2024 (6) TMI 49 - HC - FEMA

Adjudication proceedings under FEMA 1999 - personal hearing notice was issued without providing reasoned opinion formed under Rule 4 (3) of the said Rules - HELD THAT - Plain reading of the Rule reveals that there is no express provision or intention to communicate such reasons to the person against whom the proceedings are initiated by the Enforcement Directorate. Only through judicial interpretation by the Bombay High Court, the scope of the Rule has been expanded for the purpose of communicating the reasoned opinion to the person against whom proceedings are initiated. Act and Rules contemplate check and balance to ensure that a person subjected to the proceedings get fair opportunity. However, expanding scope of the Rule under the guise of fair opportunity would defeat the purpose of the Rule and the procedures contemplated therein. Therefore, judicial expansion of scope of the Rule, if causes prejudice to the interest of the proceedings, the same need not be adopted. The plain reading of the Rule would indicate that the Adjudicating Authority has to form an opinion for the purpose of issuing a show cause notice by fixing the date for appearance of the person either personally or through his legal practitioner or a Chartered Accountant. Such a plain procedure contemplated cannot be further interpreted for the purpose of providing a scope for the person to seek the reasons formed by the Authorities. The Division Bench of the Madras High Court, in the case of India Cements vs. Union of India 2018 (6) TMI 389 - MADRAS HIGH COURT considered the Bombay High Court Judgment as confirmed by the Hon'ble Supreme Court of India in the S.L.P., at the admission stage and the principles laid down by the learned Single Judge in the case of Ramakrishna Setty 2014 (8) TMI 1105 - MADRAS HIGH COURT De horse the decisions, reading of the Rules would indicate that furnishing the reasons to the persons is not mandated nor expressly stated. Therefore, entertaining a writ petition during the intermittent stage would hamper the proceedings. Therefore, this Court is not inclined to encourage such writ petitions filed. Contrarily, the petitioner have to defend their case by availing the opportunities to be provided by the respondent in consonance with the procedures as contemplated under the Rules. A writ against a show cause notice or a personal hearing notice is normally not entertainable under Article 226 of Constitution of India, unless such notices are issued by an incompetent authority having no jurisdiction or tainted with the allegations of malafide. In the present case, the learned Senior Counsel raised a ground that Rule 4(3) has not been complied with. However, Rule 4(3) does not contemplate any such procedure and the Rule stipulates that the Adjudicating Authority has to form an opinion before issuing a notice fixing the date of appearance of the person. That being the scope of the Rule, further expansion is impermissible and the petitioner is at liberty to participate in the proceedings by availing the opportunities to be provided in the manner contemplated under the Act and Rules.

Summary

Issues Involved:
1. Legality of the personal hearing notice issued without providing the reasoned opinion under Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
2. Interpretation of Rule 4(3) regarding the necessity to furnish the reasoned opinion to the noticee.
3. Judicial precedents and their applicability to the current case.
4. The scope of judicial review under Article 226 of the Constitution of India concerning show cause notices.

Issue-Wise Detailed Analysis:

1. Legality of the Personal Hearing Notice:
The petitioner, a scheduled commercial bank, challenged the adjudication proceedings dated 04.04.2024 under FEMA 1999, specifically contesting the personal hearing notice issued without providing the reasoned opinion formed under Rule 4(3). The petitioner argued that it is mandatory for the respondent to furnish the reasoned opinion before fixing a date for personal hearing, citing a violation of the Rules and relevant judicial precedents.

2. Interpretation of Rule 4(3):
The petitioner contended that Rule 4(3) requires the Adjudicating Authority to provide a reasoned opinion to the noticee before proceeding with the inquiry. This interpretation was supported by the Bombay High Court's judgment and a consequential circular issued by the Directorate of Enforcement on 26.09.2024. Conversely, the respondent argued that Rule 4(3) does not mandate the communication of the reasoned opinion to the noticee. The plain reading of the Rule suggests that the reasoned opinion is for the internal use of the Adjudicating Authority to decide whether to proceed with the inquiry.

3. Judicial Precedents:
The petitioner relied on the Bombay High Court's judgment in Shashank Vyankatesh Manohar v. Union of India and Lalit Kumar Modi v. Special Director, Directorate of Enforcement, which mandated the communication of the reasoned opinion to the noticee. However, the respondent pointed out that the Division Bench of the Madras High Court, in the case of India Cements v. Union of India, had disagreed with the Bombay High Court's interpretation, stating that such communication is not mandatory. The Madras High Court's Division Bench judgment, being later in time, was considered to prevail over the Bombay High Court's judgment.

4. Scope of Judicial Review:
The court emphasized that a writ petition against a show cause notice or personal hearing notice is generally not maintainable under Article 226 unless issued by an incompetent authority or tainted with mala fides. The court noted that Rule 4(3) does not explicitly require the communication of the reasoned opinion to the noticee. Judicial expansion of the Rule to mandate such communication would prejudice the Department's interests and hamper further proceedings. The court held that the procedures under the Rules are self-regulated and in consonance with natural justice, and any further judicial expansion is unnecessary.

Conclusion:
The court dismissed the writ petition at the admission stage, holding that Rule 4(3) does not mandate the communication of the reasoned opinion to the noticee. The petitioner is at liberty to participate in the proceedings and avail the opportunities provided under the Act and Rules. The court reiterated that judicial review of show cause notices is limited and should not interfere with the procedural mechanisms established by the Rules.