2022 (5) TMI 241 - HC - FEMA

Offence under FEMA - Petitioner argued that the adjudicating authority did not follow the procedure prescribed in Rule 4(1) and 4(2) of the Adjudication Rules of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 - petitioner has been seriously prejudiced by refusal and failure to supply documents relied upon by the complainant Assistant Director - HELD THAT - In the instant case, failure to bring back export proceeds to the extent of seven thousand crores arose out of loan transactions between the petitioner and his entities and about 23 banks. It is now well settled that every infraction of the principles of natural justice or procedure stipulated for adjudication would not vitiate a proceeding. The petitioner has to demonstrate actual and real prejudice The two tier procedure under Rule 4 which warrants a preliminary enquiry to form an opinion before the process of actual adjudication, may have laudable objects given the very serious civil consequences. The need of demonstration of prejudice due to infraction of such procedure would still be necessary to vitiate the proceedings, and would not otherwise be given a go-by merely because of codification of principles of natural justice into separate Rules in the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Since the petitioner himself submits that the notice issued by the Adjudicating Authority was under Rule 4(3), this Court requires the adjudicating authority to submit a brief gist of its satisfaction of prima facie case against the petitioner along with copies of necessary documents within a period of 15 days from date. Upon receipt of such gist, the petitioner shall show cause both to the notice dated 6th July 2020 as well as the gist. The procedure prescribed under Rule 4(3) would thereafter be undertaken by the adjudication authority. The proceedings before the adjudicating authority shall be completed expeditiously and preferably within a period of two months from the date of supplying the gist as indicated hereinabove.

Summary

Issues:
Challenge to notice under Foreign Exchange Management Act, 1999 - Procedure followed by adjudicating authority - Prejudice caused to petitioner by failure to supply documents - Application of principles of natural justice - Compliance with Rule 4 of Adjudication Rules - Completion of proceedings expeditiously.

Analysis:
The judgment by the High Court of Calcutta pertains to a writ petition challenging a notice issued under the Foreign Exchange Management Act, 1999. The petitioner contended that the adjudicating authority did not adhere to the procedure outlined in Rule 4(1) and 4(2) of the Adjudication Rules, leading to prejudice as the petitioner was unclear about the subject matter of the enquiry. The petitioner also raised concerns about the refusal to provide documents relied upon by the complainant Assistant Director. The court considered the submissions, emphasizing the unique procedure under the Act and Rules, which involve a two-stage process due to the significant civil consequences involved, such as civil prison and prosecution.

The court distinguished the present case from previous decisions involving foreign exchange transactions and a cricket tournament. It highlighted that not every procedural error automatically vitiates proceedings; actual prejudice must be demonstrated by the petitioner, as established in the State Bank of Patiala case. The court noted the importance of demonstrating prejudice due to procedural lapses, even though principles of natural justice are codified in the Rules. The judgment directed the adjudicating authority to provide a brief summary of its prima facie case against the petitioner within 15 days, following which the petitioner would have an opportunity to respond.

Furthermore, the court mandated the completion of proceedings expeditiously, preferably within two months from the date of supplying the summary. The writ petition was disposed of with no order as to costs, and all parties were instructed to act based on the server copy of the order downloaded from the official court website. The judgment focused on ensuring compliance with procedural requirements, safeguarding the rights of the petitioner, and expediting the adjudication process under the Foreign Exchange Management Act, 1999.