2022 (7) TMI 983 - HC - FEMA

Offence under FEMA - Levy of penalty post compounding orders - Power to compound contravention - HELD THAT - The compounding order is passed on 20.11.2008 and the adjudication order levying penalty is passed on 21.11.2008, i.e., one day after the passing of the compounding order. Sub-section (2) of section 15 as alluded to hereinabove clearly envisages a position that once a contravention has been compounded under sub-section (1) (which in the present case has been compounded on 20.11.2008), no proceeding or further proceeding, as the case may be, shall be initiated or continued, as the case may be, against the person committing the contravention. We cannot hold petitioners responsible for contravention once the compounding orders have been passed. We have noted that there is a gap of one day between the passing of the two sets of orders, i.e., compounding orders and adjudicating order. Be that as it may, petitioners cannot be faulted and held liable for contravention once the compounding orders are passed by the Compounding Authority. That is the mandate of the statute. As also fairly conceded that respondents though aggrieved with the five compounding orders, have not challenged the said orders. If respondents were indeed aggrieved with the compounding orders, it was open for respondents to challenge the said orders. Having not done so, respondents cannot justify passing the adjudication order once the compounding orders have been passed and complied with by petitioners. Passing of the adjudication order after the offence has been compounded, is thus contrary to the statutory provisions discussed hereinabove, is not maintainable and thus without jurisdiction. The impugned adjudication order passed by respondent No.1 is an appealable order and petitioners should be relegated to the alternate remedy of filing the statutory appeal under section 19 of the said Act before the Appellate Tribunal. This submission deserves to be rejected at the threshold. As held by us, the impugned adjudication order has been passed without jurisdiction in view of the fact that the offence contravened by petitioners have been compounded by the statutory Compounding Authority before the passing of the impugned order. Hence, we reject this submission advanced by Mr. Patil. Writ Petition stands allowed in terms of prayer clause c which reads as under c) that a writ in the nature of Mandamus may be issued commanding the Respondents to act according to law and/or cancel and/or withdraw and/or rescind the impugned order dated 21st November, 2008 passed by the Respondent No.1 and the Show Cause Notice dated 11th June, 2008 issued by the Respondent No.1 and all proceedings there under and/or in pursuance thereof.

Issues Involved:
1. Whether the adjudication proceedings could continue after the contravention was compounded under Section 15 of the Foreign Exchange Management Act, 1999 (FEMA).
2. Whether the adjudication order dated 21.11.2008 was valid and enforceable.
3. Whether the petitioners should be relegated to the alternate remedy of filing a statutory appeal.

Detailed Analysis:

1. Continuation of Adjudication Proceedings Post-Compounding:
The petitioners argued that under Section 15(2) of FEMA, no proceeding or further proceeding could be initiated or continued against them once the contravention had been compounded. The petitioners had compounded the contravention by paying the required amounts as directed by the Reserve Bank of India (RBI) on 20.11.2008. They asserted that the adjudication order passed by the Special Director of Enforcement on 21.11.2008 was illegal, invalid, and without jurisdiction since the proceedings pursuant to the show-cause notice could no longer continue after the compounding orders had been passed and the compounded amounts had been paid.

The court noted that Section 15(2) of FEMA clearly states that no proceeding or further proceeding shall be initiated or continued against the person committing such contravention once it has been compounded. The court observed that the compounding orders were passed on 20.11.2008 and the adjudication order was passed on 21.11.2008, indicating that the proceedings should have ceased once the contravention was compounded.

2. Validity and Enforceability of the Adjudication Order:
The respondents contended that the adjudication order was valid as they were not informed about the compounding applications by the petitioners. They argued that the petitioners did not implead the respondents in the compounding proceedings and hence, the compounding orders were not binding on them.

The court found that the petitioners had informed the RBI about the payment of the compounded amounts on 21.11.2008, and the RBI had issued certificates acknowledging the payment. The court held that the petitioners could not be held responsible for any delay in communication between the RBI and the Adjudicating Authority. The court emphasized that once the contravention is compounded, the adjudicating authority loses jurisdiction to pass any order related to the compounded contravention. Hence, the adjudication order dated 21.11.2008 was deemed contrary to statutory provisions, not maintainable, and without jurisdiction.

3. Alternate Remedy of Statutory Appeal:
The respondents argued that the petitioners should be relegated to the alternate remedy of filing a statutory appeal under Section 19 of FEMA before the Appellate Tribunal. The court rejected this submission, stating that the adjudication order was passed without jurisdiction since the contravention had already been compounded. Therefore, the petitioners were not required to seek an alternate remedy.

Conclusion:
The court quashed and set aside the adjudication order dated 21.11.2008 and allowed the writ petition in terms of the prayer clause, which included the cancellation of the show-cause notice dated 11.06.2008 and all proceedings thereunder. The court ruled that the continuation of adjudication proceedings post-compounding was not permissible under Section 15(2) of FEMA, and the adjudication order was invalid and without jurisdiction. The petitioners were granted relief as per their request, and no costs were imposed.

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