"He who hears must decide" principle is inapplicable to institutional administrative decisions and FDI policy approvals.

In 1997, Appellant No. 1 (PCP), a German company, entered into a Joint Venture (JV) with Respondents 6 and 7, leading to the incorporation of Respondent No. 5 (PIP).

In 2004, a second JV agreement (JVA-II) was signed to increase PCP’s stake, but PCP terminated the agreement in 2005 and established a Wholly Owned Subsidiary, Appellant No. 2 (PCM).

PCP invested approximately ₹55 crores in PCM under the "automatic route," declaring it had no previous JV in the same field.

PIP challenged this, alleging violation of Press Note 1 (2005 Series), which requires prior Government approval if a foreign investor has an existing JV in the "same field".

In 2007, the Government found a prima facie violation of FDI policy.

PCP subsequently applied for ex-post facto approval in 2009.

A Committee constituted by the Foreign Investment Promotion Board (FIPB) heard both parties on 17.03.2010.

However, the Committee was later reconstituted, and a new Chairperson conducted the final meeting on 04.08.2010 without a fresh oral hearing.

Based on the Committee's recommendation that no "jeopardy" was caused to the Indian partner, the Government granted ex-post facto approval on 29.09.2010.

A Single Judge set aside this approval on 29.10.2024, citing a violation of natural justice as the Chairperson who heard the matter did not decide it.

PCP appealed this decision.

1. Whether the Government's decision to grant ex-post facto approval under Press Note 1 (2005 Series) constitutes a policy decision, and what is the permissible scope of judicial review under Article 226?

2. Whether the reconstitution of the Committee and the subsequent grant of approval without a fresh oral hearing by the new Chairperson violated the principles of natural justice?

The Court applied the guidelines of Press Note 1 (2005 Series) and Press Note 3 (2005 Series), which regulate foreign investment in existing JVs.

It relied on LIC v. Escorts Ltd. (1986), establishing that statutory "permission" may include ex-post facto validation unless the statute expressly requires "prior" or "previous" permission.

Regarding natural justice, the Court distinguished Gullapalli Nageswara Rao v. APSRTC (1959), which held "he who hears must decide" in quasi-judicial contexts.

It instead applied the doctrine of "Institutional Decisions" as discussed in Ossein and Gelatine Manufacturers' Assn. v. Modi Alkalies (1989) and Kalinga Mining Corpn. v. Union of India (2013), which permits administrative decisions to be reached through departmental processes where the decision-maker is the institution rather than a specific officer.

The Court reasoned that granting FDI approval is a policy decision aimed at the "ease of doing business" and national economic interest.

Judicial review of such decisions is limited to instances of constitutional violation, malice, or gross arbitrariness.

The Court found that the FIPB and its Committee were merely recommendatory bodies aiding the Government's administrative function.

Unlike quasi-judicial proceedings (e.g., blacklisting), where the "he who hears must decide" rule is stringent, the current matter involved an "institutional decision".

The Court noted that the reconstituted Committee considered all previous minutes, written representations, and inter-departmental opinions before concluding that the Indian partner suffered no "jeopardy".

It held that in administrative policy matters, a written representation often suffices, and since the material facts were known to all parties, the lack of a second oral hearing by the new Chairperson did not vitiate the process.

The Court held that the ex-post facto approval dated 29.09.2010 was a valid administrative/policy decision that did not suffer from procedural infirmity.

The Court concluded that the requirements of natural justice were met as the parties had ample opportunity to submit written evidence and were heard by the initial Committee, whose records were considered by the final decision-making authority.

The Government's approval was restored.