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FEMA - Case Laws
Showing 81 to 100 of 1378 Records
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2024 (2) TMI 1257
Violation under FERA - charge u/s. 56 of FERA - Company being in Liquidation - Offences by companies u/s 68 of FERA - As submitted Company being in Liquidation and a Provisional Liquidator having been appointed for it, only the Provisional Liquidator can represent the Company in the proceedings pending before the learned ACMM and not the petitioner herein.
Whether the charge against the Company can be framed through the petitioner? - HELD THAT:- As per Section 305 CrPC Procedure when corporation or registered society is an accused would show that where the accused person is a company, it may appoint a representative for the purpose of the trial, and where such representative appears, any requirement of the CrPC that anything shall be done in the presence of the accused or shall be read or stated or explained to the accused, shall be construed as a requirement that that thing shall be done in the presence of the representative or read or stated or explained to such representative. Sub-Section (4) of Section 305 CrPC states that where the representative of a company does not appear, any such requirement as is referred to in sub-Section (3) of Section 305 CrPC shall not apply.
In the present case, there is no authorization of the petitioner to represent the Company in the trial. In fact, the Company is in liquidation and a Provisional Liquidator already stands appointed for the Company.
In terms of Section 457 of the Companies Act, 1956 (as was then applicable), it is only the Provisional Liquidator or person authorized by the Provisional Liquidator, who could represent the Company in the trial. The petitioner, therefore, cannot be said to be representing the Company. It is another thing to say that he would face the trial in his individual capacity as an accused, but another thing to say that he would also face the trial as a representative of the Company.
Though the above issue was flagged before the learned Trial Court, as is reflected in the Orders the learned Trial Court proceeded to frame the charge against the Company taking the petitioner herein to be representing the Company. The same cannot, therefore, be sustained.
Conclusion & Directions - Trial Court has clearly erred in framing the charge against the Company through the petitioner. The charge against the Company has to be through the Provisional Liquidator appointed for the Company. The impugned order dated 03.08.2007 shall stand modified to this limited extent. It is clarified that the charges framed against the petitioner in his individual capacity have not been interfered with by this Court.
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2024 (1) TMI 1305
Seeking permission to withdraw Writ Petition - HELD THAT:- Today, when the matter is taken up for hearing, the learned counsel for the petitioners seeks permission of this Court to withdraw this Writ Petition and he has also made an endorsement to that effect.
In view of the endorsement made by the learned counsel for the petitioners, Writ Petition stands dismissed as withdrawn. Consequently, the connected Miscellaneous Petitions are closed.
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2024 (1) TMI 337
Power of search and seizure conferred on the Directorate of Enforcement as per FEMA - validity of seizure/confiscation made by the respondents - seeking a direction to return/release the money, currency illegally confiscated/seized - HELD THAT:- The provisions of Section 132B of the Income Tax Act, 1961 inter alia provides for application of seized and requisitioned assets which provides that the assets seized may be dealt with in the manner provided therein, whereby, the amount of any existing liability and the amount of liability determined on completion of the assessment may be recovered out of such assets, however, such power is, thereafter, governed by two provisos
A bare look at the first proviso would reveal that on an application made for release of the assets while indicating the source of acquisition of such assets, after adjusting the liability, remaining portion of the assets has to be released. The second proviso indicates that such asset or any portion thereof shall be released within a period of 120 days from the date on which the last of the authorizations for search was executed.
The proviso are not without reason inasmuch as the same have been incorporated only with a view that to ensure that determination of liability has to take place expeditiously and in case the same does not take place the assets have to be released.
In the present case, search took place on 14/3/2019 and despite repeated representations made in the year 2019 and 2020, neither the assets have been released nor the representations have been rejected indicating any reason. Further, even when a show cause notice was issued on 16/10/2020 and a response was filed on 19/3/2021, despite passage of over 02 years and 09 months, no determination has taken place.
So far as the source of acquisition is concerned, as required by the first proviso (supra), a specific submission has been made that the books of account have been seized along with currency and everything is recorded therein and, therefore, the source is very much reflected and available with the respondents.
Thus plea raised by respondents pertaining to attempt to challenge the show cause notice is concerned, the adjudication/determination of the show cause notice is well within the powers of the respondents and none prevented them from determining the same expeditiously, however, the respondents have chosen not to make the determination and continue to sit over the various representations made for release of assets, which action cannot be countenanced.
Respondents despite release of the seized currency are free to make the determination of the show cause notice, qua which no relief has been claimed presently.
Action of the respondents in not releasing the seized assets of the petitioners is essentially in violation of Section 132B of the Act, 1961, which is applicable in terms of Section 37(3) of the FEMA, 1999 and, therefore, the inaction of the respondents in this regard cannot be sustained. Petition is partly allowed. The respondents are directed to pass appropriate orders for release of the seized assets pursuant to the search conducted on 14/3/2019 within a period of four weeks from today.
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2023 (12) TMI 914
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.
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2023 (12) TMI 787
Offence under FEMA - petitioner had made foreign remittances to different foreign companies under the guise of payments against the bogus import of services and that these amounts are held outside India by the related foreign companies of the petitioner - petitioner is engaged in the business of providing unsecured short-term loans to its customers/borrowers in India via its Digital Application based platform called the ‘CashBean’ - As contended that the petitioner had engaged a Hong Kong based Company, for procurement of an IP licence and had entered into a Software Licence Agreement with it for providing IP and Digital Lending Software Licence, that is, the CashBean App to the petitioner for the Indian digital micro-lending market.
As alleged petitioner had made foreign remittances to different foreign companies under the guise of payments against the bogus import of services and that these amounts are held outside India by the related foreign companies of the petitioner
HELD THAT:- Section 37A(1) of the Act states that if the Authorised Officer prescribed by the Central Government has reason to believe that any Foreign Exchange, Foreign Security, or any Immovable Property, situated outside India, is suspected to have been held in contravention of Section 4 of the Act, he may, after recording the reasons in writing, by an order, seize value equivalent thereto situated within India.
It need not be emphasised that the power of seizure is of far-reaching consequences and, therefore, the pre-conditions stipulated in Section 37A(1) of the Act must be scrupulously complied with. The ‘reason to believe’ must be based on tangible material, and as held by the Supreme Court in Radha Krishan Industries [2021 (4) TMI 837 - SUPREME COURT] should not be based on the ‘imaginary grounds, wishful thinking, howsoever laudable that may be’
The foreign exchange transactions can be bifurcated into ‘Current Account Transactions’ and ‘Capital Account Transactions’, as defined in Section 2(j) and 2(e) of the Act respectively.
The transactions in question, which have been made the basis of the seizure order, can be categorised as ‘Current Account Transactions’.
As alleged petitioner has contravened the provisions of Section 4 of the Act, inasmuch as it holds foreign exchange outside India through its group entities and such foreign exchange has been transferred to such accounts by way of bogus transactions with its group companies - Violation of Section 10(6) of the Act cannot be alleged merely because, according to the respondents, the commercial arrangement entered into by the declarant under Section 10(5) of the Act does not appear to be commercially prudent to the respondents, but at the same time, the respondents in the present case are using the above assertions in support of their conclusion that the amount of foreign currency has been clandestinely transferred by the petitioner in the name of licence fees and other charges to the foreign entities and are, in fact, being held by the petitioner itself in the bank accounts of such foreign companies which are related to the Opera Group. In this manner, the respondents alleged violation of Section 4 r.w.s.10(6) of the Act and claim to satisfy the condition set out in Section 37A of the Act, which requires the foreign exchange to be held outside India and which is suspected to have been so held in contravention of Section 4 of the Act.
