2008 (2) TMI 809 - HC - FEMA

Adjudication - Hearing - Delay when fatal - Writ petition - Alternative remedy - Show cause notice - Grounds - Foreign exchange violation

Summary

Issues Involved:

1. Quashing of proceedings before the Enforcement Directorate.
2. Validity of the show cause notice issued under FERA.
3. Delay in the initiation of proceedings.
4. Allegation of abetment through negligence.
5. Jurisdiction of the High Court under Article 226.

Detailed Analysis:

1. Quashing of Proceedings Before the Enforcement Directorate:

In this batch of writ petitions, directions were sought from the Court to quash the proceedings before the Enforcement Directorate concerning a memorandum of show cause dated 24th February 1995. The petitioners, who were employees of Standard Chartered Bank, were accused of contravening Section 8(1) of the Foreign Exchange Regulation Act, 1973 (FERA) and were liable to be prosecuted under Section 50 of the FERA.

2. Validity of the Show Cause Notice Issued Under FERA:

The show cause notice alleged that the petitioners abetted the offence through negligence by not ensuring the legality of the foreign exchange being deposited. The petitioners contended that the notice was based on a clarificatory circular issued by the RBI in 1995, which did not exist at the time of the alleged irregularities in 1992. The Court found that the notice lacked specific allegations and was issued without proper guidelines in place at the time of the offence, making it ex post facto imposition of liability.

3. Delay in the Initiation of Proceedings:

The petitioners argued that the initiation of proceedings after an unexplained lapse of ten years was arbitrary and indicative of non-application of mind by the respondents. The Court agreed, stating that the revival of proceedings without disclosing reasons for the delay was unlawful and arbitrary. The duty to give reasons is a sine qua non of any executive action, and the absence of such reasons rendered the action liable to be struck down.

4. Allegation of Abetment Through Negligence:

The petitioners contended that the concept of abetment through negligence is alien to law. The Court supported this view, stating that abetment requires intention, knowledge, or wilful omission, none of which are implied by negligence. The Court referred to various Supreme Court decisions, including Ramesh Kumar v. State of Chhatisgarh and State of Haryana v. Jaswinder Singh, to emphasize that negligence does not constitute abetment under the legal definition.

5. Jurisdiction of the High Court Under Article 226:

The respondents argued that the petition was not maintainable due to the existence of alternative remedies under Section 52 of the FERA. However, the Court held that the power under Article 226 is wide and should be exercised to reach injustice wherever found. The Court cited the Supreme Court's decision in Dwarkanath v. ITO and other cases to assert that the availability of alternative remedies does not mechanically reject the power of judicial review under Article 226.

Conclusion:

The Court quashed the impugned notices and all proceedings pursuant to them, stating that the revival of proceedings after a ten-year delay without explanation was unlawful and arbitrary. The Court also held that negligence does not constitute abetment under the law, and the show cause notice lacked specific allegations and was based on guidelines not in place at the time of the alleged offence. The writ petitions were allowed, and no costs were awarded.