New Delhi, August 10: The Delhi High Court has directed the Reserve Bank of India to permit Jindal Steel and Power Ltd. to send $54.99 million to its Mauritius subsidiary. However, that’s subject to two undertakings—that the company has unencumbered assets worth $60 million and it won’t sell such assets without the court’s approval.
To be sure, RBI regulations allow an Indian company to make direct investments in a wholly-owned subsidiary under the automatic route, subject to certain norms. However, entities that do not fulfil the prescribed criteria must seek prior approval from the central bank before making such investments.
The case emanates from loans worth $307 million given by lenders to Jindal Steel and Power’s overseas subsidiaries. Its Mauritian subsidiary—Jindal Steel and Power (Mauritius) Ltd.—entered into a restructured payment agreement with lenders in 2018, entailing a payment of $153 million by March 2020.
The company sought the central bank’s approval for transfer of funds to its Mauritian subsidiary for fulfilment of debt obligations. The central bank, however, denied approval in December citing certain reservations expressed by the Enforcement Directorate. This refusal prompted the company to file a writ petition seeking directions to the RBI and the investigating agency for permitting the remissions.
Through an interim order, the Delhi High Court directed the central bank to permit a transfer of $90 million by June 30. The company also filed a separate application on similar grounds seeking the court’s directions for remission of amount against the second tranche of repayments falling due on July 31, Bloomberg reported.
A bench comprising Justice Jayant Nath observed that the central bank relied on “cryptic information” given by the Enforcement Directorate for withholding the permission to the steelmaker. The RBI should have exercised its discretion instead of delegating it to the investigating agency, the court said in its order.