The Impugned Order is to be based merely on ‘reason to believe’ that any foreign exchange situated outside India is suspected to have been held in contravention of Section 4 of the Act by the person against whom the order under Section 37A of the Act is being passed. At the stage of passing the order under Section 37A(3) of the Act, the Competent Authority is not to arrive at a conclusive finding on the above. Though it may be true that the ‘reason to believe’ must also be based on certain tangible material and should be reasonable and not be arbitrary or whimsical, at the same time, the Court in the exercise of its powers under Article 226 of the Constitution of India cannot act as an appellate authority and substitute its own opinion for that of the Competent Authority.
In the present case petitioner has been unable to make out such a case which would warrant an interference of this Court with the Impugned Order. The allegations of the respondents and the defence of the petitioner would need to be tested by the Adjudicatory Authority. On facts, it cannot be said that the action of the respondents is ultra vires the Act or so whimsical as to warrant an interference of this Court at this stage, when the proceedings are pending before the Adjudicatory Authority.
This Court is also cognizant of the fact that pursuant to the Impugned Order, the respondents have also filed a complaint before the Adjudicating Authority. This Court has been informed that substantial hearings have already taken place before the Adjudicating Authority on such complaint, and the same is likely to be disposed of in near future. This adds as a further reason for this Court not to exercise its discretionary powers under Article 226 of the Constitution of India. Petition dismissed.
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2023 (12) TMI 786
Offence under FEMA - bidding process for the IPL franchise organised by the BCCI - arrangement of the flow of funds by Respondents was made to route the investments through Mauritius as the funds flowing into India from UK was not permissible - maximum penalty imposed - Special Director indicates that although satisfaction in respect of contravention of the provisions of the FEMA has been recorded, there is no explanation or any discussion in respect of the basis on which maximum penalty has been imposed - Tribunal has recorded a that an exorbitant penalty has been imposed upon the individuals arrayed without recording any findings on the specific roles of said individuals - Whether interference by the Tribunal in the order of the Special Director is justified on the touchstone of the doctrine of proportionality?
HELD THAT:- Overall, the Tribunal has found that firstly, no loss has been caused to exchequer; secondly, the remittances have come into India and remained in India. This is not a case where any foreign exchange has gone out of India; thirdly, the remittances were utilised for the purposes for which they were intended and there is not even an allegation of utilization of the money for extraneous purposes; fourthly the entities have not gained any benefit whatsoever and in fact suffered considerable financial detriment as shares having beneficial transferable interest have not been issued against remittances to the said entities for the past 11 years; and fifthly, 'Rajasthan Royals' franchise has participated in the IPL since 2008 with no other allegation of contravening any FEMA provisions or regulations made thereunder. Thus, the Tribunal found no justification in the order passed by the Special Director for imposing maximum penalty on Respondents and contraventions are categorized at best as technical and venial.
In the instant case, there is a finding of fact by the Tribunal and all the relevant facts have been considered in a proper light. The Tribunal has arrived at its conclusion on the basis of evidence to support and after analysing the said evidence. The findings are far from being perverse. Thus, no question of law arises in the case. The question raised by Appellant relating to justification of the reduction of penalty imposed by the Special Director is purely based on facts and no question of law even remotely, arises from the same.
We find that in fact no justification has been recorded by the Special Director to impose maximum penalty as opposed to the Tribunal having considered relevant material has interfered and reduced the penalty. We do not find it proper to transgress the limits of this Court's jurisdiction, preferring the view of the Tribunal or that of the Special Director, one way or the other, in regard to factual appreciation of the finding of facts in the matter.
We find that the Special Director has completely failed to apply the doctrine of proportionality as interpreted and elucidated by the Apex Court in its various decisions, while choosing to impose maximum penalty on Respondents. Having gone through the impugned order, this Court does not find anything perverse in the findings, reasoning and conclusion of the Tribunal. We are in agreement with the finding of the Tribunal that in the absence of any discussion or justification pertaining to the basis for imposing the maximum penalty and juxtaposing this with the alleged acts attributed to each individual, the order of the Special Director is unsustainable. No error in the impugned judgment of the Tribunal.
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2023 (12) TMI 442
Validity of enquiry / investigation proceedings - taking cognizance of the complaint - Investment in foreign companies - violation of Sec.4 of FEMA - Competent Authority passed orders not to seize the assets of the petitioners - as alleged assessee subscribed to 70.0 lakhs shares in certain M/s. Silver Park, a Singapore based company, registered as per the laws of Singapore, and that he had later transferred those shares to his wife and two children outside India.
Adjudicatory Authority in his show cause notice has indicated that they would be proceeded against u/s 13(2) and enquiry into this is underway - Adjudicating Authority had issued a corrigendum dated 13.03.2023, altering the provision from Sec.13(2) to Sec.13(1A) - Competent Authority constituted under the Act had vide his proceedings dated 03.02.2021, had decided not to seize the assets of the petitioners on a finding that these petitioners did not violate Sec.4 of the Act.
HELD THAT:- Sec. 13 of the Act merely spells out the consequence of the violation of any of the provision of the Act, which includes Sec.4 embargo on a resident Indian, which mandates that no one who is resident in India shall hold foreign exchange or foreign securities outside India. The accusation which the petitioners herein now face is that they, as citizens and residents of India, are holding shares of a foreign company, and thus they have over stepped the line of prohibition under Sec.4. If the scheme of the statute is observed, Sec.13 comes into play only in the eventuality of the Adjudicating Authority entering a finding that the petitioners are guilty of the accusation which is now under enquiry.
Set in the context, the corrigendum does not introduce any new set of allegations midway through an enquiry, but only put the petitioners on notice, that in the eventuality of they being found guilty of violating Sec.4, that the Adjudicating Authority might proceed against them under Sec.13(1A) consequence. Therefore, any alteration of provision regarding the consequence that may visit the petitioners will not, and cannot, prejudice the petitioners visa- vis the nature of accusation that they are now facing. Secondly, a close analysis of Sec.13 shows, it only provides a buffet of options to the Adjudicating Authority to choose from, on the course of action that the Authority may adopt when the stage is set for deciding the penal consequence of entering a finding of guilt. This situation is more akin to a Criminal Court altering a charge under Sec.216 Cr.P.C, without altering the facts constituting the accusation.
The basic elements of principles of natural justice requires that the petitioners are put on notice on the possible course of action in the contemplation of the Adjudicatory Authority, if the petitioners are found guilty of the violation of Sec.4 On facts, the petitioners have entered appearance for a hearing on the notice of corrigendum, and that they have began participating in the proceedings. They are now given an opportunity to raise their objection before the Adjudicatory Authority. In a circumstance such as this what is the prejudice that has visited the petitioners which warrants an interference by this court? None.
Here it is significant to note that in Raj Kumar Shivhare [2010 (4) TMI 432 - SUPREME COURT] has held that FEMA is a self-contained code and remedial fora, the Act as created should not be bye-passed.
