2023 (12) TMI 914 - HC - FEMA

Adjudication made under FEMA Act - Non issuance of show cause notice as well as non giving of an opportunity of being heard within the meaning of Section 16 of the Act r/w Rule 4(1) and 4(3) of the Rules certainly would amount to violation of principles of natural justice - HELD THAT - The mode of service of notice has been clearly demonstrated at Rule 14, i.e., 3 methods, namely 14(a), 14(b) and 14(c). At least Rule 14(b) and 14(c), the notices have been served on these noticees in their last known address or the address where they carried on business last. Merely because at the time of serving the notice, these noticees were not available at the address at Bengaluru would not ipso facto entile them to claim immunity that the notices served on them at the Bengaluru address cannot be construed as a notice within the meaning of Section 16 r/w Rule 4(1) and Rule 14(b) or (c) of the Rules. Therefore, this Court have no hesitation to hold that, notice as contemplated under the Act as well as the Rules as discussed herein above have been served on these noticees. Under Section 42(1), if a person committing a contravention who is a company, every person who at the time of contravention was committed was incharge of and was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceed against and punished accordingly. Insofar as the application of Section 42(1) against these noticees are concerned, it was the vehement contention of Mr.Shah, that the two Noticee namely Noticee No.17 and 20 were the nominee Directors, i.e., Non-executive Directors of the first Noticee company on behalf of the fourth Noticee company. When their very appointment as a Director itself is a mere nominee on behalf of the fourth noticee company as a Non-Executive Directors, therefore they are not incharge of and was responsible to the conduct of the business of the company as well as the company. Therefore assuming that, any contravention that has been made by the first Noticee company, for which these noticees namely Noticee No.17 and 20 cannot be found fault with. Therefore u/s 42(1) no contravention cannot be attributable against these Noticees. Insofar as this contention of the learned counsel appearing for the petitioners are concerned, whether they were the Non-Executive Directors or nominee Directors and during the relevant point of time whether they were in the helm of affairs or the company or not, whether the contravention that has been made by the first Noticee company would amount to the contraventions of the persons like Noticee No.17 and 20 also, for which, they are also to be proceeded against and be punished by imposing penalty or not, are all the matters for adjudication which have been adjudicated and decided by the Adjudicating Authority through the impugned order. As against the impugned order, an appeal has been provided before the Appellate Tribunal under Section 19 of the Act. Even if there is any failure before the Appellate Tribunal and it goes against the interest of these noticees, again a further appeal is provided under Section 35 of the FEMA Act, where Second Appeal can be preferred before this Court (High Court). When such a hierarchy of appellate forum is provided under the Act itself, whether the jurisdiction that has been conferred under the Act, especially u/s 35 of the Act to the appellate side of this Court, whether can be taken away by entertaining these writ petition is a question, for which the answer is in the negative. The reason being that, the law which has been held by law courts with regard to the exhaustion of alternative remedy is well settled. Though it is not a hard and fast rule that each and every case, the exhaustion of alternative remedy shall stand in the way in entertaining the case under the extraordinary jurisdiction of this Court under Article 226 of the Constitution, still limitations are there for the High Courts who are empowered to issue prerogative writs under Article 226 of the Constitution of India. While exercising such extraordinary jurisdiction under Article 226, the High Court on the one side cannot take away or absolve the appellate jurisdiction being exercised by the same High Court under the provisions of the statute which is special in nature. Here in the case in hand, ultimately the aggrieved party can approach this Court by filing the Second Appeal under Section 35 of the Act, instead, if these writ petitions are entertained and the impugned order of adjudication is challenged and a decision is made on the merits of the issue, certainly that will amount to interfering or transgressing the appellate jurisdiction of this Court, which normally the court would not do in exercising the extraordinary jurisdiction under Article 226 of the Constitution. We do hold that, absolutely there has been no quarrel on the said principle stated by the learned Judge in the said Judgment. However in the facts of the present case, what is the uncurable defect, that has been committed by the original authority in the present case is the question. As we held above, the notice, i.e., show cause notice had already been served properly under the mode as contemplated under the Act as well as the Rule. Therefore, first of all it cannot be construed that the principles of natural justice has been violated. Assuming that, because of the enquiry notice that has not been served on the noticees as claimed by them, whether any injury is caused by virtue of passing of adjudication order, certainly those issues can be canvassed before the Appellate Tribunal challenging the order of adjudication. Hence, we do not find that any uncurable defect or injustice caused to the noticees at the adjudication stage and therefore, that cannot be stated that such a defect, if any, cannot be cured by the appellate forum. We have held that, as contemplated under Section 16 r/w Rule 4 and 14 of the Rules, show cause notice since have been served on all the petitioners herein, i.e., Noticee No.4,17 and 20, on the alleged ground of violation of principles of natural justice, these writ petitions cannot be entertained especially in applying the principle as laid down by the Hon ble Supreme Court in the Radha Krishan Industries case cited supra. Despite the above, it is open to the petitioners to raise these point of the violation of principles of natural justice before the Appellate Tribunal in case still the petitioners feel that the issue also can be adjudicated as one of the issue before the Appellate Tribunal. That apart, insofar as the merits of the case is concerned, as we held above, we do not want to hold anything on the merits of the case, because that will have a bearing on the cause of the petitioners, when they approach the Tribunal by filing the appeal. WP dismissed. However it is open to the petitioners to approach the Appellate Tribunal by filing appropriate appeal against the impugned order of adjudication u/s 19 of the FEMA Act.

Summary

Issues Involved:
1. Service of Show Cause Notice.
2. Violation of Principles of Natural Justice.
3. Applicability of Section 42 of FEMA Act.
4. Availability of Alternative Remedy.

Summary:

Service of Show Cause Notice:
The petitioners contended that the show cause notice under Rule 4(1) was not served properly. The court examined Rule 14 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, which outlines the methods of serving notices. The respondents demonstrated that notices were served at the last known address of the petitioners, fulfilling the requirements of Rule 14(b) and 14(c). Therefore, the court concluded that the notices were served correctly.

Violation of Principles of Natural Justice:
The petitioners argued that the adjudication process violated the principles of natural justice. The court noted that the show cause notice was served, and the adjudicating authority issued notices of hearing as required. The court referred to the Division Bench of the Karnataka High Court and the Supreme Court's decisions, which confirmed that the issues could be raised before the Appellate Tribunal. The court found no violation of natural justice in the adjudication process.

Applicability of Section 42 of FEMA Act:
The petitioners claimed that they were non-executive directors and not responsible for the company's conduct during the alleged contraventions. The court stated that whether the petitioners were responsible under Section 42(1) of the FEMA Act is a matter for adjudication. The court emphasized that these issues should be raised before the Appellate Tribunal, which is the appropriate forum for such determinations.

Availability of Alternative Remedy:
The court highlighted the availability of an alternative remedy under Section 19 of the FEMA Act, which allows appeals to the Appellate Tribunal. The court referred to the Karnataka High Court and Supreme Court's judgments, which directed the petitioners to approach the Appellate Tribunal. The court reiterated that the existence of an alternative remedy does not divest the High Court of its jurisdiction but emphasized that the petitioners should first exhaust the statutory remedy.

Conclusion:
The court dismissed the writ petitions, directing the petitioners to approach the Appellate Tribunal within three weeks. The Tribunal was instructed to entertain the appeals regardless of the limitation period and consider any applications for waiver of pre-deposit on merits. The court followed the Supreme Court's order granting similar relief to co-noticees.