2017 (9) TMI 127 - HC - FEMA

Interest on the amount of the Award - Payment of actual rate of interest earned by the respondent on the amount seized and confiscated from the petitioner - accretion to the amount seized from the petitioner - Held that - In the present case it is admitted that the respondent had received interest amounting to ₹1,64,52,470/- on the separate fixed deposit created from the currency seized. However, it is seen that the respondent has paid only a sum of ₹1,19,09,803/- as interest. Thus, the respondent is directed to refund the balance amount of ₹45,42,667/- (₹1,64,52,470/- minus ₹1,19,09,803/-). The respondent has also provided no justification for not paying the amount of interest along with the amount seized. Even according to the respondent, a sum of ₹1,19,09,803/- was payable to the petitioner on 25.10.2012. However, this amount was paid by the respondent on 05.04.2013, and there is no explanation, whatsoever for retaining the amount. The petitioner has been deprived of the use of the said funds and, thus, is entitled to be compensated for the same. There are numerous decisions, where the Courts have awarded interest as compensation for denial of the right to utilise the money due. In Thazhathe Purayil Sarabi & Ors v. Union of India (2009 (5) TMI 966 - SUPREME COURT) the Supreme Court observed that As has been frequently explained by this Court and various High Courts, interest is essentially a compensation payable on account of denial of the right to utilise the money due, which has been, in fact, utilized by the person withholding the same. Accordingly, payment of interest follows as a matter of course when a money decree is passed . Thus, this Court is of the view that the respondent be also directed to pay interest at the rate of 6% per annum on the said sum of ₹1,19,09,803/- (which was concededly due to the petitioner on 25.10.2012) for the period from 25.10.2012 to 05.04.2013.

Summary

Issues:
Claim for actual interest earned on seized amount, Interpretation of Foreign Exchange Management Act, 1999, Adjudication proceedings and penalties, Appeal against Adjudication order, Release of confiscated amount, Payment of interest on seized amount, Accrual of interest on fixed deposit, Applicability of Rules on interest payment, Delay in refunding confiscated amount, Entitlement to interest on seized amount, Compensation for denial of fund utilization, Direction for interest payment.

The petitioner filed a petition seeking payment of the actual interest earned by the respondent on the seized amount. The Enforcement Directorate seized a total amount under the Foreign Exchange Management Act, 1999, and later issued a Show Cause Notice leading to an order of confiscation and penalties. The petitioner appealed this order, which was set aside by the Appellate Tribunal, directing the return of the confiscated amount within 30 days. The respondent released the amount after two years without paying any interest initially. The petitioner claimed interest on the seized amount invested in a fixed deposit and on the interest withheld by the respondent. The respondent argued that they had paid the principal and interest at 6% per annum as per the Rules. The petitioner contended that they should be entitled to any accretion in the seized amount based on legal precedents.

The court observed that the seized amount was invested in a fixed deposit by the respondent, earning interest at a rate higher than 6% per annum. The Rules mandated payment of interest at 6% per annum on seized currency, but in this case, the funds were invested separately. The court emphasized that the delay in refunding the seized amount cannot be exploited for profit through interest earned. Referring to a Bombay High Court decision, the court agreed that the petitioner should be entitled to the interest accrued on the seized amount. The court highlighted that the interest on the fixed deposit represented an accretion to the seized amount and must be paid to the petitioner as the funds belonged to them.

The court directed the respondent to refund the balance amount of interest withheld and pay interest on the due amount from the date it was payable. The court justified this by stating that the petitioner was deprived of utilizing the funds, warranting compensation in the form of interest. Quoting a Supreme Court decision, the court reiterated that interest serves as compensation for the denial of the right to utilize the money due. Consequently, the court ordered the respondent to pay interest at 6% per annum on the due sum for the period it was withheld. Ultimately, the writ petition was allowed, and the court issued directions for the payment of interest as per the petitioner's claims.