Its now time to consider the merit of the arguments of the petitioners' counsel on the effect of the order of the Competent Authority passed under Sec.37-A of Act, releasing the properties of the petitioners from seizure. The reason which has formed the ground for the decision of the Competent Authority is that there are no materials to suggest that any money or foreign exchange has flown out of India to support the purchase of the shares in the Singapore based company.
The fact that the Statute has created two independent authorities, one for adjudicating on the accusation under Sec.16 read with Sec.13, and the other for deciding on the seizure of assets of those who face the accusation, does not enable telescoping the effect of the what latter may do into the power vested in the former. What if the statute had vested both the powers in the same authority? Then the power of seizure will be construed as an interim arrangement in aid of final adjudication. And, the law is settled that the reasoning of an interim order will have zero potency to impact the reasoning for a final decision. The fact, that both these powers are vested in different Authorities, does not make the order passed by the Competent Authority vis-a-vis the seizure of assets any superior as to interfere with the power of adjudication of the Adjudicatory Authority. It is plainly a question on jurisdiction, and it cannot be expanded interpretatively.
Secondly, if the reasoning of the Competent Authority in refusing to seize the property is considered, it focuses essentially on whether payment has been made by the petitioners for the purchase of shares in the Singapore based company, which is forbidden under Sec.3(b) of the Act.
. The way statute has presented Sec.3 and Sec.4, it appears to create independent class of prohibitions. Now, if the reasoning of the Competent Authority is required to be transmitted into the adjudicatory process contemplated under Sec.16, as was canvassed by the petitioners, then it may involve a need to read Sec.3 into Sec.4. The permissibility of reading Sec.3 into Sec.4 requires to be considered independently, and the present stage is too premature for considering it. At any rate it cannot be considered in this proceedings, for, it was held in Raj Kumar Shivhare case [supra] FEMA is a complete Code, and it must be allowed its free space to work itself.
The foregoing discussion leads this Court to the only conclusion: That these petitions are not entertainable. Now it is time to resume the enquiry by the Adjudicating Authority. The petitioners will be entitled to take all such defences which they are entitled to take under law.
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2023 (11) TMI 480
Validity of order of forfeiture of properties u/s 7 of SAFEMA consequent to revocation of the detention order passed under COFEPOSA - as argued that as detention order passed u/s 3 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 [COFEPOSA] has been subsequently revoked/withdrawn as such SAFEMA proceedings would become non est and untenable
HELD THAT:- SAFEMA was enacted to provide for the forfeiture of illegally acquired properties of smugglers and foreign exchange manipulators and for matters connected therewith or incidental thereto as such activities were having a deleterious effect on the national economy. Section 2 provided for the application of the provisions of the Act only to the persons specified in sub-section (2) thereof. According to sub-section (2)(b) every person in respect of whom an order of detention has been made under COFEPOSA, the Act would be applicable subject to four clauses mentioned under the proviso thereto.
A perusal of the above quoted provision makes it clear that apart from the four contingencies given in clauses (i) to (iv) above, every person against whom an order of detention has been passed under COFEPOSA, the provisions of SAFEMA would apply. In the present case, it is an admitted position that an order of detention under COFEPOSA was made against the appellants.
The order of detention had not been revoked on the report of the Advisory Board or before the receipt of the report of Advisory Board or before making a reference to the Advisory Board. Further, it was an order of detention passed under Section 3 of COFEPOSA. Section 9 and Section 12 A of COFEPOSA had no application to the detention order. As such, clause (i) would not be applicable.
Clause (ii) would also not be applicable in as much as neither the detention order was made to which provisions of Section 9 of COFEPOSA would apply nor had it been revoked before the expiry of the time on the basis of review on the report of the Advisory Board.
Further, clause (iii) would also not be applicable as Section 12A of COFEPOSA had no application to the detention order.Lastly, the detention order had not been set aside by the Court of competent jurisdiction. Therefore, clause (iv) would have no application.
To the contrary, in the present case against the detention order, the appellant had made a representation which had been rejected. Thereafter the said order was challenged before the High Court by way of a writ petition which had also been dismissed on merits by a detailed order upholding the detention order.
The revocation however had been made on a statement given on behalf of the Union of India before this Court in order to institute a complaint under the relevant statute. The said revocation is not contemplated under Section 2(2)(b) and its proviso, and, therefore, no benefit can be extended to the appellant(s) on the said count. Therefore, in our view, the impugned judgment does not suffer from any infirmity warranting interference. The appeals lack merit and are, accordingly dismissed.
Dismissal of the complaint and the withdrawal of the penalty under the Act 1962 and Act 1968 - This argument has no relevance to the applicability or non-applicability of the impugned proceedings and forfeiture under SAFEMA. They were independent proceedings under the provisions of the Act 1962 and the Act 1968.
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2023 (11) TMI 315
Recovery of penalty imposed on the respondent - Validity of insolvency notice issued to the respondent - interpretation of statute - words creditor, debt and debtor as defined under Section 2A and 2B of the Presidency Town Insolvency Act should be given a restricted conventional meaning - term decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act 1909 would mean only a decree or order of a civil Court or would it include any order for payment of money passed after an adjudicatory process? - maintainability of application under Section 9(5) - Enforcement Directorate is competent to initiate proceedings in insolvency for failure in payment of penalty imposed or not - invocation of Section 9(2) before the decree or order becoming final.
Definition of the terms creditor, debt and debtor - Section 2(a) of the Presidency Towns Insolvency Act 1909 - HELD THAT:- As could be seen from the definitions, both the definitions are inclusive definitions. In REGIONAL DIRECTOR EMPLOYEES' STATE INSURANCE CORPN. VERSUS HIGH LAND COFFEE WORKS OF PFX. SALDANHA & SONS [1991 (7) TMI 367 - SUPREME COURT], the Hon'ble Supreme Court had considered the import of the term 'includes' used in a definition clause, the Hon'ble Supreme Court had held The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occur- ring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include.
The word “includes” as pointed out by the Hon'ble Supreme Court has been used with a intent to impart wider meaning to the terms defined. We should also be alive to the various developments in law since the enactment of the Presidency Towns Insolvency Act, 1909, more than a century ago. Various other Forums, Tribunals and alternative Dispute resolution mechanism have been put in place and those Forums and Tribunals have been empowered to decide legal disputes and have been empowered to pass orders for payment of money. Therefore, at this distant point of time, the meaning of the words appearing in Sections 2(a) and 2(b) of the Presidency Towns Insolvency Act, 1909 should not be restricted and the other creditors not to be deprived from invoking the provisions of the Act - thus, in view of the inclusive definition adopted in Section 2(a) and 2(b) of the Presidency Towns Insolvency Act, 1909, the terms creditor, debt and debtor defined thereunder should be given a wider meaning and it cannot be restricted to a decreed debt or a debt payable under order of a Court.
Whether the term decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act 1909 would mean only a decree or order of a civil Court or would it include any order for payment of money passed after an adjudicatory process? - HELD THAT:- While considering this definition the Hon'ble Supreme Court after referring to the inclusive definition, held that the judgment in PARAMJIT SINGH PATHEJA VERSUS ICDS LTD. [2006 (10) TMI 419 - SUPREME COURT] being one with regard to legal fiction provided under Section 36 of the Arbitration and Conciliation Act cannot be taken as a precedent for having decided on the effect of various orders that may be passed by various Tribunals or Authorities who are empowered to pass orders imposing financial liability.
