t RBI
\npermission  and, therefore , the question of grant  of\tsuch
\npermission by the RBI did not arise.  The respondent  having
\nfailed\tto secure the RBI permission as required by  Section
\n28(1)  rendered the agreement void by the thrust of  Section
\n28(2).\t Besides breach of Section 28(1) is made  punishable
\nunder  Section 50 of FERA.  That being so, the agreement  is
\nab-initio  void and as the arbitration clause is a  part  of
\nthe  said  agreement,  it  too\tmust  fall  along  with\t the
\nagreement.  The SIA approval is not synonymous with grant of
\npermission under Section 28(1) is  since the two operate  in
\ndifferent  fields  and it is, therefore erroneous  to  think
\nthat  such  approval satisfies the  requirement\t of  Section
\n28(1)  . Paragraph 24A.11 of the Manual is not referable  to
\npermission under Section 28(1) and must be read harmoniously
\nwith the statutory provisions, for if it runs counter to the
\nsaid provisions, it would have to be ignored for the obvious
\nreason that it cannot override the requirement of law  being
\nmerely in the nature of administrative instructions. Nor can
\nthe letter of 15th January, 1985 be read to convey the grant
\nof permission under Section 28(1). So also the permit issued
\nby   the  RBI dated 6th March, 1985 for\t remittance  of\t the
\nfirst  instalment payable under Clause 4.1 of the  agreement
\nis referable to the exemption contemplated by Section 9\t and
\nhas no relevance whatsoever to the permission envisaged by
\nSection\t 28(1)\tof FERA.  Thus the  permission\tcontemplated
\nunder Section 28(1) is an express permission and it would be
\nan   entire   wasteful\texercise  to  find  out\t  from\t the
\ncorrespondence\t and  documents\t placed\t on  record   if   a
\npermission  can\t be  culled out or be deemed  to  have\tbeen
\ngranted.   In  the absence of a\t permission,  Section  28(2)
\ndeclares   the\tagreement  or  contract\t to  be\t void\tand,
\ntherefore, the said agreement or any part thereof cannot  be
\nenforced  in a court of law.  The High Court was, therefore,
\nclearly\t wrong\tin  the\t view  it  took\t in  upholding\t the
\nrespondent’s effort to invoke the arbitration clause.\n<\/p>\n
     Mr.  D.P.\tGupta, learned counsel\tfor  the  respondent
\ncountered:  The RBI has published the Manual to\t detail\t the
\nprocedure  for\tentering into such  Technical  Collaboration
\nAgreements;  paragraph\t24A.11 lays down the  procedure\t for
\nsecuring  the RBI permission contemplated by  Section  28(1)
\nand  where the situation does not stand\t covered  thereunder
\nthe application has to be made under paragraph 25A.2 of\t the
\nsaid  manual  which  lays down\ta  different  procedure\t and
\nprescribes the
\n\t\t\t\t\t\t  80<\/span>
\nFNC5  form.  In other words, if the case is  governed  under
\nparagraph  24A.11  when\t it  is\t unnecessary  to  resort  to
\nparagraph  25A.2  which\t prescribes  the  FNC5\tform.\t The
\nGovernment   policy   for   dealing   with   such    foreign
\ncollaboration  agreements  is  generally  set  out  in\t the
\nindustrial   policy   document\tentitled   `Guidelines\t for
\nIndustries’,  Chapter  IV  whereof  sets  out  a   procedure
\nidentical to the one contained in the manual.  The appellant
\nhad  made  an application under paragraph 24A.11 to SIA\t for
\napproval of the technical collaboration arrangement with the
\nrespondent  which was granted on 18th June, 1984 subject  to
\ncertain\t terms and conditions.\tCertain\t discrepancies\twere
\npointed out by the Government of India and on the  appellant
\nhaving\tdrawn  the  respondent’s attention  thereto  by\t the
\nletter of 21st September, 1984 a supplementary agreement was
\nimmediately executed and filed with the Government of  India
