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TMI Blog2019 (9) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... f Citizenship and as stated above was granted a certificate of naturalization on 01.01.2016. It is stated that Sami is residing in five flats out of the said eight flats with his wife and their two years old daughter. The interse dispute between the Appellant and the appellant in Appeal No. 17/2011 is outside the purview of the present appeal. The impugned order is set-aside as far as exercise of discretion under Section 13(2) of the Act. The finding arrived under section 13(1) shall remain intact. Mr. Sami shall deposit the remaining ₹ 40 Lakhs with the respondent with three months from today. As no case of under section 13(2) (about confiscation of eight flats and five parking space), the said findings and part of the order is quashed. However, the penalty amount under the said provision of Section 13(1) is enhance to ₹ 50 Lakhs from ₹ 20 Lakhs. In view of changing his stand from time to time. This tribunal is empowered to increase the penalty amount under section 19(6) of the Act. - FPA-FE-16/MUM/2011, FPA-FE-17/MUM/2011 - - - Dated:- 12-9-2019 - Justice Manmohan Singh Chairman For the Appellant : Shri Mahesh Jethmalani, Sr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handwala, Andheri (W), Mumbai-400053 stand charged in show cause notice No. T-4/08- B/SDE/RAJ/2010 dated 12/04/2010 for acquiring immovable properties in India for a total consideration of ₹ 2,53,34,750/- and for transferring some of the properties worth ₹ 1,57,71,250/- in violation of the provisions of clause (i) of subsection (3) of section 6 of the Foreign Exchange Management Act, 1999 ( FEMA for short) read with Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 notified under Notification No. FEMA 21/2000 - RB dated 03.05.2000 (b) Shri Adnan Sami Khan was asked to show cause why the immovable properties i.e. 8 flats and 5 parking spaces in respect of which aforesaid contraventions of the provisions of the FEMA has taken place, shall not be confiscated for credit to the Central Government in terms of the provision of Section 13 (2) of the FEMA. (c ) Ms. Sabah Galadarl. ex-wife of Shri Adnan Sami Khan was also given an opportunity to explain why the immovable properties i.e. 5 flats A-A1301A, A1301C, A1401A, A1401B and A1401C with three parking spaces numbered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge with Sabah Galadari was declared null and void by the Family Court, so the said flats were under dispute Ms. Sabah Galadari was UAE national and lived in Dubal. He was not aware that Pakistani nationals could not purchase immovable property in India. He had engaged Mr. Harish of M/s. D.M. Harlsh co., Advocates. Mumbai for looking into legal formalities regarding the purchase of flats. He had clarified that the office premises declared in his Income Tax return for Financial Year 2004-05 was situated at 1201 B C at Oberol Sky Garden Society and same was shown as fixed assets in Income Tax returns filed for F.Y. 2003-04. On being shown Regulation 7 of Not. No. FEMA-21/200 dated. 3.5.2000 restricting the citizens of certain countries including Pakistan to buy immovable property in India, he stated that he had now come to know about this regulation and as per this regulation, he was not allowed to purchase immovable property without the permission of Reserve Bank of India; that he had neither applied for nor taken any such permission; that he further stated that his parents are nationals of Pakistan and had given his present passport for extension of VISA. (g) En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was allowed. It further revealed that till August 2005, the Visa given to Shri Adnan Sami was visitor‟s visa only with stay permission for 90 or 180 days. On 25.08.2005 an entry by the Section Officer of Ministry of Home Affairs was made as under. The passport holder‟s visitor visa is converted in to visitor visa for business purpose . Other conditions regarding permission for commercial performance, period of stay, EPR status, entry and exit point and the number of places for visit as already allowed shall continue . (j). Enquiries with the UTI Bank revealed that his first account No. 020010100067315 was opened on 16.1.2001 and he was introduced by the Branch Head Smt. Manju Srivatsa. Smt. Manju Srivastava in her statement recorded on 22.1.2010, she stated that she was not aware that he was a Pakistani national. Mr. Sami had submitted copy of Pan Card as Identity proof and copy of Gas connection with HPCL as address proof. The second account No. 020010100422680 was opened by the then Deputy Manager, Operation of Axis Bank Mr. Mahashabde on 11.2.2006 on the basis of first account and as per his statement