2012 (11) TMI 879 - HC - FEMA

Waiver of pre-deposit undue hardship alleged that said to have received an amount from persons working in Kuwait in contravention of Section 9(1)(b) and are also said to have made payments in contravention of Section 9(1)(d) of Foreign Exchange Regulation Act, 1973 Held that - For a hardship to be undue it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it. - The word undue adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant. The other aspect relates to imposition of conditions to safeguard the realisation of penalty. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the realisation of penalty. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the realisation of penalty. Undue hardship As per Section 50 of FERA, the penalty shall be upto five times of the alleged violation. Even though the alleged contravention by the appellant is to the extent of more than Rs.5 Crores, the adjudicating authority/Additional Commissioner imposed only a penalty of Rs.1.25 Crores. The Appellate Tribunal has directed the appellant to deposit 5% of the penalty amount - there is no improper exercise of discretion to entertain this appeal. It cannot be said that the impugned order has caused undue hardship to the appellant warranting interference with the order

Summary

Issues Involved:
1. Validity and sustainability of the ex-parte order by the Adjudicating Authority.
2. Legality of the Appellate Tribunal's upholding of the Adjudicating Authority's order.
3. Prima facie case for issuing the show cause notice under FERA.
4. Justification of the Appellate Tribunal's conditional order to deposit 5% of the penalty.

Issue-wise Detailed Analysis:

1. Validity and Sustainability of the Ex-parte Order:
The appellant challenged the ex-parte order passed by the Adjudicating Authority, which was upheld by the Appellate Tribunal. The appellant contended that the order was passed without proper notice and opportunity to be heard. The show cause notice issued on 1.3.1999 was replied to by the appellant through their advocate denying the allegations. The appellant requested cross-examination of other accused and implicated third parties. The notice for personal hearing on 18.12.2003 was returned undelivered. The Adjudicating Authority proceeded ex-parte, imposed a penalty of Rs.1.25 Crores, and concluded that the appellant contravened Sections 9(1)(b), 9(1)(d), and 9(3) of FERA.

2. Legality of the Appellate Tribunal's Upholding of the Adjudicating Authority's Order:
The appellant argued that the Appellate Tribunal acted improperly by upholding the ex-parte order, violating Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974. The tribunal dismissed the appeal for non-compliance with the pre-deposit order. The High Court noted that the Appellate Tribunal exercised its discretion judiciously in directing the appellant to deposit only 5% of the penalty, considering undue hardship and safeguarding the realization of the penalty.

3. Prima Facie Case for Issuing the Show Cause Notice under FERA:
The appellant questioned whether a prima facie case existed for issuing the show cause notice under Sections 9(1)(b), 9(1)(d), 9(3), and 8(2) of FERA. The High Court observed that the appellant received and made payments in contravention of FERA provisions. The Adjudicating Authority, based on available materials and the appellant's reply, concluded that the appellant contravened the provisions, justifying the issuance of the show cause notice.

4. Justification of the Appellate Tribunal's Conditional Order to Deposit 5% of the Penalty:
The appellant contended that the direction to deposit 5% of the penalty caused undue hardship. The High Court referred to Section 52(2) of FERA and Section 19 of FEMA, which allow the Appellate Tribunal to dispense with the deposit conditionally. The tribunal exercised its discretion, waiving 95% of the penalty and directing a 5% deposit. The High Court found no improper exercise of discretion and concluded that the order did not cause undue hardship warranting interference.

Conclusion:
The High Court dismissed the appeal, upholding the Appellate Tribunal's order directing the appellant to deposit 5% of the penalty. The court found that the tribunal exercised its discretion judiciously and that no undue hardship was caused to the appellant. The appeal was dismissed with no order as to costs, and the connected miscellaneous petition was also dismissed.