2015 (1) TMI 977 - HC - FEMA

Contravention of the provisions of Sections 8(1), Section 6(4) and Section 6(5) read with Section 7 of Foreign Exchange Regulation Act, 1973 - Imposition of penalty - Sale of foreign currency at higher value - Held that - Two persons identified themselves as Hanif and Rajesh Mhatre of Hotel Zam Zam. Mhatre was carrying briefcase along with him. A search revealed that one Suleman Patel with the help of Ms. Pinky Jaisinghani and Sanjay Jadhwani were operating two FFMCs. As a result of the search documents, the authorities recovered and seized the articles under a Panchanama. The identical allegations pertaining to Hanif and Mhatre tendering two pay orders along with the advice letter on the cash counter of M/s. LKP Merchant Financing Ltd. are to be found in the present show cause notice. The statements of all these persons were recorded by the officers of D.R.I. The partner of the present appellants stated that the appellant s firm has obtained FMC license, dated 28th September 1996 issued by the Reserve Bank of India for dealing with purchase of foreign currency, that he was the person responsible for day to day operation of foreign currency dealing. The foreign currency was sold to Hotel Zam zam, which was admittedly the licensed full fledged foreign money changer. It is in these circumstances that we are of the opinion that some of the allegations on page no. 55 of the paper book pertaining to lack of authorization should not be seen in isolation. Court is unable to accept the argument that the money or the foreign exchange leaving the authorized persons and reaching or being passed off to the unauthorized person was not the matter which was dealt with by the Hon ble Supreme Court. Further, violation and contravention emphasized by him was not the subject matter of the Supreme Court judgment and proceedings. Once the Supreme Court was dealing with an identical allegation, identical breach and of similar legal provision and manual, then, we are unable to accept Shri Desai s argument. The Hon ble Supreme Court s judgment is binding upon us. It is too well settled to require any reiteration that the judgment of the Hon ble Supreme Court continues to bind us and will not lose its binding value merely because some argument which was canvassed before us was not raised or certain aspects were not considered or the relevant provisions were not brought to the notice of the Court. When we find that the judgment of the Hon ble Supreme Court is dealing with the identical controversy, similar legal provision and even the allegations in the show cause notices are common, then, it would cover the matter fully. - Impugned order set aside - Following decision of Tulip Star Hotels Ltd., Peter Kerkar Versus Special Director of Enforcement 2014 (1) TMI 1348 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Challenge to orders dated 13th March 2009 and 23rd April 2010 by the Appellate Tribunal for Foreign Exchange.
2. Alleged contravention of provisions of FERA and FEMA.
3. Comparison with a similar case involving M/s. LKP Merchant Financing Ltd.
4. Applicability of the Supreme Court judgment in Tulip Stars v. Enforcement Directorate.
5. Legality of the adjudication proceedings and penalties imposed.

Detailed Analysis:

1. Challenge to Orders by the Appellate Tribunal for Foreign Exchange:
The appeals challenge the orders dated 13th March 2009 and 23rd April 2010 passed by the Appellate Tribunal for Foreign Exchange, New Delhi. These orders dismissed the main appeals and Review Petition Nos. 117 and 118 of 2009 in Appeal Nos. 177 and 178 of 2005 filed by the appellants under Section 35 of the Foreign Exchange Management Act, 1999 (FEMA).

2. Alleged Contravention of Provisions of FERA and FEMA:
The Special Director Enforcement Directorate, Mumbai issued a show cause notice on 29th April 2002 to the appellants, alleging contravention of Sections 8(1), 6(4), and 6(5) read with Section 7 of the Foreign Exchange Regulation Act, 1973 (FERA) and paragraph 3 of the Memorandum of Instructions to full-fledged money changers issued by the Reserve Bank of India. The allegations pertained to foreign exchange of Rs. 20,86,005/- sold by the appellants to Foreign Exchange Money Changers M/s. Hotel Zam Zam at Mumbai. The adjudication order dated 28th October 2004 found the appellants guilty of these violations and imposed a penalty of Rs. 50,000/- each.

3. Comparison with a Similar Case Involving M/s. LKP Merchant Financing Ltd.:
The appellants argued that in identical circumstances, M/s. LKP Merchant Financing Ltd. and its Executive Director were exonerated from similar allegations of contravention. The appellants contended that the adjudication order against them was inconsistent with the exoneration of M/s. LKP Merchant Financing Ltd., despite identical violations and contraventions being alleged.

4. Applicability of the Supreme Court Judgment in Tulip Stars v. Enforcement Directorate:
The appellants relied on the Supreme Court judgment in Tulip Stars v. Enforcement Directorate, where similar allegations of contravention under FERA were made against Tulip Star. The Supreme Court had exonerated Tulip Star, holding that the only violation related to the stipulations in paragraph 3 read with Sections 6(4) and 6(5) of FERA. The appellants argued that their case was fully covered by this judgment, and hence, the adjudication order against them should be quashed.

5. Legality of the Adjudication Proceedings and Penalties Imposed:
The court examined the memo of appeal, show cause notice, and the impugned orders, along with the Supreme Court judgment in Tulip Stars. It was noted that the allegations in the present case were identical to those in the Tulip Stars case. The court found that the transactions between the appellants and M/s. Hotel Zam Zam were conducted through authorized representatives and were within the legal framework. The court concluded that the adjudication order and the order passed by the Appellate Tribunal could not be sustained.

Conclusion:
The court quashed and set aside the adjudication order and the order passed by the Appellate Tribunal. It directed that the penalty deposited by the appellants be refunded with simple interest at the rate of 6% p.a. from the date of deposit till payment. The appeals were allowed without any costs.