Sections 50 and 51 of the Foreign Exchange Regulation Act, 1973 provides for a mechanism for determination of the penalty payable by a person who violates the provisions of the said Act. Section 56 of the said Act enables prosecution and that is without prejudice to the power to levy penalty - Though the word penalty is used in Section 50 it is not a fine levied on the basis of conviction or a penalty as used under Article 20(1) of the Constitution of India. The provisions of Sections 50 and 51 of the Foreign Exchange Regulation Act, 1973 are more in the nature of recovery of loss that is caused to the exchequer because of the violation of the provisions of the Foreign Exchange Regulation Act and the Act also provides for criminal prosecution without prejudice to the power to levy penalty.
The conclusion of the learned Single Judge cannot be agreed upon where he held that an order of the Adjudicating Authority imposing penalty would not create a debt within the meaning of Section 2(b) and the person in whose favour the order is passed could not be creditor within the meaning of Section 2(a), in order to enable them to invoke Section 9(2) of the Presidency Towns Insolvency Act, 1909.
Whether the application under Section 9(5) on the grounds mentioned in it is maintainable? - Whether Section 9(2) can be invoked before the decree or order becoming final? - HELD THAT:- The failure to pay, on being served with the notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909, would amount to an act of insolvency to enable the creditor to initiate insolvency proceeding. This is a reason why the grounds set out in Section 9(5) of the Presidency Towns Insolvency Act, 1909 are very relevant. Section 9(5) of the Presidency Towns Insolvency Act, 1909 extracted above would show that the specific grounds have been set out. The question as to whether a debt existed or not is not a ground that is postulated in the said provision - No doubt, the words “being a decree or order which has become final and the execution thereof has not been stayed” would definitely provide a ground under Section 9(5) of the Presidency Towns Insolvency Act, 1909. The very jurisdiction to issue an insolvency notice would be in doubt, since the appeal in CMA.No.914 of 2001 was pending on the date when the insolvency notice was sought to be issued.
The reference to the provisions of Section 138 of the Negotiable Instruments Act and the judgment of the Hon'ble Supreme Court concluding that a complaint filed under Section 138 of the Negotiable Instruments Act before the expiry of 15 days time could still be sustained, if the drawer had not paid the money due under the cheque within 15 days from the date of receipt of summons cannot be applied to the instant case, inasmuch as it is the non-payment of money ordered to be paid within a particular time that constitutes the act of insolvency - the very act of insolvency would occur only if the debtor fails to pay within 31 days from the date of issuance of a notice, the money payable under an order which has already become final.
The question Whether Section 9(2) can be invoked before the decree or order becoming final is not answered.
Application is dismissed upholding the order of the Hon'ble Single Judge only on the ground that the insolvency notice issued on 28.02.2001 is unsustainable, in view of the fact that it has been issued when the Civil Miscellaneous Appeal was pending and the order has not become final.
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2023 (10) TMI 1118
Proceedings initiated u/s 56 of FERA - non issue of SCN - Violation of principle of natural justice - HELD THAT:- No complaint can be filed unless the person accused of such offence has been given an opportunity of showing that he has such requisite permission. It is clear that from the facts of this case and also not disputed by Respondent that there is no such show cause notice which was issued and served on the fresh address of the petitioner at Gurugram. That apart, it is pertinent to note that though the notice issued under proviso to Clause (ii) of sub section (2) of Section 61 FERA was not served upon the petitioner, the demand notice dated 28.08.2020 was served upon the correct address. There is no explanation as to how and from where the ED obtained this correct address of the petitioner while issuing the demand notice.
So far as the judgments of State Bank of India [2023 (3) TMI 1205 - SUPREME COURT] and Oil and Natural Gas Corporation Limited [2014 (10) TMI 589 - SUPREME COURT] relied upon are concerned, they laid down the law in respect of what is trite by now that rule of Audi Alteram Partem is fundamental to the policy of Indian law and as such any order by any quasi-judicial authority or any administrative authority entailing drastic civil consequences cannot be sustained except after affording an opportunity to the person who would have to face such civil consequences. There is no doubt in the mind of this Court that there has been clear violation of principles of natural justice in the present case.
Since the respondent therein had failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court in that case clearly had erred in taking cognizance and on that basis, quashed and set aside the impugned order on charge.
This Court respectfully concurs with the observations and the ratio laid down in the case United India Airways Ltd. & Anr. [2018 (4) TMI 421 - DELHI HIGH COURT]
Proceedings being separate and not intertwined in respect of violation u/s 18(2) and (3) and Section 56 of the FERA - This Court is of the considered opinion that the substratum of violation of under Section 18(2) for becoming an offence u/s 56 has to be tested first by issuing show cause notice/opportunity notice so as to permit the petitioner to explain as to whether it got the requisite permission in accordance with law or not.
Since the show cause notice or opportunity notice was never served upon the petitioner, the consequent proceedings initiated u/s 56 FERA cannot be continued. It is for violation of Section 18(2) and Section 18(3) of the FERA that would entail action u/s 56 FERA, but the intervening threshold of issuance of show cause notice/opportunity notice and hearing the notice before passing the decision upon such mandatory application of principles of natural justice alone that the action u/s 56 could, at all, have been initiated. As such the submission of Respondent on that count are found to be untenable.
Present writ petition is allowed and as a consequence thereof, a writ of certiorari is issued quashing the exparte proceedings issued by the ED.
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2023 (10) TMI 891
Foreign contribution utilized for undesirable purposes - Suspension of certificate - seeking Release/permit the Petitioner to utilize 25% of the total foreign contribution amount/funds held by the Petitioner u/s 13(2)(b) of the Foreign Contribution (Regulation) Act - HELD THAT:- Section 13(2) of the FCRA permits utilization of foreign contribution which is in custody of the person whose certificate has been suspended. There is no occasion to restrict the term “his custody” only to the current account. The amounts which are held in fixed deposits or in government bonds etc. are also unutilized foreign contributions which can be made available to the person whose account has been suspended pending the inquiry u/s 14 of the FCRA.
There is no reason for this Court to disbelieve the statement that the Petitioner has already utilized the figures given by it regarding the expenses to be incurred for its survival pending consideration of the cancellation of registration u/s 14 of the FCRR.
There is nothing in the said Section which restricts that only the amounts lying in the current account can be permitted to be utilized, this Court is inclined to allow the Petitioner to utilize the 25% of the total FCRA funds held it in fixed deposits, government bonds etc. pending consideration of the cancellation of registration under Section 14 of the FCRR.
The outward disbursement of the amounts shall only be for the purpose of carrying out the day-to-day activities and for no other expenses.
A complete statement of the Petitioner’s FCRA account and the amounts deposited in fixed deposits and government bonds etc. along with expenses incurred from the date of suspension shall be submitted to the Respondent periodically.
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2023 (10) TMI 377
Offence under FEMA - gold bullion of 3773.52 gm. was seized along-with other articles like electronic devices mobile phones, hard disk etc during search operations - HELD THAT:- The provisions of Section 37 of the FEMA read with Sections 132 and 132B of the Act of 1961 including its proviso clauses clearly speak that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorized officer shall make a note or inventory of such stock-in-trade of the business. Further, where the person concerned makes an application to the AO within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained, to the satisfaction of the AO, the amount of any existing liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released with the prior approval of the certain authorities, as mentioned in the provisions, to the person from whose custody the asset was seized.
