2022 (7) TMI 301 - HC - FEMA

Provisional attachment orders made under the provisions of FEMA - prayer for grant of interim directions was opposed by learned CGSC who contended that the Certificate of Registration (COR) of the petitioner already stands cancelled by the Reserve Bank of India (RBI) - HELD THAT - Insofar as the question of cancellation of the COR is concerned, the Court notes that the same would have no bearing on the issues which arise in the present writ petition since that constitutes action taken by the RBI under the statutory provisions contained in the Banking Regulation Act, 1949. The said action would only impact the right of the petitioner to continue the business which was permitted. The Court notes that insofar as the release of Rs. 15.5 crores is concerned, it was submitted by Mr. Ganesh that the aforesaid sum has not been released in fact and the petitioner has not even been able to utilise the same till date. The Court further notes the submission of Mr. Ganesh who contends that the aforesaid amount which was released was just sufficient to meet the needs of the petitioner for the period between November 2021 to January 2022. Bearing in mind the issues, which stand raised, this Court is of the opinion that in the interim certain amounts would merit being released in favour of the petitioner to enable it to meet its day to day expenses pending final disposal of the present writ petition. Accordingly, let a sum of Rs. 25 crores be released in the interim, subject to the condition that the petitioner shall utilise the said monies only for the purposes of meeting its day to day essential expenditure as well as towards salaries of employees. The petitioner shall also place on the record of these proceedings an affidavit disclosing details of utilisation of the sum which is being released. The Court further takes on board the undertaking of the petitioner that no part of the monies which stand released in the interim and pursuant to this order shall be remitted overseas. The interim release which has been directed in terms of this order shall be in addition to the amount of Rs 15.5 crores which was released pursuant to the statement of the learned ASG as recorded before the Supreme Court.

Summary

Issues:
1. Challenge to provisional attachment orders under the Foreign Exchange Management Act, 1999.
2. Legitimacy of seizure of bank accounts under relevant rules.
3. Impact of RBI's cancellation of Certificate of Registration.
4. Request for interim release of funds pending final disposal of the writ petition.

Analysis:
1. The petitioners contested an order confirming provisional attachment orders under the Foreign Exchange Management Act, 1999, involving remittances totaling approximately Rs. 463 crores. The impugned orders resulted in the attachment of around Rs. 270 crores from the petitioner's accounts. The Court acknowledged the nonfunctionality of the appellate tribunal currently.

2. The Court found merit in the argument that the seizure of the petitioner's bank accounts might not be sustainable under the Act and related Rules. It was contended that the expenses incurred by the petitioner, even if questionable, should not lead to penal or coercive actions. The absence of a statutory obligation for prior approval from the Central Government for the transactions in question was highlighted, especially after the deletion of specific requirements from Schedule II in 2010.

3. The cancellation of the petitioner's Certificate of Registration by the RBI was noted, but the Court determined that this action, taken under the Banking Regulation Act, 1949, did not directly impact the issues raised in the present writ petition. The Court considered the release of Rs. 15.5 crores as an interim measure by another court, emphasizing the necessity for the petitioner to meet essential expenses.

4. Despite opposition, the Court directed the interim release of Rs. 25 crores to the petitioner, subject to specific conditions. The funds were to be used solely for day-to-day expenses and employee salaries, with a requirement for the petitioner to disclose the utilization details. The petitioner undertook not to remit any part of the released funds overseas. This interim release was in addition to the previously released amount of Rs. 15.5 crores, aimed at supporting the petitioner until the final resolution of the writ petition.

This detailed analysis covers the various legal issues addressed in the judgment, highlighting the arguments presented by the parties and the Court's reasoning leading to the interim relief granted to the petitioner.