\non  9th\t January,  1985.  It   was   thereafter\t  the\tthat
\nGovernment   of\t India\tinformed  the  appellant  that\t the
\nagreement  was\t`taken on record’, an expression  which\t has
\nspecial\t significance as explained in paragraph 9 of Part  I
\nof  Guidelines for Industries. Copies of the letter of\t15th
\nJanuary, 1985 were forwarded to RBI authorities as well.  It
\nwas   only  thereafter\tthat  the  appellant   applied\t for
\ndetermination of the Income-tax amount under Section  195(2)
\nof  Income-Tax Act which determination was made by an  order
\ndated  11th February, 1985.  The appellant then applied\t for
\npermission  to\tremit the first instalment of  fees  and  on
\nreceipt\t thereof enclosed a draft for U.S. $ 59,640 (  after
\ndeducting  40%\tincome tax) under letter dated\t18th  March,
\n1985  addressed\t to the respondent.  It was  only  when\t the
\nsubsequent  payment was not forthcoming that the  respondent
\ngave notice under clause 8.2 of the agreement and thereafter
\nsought\tto resort to arbitration.  Thus the requirements  of
\nSection 28(1) were fully complied with.\n<\/p>\n
     Mr.Salve,\tthe learned counsel for the RBI,  placed  on
\nrecord\tan  additional affidavit dated\t24th  January,\t1991
\nsworn  by  Shivaji  D. Kadam,  Deputy  Controller,  Exchange
\nControl Department of the RBI explaining what steps the bank
\nhad taken after it received the Government of India’s letter
\nof  approval  together\twith a\tcopy  of  the  collaboration
\nagreement  dated 21st January, 1985.  Since the said  letter
\nwas  only  a  covering\tletter\ttaken  on  record  the\tsaid
\nagreement,  the bank had by its letter dated  7th  February,
\n1985   sought  copies  of  the\tearlier\t letters  from\t the
\nGovernment as they were of vital importance because  without
\nthose  letters\tit was not possible for the RBI\t to  proceed
\nunder  paragraph 24A.11 of the manual.\tThereafter  on\t14th
\nFebruary, 1985 the appellant reminded the RBI to forward its
\napproval  to  enable payment of the fees to  the  respondent.
\nAgain on
\n\t\t\t\t\t\t       81<\/span>
\n20th  February, 1985 1985 the appellant approached  the\t RBI
\nfor  sanction to remit the fees and enclosed  therewith\t the
\nGovernment  of india letters dated 18th June, 1984  and\t 4th
\nAugust,\t 1984  along with an application in  A-2  form.\t The
\nGovernment  of india also forwarded copies of the  said\t two
\nletters by a covering letter dated 1st March, 1985 which was
\ndelivered  to the RBI on 4th March, 1985. On the same day  a
\nnote was put up to the Staff Officer, Grade A, who observed:\n<\/p>\n
\t  “In view of the Government letter having now been
\n\t  received,  we\t may allow the remittance  of  U.S.$
\n\t  59.640 being the 1st instalment of technical know-<\/p><\/blockquote>\n
\t  how fees.”
\nThe Exchange Control Officer then said :\n<\/p>\n
\t  “We\tmay  allow the remittance  of  U.S.$  59.640
\n\t  being 1st instalment of know-how fees”.\n<\/p>\n
This  final  note  of  the  Exchange  Control  Officer\t was
\ncountersigned by the Assistant Controller on 6th March, 1985
\nThe  deponent  fairly  clarifies  that\t“as  per  the\t RBI
\npractice,  the permission under para 24A.11, that is,  grant
\nof  sanction  under Section 28(1)(b) as well  as  permission
\nunder  section\t9  for allowing\t remittances  are  generally
\nauthorised  by the Assistant Collector.” It  becomes  clear
\nfrom this statement that the permission under Section  28(1)
\nand  the exemption under Section 9 are generally granted  by
\none and the same officer.\n<\/p>\n
     In the backdrop of the said facts we may now proceed to
\nconsider the main submission placed before us by counsel for
\nthe  appellant, namely, the agreement is rendered  void\t ab-
\ninitio\tfor want of permission under Section 28(1) of  FERA.
\nIt is only if we accept the contention that in fact the\t RBI
\nhad not granted any permission under Section 28(1) that\t the
\nquestion  of the agreement having been rendered void by\t the
\nthrust\tof  Section 28(2) would arise. And the\tquestion  of
\nsurvival   of  the  arbitration\t clause\t contained  in\t the
\nAgreement notwithstanding the agreement having been rendered
\nvoid by Section 28(2), would arise thereafter.\n<\/p>\n
     On a plain reading of Section 28(1) it is clear that it
\nopens  with the words “without prejudice to the  provisions
\nof  Section 47”, which in turn says that “no person  shall
\nenter into any contract or agreement which would directly or
\nindirectly  evade or avoid in any way the operation  of\t any
\nprovisions  of\tthe Act or of any rule, direction  or  order
\nmade thereunder.” Contravention of any provision of the Act
\n(other
\n\t\t\t\t\t\t       82<\/span>
\nthan  Section  13,  18(1)(a) and 19(1)(a) or  of  any  rules
\ndirections  or\torder  made thereunder,\t is  made  penal  by
\nSection\t 50.  Secondly,\t the said Section  28(1)  places  an
\nembargo\t on  a\tresident outside India or a  person  who  is
\nresident in india but is not a citizen of India or a company
\n(other\tthan  a banking company) which is  not\tincorporated
\nunder any law in force in India or in which the non-resident
\ninterest  is more than 40% or any branch of such company  to\n<\/p>\n
(a)  act or accept appointment, as   agent in india  or\t any
\nperson or company, in the trading or commercial transactions
\nof such person or company; or (b) act or accept appointment,
\nas a technical or management adviser in India of any  person
\nor company except with the general or special permission  of
\nthe  Reserve  Bank.  Admittedly\t there\texisted\t no  general
\npermission and, therefore, special permission must be  shown
\nto  prove  satisfaction\t of  the  requirement  of  the\tsaid
\nprovision. Under Sub-section (2) where any person  mentioned
\nin sub-section (1) acts or accepts appointment as such agent
\nor  technical\/management adviser without the  permission  of
\nthe   RBI,  such  acting  or  appointment  shall  be   void.
\nTherefore, let us first focus our attention on the  question
\nwhether\t or not the RBI’s permission was obtained in  regard
\nto the collaboration agreement in question ?\n<\/p>\n
     Section 28(1) places restrictions on the appointment of
\ncertain individuals and companies as technical or management
\nadviser\t in  India  unless the RBI approves the\t same  by  a
\ngeneral or special permission. The section is silent on\t the
\nmode  and manner of securing such permission. However,\tsub-
\nsection (4) of Section 73 provides that where any  provision
\nof the Act requires the RBI’s permission for doing  anything
\nunder such provision, the RBI may specify the form in  which
\nan  application for such permission shall be made.  In\tthis
\nconnection it is essential that we notice paragraphs  24A.11
\nand 25A.2 at this stage. These two paragraphs read as  under
\n:\n<\/p>\n
\t  “24A.11. Persons, firms and companies wishing  to
\n\t establish new industrial units or  expand\/diversify
\n\t existing units with foreign technical collaboration
\n\t should apply on prescribed form to the\t Secretariat
\n\t for  Industrial  Approvals  (SIA),  Department\t  of
\n\t Industrial  Development, Government of\t India,\t New
\n\t Delhi,\t for  approval. In case where  proposal\t for
\n\t collaboration is approved by Government, Government
\n\t will issue its letter of approval to the  applicant
\n\t indicating the terms. The applicant may  thereafter
\n\t execute   the\tcollaboration  agreement  with\t the
\n\t collaborators\tstrictly  in  accordance  with\t the
\n\t approved terms and furnish requisite
\n\t\t\t\t\t\t       83<\/span>
\n\t number\t of copies of the agreement  to\t Government.
\n\t Government will take the agreement on record if  it
\n\t is in conformity with the approved terms and advise
\n\t the  applicant\t accordingly  under  intimation\t  to
\n\t Reserve  Bank. Reserve Bank will  thereafter  issue
\n\t its  formal  authorization under  Foreign  Exchange
\n\t Regulation  Act, 1973, to the\tapplicant.  Although
\n\t the  rendering\t of technical advisory\tservices  by
\n\t foreign  collaborators under foreign  collaboration
\n\t agreements approved by government attracts  Section
\n\t 28(1)(b) of Foreign Exchange Regulation Act,  1973,
\n\t it   will  not\t be  necessary\t for   the   foreign
\n\t collaborators to seek Reserve Bank permission under
\n\t the Section separately. Accordingly, while granting
\n\t approval  for foreign collaboration,  Reserve\tBank
\n\t will confirm that the approval will also be  deemed
\n\t to   be  the  Bank’s  permission  to  the   foreign
\n\t collaborators\tunder  this  section  for  rendering
\n\t technical services to the Indian company  concerned
\n\t under the collaboration agreement. Permission given
\n\t under\tthis Section is, however, without  prejudice
\n\t to  the  decision  that the Bank may  take  on\t the
\n\t foreign company’s application, if any under section
\n\t 28(1)(c)  of the Act for use by the Indian  company
\n\t of  foreign  trade  mark(s)  involving\t direct\t  or
\n\t indirect consideration.”
\n\t  “25A.2.   Under  Section  28(1)(b)\tof   Foreign
\n\t  Exchange  Regulation Act, 1973, it  is  obligatory
\n\t  for  foreign\tcompanies to  obtain  permission  of
\n\t  Reserve Bank for acting or accepting\tappointment,
\n\t  as technical or management adviser in India of any
\n\t  person  or company. Reserve Bank’s  permission  is
\n\t  also\tnecessary under Section 28(3) of the Act  in
\n\t  case\twhere appointments  as\ttechnical\/management
\n\t  advisers were held by such foreign companies since
\n\t  prior to the coming into force of the Act i.e. 1st
\n\t  January,  1974  and  are  continuing\t thereafter.
\n\t  Applications for permission in either case  should
\n\t  be  submitted to Reserve Bank in form FNC5.  These
\n\t  provisions   are   also  applicable\tto   foreign
\n\t  collaborators rendering technical advice to Indian
\n\t  firms and companies under collaboration agreements
\n\t  approved  by Government of India. While,  however,
\n\t  communication\t  approval  for\t new   collaboration
\n\t  agreements  between Indian companies and  overseas
\n\t  collaborators,  Reserve  Bank\t will\tspecifically
\n\t  indicate  that  the  approval\t also  permits\t the
\n\t  foreign collaborator to render technical advice to
\n\t  the
\n\t\t\t\t\t\t       84<\/span>
\n\t Indian\t company and separate approval need  not  be
\n\t sought\t by  the  former  from\tReserve\t Bank  under
\n\t Section 28(1)(b) of the Act.”
\nThe   appellant’s  contention  that  the   application\t for
\npermission  under Section 28(1) ought to have been  made  in
\nthe  prescribed\t form  FNC5 and\t since\tadmittedly  no\tsuch
\napplication  was  made by either party there  was  no  valid
\npermission  approving  the contract and hence by  virtue  of
\nSection 28(2) the contract was rendered void ab-initio. On  a
\nplain reading of paragraph 24A.11 it becomes clear that\t the
\nintention  is  to  introduce the single\t counter  or  window
\nprocedure  to avoid duplication and hardship to the  foreign
\ncollaborators. Once the collaboration is approved by SIA, as
\nin the present case, and the agreement is `taken on  record’
\nthere  is no need to obtain a separate permission  from\t the
\nRBI.  Paragraph 9 of the Guidelines for Industries  explains
\nwhat  is  meant by the expression `Taking of  Agreements  on
\nRecord’ and its import thus:\n<\/p>\n
\t  `The approvals given for foreign collaboration are
\n\t valid\tfor a period of six months from the date  of
\n\t issue. In case the terms of collaboration  approved
\n\t by  Government are acceptable to the Indian  party,
\n\t an intimation in this regard has to be sent by\t him
\n\t to  the  concerned  administrative  Ministry.\t The
\n\t Indian\t party\tcan then execute  the  collaboration
\n\t agreement  with  the collaborator which  should  be
\n\t strictly  in accordance with the terms approved  by
\n\t the  Government.  Ten copies of  the  collaboration
\n\t agreement  so\texecuted   all of  which  should  be
\n\t signed by both the collaborating parties are to  be
\n\t furnished  to\tthe  administrative  Ministry.\t The
\n\t collaboration\tagreement  is  scrutinised  by\t the
\n\t administrative\t Ministry  and\tis found  to  be  in
\n\t accordance with the terms specifically approved  by
\n\t Government is taken on record and an intimation  is
\n\t sent to the party. A copy of the agreement is\tthen
\n\t transmitted  to the Reserve Bank of  India  through
\n\t the  Ministry\tof Finance (Department\tof  Economic
\n\t Affairs)  on the basis of which remittances to\t the
\n\t foreign collaborator are authorised by the  Reserve
\n\t Bank  of India. Representations against  the  terms
\n\t and  conditions  of collaboration approved  by\t the
\n\t Government   are   sent   by\tthe   SIA   to\t the
\n\t administrative\t Ministry\/Department concerned\twith
\n\t the  item of manufacture who will continue to\tdeal
\n\t with  such  representations  and  take\t appropriate
\n\t action.”
\n\t\t\t\t\t\t       85<\/span>
\nIt  will be seen from the above that after the agreement  is
\ntaken on record a copy thereof has to be sent to the RBI  to
\nenable\t it   to  authorise  remittances  to   the   foreign
\ncollaborator.  In the present case the appellant had  sought
\nthe  SIA  approval  which was granted  on  18th\t June,\t1984
\nsubject to the terms and conditions set out in the letter of
\napproval.  It  was only thereafter that\t the  agreement\t was
\nexecuted on 25th September, 1984. The appellant then sent  a
\ncopy  of  the agreement to the Government of  India  by\t the
\nletter\tof 5th October, 1984 which was duly examined in\t the
\nlight of the terms and conditions on which the approval\t was
\ngranted\t under\tthe letter of 18th June,  1984\tand  certain
\ndiscrepancies  were  communicated  to the  appellant  by  he
\nMinistry  of Industry, Department of Heavy  Industry,  which
\nnecessitated the execution of the supplementary agreement of
\n29th  December,\t 1984.\tIt  was\t only  thereafter  that\t the
\nsaid  department by the letter of 15 January  1985  informed
\nthe  appellant\tthat  the collaboration\t agreement  and\t the
\nsupplementary  agreement `have been taken on  record’.\tThis
\nwas  then  forwarded to the RBI which the bank\treceived  on
\n21st  January, 1985. We have already indicated\tearlier\t how
\nthe matter was processed by the RBI before the remittance of
\nthe first instalment of the fees of U.S. $ 59,640 could take
\nplace  after  the income-tax was duly recovered\t at  source.
