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2012 (2) TMI 400 - HC - FEMAFERA Act, 1973 violation of the provisions of Sections 8(3) and 8(4) of the Act by four companies - whether banks and their respective employees can be held guilty of abetting Companies for such violation fresh LC opened even on failure to file BE for prior import - remittance of substantial amounts of foreign exchange against large number of confirmed L/Cs failure to scrutinse defective import documents Third bench of Tribunal held in negative Held that - The order passed by the Third Member, besides being cryptic, does not take note of all the materials which were on the record of the adjudication proceedings. Therefore, impugned order of the Tribunal based on the decision rendered by the third Member on the points of difference, should be set aside and the appeals be remanded back for hearing afresh Decided in favor of assessee.
Issues Involved:
1. Alleged violation of Sections 8(3) and 8(4) of the Foreign Exchange Regulation Act, 1973 (FERA) by four companies. 2. Alleged abetment by banks and their officials in the contravention of FERA provisions. 3. Difference of opinion among Appellate Tribunal members regarding the banks' and their officials' liability. 4. Adjudication by a third member of the Tribunal. 5. Appeal against the Tribunal's decision by the Union of India. Detailed Analysis: 1. Alleged Violation of Sections 8(3) and 8(4) of FERA by Four Companies: The Special Director in the Enforcement Directorate issued show cause notices to four companies (Hamco Mining and Smelting Ltd., Dravya Industrial Chemicals Ltd., Nariman Point Chemical Industries Ltd., and Hindustan Industrial Chemicals Ltd.) for remitting foreign exchange abroad without genuine documents of title and without the goods arriving in India. The companies were found to have fabricated documentary evidence and failed to make actual imports despite remittances. 2. Alleged Abetment by Banks and Their Officials: The banks and their officials were alleged to have abetted the Hamco Group of Companies in contravening FERA provisions through acts of gross negligence. The banks continued to open Letters of Credit (LCs) and remit funds abroad despite discrepancies in Bills of Lading and the non-submission of Bills of Entry. The banks also received large amounts under the guise of insurance claims without proper verification. 3. Difference of Opinion Among Appellate Tribunal Members: The Appellate Tribunal had differing opinions on whether the banks and their officials abetted the contravention. The Chairperson believed the banks' actions were remote and not closely connected to the contravention, while the other Member held that the banks were guilty of abetment due to their failure to scrutinize documents and continued remittances despite discrepancies. 4. Adjudication by a Third Member of the Tribunal: The third Member concluded that the banks and their officials had not abetted the contravention of Sections 8(3) and 8(4) of FERA. The Member reasoned that the receipt of Bills of Entry and insurance claims occurred after the remittances, thus abetment could not be established post facto. 5. Appeal Against the Tribunal's Decision by the Union of India: The Union of India contended that the third Member failed to consider the entirety of the material on record and erroneously applied the standard of proof akin to a criminal offence. The Union argued that the banks' continued remittances despite discrepancies and lack of proper documentation indicated abetment. Court's Conclusion: The High Court found merit in the Union of India's submission that the third Member did not fully consider the evidence and circumstances. The Court set aside the Tribunal's order dated 12 October 2009 and remanded the Appeals back to the Tribunal for fresh consideration. The Court clarified that its judgment should not be seen as an expression of opinion on the merits of the allegations, which the Tribunal should determine upon restoration of the Appeals. The Court did not answer the substantial question of law due to the remand. Orders: 1. The impugned order of the Appellate Tribunal dated 12 October 2009 is set aside. 2. The Appeals are remanded back to the Tribunal for fresh consideration. 3. The orders regarding waiver of deposit and stay shall continue during the pendency of the Appeals before the Tribunal. 4. The Civil Applications are disposed of as they do not survive.
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