recorded on 22.1.2010, he was also not awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 19/10/2010. On 19/10/2010 Shri Vibhav Krishna, Advocate appeared with Shri Adnan Sami and submitted that he should be allowed to cross-examine the persons whose statements have been relied upon. He was informed that if while deciding the issue, the statements of these persons are not taken into consideration, when he would like to argue the case. (p) Accordingly the matter was adjourned to 18/11/2010, However, Shri Vibhav Krishna did not appear on 18/11/2010 and vide his letter dated 18/11/2010 requested for further adjournment on the ground that he has been unwell and has been advised rest for two weeks. The matter was adjourned to 7/12/2010 with a direction that he should furnish medical certificate to this effect. 6. A reply dated 3/12/2010 on behalf of Shri Adnan Sami Khan which interalia reads as under:- (i) The Applicant is Notieee No.1 in the above. (ii) The FEMA authorities have handed over the show cause notice inter alia stating contravention of provisions of FEMA Act by purchase immovable properties viz 8 fiats by Noticee No.1. During the perusal of the compilation of documents in support of the Show C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The Applicant has also complied with formalities for grant of Citizenship in India, Including inter-alia by inserting a public notice in Free Press Journal in Mumbai dated 5th April, 2005. The Application has been made on the basis that the Applicant is from Indian Origin and is descendant of his mother‟s family who hail from Jammu-India. The Application is pending and the applicant bonafide believes that the application shall be granted. The Applicant has so far not received Intimation from the Government of India rejecting or refusing the application by the Applicant for grant of citizenship in India. The Applicant submits that prior thereto in the year 1998 he has been issued PAN Card by the Government of India bearing PAN No. AIAPK9577A. (iv) The Applicant submits that he had bonafide purchase 8 flats from M/s. R.S. Estate Developers and the entire transaction was coordinated by Mr. Vikas Oberoi of M/s. R.S. Estate Developers including inter-alia arranging of bank loan from Axis Bank, organizing registration of flats. It appears that M/s. D.M. Harish and Co. was engaged by Mr. Vikas Oberoi and M/s. R.S. Estate Developer-and on the basis of instructions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings is proceeded with. The applicant had purchased the flats in December 2003 and the flats were registered in 2004 and the applicant has been in possession, use and enjoyment of the flats since last 6 years and therefore, the balance of convenience is entirely in favour of the applicant. It was requested that: (a) The application be adjourned for a period of 2 months in order to enable the applicant pursue his application with the Reserve Bank of India for grant of Expost-facto permission and to obtain a response there under and to thereafter attain finality to the application made by the Applicant regarding the Expost-facto permission and entitlement of the Applicant to purchase, hold and enjoy the 8 flats in Mumbai, India. (b) For such further orders and directions as the authority may think fit and proper in the facts and circumstances of the case. 7. On 7/12/2010 Shri Vibhav Krishna appeared before me and submitted that his client has applied for ex-post facto permission from RBI and till that time adjudication should be stayed. Shri Vibhav Krishna submitted a copy of the letter addressed to the RBI along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post facto permission from the Reserve Bank of India. No doubt he has taken the stand of forgotten the statements recorded by the Inquiry Officer and in order to overcome the difficulty created by the said letter of M/s. D. M. Harish Co. and to pursue the latest application with Reserve Bank of India the noticee has put up a new argument about post facto permission. Noticee has approached RBI for post facto permission in view of the decision of the Supreme Court in the case of Escorts Ltd vs. LIC of India. In addition to the case of Escorts he has also relied upon a case delivered by the Bombay High Court in an arbitration petition (u/s. 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961). He has also referred to appeal No. 98-110 of 1998 of ATFE in the case of Nowrosjee Wadia and Sons Pvt. Ltd. (dtd. 03/09/1998). 