1995 (11) TMI 352 - HC - Companies Law

Restrictions on payments, Power to search suspected persons or seize documents, Power to arrest, Power to search premises, Power to summon persons to give evidence and produce documents, Power to adjudicate

Summary

Issues Involved
1. Legality of the search and seizure conducted by the Enforcement Directorate under the Foreign Exchange Regulation Act (FERA).
2. Validity of the arrest and detention of the petitioners by the Enforcement Directorate.
3. Timeliness and validity of the show-cause notice issued by the Enforcement Directorate.
4. Constitutionality of Section 40 of the FERA.
5. Return of the seized currency and other documents.
6. Allegations of mala fide actions and procedural violations by the Enforcement Directorate.

Detailed Analysis

1. Legality of the Search and Seizure
The petitioners argued that the search and seizure conducted on May 10, 1994, were illegal, lacking "reason to believe" as required under Section 37 of the FERA. They contended that the Enforcement Officers acted without credible information, and the search was a fishing expedition. The respondents countered by stating that the search was based on reliable information and conducted in accordance with the law. The court examined the legal standards for "reason to believe" and concluded that the Enforcement Officers had sufficient grounds for their actions. The court noted that the belief must be held in good faith and cannot merely be a pretense. The court found that the respondents had a reasonable belief based on the materials available to them, and the search and seizure were justified.

2. Validity of the Arrest and Detention
The petitioners claimed that they were illegally arrested and detained for over 30 hours without being produced before a Magistrate, violating Article 21 of the Constitution and Section 35 of the FERA. The respondents denied these allegations, stating that the petitioners were summoned for questioning and were not arrested. The court noted that the second petitioner in W.P. No. 9539 of 1994 did not file an affidavit alleging arrest or detention, and the petitioners in W.P. No. 9380 of 1994 were summoned and not detained. The court found no evidence to support the claim of illegal detention and concluded that the Enforcement Officers acted within their powers.

3. Timeliness and Validity of the Show-Cause Notice
The petitioners argued that the show-cause notice issued on October 20, 1994, but served only on January 11, 1995, was beyond the six-month period and therefore invalid. The respondents contended that the notice was issued within the stipulated time, and the delay in service was due to the petitioner's non-availability. The court held that the issuance of the show-cause notice within six months was sufficient to initiate proceedings, and the delay in service did not invalidate the notice. The court relied on the presumption of service of a letter sent under registered cover and found no fault with the respondents' actions.

4. Constitutionality of Section 40 of the FERA
Although the petitioners initially questioned the constitutionality of Section 40 of the FERA, they reserved this argument to be raised in another case. Consequently, the court did not address the constitutionality of Section 40 in this judgment.

5. Return of the Seized Currency and Other Documents
The petitioners sought the return of the seized currency, arguing that it represented legitimate trade balance and that the Enforcement Directorate had no authority to retain it. The respondents maintained that the currency was seized based on reasonable belief of a violation of the FERA. The court found that the seizure was justified and that the currency could be retained for the purpose of adjudication. The court also noted that Indian currency is considered a "document" under the FERA for the purposes of search and seizure.

6. Allegations of Mala Fide Actions and Procedural Violations
The petitioners alleged that the Enforcement Officers acted with mala fide intentions, violated procedural fairness, and misused their powers. The court examined these allegations and found that the Enforcement Officers acted in good faith and within the scope of their statutory powers. The court dismissed the claims of mala fide actions and procedural violations, concluding that the Enforcement Directorate's actions were lawful and justified.

Conclusion
The court dismissed Writ Petition No. 9380 of 1994, Writ Petition No. 9539 of 1994, and Writ Appeal No. 679 of 1995, finding no merit in the petitioners' claims. The court upheld the legality of the search and seizure, the validity of the show-cause notice, and the actions of the Enforcement Directorate. The court also dismissed the miscellaneous petitions filed in connection with the main writ petitions.