The proviso clause further provides that such asset or any portion thereof is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last date of the authorizations for search under Section 132 or for requisition under Section 132A, as the may be, was executed.
Recently in Mangilal Agarwal vs. Deputy Director of Income Tax (Investigation-1) [2023 (8) TMI 1358 - RAJASTHAN HIGH COURT] this Court considering the statement made by the counsel appearing for the respondents upon instructions from the respondent authorities submitted that no order has been passed by the competent authority under section 132B of the Income Tax Act. On the basis of such statement, the Court observed that the goods including gold bullion, which were taken in possession, have to be released and the respondents counsel therein informed that in case the petitioner approaches the competent authority for release of the Gold Bullion, the same shall be accordingly released.
Finally the writ petition was disposed of as having become infructuous in view of the fact that the gold bullion was released to the petitioner therein. The judgments cited by the counsel for the petitioners as a whole speak that the respondent authorities are under an obligation to consider the representation of the petitioners including all the relevant documents submitted along-with the same explaining that the gold bullion seized during the search is stock in trade and are duly accounted in the books of accounts. The aforesaid inaction on the part of respondents in failing to consider and decide the representation of the petitioners in not releasing the seized gold bullion, is illegal and contrary to the provisions of Section 132(1) and 132B of the Act of 1961.
The provision of Section 132B of the Act of 1961 mandates the respondent authorities to take a call on the application/ representation submitted by a person and after consideration such asset or any portion thereof seized during the search of which nature and source of acquisition is explained, the same should have been released within one twenty days.
The respondent authorities are under an obligation to abide by the law in force but in the present case the respondent authorities have failed to act upon the representation submitted by the petitioners on 19.02.2020 which led to miscarriage of justice.
Respondent authorities in view of the mandate of Section 132B were under an obligation to consider the application/ representation of the petitioners submitted on 19.02.2020 showing the credentials and explaining that the gold bullion seized during the search was stock-in-trade and are duly accounted in the books of accounts which were based on the documents enclosed along-with the representation which have been placed on record before this Court also. The respondent authorities have not cared to consider the representation and the documents submitted by the petitioners and to hold that the gold bullion seized during the search was not stock-in-trade. Therefore, this Court on consideration of the documents submitted along-with the petition without there being otherwise decision of the respondent authorities, does not hesitate to hold that the gold bullion seized during the search was stock-in-trade and are duly accounts in the books of accounts and accordingly the petitioners are entitled to retain the same.
Writ petition deserves to be allowed and is therefore allowed. The respondent authorities are directed to return the gold bullion 3773.52 gm. seized by them in the course of search on 15/16.02.2020 forthwith to the petitioners after complying with the requirement provided i.e. making a note of inventory.
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2023 (10) TMI 292
Stay of demand / waiver of pre-deposit - Levy of penalty - Contravention of Section 18(2) of FERA - failure to realize export proceeds to the tune of US $ 2,03,925/- - Penalties Levied - Tribunal has waived 60% of the total penalty calling upon the appellant to deposit only 40% thereof, for which a period of 30 days was granted - plea for full waiver of mandatory, statutory pre-deposit and non-compliance with an interim order of the Tribunal - HELD THAT:- Tribunal has, in waiving 60% of the penalty, and directing deposit of only 40%, taken note of all contentions of the Appellant, including the hardship projected. In fine, a balance has been struck and the Appellant directed to remit only 40% of the penalty, bearing in mind the interest of the State as well.
Taking a cue from the order in the case of Monotosh Saha [2008 (8) TMI 9 - SUPREME COURT]we made a similar offer to the appellant to remit at least a portion of the amount in order that we may consider directing the Tribunal to hear the appeal. Learned counsel, upon instructions, is categoric that no amount of the penalty can be remitted, as the appellant has absolutely no available resources.
In Nimesh Suchde Prop.Siddharth Polymers, the Delhi High Court [2009 (7) TMI 1328 - DELHI HIGH COURT] on the facts of that case, and taking note of judgment in Monothosh Saha felt, prima facie, that the appellant had satisfied the condition of undue hardship. The question that arose related to the valuation of a consignment for the purpose of levy of import duty.The appellant had sought waiver of pre deposit and that request had been dismissed directing deposit within 30 days, premised upon the finding that the goods imported, were higher in value than disclosed. A Single Judge of the Delhi High Court confirmed the order of the Tribunal as against which, an appeal had been filed.
The Division Bench considered the plea of waiver in light of Sections 8(3) and 8(4) of the FERA, that imposed restrictions on dealing with foreign exchange. The Adjudicating Officer while invoking Sections 8(3) and 8(4) of the FERA was expected to examine the matter independently and arrive at a conclusion in the matter. In that case, the Officer had merely relied on the order passed by the Customs Authority which, in turn, had been based on the premise that the import was without a valid import license. The Bench noted that no independent finding had been rendered by the Authority in regard to the finding of undervaluation rendered by the Customs Officer which was a pre-requisite while invoking Sections 8(3) and 8(4) of the FERA.
Mere reference to an order passed by the Customs Authority would not suffice. It was on the above facts that the Bench concluded that the dismissal of request of dispensation of pre deposit had not been decided in proper light by the Tribunal. The facts of this case are not analogous to the case of Siddharth Polymers and hence do not advance the case of the Appellant.
We do not find any extenuating circumstances warranting interference in the discretionary order passed by the Tribunal. In fact, the Tribunal has itself waived 60% of the penalty based on the plea of financial stringency put forth by the petitioner. We find very little justification to interfere in the discretion exercised by the Tribunal as it not shown to be perverse in any way.
The order of the Tribunal is confirmed and this Civil Miscellaneous Appeal is dismissed. Since the appeal is stated to be listed on 05.10.2023, the appellant is permitted to remit the amount by then, to condition of which the Tribunal will proceed with the appeal.
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2023 (10) TMI 118
Detention order - whether the inordinate delay of thirty years in the execution of the detention order is explained by the concerned authorities? - detention order indicates that the detaining authority has relied upon the search and seizure proceedings u/s 34 of the Foreign Exchange Act 1973 (“FERA”) - HELD THAT:- The detention under the COFEPOSA Act is for the purpose of preventing persons from acting in any manner prejudicial to the conservation or augmentation of foreign exchange or preventing from smuggling goods, or abetting smuggling goods, or engaging in transporting or concealing or keeping smuggled goods or dealing with the same or harbouring person engaged in such activities. Hence, there must be conduct relevant to the formation of the satisfaction having reasonable nexus with the petitioner's action, which is prejudicial to make an order for detaining him.
The unexplained and inordinate delay of thirty years in the present case does not justify the preventive custody of the petitioner. As held in the case of Shafiq Ahmad [1989 (9) TMI 381 - SUPREME COURT] the satisfaction of the authorities based on conduct must precede action for prevention based on subjective satisfaction.
In the present case, the action based on satisfaction is not commensurate with the situation after thirty years of the detention order. It is not even the case of the authorities that in the last thirty years, the petitioner was engaged in any prejudicial activity or has indulged in any objectionable activity.
