2017 (8) TMI 1723 - HC - FEMA

Violation of Section 50 of the Foreign Exchange Regulation Act - Condition of pre-deposit of 10% of the penalty amount imposed for hearing of the appeal - HELD THAT - We are not opining finally on the merit of the controversy as the issue is pending before the Tribunal. There is prima facie, merit in the case set up by the petitioner. There is a certificate produced from the Chartered Accountants of the writ petition certifying that the petitioner had never been the director of the company, namely, M/s Sachdeva Sons Industries (P) Limited. Petitioner was a director in M/s Sachdeva Sons Rice Mills Limited, a separate legal entity, which was a partner in firm M/s Sachdeva Sons Industries. On dissolution of M/s Sachdeva Sons Industries, partnership firm on 5.5.1997, M/s Sachdeva Sons Industries (P) Limited, came into existence, which took over the business of M/s Sachdeva Sons Industries, but the petitioner was not inducted as director in the newly incorporated company. There is nothing on record to suggest otherwise. Once, prima facie, on the basis of material produced on record before this Court, it is found that the petitioner was not the director in the company, namely, M/s Sachdeva Sons Industries (P) Limited, directing her to deposit part of penalty as precondition for hearing of her appeal on merits will certainly cause undue hardship to her. Hence, in our view, the condition of pre-deposit of 10% of the penalty amount imposed on her for hearing of the appeal filed by her and pending before the Tribunal deserves to be set aside.

Summary

Issues:
Impugning order passed by the Appellate Tribunal for Foreign Exchange and review order, Precondition for hearing appeal on merits, Violation of the Foreign Exchange Regulation Act, 1973, Appeal without deposit of penalty amount, Claim of not being a Director of the company, Prima facie merit in the petitioner's case.

Impugning Order by the Tribunal:
The petitioner challenged the order passed by the Appellate Tribunal for Foreign Exchange, directing her to pay 10% of the penalty amount as a precondition for hearing the appeal on merits. The petitioner contended that she was not a Director of the company in question and should not be held liable for the penalty imposed. The Tribunal's decision was based on the premise that the petitioner was a partner in the firm, making her liable for the penalty. The High Court, after considering the evidence presented, found merit in the petitioner's claim and set aside the condition of pre-deposit, stating it would cause undue hardship to her.

Violation of the Foreign Exchange Regulation Act:
The penalty was levied on the petitioner for alleged violations of Section 50 of the Foreign Exchange Regulation Act, 1973. The petitioner, through her counsel, argued that she was wrongly issued a notice for imposing the penalty as she was never a Director of the company in question. The petitioner provided a certificate from Chartered Accountants stating she had never been a Director of the company. The High Court, after examining the evidence and the sequence of events, found that the petitioner was not inducted as a Director in the company formed after the dissolution of the partnership firm, supporting the petitioner's claim of not being liable for the penalty.

Appeal without Deposit of Penalty Amount:
The petitioner appealed to the Tribunal against the penalty imposed without depositing the penalty amount. The Tribunal directed her to deposit 10% of the penalty as a precondition for hearing the appeal on merits. The petitioner's review application was also dismissed. The High Court, after reviewing the evidence and submissions, found that the petitioner's appeal should have been entertained without any precondition for deposit, considering she was not a Director of the company in question. The High Court set aside the condition of pre-deposit, ruling it would cause undue hardship to the petitioner.

Prima Facie Merit in the Petitioner's Case:
The High Court, while refraining from giving a final opinion on the merit of the controversy pending before the Tribunal, acknowledged prima facie merit in the petitioner's case. The Court considered the evidence, including the certificate from Chartered Accountants and the sequence of events leading to the formation of the company, to support the petitioner's claim of not being a Director and therefore not liable for the penalty. The High Court set aside the condition of pre-deposit, emphasizing that its decision did not prevent the Tribunal from considering the case on its merits if the department could establish the petitioner's liability.