RBI’s Approval for Share Allotment Against Import of Second-Hand Medical Equipment Upheld: Calcutta High Court

The Calcutta High Court has dismissed an intra-court appeal challenging the Reserve Bank of India’s (RBI) decision permitting the allotment of equity shares to a non-resident Indian (NRI) investor against the import of second-hand medical equipment, holding that the central bank acted within its statutory authority and in accordance with prevailing government policy. The Bench of Justice Madhuresh Prasad and Justice Supratim Bhattacharya upheld the RBI’s speaking order dated 7 May 2004, which allowed the issuance of over 30.55 lakh equity shares on a non-repatriation basis to Dr. Kamal Dutta, an NRI investor, under the provisions of the Foreign Exchange Regulation Act, 1973 (FERA). The dispute arose from the incorporation of Ruby General Hospital Company Limited in 1991 for establishing a hospital-cum-diagnostic centre in Kolkata. The project envisaged substantial participation by NRIs, with approximately 88% of the project cost proposed to be funded through foreign investment. Dr. Kamal Dutta, one of the promoters and an NRI, contributed capital partly through the import of second-hand medical equipment purchased abroad using his own funds. Based on this contribution, the RBI granted permission in 1997 for allotment of shares. However, the approval witnessed multiple withdrawals, reconsiderations, and legal challenges over the years, culminating in the RBI’s final order dated 7 May 2004 granting approval for share allotment on a non-repatriation basis. The company and its then Managing Director, Sajal Dutta, challenged this approval before the Calcutta High Court, alleging violation of industrial policy norms, denial of natural justice, and adverse impact on shareholder rights. During the pendency of the writ proceedings, the company’s Board of Directors resolved in 2006 not to pursue the writ petition, following which the company withdrew from the case. Sajal Dutta, who had by then ceased to be Managing Director and remained only a shareholder, continued the litigation in his individual capacity. A key question before the Court was whether the writ petition was maintainable at the instance of an individual shareholder after the company had withdrawn from the proceedings. The High Court upheld the finding of the Single Judge that Sajal Dutta had the locus standi to maintain the writ petition. The Bench observed that the allotment of a substantial number of shares in favour of one promoter would directly alter the balance of shareholding and control within the company, thereby affecting the individual rights of another principal shareholder. Relying on settled Supreme Court jurisprudence, the Court reiterated that a shareholder is not barred from invoking writ jurisdiction where state action or statutory decisions directly impair individual rights, even if the company itself is also affected. On merits, the Court found no infirmity in the RBI’s decision. It noted that the import of second-hand capital goods was permissible under the prevailing EXIM Policy, subject to conditions. The RBI had relied on a Government of India policy directive dated 3 January 1994, which allowed capitalization of payments made by NRIs for second-hand capital goods, provided shares were issued on a non-repatriation basis. There was no outflow of foreign exchange by the company for importing the equipment, as the NRI investor had paid directly from abroad. The original SIA approval contemplating import of new capital goods through foreign remittances was not pursued, and therefore did not govern the transaction in question. The Bench held that the RBI had acted within its jurisdiction under Sections 19(1)(d) and 29(1)(b) of FERA, after considering relevant material and following government policy. Reiterating the settled principles governing judicial review, the Court observed that it would not sit in appeal over a decision of a statutory authority like the RBI unless there was evidence of mala fides, lack of jurisdiction, perversity, or violation of natural justice. Finding none of these grounds established, the Court declined to interfere with the RBI’s order. The Court also rejected arguments based on res judicata arising from earlier proceedings before the Company Law Board and the Supreme Court, noting that the issue of share allotment pursuant to RBI approval had been expressly left open. Further, the contention regarding alleged violations of FERA was dismissed, with the Court noting that FERA had already been repealed and replaced by the Foreign Exchange Management Act, 1999, and no actionable illegality was made out in the RBI’s decision. Dismissing the appeal, the Calcutta High Court upheld the judgment of the Single Judge and confirmed the RBI’s permission for share allotment. The connected cross-objection was also disposed of accordingly. Case Details Case Title: Sajal Dutta Versus Reserve Bank Of India And Ors. Case No.: APO 114 of 2016 Date: December 24, 2025 Counsel For Petitioner: S. N. Mookherjee, Sr. Adv. Counsel For Respondent: S. N. Mitra, Sr. Adv. Click Here To Read Order Read More: B2C Supplies Wrongly Reported As B2B: Karnataka High Court Allows Correction In GSTR 1

RBI’s Approval for Share Allotment Against Import of Second-Hand Medical Equipment Upheld: Calcutta High Court

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