Petitioner is right in submitting that there was no material adduced indicating that the petitioner was “absconding” or that the petitioner was evading arrest. Thus, by relying on the principle of law laid down by the Hon’ble Supreme Court in the case of Shafiq Ahmad, we find that the action under Section 7 of the COFEPOSA Act would not be decisive or determinative of the question of whether there was undue delay in serving the order of detention in the present case.
In the facts of this case, no attempts had been made to contact or arrest the petitioner. There is no explanation forthcoming for not taking any action to trace the whereabouts of the petitioner, and also, after the gazette publication in the year 1995 under section 7(1)(b) of the COFEPOSA Act, there is no action taken to serve the detention order.
Thus, there is no merit in the submissions supporting the detention order. We find substance in the ground of challenge raised on behalf of the petitioner that the detaining authority has not meticulously followed the procedure to serve the detention order, making it invalid due to the passage of time.
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2023 (9) TMI 1570
Offence under FEMA - Contravention of Sections 6 (3) (a) and (h) of FEMA - fact of the purchase by the SDS-2 of the residential real estate in UK, make the purpose of the direct investment by R-1 in the WOS as not being bona fide - Whether the declarations and the procedural requirements met by R-1 are invalidated in view of the aforementioned purchase of the residential real estate in UK by the SDS-2 - Whether the purchase of the residential real estate in UK by the SDS-2 located in BVI was actually by R-1, the Indian Party, which is a company resident in India?
HELD THAT:- The word “bona fide” has not been defined under FEMA, however, as mentioned in the impugned AO, bona fide means “in good faith; without fraud or deception; honestly, as distinguished from bad faith; openly; sincerely”. Regulation 6 (2) (ii) of the ODI Regulations reads as, “The direct investment is made in an overseas Joint Venture or Wholly Owned Subsidiary engaged in a bona fide business activity.” Obviously, if the business activity involves illegal activities say either narcotic trafficking or money laundering such business activity cannot be regarded as bona fide. From such an obvious example it appears that the requirement that the business activity is to be bona fide cannot be restricted to that of the WOS but will also apply to the business activities of the SDS-1 and of the SDS-2.
No Indian Party shall make any direct investment in a foreign entity engaged in real estate business or banking business is what is stipulated under Regulation 5 (2) of the ODI Regulations. The definition of Direct Investment outside India under Regulation 2 (e) of the ODI Regulations is investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment. Regulation 2 (q) of the ODI Regulations defines Wholly Owned Subsidiary to mean a foreign entity formed, registered or incorporated in accordance with the laws and regulations of the host country, whose entire capital is held by the Indian Party.
Regulation 13 of the ODI Regulations is enabling provision for setting up of a step down subsidiary by a wholly owned subsidiary provided the Indian Party reports about this to RBI in the Annual Performance Report. Reporting through APRs is an obligation cast upon the Indian Party in addition to its obligations which have been cast upon it for setting up a wholly owned subsidiary.
In the present case the SDS-2 is wholly owned subsidiary of the SDS-1, which is wholly owned subsidiary of the WOS wherein 100 per cent Direct Investment has been made by R-1. In view of this factual matrix a step down subsidiary also need to have bona fide business as stipulated under Regulation 5 (2) of the ODI Regulations. The argument of the learned counsel for the respondents that the provisions of the ODI Regulations are not applicable to step down subsidiaries and can only be applied to a Wholly Owned Subsidiary cannot be sustained as the ODI Regulations are to be read as a whole. The requirement of having bona fide business activity will also need to be complied by the step down subsidiaries as well.
There is nothing on record to show that the WOS and the SDS-1 indulged in real estate business. No allegation has also been made to this effect. The entire controversy relates to the purchase of the residential real estate in UK by the SDS-2. It is true that out of US $ 5.5 million paid for the purchase of the said property, US $ 1.6 million was the fund which came from the SDS-1 and the WOS wherein direct investment was made by R-1. The charge made against R-1 is that the Indian Party in contravention of Section 6 (3) (h) of FEMA r/w Regulations 5 and 6 (2) (ii) of the ODI Regulations was not engaged in bona fide business activity.
Respondent argued that the single transaction of only buying a residential real estate in UK is not covered under the definition of real estate business - Any activity in order to constitute business must be systematic and continuous. The Appellant has failed to produce any evidence as to show that the solitary purchase of the real estate abroad by the SDS-2 was not merely the only one in the dealing of real estate by the SDS-2. The Respondents have maintained that the real estate abroad was purchased to use as a Guest House for facilitating their business of trade. The Appellant has argued that the respondent has not produced evidence to show that the property was being used as a Guest House. Such insistence is not warranted in view of the fact that a solitary purchase of real estate abroad does not constitute business. In fact, the respondents have submitted evidence for trade transactions of the SDS-2 which have also been relied upon by the Appellant in the documents enclosed with the Appeal. Since, the SDS-2 did not indulge in the real estate business, question a) raised in paragraph 30 is answered in favour of the respondents. In view of the aforementioned the charge of the contravention of Section 6 (3) (h) FEMA r/w Regulations 5 and 6 (2) (ii) of the ODI Regulations does not hold good.
The declarations filed by R-1 with the Authorised Dealer include ODI Forms. As discussed in paragraph 27, R-1 made direct investment of US $ 2.4 million as equity contribution in the WOS registered in Singapore. The investment was made in three tranches. For each of the tranche, Form ODI was filed with the Authorised Dealer. The ODI Form has declaration to the effect that the purpose of forming wholly owned subsidiary in Singapore is to have a Special Purpose Vehicle to make down stream investment in trading activities. Moreover, the ODI Form for the third tranche was filed in the revised format as prescribed. This Form ODI has information not only on the WOS but also on the SDS-1 and the SDS-2. The Activity Code for the SDS-2 has been declared as 820.3 which has been explained as lessor of real property. This Form also has the declaration that a step down subsidiary called Rhizen Pharmaceuticals Ltd. in Switzerland has been formed by the SDS-1. Besides the aforementioned ODI Forms, R-1 has filed Annual Performance Reports for the relevant years of 2015-16 and 2016-17 with the RBI through the Authorised Dealer, which substantiate the earlier filings in the three Forms ODI.
The evidence on record thus substantiates the contention that the SDS-2 was doing trading activities. It is pertinent to mention the admitted fact that the SDS-2 had taken loan of US $ 3.9 million from M/s. Silverwood Enterprises which was the main source of fund to purchase the residential real estate in London. It is also significant to note that the declarations made in the Forms ODI and the APRs were not questioned by the Authorised Dealer and the RBI. In fact, the SDS-2 does not even appear to have indulged in the activity relating to lessor of real property in spite of declaration to that effect made in third Form ODI and APRs. Thus, the SDS-2 has not contravened the declarations made by R-1 to the Authorised Dealer about the purposes for which the foreign exchange was acquired.
In view of these discussions, the answer to question b) raised is that these declarations and other procedural requirements met by R-1 do not get invalidated because of the purchase of the residential real estate in UK by the SDS-2. Therefore, the charge of contravention of Section 10(6) of FEMA invoked against the respondents is not proved.
Contravention of Section 4 of FEMA - charge is based on the allegation that R-1 by creating paper subsidiaries in Singapore, UAE and BVI transferred US $1.6 million for purchase of the immovable property 46 Campden Hill in London UK - There is no documentary evidence to corroborate that either de jure control and power, or de facto control and power was with R-1 with regard to conduct of the affairs of the SDS-2. In fact, there is documentary evidence on record that the SDS-2 is registered in the British Virgin Island and has Board of Directors which demonstrate that the de-jure control and power was with the SDS-2. The Bank account statement of the SDS-2 showing debits and credits relating to trading business in Annexure VII to the present Appeal, the list of items traded by the SDS-2 with the names of parties and the value of such items, and the statement of R-2 listing transactions relating to trading business in oil and gas equipment without any intervention by R-1 go on to show that the de-facto control and power was with the SDS-2. The evidence about the circumstances under which the solitary purchase of the immovable property in UK was made, as discussed in paragraph 39, does not lead to conclusion that the SDS-2 was under the “control” of R-1.
Appellant has also invoked the principle of lifting of the corporate veil. Since, it is admitted fact that the direct investment by R-1 flowed through the WOS and the SDS-1 to the SDS-2 which has also been declared to the Authorised Dealer, the principle of lifting of the corporate veil is not applicable as the factual status of each of the entity has been made patent. In view of the aforementioned discussions question c) raised in paragraph 30 is to be answered in negative. Therefore, there is no contravention of Section 4 by the respondents. In view of the aforementioned findings the seizure of mutual funds valued at Rs. 10,35,20,000/- cannot be sustained.
None of the charges of contravention invoked under FEMA and Regulation is established against the three Respondents (R-1, R-2 & R-3), the issue raised in paragraph 25 with regard to the fourth Noticee to the SCN Shri Chirayu Amin, also gets closed. Since, the learned AA has dropped the charges against the fourth Noticee to the SCN in the impugned AO and the Appellant has chosen not to make the fourth Noticee as a Respondent to the present Appeal, the impugned AO has assumed finality for him.
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2023 (9) TMI 1561
Receiving payment on behalf of a person resident outside India - information gathered from the sheets of paper and from the further explanation the directorate located 14 of the recipients and recorded their statements - effect of retracted statement - Appellant for having received payment under instructions of one Mr. Imtiyaz Ahmed of Dubai, resident outside India without any general or special permission of the Reserve Bank of India (RBI) in contravention of section 3(c) of FEMA, 1999 - Validity of search and seizure operation conducted under section 37(3) of FEMA, 1999 ead with section 132 of the Income-tax Act, 1961 at the residence of the appellant wherein certain documents were seized - appellant seeks to refute the contents of the two statements made by him under oath through a simple letter.
HELD THAT:- By virtue of section 37(3) of FEMA, 1999, in the matter of search and seizure, issue of summonses and recording or statements etc., the officers of the Directorate of Enforcement exercise the same powers which are conferred on Income-tax authorities under the Income-tax Act, 1961. The above legal position, in our view, creates a strong presumption in favour of the respondent Directorate's case which is built on the foundation of documents seized during search and seizure operation. The appellant on the other hand, has not placed any material before us to rebut the documentary evidence gathered during the search operation.
It is also extremely significant to note in the instant case that in his subsequent statement recorded 11 days after the original statement, he not only confirmed as true the contents of his earlier statement dated 10/01/2003, but also explained certain other seized documents and explained the modus operandi adopted for receipt of money from abroad and its distribution to the ultimate beneficiaries in India.
In his statement the appellant admitted that he had noted down the details of the beneficiaries on pieces of paper which he had later destroyed. However, some sheets of paper were retained which contained details of amounts, dates, names etc.. The names and telephone numbers of the recipients were noted too. He also provided the names and contact numbers of some of the beneficiaries, including one Mrs. Rukiya Biwi of Udupi to whom an amount of Rs. 2.60 lakh had been paid recently and whose telephone number was 530556, and another Mr. Lobo to whom payment of Rs. 4.5 lakh had been made and whose telephone number was 212318.
Based on the information gathered from the sheets of paper and from the further explanation the directorate located 14 of the recipients and recorded their statements. They too confirmed receipt of amounts on instructions from abroad.
It is also very significant to note that the appellant admitted that entries in the sheets of paper were in the handwriting of his wife, a fact which has not been denied by either the appellant or his wife.
The so-called retraction, if at all it can be seen as one, was clearly an afterthought and of little evidentiary value. As regards the respondent directorate's failure to independently verify the identity and whereabouts of Imtiyaz, it is noteworthy that though the appellant has questioned the respondent directorate's failure to do so neither in the pleadings, nor during verbal arguments has the appellant or his learned counsel categorically denied that he had a brother-in-law by the name Imtiyaz or even that the said Imtiyaz lived in Dubai at the relevant time.
Thus, no reason to interfere with the impugned order of the Ld. Special Director. Accordingly, the appeal is dismissed being devoid of any merit. All pending miscellaneous applications are also hereby disposed of.
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2023 (9) TMI 1559
Penalty imposed for contravention under FEMA - appellant was a citizen of the Islamic Republic of Pakistan and purchased two immovable properties in India [Dehradun] w/o taking any permission from the Reserve Bank of India or any other government body as required u/Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 - appellant submits that the appellant and his family, being Pakistani nationals, took refuge in India in 1992 as they were being persecuted and tortured in Pakistan for being Hindus. The appellant came with his family 26 years ago to settle permanently on political asylum.
HELD THAT:- As per background in which the appellant arrived in India with his family, grant of long-term visa to him by the Government of India followed eventually by grant of full citizenship as a naturalized citizen. The fact that there was no absolute bar on a Pakistani citizen acquiring property in India and the only requirement was to obtain permission. The fact that the amount of original penalty of Rs. 3,00,000/- imposed upon him and his son was duly paid, and the intended purpose of the legislation in question (FEMA, 1999) which was to consolidate and amended the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India, we are of the view that the appellant has made out a case for grant of relief.
No doubt ignorance of the law is not a defence and every person is presumed to know the law to which he or she is subject. Nevertheless, in view of the facts mentioned above which are not in dispute, we are of the view that the ends of justice have been met with the penalty of Rs. 3,00,000/- imposed upon the appellant and his son in the first instance which was duly paid, and levy of further penalty of Rs. 50,000/- was not justified in his case. Accordingly, the same is hereby set aside.
The instant appeal stands allowed and the further penalty of Rs. 50,000/- imposed by the adjudicating authority, and upheld by the Learned Special Director of Enforcement (Appeals) through the impugned order, are set aside.
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2023 (9) TMI 1558
Penalty imposed for contravention under FEMA - appellant was a citizen of the Islamic Republic of Pakistan and purchased two immovable properties in India [Dehradun] w/o taking any permission from the Reserve Bank of India or any other government body as required u/Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.
HELD THAT:- Considering the background in which the appellant and his family arrived in India, grant of long-term visa to them by the Government of India followed eventually by grant of full citizenship as a naturalized citizen. The fact that there was no absolute bar on a Pakistani citizen acquiring property in India and the only requirement was to obtain permission.
The fact that the amount of original penalty imposed upon him and his father was duly paid by the appellant, and the intended purpose of the legislation in question (FEMA, 1999) which was to consolidate and amended the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India, we are of the view that the appellant has made out a case for grant of relief.
No doubt ignorance of the law is not a defence and every person is presumed to know the law to which he or she is subject. Nevertheless, we are of the view that the ends of justice have been met with the penalty of Rs. 3,00,000/- imposed upon the appellant and his father in the first instance which was duly paid, and levy of further penalty of Rs. 4,50,000/- was not justified in his case. Accordingly, the same is hereby set aside.
