2013 (8) TMI 435 - HC - FEMA

Violation of FEMA - Imposition of Penalty - Definition of Person u/s 2(u) - penalty was imposed on the President of the Board of Control for Cricket in India for the violation of the Act Held that - The material on record was sufficient to take the view that the petitioner himself was not in charge of and responsible for opening and operating the bank accounts involving receipts and remittances of foreign exchange to parties outside India, it would be necessary for the adjudicating authority to form an opinion whether the petitioner could at all be considered as covered by the substantive part of Section 42(1) of the Act and further, even if the answer was in the affirmative, whether the petitioner should be called upon to prove that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention - The definition of person U/s 2(u) of the Act was an inclusive one and, therefore, BCCI as well as Governing Council for IPL were persons within the definition of Section 2(u) of the Act. It was the case of the petitioner, which was not contradicted by any person whose statement was recorded at the investigation and in fact it was corroborated by the material which was part of the complaint, that the petitioner had stated in so many words at the BCCI meeting that the permission of the Reserve Bank of India would have to be obtained for opening a foreign exchange bank account - In fact, the resolutions passed at various meetings of BCCI clearly indicate that all operational matters were to be dealt with by the Chairman of the Governing Council for IPL and officers engaged by the said Council and by the Secretary and Treasurer of BCCI. Adjudicating Authority after issuing show cause notice and receiving objections to the notice from the noticee, was required to apply his mind to the objections by recording his reasons for forming an opinion on the file the recording of reasons was not an appealable order but it would give the noticee a chance during adjudication proceedings to meet the reasons which led the Adjudicating Authority to form an opinion that he must proceed further with the inquiry against notice - This would only result in fair procedure which would be in consonance not only with Rule 4 of the Adjudication Rules but with principles of natural justice. There was nothing on record to indicate that the adjudicating authority had considered the aforesaid aspects before forming the opinion to proceed further with the inquiry under subrule (4) of Rule 4 of the Adjudication Rules. Matter remanded back with direction - Special Director, Directorate of Enforcement first to form his opinion, after recording reasons, whether to proceed against the petitioner with regard to the impugned 11 show cause notices, in light of the observations made in this judgment. If the opinion so formed is adverse to the petitioner, such opinion along with the reasons so recorded shall be furnished so as to reach the petitioner at least 15 days prior to the date of personal hearing. This would meet the requirements of Rule 4(3) of the Adjudication Rules.

Summary

Issues Involved:
1. Jurisdiction under Section 42 of the Foreign Exchange Management Act (FEMA).
2. Compliance with Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
3. Role and responsibility of the petitioner in the alleged FEMA violations.
4. Procedural fairness and natural justice in the adjudication process.

Detailed Analysis:

Jurisdiction under Section 42 of FEMA:
The petitioner challenged the 11 show cause notices on the grounds that Section 42 of FEMA does not apply to him as the Board of Control for Cricket in India (BCCI) is not a company, firm, or association of individuals but an association of societies and trusts. The court analyzed the definition of "person" under Section 2(u) of FEMA, which includes associations of persons or bodies of individuals, whether incorporated or not. The court concluded that BCCI and the IPL Governing Council fall within this definition, making the complaint against BCCI maintainable.

Compliance with Adjudication Rules:
The petitioner argued that the communication for personal hearing was issued without complying with Rule 4 of the Adjudication Rules, which mandates a two-tier process. The court emphasized that the Adjudicating Authority must consider the objections raised by the noticee and form an opinion on whether to proceed further with the inquiry. This opinion must be recorded in writing and provided to the noticee if requested. The court found that the Special Director had not followed this procedure, thus breaching the Adjudication Rules and principles of natural justice.

Role and Responsibility of the Petitioner:
The petitioner contended that he had no role in the operational matters of the IPL, which were handled by the Secretary, Treasurer, and Chairman of the IPL Governing Council. The court examined the minutes of various BCCI meetings and statements recorded during the investigation, which supported the petitioner's claim that he was not involved in opening or operating bank accounts or obtaining RBI permissions. The court noted that the petitioner had exercised due diligence by advising the Working Committee to obtain RBI clearance for opening a bank account.

Procedural Fairness and Natural Justice:
The court highlighted the importance of procedural fairness, especially given the severe penalties under Section 13 of FEMA. The court interpreted Rule 4 of the Adjudication Rules to require the Adjudicating Authority to record reasons for forming an opinion to proceed with the inquiry, ensuring that the noticee can address these reasons during the personal hearing. The court stressed that this process is crucial to prevent arbitrary decisions and to uphold natural justice.

Conclusion:
The court did not quash the show cause notices but set aside the communication for personal hearing dated 6 June 2013. The Special Director was directed to record reasons for proceeding against the petitioner and provide these reasons to the petitioner at least 15 days before the personal hearing. This judgment ensures compliance with Rule 4 of the Adjudication Rules and principles of natural justice. The cases of other noticees will be decided based on their respective facts. The petition was disposed of with no order as to costs.