2009 (8) TMI 622 - HC - FEMA

Dispensation of pre-deposit-Penalty- the disputes are that the penalty was imposed on the petitioner by Special Director of Enforcement on the allegation that the partner of petitioner Sh. Hardeep Singh @ Babu and another person Sh. Raman B. Gupta, Sh. Sunil Gill and Rajiv Kumar and Sh. Deepak were illegally acquiring and transferring foreign currency out of India to bring into India gold, silver and other dutiable goods. The petitioner seeks setting aside of order dated 31st January, 2008 passed by the Appellate Tribunal for Foreign Exchange directing the appellant to deposit 20% of the penalty amount within 30 days from the date of receipt of the said order. Held that- The petitioner has also produced medical record of his wife to show that he requires considerable amount of money for her treatment. In the circumstances if the petitioner is directed to deposit 25 lakhs of rupees, by any yardstick will cause undue hardship to the petitioner. The Tribunal has elaborated what is undue hardship but failed to apply the facts of the present case to infer whether undue hardship shall be caused to the petitioner or not if the petitioner is directed to deposit the amount, in the present facts and circumstances and considering the prima facie case in favor of petitioner, it still cause irreparable loss to him. Therefore it has to be inferred that the impugned order directing petitioner to deposit rupees 25 lakhs as a condition for hearing his appeal is vitiated and is liable to be set aside. Accordingly, having regard to the facts and circumstances of the case the order dated 31st January, 2008 passed by the Appellate Tribunal for Foreign Exchange in directing the appellant to deposit 20% of the penalty amount within 30 days from the date of receipt of the said order is set aside and the writ petition is allowed.

Issues Involved:
1. Validity of the order dated 31st January 2008 by the Appellate Tribunal for Foreign Exchange.
2. Service of show cause notice and adjudication order.
3. Basis for imposing the penalty.
4. Financial hardship and undue hardship for waiver of pre-deposit.
5. Prima facie case and balance of convenience.

Detailed Analysis:

1. Validity of the Order Dated 31st January 2008 by the Appellate Tribunal for Foreign Exchange:

The petitioner sought to set aside the order dated 31st January 2008, which directed the appellant to deposit 20% of the penalty amount within 30 days. The Tribunal's order was challenged on the grounds that it was passed mechanically without considering whether there was a prima facie case against the petitioner.

2. Service of Show Cause Notice and Adjudication Order:

The petitioner contended that he never received the show cause notice or the adjudication order dated 26th March 1997. The High Court in W.P.(C) No. 12940/2006 had previously held that there was no proof of service of the adjudication order on the petitioner. Despite the respondent's assertions, no evidence was produced to show that the show cause notice was duly served on the petitioner.

3. Basis for Imposing the Penalty:

The penalty was imposed based on the alleged involvement of the petitioner in illegal foreign currency transactions. However, the petitioner argued that the penalty was based on the retracted confessional statements of co-accused, which lacked independent corroboration. The Tribunal assumed that the petitioner had made a confessional statement, which was not the case. The High Court noted that there were no documents produced by the respondent to show prima facie implication of the petitioner.

4. Financial Hardship and Undue Hardship for Waiver of Pre-deposit:

The petitioner claimed financial hardship, stating his monthly income was Rs. 10,000 and that he required funds for his wife's medical treatment. The Tribunal failed to consider these factors adequately. The High Court emphasized that undue hardship must be more than just hardship and should be excessive or out of proportion. The petitioner had discharged his burden by producing income tax returns and medical records, which the respondent failed to rebut effectively.

5. Prima Facie Case and Balance of Convenience:

The High Court highlighted that the Tribunal should have considered whether there was a prima facie case for the petitioner. A prima facie case refers to an arguable or triable case. The Tribunal did not appreciate the petitioner's contentions and failed to determine the quantum of waiver appropriately. The High Court noted that the petitioner had a good prima facie case, and the imposition of the penalty based on retracted statements without corroborative evidence was unjustified.

Conclusion:

The High Court set aside the order dated 31st January 2008, directing the petitioner to deposit 20% of the penalty amount. The petitioner was granted complete dispensation from depositing any amount of penalty for the hearing of his appeal. The Tribunal was directed to hear the appeal on merits without requiring any pre-deposit. The writ petition and the application seeking interim relief were disposed of accordingly, with no order as to costs.

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