The instant appeal stands allowed and the further penalty of Rs. 4,50,000/- imposed by the adjudicating authority, and upheld by the Learned Special Director of Enforcement (Appeals) through the impugned order, are set aside.
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2023 (9) TMI 1102
Offences committed under the repealed FERA Act - prosecution for the offences punishable as committed prior to the repeal of FERA - purposes of the prosecution of offences punishable under Sections 56 and 57 of FERA - HELD THAT:- What is material here is sub-section (4) of Section 49 of FEMA, which provides that subject to the provisions of sub-section (3), all offences committed under the repealed Act shall continue to be governed by the provisions of the repealed Act as if that Act had not been repealed. Sub-section (3) of Section 49 saves the prosecution for the offences punishable under Sections 56 and 57, which have been committed prior to the repeal of FERA, provided the competent Court takes its cognizance within two years from the date of coming into force of FEMA. In view of sub-section (4) of Section 49, for the purposes of the prosecution of offences punishable under Sections 56 and 57 of FERA, by a legal fiction, the provisions of the repealed Act will continue to apply. However, the same will continue to apply only for the purposes of prosecution of the offences which are saved by sub-section (3) of Section 49 of FEMA.
That is how the complaint filed by the Enforcement Officer, duly authorised under clause (ii) of sub-section (2) of Section 61 of FEMA, will continue to be valid, inasmuch as by virtue of the legal fiction incorporated in sub-section (4) of Section 49, the prosecution will continue to be governed by the provisions of FERA as if the same had not been repealed. Therefore, during the sunset period, the authorisation of the Enforcement Officers to file the complaints continues to be valid for the limited purposes of sub-section (3) of Section 49 of FEMA.
If the arguments of the appellants are accepted, the officer nominated under sub-clause (b) of clause (ii) of sub-section (2) of Section 61 of FERA will not be empowered to file complaints for the offences punishable under FERA even within the sunset period of two years. Such interpretation will prevent the Court from taking cognizance after the repeal of FERA on a complaint filed after the repeal of FERA by an officer authorised under sub-clause (b) of clause (ii) of sub-section (2) of Section 61 of FERA. Thus, no complaint can be filed during the sunset period of two years provided in sub-section (3) of Section 49 of FEMA. A Statute cannot be interpreted in such a manner that any provision thereof is rendered otiose. Therefore, we are unable to accept the submissions made by the learned senior counsel appearing for the appellants. Any construction which will defeat the plain intention of the legislature must be rejected. The Court must adopt the interpretation which makes the provisions of a Statute workable.
By FERA, the Foreign Exchange Regulation Act, 1947 (for short, ‘FERA, 1947’) was repealed. The repealing provision is provided under sub-section (1) of Section 81 of FERA. This Court, in the case of M/s. P.V. Mohammad Barmay Sons v. Director of Enforcement [1992 (8) TMI 225 - SUPREME COURT] interpreted clause (a) of sub-section (2) of Section 81 of FERA as held despite repeal of Act 7 of 1947 by operation of Section 6 of the General Clauses Act read with Section 81(2), the penalty incurred by the appellant continued to subsist and the respondents are entitled to institute the proceedings, conduct investigation or enquiry and impose such penalty.
The appeal fails, and the same is, accordingly, dismissed. As the complaint remained stayed from 7th January 2011, we direct the Trial Court to give necessary out of turn priority to the disposal of the complaint which is the subject matter of this appeal.
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2023 (8) TMI 60
Proceedings under FEMA - receiving foreign exchange in lieu of issuance of equity shares/share warrants - whether no approval has been granted by FIPB? - HELD THAT:- As clearly transpires without any semblance of doubt that the custodian general of foreign exchange is the Reserve Bank of India and any permission with regard to inflow of foreign exchange would definitely have to have the permission of the Reserve Bank of India.
In the case on hand, the permission is for receiving foreign exchange in lieu of issuance of equity shares and for the said purpose, the appropriate authority to grant permission is FIPB. Newbridge, the foreign investor, intended to invest in equity shares in the petitioner-company, with further downstream investment in the sister concern of the petitioner company for which necessary approval was granted by FIPB. In fact, the 1st respondent is also not disputing the approval granted to the petitioners for issuance of equity shares. However, the show cause notice was issued only on account of the petitioner company issuing share warrants, which was later converted into equity shares.
The sequence of events for obtaining approval have already been extracted above. In this regard, the initial approval was granted by FIPB on 27.12.2005. Thereafter, as there was certain errors in the number of equity shares, further approval was solicited, which was also granted by FIPB on 31.01.2006. There is no quarrel that equity shares were issued by the petitioner company in favour of Newbridge. However, for an amount of about Rs.243 Crores, share warrants were issued, which was subsequently converted into equity shares.
It has been the ratio of the Supreme Court even in LIC case [1985 (12) TMI 289 - SUPREME COURT] that RBI is the custodian general of foreign exchange. In the present case, the foreign investment was approved by FIPB.
Communication reveals that FIPB had nowhere said that the issuance of warrants at the point of time when it was issued by the petitioner company required permission. In fact, the order clearly spells out that there was no explicit policy at the material point of time with regard to issuance of warrants. The above stand of FIPB unequivocally speaks to the effect that there was no explicit policy with regard to warrants, which effectively could only mean that there was no prohibition on issuance of warrants.
The further stand of FIPB that no post facto approval is required as the warrants have since been converted into equity shares should not be read in isolation and it should be read in conjunction with the earlier part of the order, where FIPB has intimated that there was no explicit policy with regard to issuance of warrants at the relevant point of time.
Omission to spell out warrants to be included in the term ‘security’ as defined u/s 2 (za) of FEMA cannot be taken mean that issuance of warrants is prohibited. Prohibition should be clearly spelt out either explicitly or even impliedly. There is neither an implicit nor an explicit prohibition. The mere omission of warrants, therefore, cannot be construed that it is a prohibited instrument and, therefore, it is a contravention of Section 6 (3) (b) of FEMA, 1999.
As on the relevant date when the share warrants were issued, there was no regulations bny the 2nd respondent prohibiting the issue of share warrants, which was the only reason the 2nd respondent had directed the petitioners to approach FIPB to obtain post facto approval. If really there were any regulations, or even implied prohibition in the issuance of share warrants, RBI being the custodian general of foreign exchange, would definitely have called upon the explanation of the petitioners.
When the 2nd respondent itself has accepted that there was no contravention of Section 6 (3) (b) of FEMA, 1999, the show cause notice issued by the 1st respondent to the petitioners alleging that there is no permission for issuance of share warrants is not only uncalled for, but is also an act usurping the powers of the 2nd respondent.
When FIPB, the authority, who is vested with power to grant approval has held that no post facto approval is required, interpreting the order in any other fashion, that too by an authority, who is not empowered to decide on the manner in which the said order has been passed, it does not lie in the mouth of the 1st respondent to claim that approval has not been obtained and such a finding is not only perverse, but arbitrary, illegal and unreasonable and, therefore, the impugned order passed as a consequence of the said finding deserves to be interfered with.
This Court is of the considered view that the writ petitions deserve to be allowed by setting aside the orders impugned herein. Accordingly, the impugned order passed by the 1st respondent is set aside and all the writ petitions are allowed. Consequently, connected miscellaneous petitions are closed.
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