ADJUDICATION AND APPEAL UNDER ‘FEMA’

[Mr. M. GOVINDARAJAN]

Section 13(1) of the Foreign Exchange Management Act, 1999 (‘FEMA’ for short) provides for imposing penalties by Adjudicating Authority.  The said Section provides that if any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any conditions subject to which an authorization is issued by the Reserve Bank, he shall upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to ₹ 200000/- where the amount is not quantifiable and where such contravention is a continuing one, further penalty which may extend to ₹ 5,000/- for every day after the first day during which the contravention continues.

For this purpose the Central Government made ‘FEMA (Adjudication Proceedings and Appeal) Rules, 2000 which came into effect from 01.06.2000.

Section 16 of FEMA provides that the Central Government may, by an order, published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an inquiry, against whom a complaint has been made.  The Central Government is also to prescribe the jurisdiction for the Adjudicating Authorities.

Procedure for Adjudication

The following is the procedures prescribed in the Act and Rules for Adjudication:

• The Adjudicating Authority shall hold an inquiry only on a complaint in writing made by an officer authorized by a general or special order by the Central Government;
• Where any person has committed any contravention as specified in Section 13 of the Act, the Adjudicating Authority shall issue a notice to such person requiring him to show cause within such period as may be specified in the notice as to why an inquiry should not be held against him.   Normally the period of notice shall not be less than 10 days from the date of service of notice;
• Every notice shall indicate the nature of contravention alleged to have been committed by him;
• The person on whom the notice is issued shall given reply within the time prescribed;
• After considering the reply by such person the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a Chartered Accountant duly authorized by him;
• On the date fixed, the Adjudicating Authority shall explain to the person the contravention alleged to have been committed by him indicating the provisions of the Act or of Rules, regulation, notifications, directions or orders or any condition subject to which an authorization is issued by the RBI in respect of which contravention is alleged to have taken place;
• The Adjudicating Authority shall, then, given an opportunity to that person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary, the hearing may be adjourned to a future date and in taking such evidence the Adjudicating Authority shall not be bound to observe the provisions of the Indian Evidence Act;
• While holding an inquiry the Adjudicating Authority shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the Adjudicating Authority  may be useful to or relevant to the subject matter  of the inquiry;
• If any person fails, neglects or refuses to appear before the Adjudicating Authority, the Authority may proceed with the adjudication in his absence after recording reasons for doing so;
• If, upon consideration of the evidence produced, the Adjudicating Authority is satisfied that the person has committed the contravention, he may, by order in writing, impose such penalty as he thinks fit, in accordance with the provisions of Section 13 of the Act;
• The Adjudicating Authority, if he thinks fit in addition to any penalty direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government;
• The Adjudicating Authority may direct that the foreign exchange holdings, if any of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf;
• Every complaint shall be dealt as expeditiously as possible and endeavor shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint;
• If the complaint could not be disposed within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period;
• Every order made shall specify the provisions of the Act or of the rules, regulations, notifications, directions or orders or any condition subject to which an authorization is issued by the RBI in respect of which contravention has taken place and shall contain reasons for such decisions;
• Every order made shall be dated and signed by the Adjudicating Authority;
• A copy of the order made shall be supplied free of charge to the person against whom the order is made and all other copies of proceedings shall be supplied to him on payment of copying fee of ₹ 2 per page;
• The copying fee shall be paid in cash or by Demand draft drawn in favor of the Adjudicating Authority.

Enforcement of the orders of Adjudicating Authority

Section 19 of the Act provides that if any aggrieved person wants to file appeal before the appellate authority against the order of Adjudicating Authority, he is to file appeal within forty five days from the date of receipt of the order.   If no appeal is filed then the order of Adjudicating Authority would be final and it could be enforced.  Section provides the procedure for enforcement of the orders of Adjudicating Authority as detailed below:

• If any person fails to make full payment of the penalty imposed within a period of ninety days from the date on which the notice for payment of such penalty is served on him he shall be liable to civil imprisonment;
• Before that the Adjudicating Authority is to issue notice and service upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should be committed to the civil prison;
• The order of arrest is  to be issued by the Adjudicating Authority if he is satisfied that-

• the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of the notice by the Adjudicating Authority, dishonestly transferred, concealed or removed any part of his property; or
• the default has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same;

• A warrant of arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied by affidavit or otherwise, that the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority;
• If the default does not appear before the Adjudicating Authority, he may issue a warrant for the arrest of the defaulter;
• A warrant of arrest may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found;
• The person so arrested shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within 24 hours of his arrest, exclusive of the time required for the journey;
• If the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once released him;
• If the defaulter appears before the Adjudicating Authority he shall give the defaulter an opportunity showing cause why he should not be committed to civil prison;
• Pending conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as he think fit or release him on furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required;
• The Adjudicating Authority may leave the defaulter for a specified period not exceeding 15 days or release him on his furnishing security for his appearance at the expiration of the specified period if the arrears are not satisfied;
• When the Adjudicating Authority does not make an order of detention he shall, if the defaulter is under arrest, direct his release;
• Every person detained in the civil prison-

• Where the certificate is for a demand of an amount exceeding ₹ 1 crore, up to three years; and
• In any other case, up to six months;

• The person detained shall be released if the amount is paid to the officer-in-charge of civil prison;
• A detention order may be executed at any place in India in the manner provided for the execution of warrant of arrest under Cr. PC, 1973.