11. It was found from the impugned order that the findings in the case of Escorts is not relevant in the present case as the said Judgment of the Hon‟ble Supreme Court has held that when previous permission was not essential ingredient of the contravening section, then the RBI may consider post facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s behalf on 2nd September, 2002 for permission to purchase flats in Mumbai and the permission was refused vide letter dated 14th October, 2002. (e ). The respondent failed to appreciate that the appellant is a bonafide purchaser and was a victim of deceit and fraud by the builders who had suppressed the fact that application had been made by the builders' advocate with Reserve Bank of India on 2nd September, 2002 on behalf of the Appellant for permission to purchase Flats in Mumbai and which was refused vide letter dated 14th October, 2002 and despite refusal of permission the Builder had proceeded to sell the flats and collected consideration for the said flats in suppression of the refusal of permission by Reserve Bank of India. The respondent failed to appreciate that grave injustice would be caused to the appellant if the flats were permitted to be confiscated without permitting the Appellant to put forth his defence on merits. (f) The procedure contemplated under Section 16 of the FEMA Act for adjudication whether there is contravention of FEMA Act and the rules and regulations have not been followed. The notice seeks to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Appellant was upheld by the Family Court vide order dated 14th October, 2009 and which was challenged in Family Court Appeal No. 79 of 2009 in High Court Bombay which has by its order dated 23rd March 2010 set aside the order of Family Court and has remanded the matter to Family Court for adjudication and being aggrieved by the said Order of High Court, Bombay the Appellant is in the process of filing the Special Leave Petition in Supreme Court of India, which is pending. (l) The notice overlooks that the application of obtaining the permission from RBI was carried out by the Advocates for R.S. Estate Developers and the Appellant was not even aware of the applicable regulations and the application made by the Advocates M/s. D.M. Harish Co. on his behalf and thereafter the refusal of permission by Reserve Bank of India. The refusal of the application by Reserve Bank of India, by letter dated 14th October 2002 is dubious and suspect document. It is does not provide any acknowledgement of delivery of such letter to M/s. D.M. Harish Co, Advocates. In any event the Noticee No.1 had not been informed of the refusal by RBI dated 2nd October, 2002 and was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evoked the gift on 6th May 2009 and had also raised the plea of Halala in the Family Court, Bandra, Mumbai and which was upheld by Order dated 14th October, 2009. On that basis the gift became invalid. However, the said order has been set aside by High Court Bombay and the matter is to be prosecuted in Supreme Court of India. (p) The notice fails to consider the factual position that the Appellant has come to India 11 years ago and has pursued his career in music and has expressed his intention to stay in India for an uncertain period and as in fact stayed in India for long duration and is entitle to be treated as Resident in India and would be covered under the definition of Resident in India and the provision 3 of Section 6 (3) (i) r /w Regulation 7 would not apply. (q). The Regulation 7 of FEMA (Acquisition) 2000 is ultra vires being beyond the ambit prescribed by Section 6 (3)(i) Fema Act 1999 and is also ultra vires as there are no guidelines for granting or refusing permission and thus suffer from vice of arbitrariness. (r). The Authorities have placed reliance on the statement given by Ms. Manju Shrivastava, the Branch H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al part of which was utilized for the furnishing with fittings of the said 5 flats. She was not aware that Mr Sami had executed the gift deed in her favour vis- -vis the 5 flats without obtaining the requisite permission of Reserve Bank of India. In respect of remaining 3 flats (Flat no. A1201-B, A1201C and A1301B car parking space no.83 153), which also were purchased without RBI permission, therefore, had created an equitable mortgage in favour of the Appellant to secure a separate loan amount of ₹ 1.08 Crores advanced to him. Many issues raised by her have been denied on behalf of Mr. Sami at the time of hearing of appeals. 