\nParagraph  7  of the RBI’s affidavit dated  18th  September,
\n1990  extracted earlier and the details of the action  taken
\nby  the\t RBI as disclosed in the further affidavit  of\t24th
\nJanuary,  1991\tleave  no  doubt  that\tthe  remittance\t was
\npermitted  only\t after the RBI was satisfied  that  all\t the
\nterms  and  conditions\twere duly satisfied.  To  place\t the
\nmatter beyond the pale of doubt, the further affidavit field
\non behalf of the RBI carries the following statement.
\n\t  “As\tper the practice of the RBI, the  permission
\n\t  under\t para  24A.11, that is,\t grant\tof  sanction
\n\t  under Section 28(1)(b) as well as permission under
\n\t  Section  9 for allowing remittances are  generally
\n\t  authorised by the Assistant Controller.”
\nThis  statement places the question regarding the  grant  of
\npermission under Section 28(1) beyond doubt. The  affidavits
\nfile  on  behalf of the RBI show that  the  RBI’s  approval
\n`remained  to  be communicated’ to  the\t appellant  company.
\nFailure to discharge the ministerial duty cannot  obliterate
\nthe conscious decision taken by the RBI after application of
\nmind.\n<\/p>\n
     But counsel for the appellant stressed that  the  facts
\nplaced\ton  record clearly reveal that\tno  application\t for
\npermission  under Section 28(1) was made in  the  prescribed
\nFNC5 as contemplated by paragraph
\n\t\t\t\t\t\t       86<\/span>
\n25A.2 of the manual. It is indeed true that the record\tdoes
\nnot disclose making of an application in the said prescribed
\nform  by either party to the agreement. Counsel,  therefore,
\nsubmitted  that\t once it is found that\tno  application\t for
\npermission  was\t ever  made  in\t the  prescribed  form,\t the
\nprovisions of sub-section (2) and (3) of Section 47 of\tFERA
\ncannot\tsave  the  agreement declared void  by\tthe  statute
\nitself.\t He further submitted that the case was governed  by
\nparagraph  25A.2  and  not 24A.11 and  hence  making  of  an
\napplication  in the prescribed FNC5 form was imperative\t and
\nfailure\t to do so raised a clear inference that the RBI\t had
\nnot  granted  permission under Section 28(1)  since  it\t had
\nnever  been  approached for such permission.  he  emphasised
\nthat the prescribed form for SIA `approval’ under  paragraph
\n24A.11 is not the same as FNC5 and hence the  administrative
\ndirection  in  the  said  paragraph that  `it  will  not  be
\nnecessary for the foreign collaborators to seek Reserve Bank
\npermission  under this section separately’  cannot  override
\nthe  statutory requirement of Section 28(1).  The  statutory
\nduty cast on the RBI by Section 28(1) cannot be abdicated by
\nthe  RBI  by  the  deeming  clause  contained  in  paragraph
\n24A.11(i)  extracted  earlier. To  buttress  the  submission
\ncounsel\t invited our attention to two cases,  viz.,  (i)M\/s.
\nDhanrajmal Gobindram v. M\/s. Shamji Kalidas & Co.,<\/a> (1961)  3
\nSCR 1020 and (ii) LIC of India v. Escorts Ltd. & Ors. [1986]
\n1  SCC\t264 at 318 (Para 69) wherein this  Court  held\tthat
\nparagraph  24A.\t I was merely an  explanatory  statement  of
\nguideline for the benefit of the authorised dealers and\t was
\nneither\t a statutory direction nor a mandatory\tinstruction.
\nOn the other hand counsel for the respondent argued that the
\nRBI’s action in regard to grant of permission under  Section
\n28(1)  being  essentially  administrative=see  Shri  Sitaram
\nSugar Co. Ltd. & Anr. v. U.P.State Sugar Corporation Ltd.  &<\/a>
\nanr.  [1990] 3 SCC 223 at page 246-247 it is enough to\tshow
\nthat the RBI had granted the permission no matter whether it
\nhad  followed the procedure of paragraph 24A.11(i) or  25A.2
\nof the manual. We think there is considerable force in\tthis
\ncontention for the simple reason that we are concerned\twith
\nthe  factum of permission and not the procedure followed  by
\nthe RBI for granting the same. The prescription of the\tform
\nis  merely  to aid the RBI to process  the  application\t for
\npermission.  Emphasis must be laid on substances and not  on
\nmere  form. If there has been substantial compliance, as  in
\nthis case, the mere lapse on the part of the RBI in  failing
\nto  communicate\t its  decision should  make  no\t difference.