Appeal  to Special Director

Section 17 provides for filing appeal against the order of Adjudicating Authority to Special Director.  The Central Government shall appoint one or more Special Directors (Appeals) to hear appeals by means of Notification in which the Central Government also to indicate the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.  The appeal procedure is detailed as below:

• The appeal to Special Director shall be filed within forty five days from the date on which the copy of the order made by Adjudicating Authority is received;
• The Special Director may entertain an appeal after the expiry of forty five days, if he is satisfied that there was sufficient cause for not filing it within that period;
• The delayed appeal shall be accompanied by a petition, in triplicate, duly verified and supported by the documents, if any, relied upon by the applicant, showing cause how the applicant had been prevented from preferring the appeal within the said period of 45 days;
• The appeal shall be in Form – I signed by the appellant;
• The appeal shall be filed in triplicate and accompanied by a fee of ₹ 5000/- in form of cash or demand draft payable in favor of the Special Director (Appeals);
• The appeal may set forth concisely and under distinct heads the grounds of objection to the order appealed against without any argument of narrative and such grounds shall be numbered consecutively; and shall specify the address for service at which notice or other processes may be served on the applicant, the date on which the order appealed against was served on the applicant;
• On receipt of appeal, the Special Director (Appeals) shall send a copy of the appeal, together with a copy of the order appealed against, to the Director of Enforcement;
• The Special Director  (Appeals) shall, then, issue notices to the appellant and the Director of Enforcement fixing a date for hearing of the appeal;
• On the date fixed for hearing or any other day to which the hearing of the appeal may be adjourned, the appellant as well as the Presenting Officer of the Directorate of Enforcement shall be heard;
• Any appellant may appoint a legal practitioner or a Chartered Accountant to appear and plead and act on his behalf before the Special Director (Appeals) under the Act;
• The Special Director (Appeals) shall have the same powers of a civil court which are conferred on the Appellate Tribunal;
• The Special Director (Appeals) may decide the appeal on merits, after giving both the parties the opportunity of being heard;
• The appeal is to be decided within 180 days from the date of appeal;
• The order of Special Director (Appeals) shall be in writing and shall state briefly the grounds for the decision;
• The order of Special Director shall be signed by the Special Director (Appeals) hearing the appeal;
• The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority.

Appeal to Appellate Tribunal

Section 18 of the Act provides that the Central Government shall, by notification, establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals) under this Act.    The procedure involved in appeal to the Appellate Tribunal is discussed as follows:

• The Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than specified in Section 17(1) or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal;
• The appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director is received;
• The appeal shall be in Form II signed by the applicant;
• The appeal shall be in triplicate by a fee of ₹ 10,000/- in the form of cash or demand draft payable in favor of the Registrar, Appellate Tribunal for Foreign Exchange, New Delhi;
• While filing the appeal, the appellant is to deposit the penalty imposed against him;
• Where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realization of penalty;
• The Appellate Tribunal may entertain an appeal after the expiry of 45 days if it is satisfied that there was sufficient cause for not filing it within the said period;
• In such cases the appeal shall be accompanied by a petition, in triplicate, duly verified and supported by the documents, if any, relied upon by the applicant, showing cause how the applicant had been prevented from preferring the appeal within the said period of 45 days;
• The appeal shall set forth concisely and under distinct heads the grounds of objection to the order appealed against without any argument of narrative and such grounds shall be numbered consecutively; and shall specify the address for service at which notice or other processes may be served on the appellant;
• On receipt of the appeal the Appellate Tribunal shall send a copy of the appeal together with a copy of the order appealed against, to the Director of Enforcement;
• The Appellate Tribunal shall issue notices to the appellant and the Director of Enforcement fixing a date for hearing of the appeal;
• The appellant may appoint a legal practitioner or a Chartered Accountant to appear and plead and act on his behalf before the Special Director (Appeals);
• On the date fixed for hearing or any other day to which the hearing of the appeal may be adjourned, the applicant or the presenting officer fail to appeal when the appeal is called on for hearing, the Appellate Tribunal may decide the appeal on the merits of the case;
• The order of the Appellate Tribunal shall be in writing and shall state briefly the grounds for the decision;
• The order shall be signed by the Chairman or Member of the Appellate Tribunal hearing the appeal;
• The appeal shall be disposed within 180 days from the date of receipt of the appeal.  If it could not been disposed within 180 days the Tribunal shall record its reasons in writing for not disposing of the appeal within the said period;
• The Tribunal may, for the purpose of examining the legality, propriety or correctness of any order may be the Adjudicating Authority  in relation to any proceeding, on its own motion or otherwise, call for records of such proceedings and make such order in the case as it thinks fit;
• The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals) as the case may be.

Procedure and Powers of Tribunal and Special Director (Appeals)

The Appellate Tribunal and the Special Director (Appeals) shall not be bound by the procedure laid down in CPC but shall be guided by the principles of natural justice and, subject to other provisions of this Act, the Appellate Tribunal and the Special Director (Appeals) shall have the powers to regulate its own procedures.  They are having the same powers as are vested in a Civil Court while trying a suit, in respect of the following matters:

• summoning and enforcing the attendance of any person and examining him on oath;
• requiring the discovery and production of documents;
• receiving evidence on affidavits;
• subject to the provisions of Sections 123 and 124 of the Indian Evidence Act, 1872 requisitioning any public record or document or copy of such record or document from any office;
• issuing commissions for the examination of witnesses or documents;
• reviewing its decisions;
• dismissing a representation of default or deciding it ex-parte;
• setting aside any order of dismissal of any representation for default or any order passed by it ex-parte; and
• any other matter which may be prescribed by the Central Government.

An order may be the Tribunal or the Special Director (Appeals) shall be executable by them as a decree of civil court and, for this purpose, the Appellate Tribunal and the Special Director (Appeals) shall have all the powers of a civil court.  They may transmit any order to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by the court.