16. It is argued by Mr. Mahesh Jethmalani, learned Sr. Counsel appearing on behalf of Sabha Galadari. The following facts compound Mr Sami‟s violation of Regulation 7: (a) That he had applied for RBI permission to purchase flats in India through his lawyer DM Harish in September 2002 and the RBI had refused such permission vide its letter dated 14.10.2002 addressed to M/s DM Harish Co. Inspite of this refusal Mr Sami purchased 8 flats in December 2003. (b) Before the Adjudicating Authority Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. (f) That even the loan of ₹ 1.5 Crores from Axis bank was secured by perpetrating a fraud. In the application form Mr. Sami disclosed his nationality as Indian . (g) The fact that Mr Sami has subsequently been granted Indian citizenship is of no consequence whatsoever and certainly not an equitable consideration in his favour. It is doubtful if the authorities conferring citizenship on Mr Sami would have conferred that honour upon him had it been made aware of Mr Sami‟s several transgressions in his acquisition of 8 flats in Bombay as also other circumstances which are not relevant to these proceedings. 17. Finally, it is argued by Mahesh Jethmalani, Sr. Advocate that the impugned order of confiscation is erroneous and ought to be quashed and set aside, in a view of both law and equity qua the Appellant. It is argued by him that the observation made in 39 of the impugned order are against the law. The findings are given on the basis of which the Adjudicating Authority rejected her contention that the five confiscated flats and the parking areas, title of which vested exclusively with the Appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FEMA/21/2000-RB dated 3rd May 2000), Regulation 7 of which reads as under: Regulation 7: Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries - No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years. 24. The prior permission in order to purchase the property is an essential ingredient of the provisions of the relevant Regulation i.e. Regulation 7. 25. The word prior permission contemplates that the parties in question should approach the authorities concerned in advance. The relevant date is under Section 29 is the date of purchase of acquisition or transfer of immovable properties in India by the citizen of certain countries included Pakistan citizens. 26. There is no denial that in order to secure the security and the sovereignty of the nation a decision has been taken to debar the nationals of a few countries from purchasing immovable properties in India. Nationals of thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory but discretionary. The penalty is to be imposed case to case basis as per facts and circumstances. 31. The finding of Adjudicating Authority is contrary to 3 decisions, one of the High Court of Punjab Haryana two of High Court of Madras. (a) In Piara Singh v Jagtar Singh AIR 1987 P H 93, the Hon‟ble High Court while addressing the issue of contravention of section 31(1) and 63 of the Foreign Exchange Regulation Act, 1973, which also correspond with Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations, 2000 and section 13(2) of the Foreign Exchange Management Act, 1999, held that: Section 31(1) of the Foreign Exchange Regulation Act, 1973, provides that without the previous permission of the Reserve bank of India a person who is not a citizen of India, cannot acquire property, but it does not provide that if someone purchases any property the title therein does not pass to him. What the Act provides is that if a person contravenes Section 31 and some other sections, he can be penalized under Section 50 and can also be prosecuted under section 56. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition and transfer of immovable property by a Pakistani citizen without RBI permission. Admittedly the authorities cited above establish title to the property thus passed to the purchaser on acquisition and to the transferee on transfer by virtue of registered documents. The payment was made against the loan in rupees. 33. Sec 13 (1) of the FEMA imposes a mandatory obligation on the Adjudicating Authority to impose a penalty or a contravention of any rule, regulation, notification, direction or order issued in exercise of powers under the FEMA. In particular, Sec.13(1) of the FEMA, 1999, uses the word shall for imposition of penalty, consequent upon contravention. This is in contrast with the provision under Sec.13(2) of the FEMA,1999, where confiscation of property involved in the contravention is dealt with. Sec. 13 (2) prescribes that the adjudicating authority may (and not shall ) if he thinks fit in addition to any penalty which he may impose for a contravention dealt with under Sec. 13(1), direct confiscation to the Central Government of the property involved in the contravention. In the instance case the Adjudicating Authority ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RIGHT TO CROSS EXAMINE MATERIAL WITNESS WAS DENIED (a) It is admitted position that the Appellant had preferred an application for cross-examination of certain witnesses whose statements had been recorded and relied upon by the Respondent for issuance of the Show Cause Notice viz. 1) Mr. Vikas Oberoi, 2) Mr. