2017 (10) TMI 1129 - HC - FEMA

Investigation and enquiry into violation of FEMA and the Rules and Regulations - Held that - Any investigation undertaken with an intention to unearth violations of provisions of FEMA cannot be characterized as motivated or malicious merely because before initiation of such proceeding, an award had been passed against the Central Government regarding alleged breach of contract entered into between the Government and the Company. Alleged breach of contract is one thing and violation of FEMA is totally another thing. This Court cannot interfere in the matter to stall the investigation and enquiry by the adjudicating authority. In such matters all such allegations can be pleaded, demonstrated and proved by way of reply to show cause notice. Prima facie I am of the view that such bare allegations cannot form basis for stalling investigation and enquiry into violation of FEMA and the Rules and Regulations framed thereunder. As rightly contended by learned Additional Solicitor General hapter V of FEMA read with Rules framed, provides a complete network of provisions adequately structuring rights and remedies available to a person who is aggrieved by any adjudication under FEMA. In the instant case once a reply is submitted to the show cause notice, the adjudicating authority may take a decision to proceed in the matter or not to proceed. In case it decides to proceed, full opportunity will have to be provided to petitioners. If it is found that petitioners were guilty, then there is a provision to appeal to the Appellate Tribunal. If any person is aggrieved by any decision or order of the Appellate Tribunal, he may file an appeal to the High court. Thus, it is clear that the Act and the rules framed provide sufficient mechanism for redressing the grievance of petitioners. In such circumstances, merely on the basis of certain allegations of malafides, this Court cannot entertain the writ petition to quash the show cause notice or the complaint exercising jurisdiction under Article 227. It will tantamount to preventing investigation and enquiry into violations of serious nature which may affect the economic fabric of the Country. Truth will, in anyway, ultimately emerge. Therefore, keeping open all contentions of petitioners and reserving liberty to them to avail the remedies provided under the provisions of the Act read with the Rules and Regulations framed thereunder, these writ petitions are dismissed.

Issues Involved:
1. Maintainability of the writ petitions under Articles 226 & 227 of the Constitution of India.
2. Alleged malafide intention and predetermined liability by the respondents.
3. Applicability of vicarious liability to the Directors.
4. Adequacy of alternative remedies under FEMA.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petitions:
The petitioners filed writ petitions under Articles 226 & 227 of the Constitution of India seeking to declare the proceedings initiated under FEMA as without jurisdiction and to quash the complaint and show-cause notice. The respondents raised a preliminary objection regarding the maintainability of the writ petitions. The court noted that the show-cause notice issued was based on a complaint under Section 16(3) of FEMA and called upon the petitioners to respond to allegations of contravention of FEMA provisions. The court emphasized that the adjudication process had not yet started and that the High Court should not entertain writ petitions if an effective alternative remedy is available. The court cited several judgments, including *Nivedita Sharma v. Cellular Operators Association of India* and *Special Director v. Mohd. Ghulam Ghouse*, to support the principle that writ petitions should not be entertained when statutory remedies are available.

2. Alleged Malafide Intention and Predetermined Liability:
The petitioners argued that the respondents acted with malafide intentions to frustrate the arbitration award and had predetermined their liability. They contended that the show-cause notice was not a genuine notice as the respondents had already decided on their liability. The court examined the show-cause notice and found that it contained specific allegations and details regarding the alleged violations, which enabled the petitioners to submit an effective reply. The court held that the notice did not indicate a predetermined decision by the adjudicating authority. The court also noted that the background of the arbitration proceedings and the subsequent actions by the respondents did not automatically imply malafide intentions or bad faith.

3. Applicability of Vicarious Liability to the Directors:
The petitioners contended that vicarious liability could not be applied to the Directors, particularly to those who had resigned before the alleged violations. The court referred to Section 42 of FEMA, which stipulates that every person in charge of and responsible for the conduct of the business of the company at the time of contravention could be deemed guilty. The court noted that the adjudication proceedings under Section 16 read with Section 13 of FEMA would determine the applicability of vicarious liability. The court highlighted that specific acts of violation were alleged against the Directors, and the issue of vicarious liability would arise only after adjudication.

4. Adequacy of Alternative Remedies under FEMA:
The court emphasized that FEMA and the Rules framed thereunder provide a comprehensive mechanism for adjudication of disputes and appellate remedies. The court cited the judgment in *Rajkumar Shivhare v. Assistant Director, Directorate of Enforcement* to affirm that Chapter V of FEMA provides a complete network of provisions for redressal of grievances. The court held that the petitioners should avail themselves of the statutory remedies provided under FEMA rather than seeking relief through writ petitions. The court concluded that entertaining the writ petitions would prevent investigation and enquiry into potential violations of FEMA, which could affect the economic fabric of the country.

Conclusion:
The writ petitions were dismissed, with the court keeping open all contentions of the petitioners and reserving their liberty to avail the remedies provided under FEMA. The court reiterated that the statutory framework under FEMA provides adequate safeguards and remedies for the petitioners to seek redressal.

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