2009 (5) TMI 548 - HC - Companies Law

Partly waiver of deposit towards pre-deposit - Held that - In the present case, the amount in the said bank accounts also stands frozen. Further no material has been placed before us to show that the appellant had actually operated the said account. In fact, as per the adjudicating authority itself had the appellant succeeded in showing that there was a will in existence as per which the funds in the accounts had been assigned to another person, the story would have been different. In view of this the appellant has succeeded in making out a prima facie case in its favour and the balance of convenience qua the deposit lies in the appellant s favour and insistence on the deposit of the same at this stage would cause undue hardship to the appellant. Accordingly,the order of the Appellate Tribunal dated 7-11-2008 set aside and the impugned order of the learned Single Judge dated 10-2-2009 and grant waiver of pre-deposit of penalty amount as a pre-condition for hearing of the appeal of the appellant under section 19(1) of FEMA. Matter remanded back .

Summary

Issues:
1. Appellant aggrieved by partial waiver of pre-deposit amount for appeal.
2. Allegations of contravention of FERA against the appellant.
3. Appellant claiming undue hardship for waiver under FEMA.
4. Interpretation of "undue hardship" under FEMA.
5. Lack of evidence on appellant's operation of the account.
6. Consideration of waiver based on prima facie case and undue hardship.

Analysis:
1. The appellant was aggrieved by the impugned order partially waiving the pre-deposit amount for the appeal. The Enforcement Directorate alleged the appellant's contravention of FERA, particularly section 8(1), related to repatriation of funds from foreign accounts. The penalty imposed was Rs. 2.75 crores for non-compliance with FERA procedures.

2. The appellant claimed undue hardship due to meager income, relying on income tax returns. The FEMA provision under section 19(1) allows for waiver if depositing the penalty causes undue hardship. The Supreme Court clarified "undue hardship" as excessive or disproportionate to the requirement, needing proof from the applicant.

3. The adjudicating authority found the appellant as the absolute owner of the funds post her father's death but lacked evidence of account operation. The absence of a will assigning funds to another person affected the case. The High Court held that the appellant made a prima facie case for waiver, considering the frozen accounts and lack of evidence on account operation.

4. The High Court emphasized that the appellant need not prove a strong case at the waiver stage but demonstrate a prima facie case and balance of convenience. The court found in favor of the appellant, setting aside previous orders and granting waiver of pre-deposit for the appeal under section 19(1) of FEMA. The matter was remanded to the Appellate Tribunal for Foreign Exchange for further adjudication.