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2021 (5) TMI 929 - HC - FEMAOffence under FEMA - Distinction between the two stages of the adjudication process - eligible reasons by the respondent no. 1 for the formation of opinion to proceed with the inquiry against the petitioner - HELD THAT - The Adjudicating Authority, under the Scheme of the FEMA, performs a quasi-judicial function as opposed to a purely administrative function. The requirement of giving reasons therefore cannot be undermined and must be insisted upon from the Adjudicating Authority. The reasons to be given for its opinion under Rule 4(3) of the Adjudication Rules to proceed with the inquiry though need not be as elaborate as in a Court decision or let s say an order passed by the Adjudicating Authority under Rule 4(8) of the Adjudication Rules, but have to be adequate, proper and intelligible, sufficiently clear and explicit. They must reasonably deal with the substantial points raised in the matter and show that they were taken into consideration. However, the extent and nature of reasons depend upon specific facts and circumstances of each case. The Impugned Opinion/Order dated 05.06.2020, does not satisfy the test of giving reasons by the respondent no. 1 for the formation of opinion to proceed with the inquiry against the petitioner. The reasons are the bridge between the material on record and the final decision. Therefore, after considering the judgment of the Supreme Court, the Complaint and the reply of the petitioner to show cause, that is the material on record, the Adjudicating Authority is to give reasons, howsoever brief, at least showing that he is alive to the contentions raised in the reply to the Show Cause Notice and why he is of the opinion that inquiry must still be held. In the present case, this bridge is missing. It is also to be seen as to whether the inquiry deserves to be set aside only for the above violation. In the present case, as noted herein above, the Supreme Court has passed a detailed judgment finding various acts of violation of the FEMA and the Rules/Regulations framed there-under inter alia against the JP Morgan group of companies, may not be specifically by name against the petitioner. The present inquiry has been initiated on the direction of the Supreme Court in the said judgment. The allegations against the petitioner also cannot be said to be such that do not warrant any inquiry given the above factual background. The role of the petitioner and its employees and the capacity in which they acted in the transactions in question need a detailed inquiry as such allegations form part of a larger whole which is being inquired into. Considering that at the stage of Rule 4(3) of the Adjudication Rules, the Adjudicating Authority was merely to form an opinion whether to proceed with the inquiry; and as held by the Supreme Court in Natwar Singh 2010 (10) TMI 156 - SUPREME COURT it is only thereafter that the real and substantial inquiry into allegations of contravention begins ; and that unlike the final order imposing penalty, the opinion formed by the Adjudicating Authority whether an inquiry should be held into the allegations made in the complaint are not fraught with such grave consequences , and as held by the High Court of Bombay in Shashank Vyankatesh Manohar 2013 (8) TMI 435 - BOMBAY HIGH COURT that in case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order , it is held that there was enough reason for the respondent no. 1 to form an opinion to proceed with the inquiry against the petitioner and no useful purpose would be served by quashing the impugned Opinion and insisting on the reasons to be first recorded. Exercise of powers under Article 226 being discretionary in nature, this court, in the peculiar facts of the present petitions, does not find it fit to exercise the same. Even though the Impugned Opinion of the Adjudicating Authority does not record any reasons for the same, the same is sustained. This shall, however, not be considered as an affirmation of this Court to the manner in which such opinion is to be recorded. It is also made clear that this Court has not expressed any opinion on the merit of the allegations made against the petitioner in the Show Cause Notice or the inquiry.
Issues Involved:
1. Challenge to the Show Cause Notices, Orders, and Communications issued under FEMA. 2. Allegation of violation of Section 6(6) of FEMA and Regulation 3 of the Place of Business Regulations. 3. Procedural compliance with Rule 4(3) of the Adjudication Rules. 4. Requirement for the Adjudicating Authority to record reasons for proceeding with an inquiry. Detailed Analysis: 1. Challenge to the Show Cause Notices, Orders, and Communications issued under FEMA: The petitioner challenged the Show Cause Notices dated 29.01.2020, the consequent Orders dated 05.06.2020, and the Communications dated 03.09.2020 issued by the respondent, alleging procedural and substantive violations under FEMA. The petitions were adjudicated together due to common grounds of challenge. 2. Allegation of Violation of Section 6(6) of FEMA and Regulation 3 of the Place of Business Regulations: The genesis of the inquiry against the petitioner originated from a Supreme Court judgment dated 23.07.2019, which found various fraudulent activities and statutory violations by the JP Morgan Group of Companies. The Supreme Court directed the Enforcement Directorate to investigate violations of FEMA and other fraudulent activities. The respondent alleged that the petitioner, a subsidiary of JP Morgan India Securities Holding Limited, Mauritius, had established a place of business in India without prior RBI approval, contravening Regulation 3 of the Place of Business Regulations. 3. Procedural Compliance with Rule 4(3) of the Adjudication Rules: The petitioner contended that there was a violation of Rule 4(3) of the Adjudication Rules, which mandates a two-stage inquiry process. The Adjudicating Authority must first form an opinion on whether to proceed with an inquiry after considering the cause shown by the noticee. The petitioner argued that such an opinion must be recorded in writing and provided to the noticee upon request. The respondents, however, argued that the opinion need not be elaborate and is not appealable under Section 19 of FEMA. 4. Requirement for the Adjudicating Authority to Record Reasons for Proceeding with an Inquiry: The court emphasized that the opinion formed under Rule 4(3) must reflect due application of mind and provide reasons, even if brief, to show consideration of the objections raised by the noticee. The court cited several judgments, including Natwar Singh v. Director of Enforcement and Shashank Vyankatesh Manohar v. Union of India, to support the requirement of recording reasons. The court found that the impugned opinion/order dated 05.06.2020 did not satisfy the requirement of giving reasons, as it merely listed the materials considered without providing reasons for proceeding with the inquiry. Conclusion: Despite the procedural lapse in not recording reasons, the court upheld the inquiry against the petitioner due to the Supreme Court's detailed judgment finding violations of FEMA and the larger context of the investigation. The court exercised its discretion under Article 226, considering the peculiar facts of the case, and dismissed the petitions with no order as to costs. The court clarified that this decision should not be seen as an endorsement of the manner in which the opinion was recorded and did not express any opinion on the merits of the allegations against the petitioner.
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