\nParagraph 25A.2 is not in derogation of paragraph  24A.11(i)
\nnor  does it dilute th requirement of Section 28(1). In\t any
\ncase  the facts of the present case clearly reveal that\t the
\nRBI  had  applied  its\tmind to the  question  of  grant  of
\npermission  and had only thereafter permitted remittance  of
\nthe  first  instalment of the fees payable
\n\t\t\t\t\t\t       87<\/span>
\nto the foreign collaborator. Merely because application\t for
\nsuch  permission was not made in FNC5 form cannot cloud\t the
\nfact that the decision to grant the permission was  actually
\ntaken but the ministerial function of communicating the same
\nremained  to be done by oversight. This lapse  cannot  erase
\nthe  decision  already\ttaken. We  are,\t therefore,  of\t the
\nopinion that the RBI had granted the permission contemplated
\nby Section 28(1) and hence the agreement cannot be voided by
\nvirtue\tof Section 28(2) of FERA. It is not the case of\t RBi
\nthat it at any time had second thoughts about its action. It
\nnever contemplated withdrawal of the permission at any point
\nfor  time  thereafter.\tOnce  the  decision  to\t grant\t the
\npermission is taken, whether through the course\t charted  by
\nparagraph  24A.11(i) or 25A.2, that decision  stands  unless
\nrescinded  and\tthe  authorities are bound  to\tact  in\t aid
\nthereof.\n<\/p>\n
     In\t the view that we take it is unnecessary to  examine
\nthe  question  whether clause 12.1 of  the  agreement  would
\nstand  or  perish if the agreement is  rendered\t void  under
\nSection 28(2) for failure to secure permission under Section
\n28(1).\tSince  we have come to the conclusion that  the\t RBI
\npermission  was\t in fact secured under\tSection\t 28(1),\t the
\nsecond\tquestion recedes in the background.  We,  therefore,
\nneed not examine the same.\n<\/p>\n
     Before  we part we are constrained to observe  that  we
\nwere  pained  at  the  attitude\t of  the  appellant  company
\nattempting  to thwart a valid agreement, part  performed  by
\nthe  payment  of  the first  instalment,  on  hypertechnical
\ngrounds,  an attitude which would scare\t away  collaborators
\nand  tarnish the image and credibility of our  entrepreneurs
\nabroad.\t We  do hope the appellant company will\t honour\t its
\nobligations  under the agreement and settle its\t differences
\nwith  the  respondent across the table\tin  a  business-like
\nmanner rather than litigate.\n<\/p>\n
     For  the aforesaid reasons we dismiss this appeal\twith
\ncost. Cost quantified at Rs.5000.\n<\/p>\n
N.P.V.\t\t\t\t       Appeal dismissed\n\t\t\t\t\t\t       88<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Burn Standard Company Limited vs Mcdermott International Inc. And … on 3 April, 1991 Equivalent citations: 1991 AIR 1191, 1991 SCR (2) 67 Author: Ahmadi Bench: Ahmadi, A.M. (J) PETITIONER: BURN STANDARD COMPANY LIMITED Vs. RESPONDENT: McDERMOTT INTERNATIONAL INC. AND ANOTHER DATE OF JUDGMENT03\/04\/1991 BENCH: AHMADI, A.M. (J) BENCH: AHMADI, A.M. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-243899","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nBurn Standard Company Limited vs Mcdermott International Inc. 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