2015 (1) TMI 1074 - HC - FEMA

Violation of procedure contemplated in Rule 4 - Rejection of request of cross examination - Held that - On a bare reading of the show cause notice it is seen that a complaint was made under section 16(3) of FEMA for contravention of the provisions of FEMA. The adjudicating authority on a perusal of the complaint and after considering the cause assigned by the complainant in the said complaint, stated that it appears that there is contravention in the said complaint against the petitioners of the provisions of section 3(c) read with section 42(1) of FEMA, as mentioned in the complaint. Therefore, the petitioner was required to submit reply to the show cause notice in writing within thirty days from the date of notice as to why the adjudicating proceedings as contemplated under section 13 of FEMA should not be held against them for contravention of the provisions of section 3(c) of FEMA as mentioned in the complaint, which was enclosed along with the show cause notice. The attention of the petitioners was invited to Rule 4 of the Rules. Further, the petitioners were directed to appear either in person or through their Legal Practitioners/Chartered Accountants duly authorised by them to explain and produce such documents as may be useful or relevant to the subject matter of enquiry. There is nothing to indicate that the adjudicating authority has straight away proceeded to the stage contemplated under sub rule (4) of Rule 4. The show cause notice does not indicate any such conclusion nor it may be stated that the respondent has violated the procedure under Rule 4 of the Rules. In fact, the attention of the petitioners has been drawn to Rule 4 of the Rules. Therefore, the plea raised by the petitioner that the show cause notice is vitiated for having not following the procedure under Rule 4 of the Rules, deserves to be rejected. - Decided against the petitioner.

Summary

Issues Involved:
1. Validity of the interlocutory order rejecting the petitioners' request for cross-examination.
2. Adherence to the procedural requirements under the Foreign Exchange Management Act (FEMA) and its Rules.
3. Right to cross-examine witnesses and access to documents as part of natural justice.
4. Prematurity of the Writ Petition at the show cause notice stage.

Issue-wise Detailed Analysis:

1. Validity of the interlocutory order rejecting the petitioners' request for cross-examination:
The petitioners challenged the interlocutory order dated 15.7.2010, which rejected their application for cross-examination of witnesses and access to certain documents. The petitioners argued that this rejection violated their right to a fair hearing and the principles of natural justice as enshrined in Section 16(1) of FEMA and Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. They contended that the right to cross-examine witnesses is an indispensable part of natural justice, and the adjudicating authority must follow the statutory procedure, including forming a written opinion before proceeding to the next stage of the enquiry.

2. Adherence to the procedural requirements under FEMA and its Rules:
The petitioners argued that the adjudication proceedings were vitiated due to non-compliance with the procedural requirements under Rule 4 of the Rules. They emphasized that the adjudicating authority must follow a two-tier procedure, including forming a written opinion on whether an enquiry should be held. The petitioners cited the Bombay High Court's decision in SHASHANK VYANKATESH MANOHAR v. UNION OF INDIA to support their claim that reasons for forming such an opinion must be communicated to the noticee, and the next stage of the proceedings can only occur after fifteen days.

3. Right to cross-examine witnesses and access to documents as part of natural justice:
The petitioners asserted their right to cross-examine witnesses and access documents relied upon by the adjudicating authority. They referenced previous judgments, including NATWAR SINGH v. DIRECTOR OF ENFORCEMENT, which held that the adjudicating authority must follow the prescribed procedure under the Statute and Rules and is not free to devise its own procedure. The petitioners argued that denying cross-examination and access to documents would result in grave prejudice and violate the principles of natural justice.

4. Prematurity of the Writ Petition at the show cause notice stage:
The respondent's counsel argued that the Writ Petition was premature, as it was filed at the show cause notice stage, and the petitioners had not yet submitted a final reply to the show cause notice. The counsel cited the Supreme Court's decision in SPECIAL DIRECTOR OF ENFORCEMENT v. SHIR MOHD. GHULAM GHOUSE, which held that challenging an interlocutory order at the show cause notice stage is premature. The respondent's counsel also argued that the petitioners' request for cross-examination and access to documents before submitting their reply to the show cause notice was misconceived and premature under Rule 4(1) of the Rules.

Judgment:
The court dismissed the Writ Petition, holding that the petitioners' request for cross-examination and access to documents was premature at the show cause notice stage. The court emphasized that the adjudicating authority must follow the statutory procedure under Rule 4 of the Rules, and the petitioners are required to submit their reply to the show cause notice before seeking cross-examination and access to documents. The court also noted that the petitioners have the right to appeal under Section 17 of FEMA if they are aggrieved by the final order of the adjudicating authority. The court concluded that the denial of cross-examination at this stage did not amount to a violation of the principles of natural justice.