2021 (2) TMI 1313 - HC - FEMA

Validity of adjudication proceeding as contemplated in Section 13 of FEMA - limitation for initiation of the adjudicatory proceeding for imposition of penalty - proceedings are against a company - default had been in the knowledge of the prosecuting agency - manner as provided in Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (as amended), read with rules and regulations made thereunder - HELD THAT - In the instant case, information was sought from the petitioner in the year 2017 and when, despite letters, information was not provided and a prima facie case with regard to contravention of the provisions of FEMA, 1999 was made out, a complaint was filed in the year 2020 on which the impugned notice has been issued. The facts of the present case are therefore totally distinguishable from those which were there before the Bombay High Court in the case of Sanghvi Reconditioners Pvt. Ltd. 2017 (12) TMI 906 - BOMBAY HIGH COURT In the instant case, as we have already noticed, the information in respect of default by the petitioner company cannot be deemed to be with the Directorate of Enforcement, that is the prosecuting agency, therefore, the reasonable period to commence the adjudicatory proceeding would be counted from the date when that information was received by the prosecuting agency. As this is a pure question of fact and it is not shown to us that the default had been in the knowledge of the prosecuting agency far in excess of the reasonable period, the issue whether there had been an unreasonable delay in drawing adjudicatory proceeding would have to be raised and dealt with at the appropriate stage of the adjudicatory proceeding and not at this stage, while addressing a challenge to the show-cause notice because the show-cause notice, by disclosing the institution of the complaint and specifying the contravention of the provisions of FEMA, discloses all the necessary requirements to warrant initiation of adjudicatory proceeding against the petitioner. As we find that the complaint discloses all the necessary ingredients to make out a prima facie case with regard to contravention of the provisions of FEMA, the impugned show-cause notice issued for adjudication of that complaint does not suffer from any legal infirmity which may justify its quashing, as has been prayed for. The petition is dismissed.

Summary

Issues Involved:
1. Quashing of a show-cause notice dated 30th September 2020.
2. Reasonableness of the period for initiating adjudication proceedings under FEMA.
3. Disclosure of jurisdictional facts in the show-cause notice.
4. Applicability of precedents cited by the petitioner.

Issue-wise Detailed Analysis:

1. Quashing of the Show-Cause Notice:
The petitioner sought to quash a show-cause notice dated 30th September 2020 issued by the Assistant Director, Directorate of Enforcement, Zonal Office, Lucknow, under Section 13 of the Foreign Exchange Management Act, 1999 (FEMA). The notice called for an explanation regarding the non-utilization of certain export advances within the stipulated period. The petitioner argued that the notice was issued after an unreasonable delay, causing prejudice to its defense.

2. Reasonableness of the Period for Initiating Adjudication Proceedings:
The petitioner contended that although FEMA does not specify a limitation period for filing complaints, proceedings should be initiated within a reasonable period. The petitioner argued that the Directorate of Enforcement did not disclose when it became aware of the non-utilization of export advances, making the notice defective. The court acknowledged that while FEMA does not prescribe a limitation period, actions must be taken within a reasonable time, depending on the facts and circumstances of each case.

3. Disclosure of Jurisdictional Facts in the Show-Cause Notice:
The petitioner argued that the show-cause notice was defective as it did not disclose the date when the Directorate of Enforcement received information about the non-utilization of export advances. The court held that the notice and the accompanying complaint disclosed all necessary ingredients for contravention of FEMA provisions, warranting adjudicatory proceedings. The court found that the jurisdictional facts necessary for initiating proceedings were adequately disclosed.

4. Applicability of Precedents Cited by the Petitioner:
The petitioner cited several precedents to support its case, including:
- *Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari*
- *Joint Collector Ranga Reddy District and another v. D. Narsingh Rao and others*
- *Sanghvi Reconditioners Pvt. Ltd. v. Union of India and others*
- *Shirish Harshavadan Shah v. Deputy Director, E.D.*

The court distinguished these cases based on their specific facts. For instance, in *Sanghvi Reconditioners Pvt. Ltd.*, the delay was 15 years without any action, whereas in the present case, the complaint was filed within three years of receiving information. Similarly, in *Shirish Harshavadan Shah*, the delay was 12 years, whereas in the present case, the Directorate acted within a reasonable period after receiving information. The court also noted that the principles laid down in these cases did not apply to the present facts, where the information about the default was not in the public domain or with the authorities.

Conclusion:
The court dismissed the petition, holding that the show-cause notice and the accompanying complaint disclosed all necessary ingredients for initiating adjudicatory proceedings under FEMA. The court found no legal infirmity in the notice that would justify its quashing. It was clarified that the dismissal of the petition would not prejudice the petitioner's right to set up its defense in the adjudicatory proceedings.