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2022 (7) TMI 826 - HC - FEMAOffence under FEMA - Scope of alternate remedy - violation of Section 4 of FEMA - Whether the writ petition is liable to be dismissed as not maintainable on the ground of availability of alternate remedy and the writ petition is premature? - HELD THAT - FEMA is a complete Code in itself and is an act to consolidate and maintain law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange management in India. It also states that when statute creates a special mechanism for adjudication and when statute itself provides for remedy that too in a physical statute, a writ petition should not be entertained ignoring the statutory dispensation. The above judgment in Raj Kumar Shivhare 2010 (4) TMI 432 - SUPREME COURT was rendered on 12.04.2010 much prior to insertion of Section 37A of FEMA, but it would not make any difference. Under Section 37A of FEMA also special mechanism is provided to determine the violation of Section 4 of FEMA. Whether the Authorised Officer had reason to believe that any foreign exchange situated outside India is suspected to have been held in contravention of Section 4 or reasons recorded by the Authorised Officer would be sufficient to initiate action under Section 37-A of FEMA, are to be considered by the Competent Authority. At this stage, examining sufficiency of reason or otherwise under Article 226 of the Constitution of India would prejudice the case of either of the parties. It is best left to the Competent Authority to examine the same when it considers the entire issue under sub-Section (3) of Section 37-A of FEMA. Section 37A of FEMA provides mechanism to decide the contravention or otherwise of Section 4 of FEMA. The case of the petitioner is at the stage of sub-Section 1 of Section 37A of FEMA which is impugned in the present writ petition. Timeline is fixed under Section 37A of FEMA for conclusion of the proceedings initiated by the Authorized Officer. The Authorized Officer has passed seizure order which is in the nature of provisional order is to be placed before the Competent Authority within 30 days from the date of such seizure order. The impugned order is dated 29.04.2022 and the learned Additional Solicitor General Sri. M.B. Naragund has submitted that within 30 days i.e., on 27.05.2022 itself the Authorized Officer has placed the seizure order along with relevant material before the Competent Authority. Since the seizure order and relevant material is already placed before the Competent Authority, it would be appropriate for this Court to direct Competent Authority to issue notice of hearing to the petitioner, hear the petitioner as well as representatives of the Directorate of Enforcement and pass appropriate orders in accordance with law. The timeline of 180 days mentioned in sub-Section 3 of Section 37A is an outer limit. In the facts and circumstances, since the petitioner contends that seizure order has affected day-to-day business of the petitioner, it would be appropriate for this Court to direct the Competent Authority to dispose of the petition expeditiously but not later than 60 days from the date of making available copy of this order. The Competent Authority appointed by respondent No. 1 under Sub-section 2 of Section 37A of FEMA is directed to issue notice of hearing to the petitioner, hear the parties concerned and pass appropriate order either confirming or setting aside the seizure order within a period of 60 days from the date of making available a copy of this order. This Court, by order dated 05.05.2022 stayed the impugned order dated 29.04.2022 (Annexure-A) subject to condition that the petitioner shall operate Bank accounts which are seized under the impugned order, only for the purpose of meeting expenses for carrying out day to day activities of the Company and observed that order shall not confer any right on the petitioner to make payment in the form of royalty or in any other form to the Companies located outside India. Further, on 12.05.2022, this Court clarified that the petitioner is at liberty to take Overdraft and make payments from such Overdrafts to Foreign Entities excluding payment of royalty. Interest of justice would be met, if the above interim order is continued till orders are passed by the Competent Authority as stated above. The interim order passed by this Court on 05.05.2022 and clarified on 12.05.2022 would enure to the benefit of the petitioner, till the Competent Authority passes order under sub-Section (3) of Section 37-A of FEMA.
Issues Involved:
1. Maintainability of the writ petition. 2. Jurisdiction of the Authorized Officer under Section 37A of FEMA. 3. Validity of the seizure order under Section 37A(1) of FEMA. 4. Alleged violation of Section 4 of FEMA. 5. Impact of the seizure order on the petitioner's business operations. Issue-wise Detailed Analysis: 1. Maintainability of the Writ Petition: The petitioner, a company incorporated under the Companies Act, 2013, sought a writ of certiorari under Article 226 of the Constitution of India to quash the seizure order dated 29.04.2022 passed by the second respondent under Section 37A(1) of FEMA. The respondents contended that the writ petition was not maintainable due to the availability of an alternate remedy and that the petition was premature. The court held that although the petitioner had no alternate remedy against the seizure order under Section 37A(1) of FEMA, the writ petition challenging the order was premature. The court emphasized that the availability of an alternate remedy is not a total bar for the High Court to entertain a writ petition under Article 226 of the Constitution of India, especially when the order is passed without jurisdiction or in violation of principles of natural justice. 2. Jurisdiction of the Authorized Officer under Section 37A of FEMA: The petitioner argued that the authorities under Section 37A of FEMA had no jurisdiction to initiate proceedings against them, as their case did not fall under Section 4 of FEMA. The court noted that the question of jurisdiction raised by the petitioner involved disputed questions of fact and law, which should be determined by the Competent Authority. The court cited the Hon'ble Apex Court's decision in the Management of Express Newspaper (Private) Ltd., Madras Vs. The Workers and Others, emphasizing that questions of fact, though jurisdictional, should be tried by the Special Tribunals constituted for that purpose. 3. Validity of the Seizure Order under Section 37A(1) of FEMA: The court observed that the seizure order under Section 37A(1) of FEMA is provisional and not final. The Authorized Officer must place the seizure order along with relevant material before the Competent Authority within 30 days. The Competent Authority then has 180 days to either confirm or set aside the seizure order after giving an opportunity to the petitioner and the Directorate of Enforcement. The court directed the Competent Authority to issue a notice of hearing to the petitioner and pass appropriate orders within 60 days from the date of making available a copy of the court's order. 4. Alleged Violation of Section 4 of FEMA: The respondents alleged that the petitioner made foreign remittances in the name of royalty to foreign-based entities in violation of Section 4 of FEMA. The petitioner contended that the payments were for the use of Qualcomm's proprietary and licensed intellectual property, particularly Standard Essential Patents (SEPs). The court noted that whether the payments made by the petitioner to Qualcomm and Beijing Xiaomi Mobile Software Company Limited could be considered as royalty or whether such payment would attract Section 4 of FEMA is a question of fact that the Competent Authority must decide. 5. Impact of the Seizure Order on the Petitioner's Business Operations: The petitioner argued that the seizure order had a far-reaching effect on their business, potentially leading to civil death. The court acknowledged the impact of the seizure order on the petitioner's day-to-day business operations and continued the interim order allowing the petitioner to operate their bank accounts for meeting expenses related to daily activities, excluding payment of royalty to foreign entities, until the Competent Authority passes an order under Section 37A(3) of FEMA. Conclusion: The court disposed of the writ petition, directing the Competent Authority to issue a notice of hearing to the petitioner and pass appropriate orders within 60 days. The interim order allowing the petitioner to operate their bank accounts for daily activities, excluding royalty payments, was continued until the Competent Authority's decision. All contentions of the parties on the merits of the case were left open.
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