2024 (6) TMI 561 - HC - FEMA

Recording of reasons for formation of opinion - Judicial Review of Show Cause Notices - scope of procedures contemplated under Rule 4 of FEMA Rules for Holding of enquiry - Non adhering to spirit of Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000 - Enforceability of departmental circulars - HELD THAT - Procedures are to be read as it is and the Court cannot expand the scope of the procedures so as to provide any additional opportunity or otherwise. In the absence of any challenge, scope of the procedures contemplated under the Rules are to be followed as it is and any expansion would result in derailing of the procedures, which is otherwise contemplated under the Rules. Inconsistency may also arise in such circumstances which exactly arose in the present case. The inconsistency in interpretation arose on account of the expansion of Rule 4(3) offered by the Bombay High Court. Bombay High Court, while interpreting Rule 4(3), expanded the scope by stating that the term The adjudicating authority is of the opinion that an enquiry should be held, would mean that the opinion formed must be communicated to the person concerned, enabling them to defend the case . Therefore, in the opinion of this Court, it amounts to an expansion, providing an additional opportunity to the person to get the copy of the opinion recorded in writing by the adjudicating authority in the file, which is not contemplated under Rule 4(3). As we examine the spirit and intent of Rule 4(3), on issuance of show cause notice by the adjudicating authority along with the materials relating to contraventions and on receipt of the explanations from the persons/addressee, the adjudicating authority under Rule 4(3) has to consider the cause if any shown by such person.That would indicate that the explanation submitted is to be considered. On such consideration, if the adjudicating authority is of an opinion that an enquiry should be held, then he shall issue notice. The show cause notice issued relating to contraventions explanations submitted by the addressee are considered together and an opinion is formed for the purpose of conducting an enquiry. Mere forming of an opinion would be a ground to penalize a person or not? - The scope of Rule 4(3) cannot be expanded unnecessarily so as to provide an additional cause by intimating the opinion formed by the adjudicating authority to proceed with the personal hearing. On forming of an opinion under Rule 4(3), the adjudicating authority shall issue a notice fixing a date for the appearance of the person, either personally or through his legal practitioner. Therefore, the opinion is the point, where the enquiry commences and such an opinion formed would not be a ground to penalize a person. The opinion is formed by the adjudicating authority to proceed with the personal hearing and not for any other purposes. Therefore, intimating such an opinion formed by the adjudicating authority to the persons are unnecessary and not contemplated under Rule 4(3). Therefore, Rule 4(3) cannot be interpreted beyond its scope and the procedures contemplated under Rule 4 in entirety are to be considered holistically to understand whether a fair opportunity has been provided to the persons or not. No Writ against a show cause notice is entertainable in a routine manner. A writ against a show cause notice is entertainable only if it is issued by an incompetent authority, having no jurisdiction, or tainted with allegation of mala fides. In the present case, the show cause notice has been issued under Rule 4(1) of the Rules. Therefore, the petitioners are bound to respond to the show cause notice by availing the opportunity. Thereafter, the adjudicating authority has to form an opinion under Rule 4(3) of the Rules, either to exonerate the person or proceed with the enquiry proceedings. If the adjudicating authority takes a decision to proceed with the enquiry then Rule 4(4) to 4(12) is to be followed scrupulously. When the adjudicating authority has not even formed an opinion under Rule 4(3) of the Rules, question of challenging the show cause notice issued under Rule 4(1) would not arise at all. Therefore, the grounds raised on merits in the writ petitions cannot be adjudicated by this Court at this stage and it is for the petitioner to respond to the show cause notice by submitting his explanations and if any opinion is formed to proceed with the enquiry proceedings thereafter, the petitioners have to defend their case in the manner contemplated under the Act and Rules. WP dismissed.

Summary

Issues Involved:

1. Validity of the notice of hearing.
2. Compliance with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
3. Adherence to the rules of natural justice.
4. Binding nature of departmental circulars.

Summary:

1. Validity of the notice of hearing:

The writ petitions challenge the validity of the notice of hearing. The petitioners argue that the notice is invalid as it does not comply with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. They assert that the reasons for proceeding with the action were not communicated, which is essential for defending their case.

2. Compliance with Rule 4(3) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000:

The petitioners contend that the spirit of Rule 4(3) has not been adhered to, citing the Bombay High Court's interpretation in Shashank Vyankatesh Monohar Vs. Union of India, confirmed by the Supreme Court, which mandates that reasons for proceeding with an enquiry must be communicated to the noticee. The Madras High Court, however, distinguishes this interpretation, referencing its own Division Bench judgment in India Cements Limited Vs. Union of India, which holds that there is no statutory obligation to communicate the reasons for forming an opinion under Rule 4(3).

3. Adherence to the rules of natural justice:

The petitioners argue that non-compliance with Rule 4(3) violates the rules of natural justice. The Madras High Court clarifies that Rule 4(3) should be read in conjunction with Rule 4(4), which ensures that the person proceeded against is informed of the contraventions and allowed to defend their case. The Court concludes that the procedures under Rule 4 provide a fair opportunity and comply with the rules of natural justice.

4. Binding nature of departmental circulars:

The petitioners rely on departmental circulars issued in line with the Bombay High Court judgment. The Additional Solicitor General argues that departmental circulars are not binding on courts or quasi-judicial authorities, referencing Supreme Court judgments in Commissioner of Central Exercise, Bhopal Vs. Minwool Rock Fibres Limited and Commissioner of Central Excise Vs. Ratan Melting and Wire Industries. The Court agrees, stating that circulars represent the understanding of statutory provisions by the issuing authority and are not binding on the court.

Conclusion:

The Court dismisses the writ petitions, stating that the show cause notice issued u/s 4(1) of the Rules is valid and the petitioners must respond to it. The adjudicating authority will then form an opinion u/s 4(3) to proceed with the enquiry, ensuring compliance with the procedures under Rule 4(4) to 4(12). The Court emphasizes that judicial review u/s 226 of the Constitution is limited to ensuring the process through which a decision is taken, not the decision itself.