2015 (1) TMI 1122 - HC - FEMA

Contravention of Section 8(3) and 8(4) read with Section 68 of FEMA read with para-7A, 20(i) of Exchange Control Manual, 1995 (ECM) - Held that - Impugned order of the appellate tribunal and the order-in-original suffer from serious infractions of the principles of natural justice and, even on merits, it appears that the appellants were able to provide sufficient material on record to raise a serious doubt about the alleged violation of FEMA. - In the present case, the order in original, as noticed above, is primarily founded upon the response dated 03.02.2004 received from Bank of India by the ED to its communication of 08.01.2004. It is not clear as to what is the nature and content of the information elicited by the ED from the Bank of India in its communication of 08.01.2004. It also remains in suspense as to what was the nature and content of the response sent by Bank of India in its communication dated 03.02.2004. It is not clear as to who sent the said alleged communication - i.e. whether it was sent by an authorized officer of the Bank or not. The appellants should have then approached the Bank of India and enquired about the same. This argument has only to be stated, to be rejected. Pertinently, when the appellant company demanded copies of the said communications vide their letter dated 29.03.2004, the same were not provided. Without having copies of the said communication, this Court fails to appreciate as to how the appellants could be expected to gather any information from the said Bank, or get them verified. In fact, the appellants were not even obliged to do so, and it was the primary obligation of the adjudicating authority to place all incriminating material - which was intended to be relied upon to condemn the appellants and penalize them in a quasi-criminal proceedings, before the appellants to elicit their response. The order imposing penalty is undoubtedly a prejudicial order as it entails quasi criminal and penal consequences. No such order could have been passed behind the back of the appellants, without confronting them with all the material which was sought to be relied upon and granting adequate opportunity to them to deal with the same. It was obligatory for the adjudicating authority to thereafter consider the response of the appellants, if any, and after consideration of the entire matter, pass the adjudication order. Reasoning adopted by the Appellate Tribunal in para 19 borders of perversity, when it observes that the appellant company had not approached the Bank of India to seek clarification about the said letter dated 03.02.2004. Pertinently, it appears that the Appellate Tribunal also did not even consider it necessary to go through the said correspondences dated 08.01.2004 and 03.02.2004 between the ED and the Bank of India. The Appellate Tribunal did not consider it necessary to satisfy itself as to the nature of information sought from, and provided by the Bank of India. On this short ground, the order in original and the impugned order of the Appellate Tribunal are liable to be quashed and set aside. Respondents have not established the violation of provisions of FEMA as alleged against the respondent beyond all reasonable doubt. There is likelihood of the appellant company having utilized the remittances for import as claimed by it. The situation has to be viewed from the context that the initial inquiry pertained to 64 remittances. Eventually, the same was narrowed down to only four, and thereafter in respect of the fourth alleged remittance, the respondents were satisfied with the appellants explanation. According to the appellants, remittances to the tune of ₹ 700 crores have been made in relation to the business of the appellant company. If one were to keep the entire conspectus of facts in view, it does not stand to reason that the appellant company would fall foul of the law in respect of such miniscule amounts as claimed by the respondent, compared to the total remittances made by it. - The amounts deposited by the appellants in pursuance of the original order of adjudication before the Appellate Tribunal, shall be refunded without any delay. Similarly, the amounts, if any, deposited in this Court shall also be refunded to the appellants without any delay. - Impugned order is set aside - Decided in favour of Appellant.

Summary

Issues Involved:
1. Breach of principles of natural justice.
2. Delay in issuance of show cause notice and its implications.
3. Procedural compliance by the authorized dealer.
4. Sufficiency of evidence to establish contravention of FEMA.
5. Propriety of imposing penalties in quasi-criminal proceedings.

Issue-wise Detailed Analysis:

1. Breach of Principles of Natural Justice:
The appellant argued that the adjudicating authority interacted with the Bank of India behind their back and did not provide them with the communication dated 08.01.2004 or the response dated 03.02.2004. The court noted that these documents were not produced or relied upon in the adjudication proceedings, and the appellant had no occasion to deal with the same. The court emphasized that it was obligatory for the adjudicating authority to place all incriminating material before the appellants to elicit their response. The failure to do so violated principles of natural justice, rendering the proceedings before the adjudicating authority and the Appellate Tribunal vitiated.

2. Delay in Issuance of Show Cause Notice and Its Implications:
The transactions in question dated back to 1993-1996, while the show cause notice was issued only in 2002. The court observed that the appellants were not expected to maintain their records for such a long period. The delay in initiating proceedings resulted in the misplacement of original documents in the office of the appellant company. The court cited Vipin Gupta's case, where it was held that the noticee could not have been expected to retain proof of all remittances for over six years, and the explanation for not furnishing the exchange control copies of the Bill of Entries was bona fide.

3. Procedural Compliance by the Authorized Dealer:
The court noted that the show cause notice did not recite that the authorized dealer had ever sent a reminder to the appellant company asking it to produce the exchange control copies of the Bill of Entries within three months from the date of remittance, as required by para 7A.20(iv) of the ECM. The non-issuance of reminders indicated that the exchange control copies of the Bill of Entries were duly submitted, negating the cause for issuance of such notices.

4. Sufficiency of Evidence to Establish Contravention of FEMA:
The court found that the appellants had raised substantial defense to cast sufficient doubt on the alleged violation of FEMA. The utilization of the remittances was sought to be explained by reference to various communications and documents, which were not found to be forged or fabricated. The court emphasized that the respondents had not established the violation of FEMA provisions beyond all reasonable doubt, considering the context that the initial inquiry pertained to 64 remittances, which was eventually narrowed down to only three.

5. Propriety of Imposing Penalties in Quasi-Criminal Proceedings:
The court referred to several precedents, including M/s Bareily Electricity Supply Co. Ltd. v. The Workmen & Ors., and Bata India Ltd. v. Special Director, Enforcement Directorate, which held that penalties in quasi-criminal proceedings should not be imposed merely because it is lawful to do so. The court observed that the appellants were a credible and compliant business entity, and it was highly unlikely that they would not have made imports in respect of the three foreign remittances. The court concluded that the respondents had not made out a case beyond all reasonable doubt and that the appellants had provided sufficient material to raise a serious doubt about the alleged violation of FEMA.

Conclusion:
The appeals were allowed, and the impugned order-in-original, as well as the appellate order, were quashed. The amounts deposited by the appellants were ordered to be refunded without any delay.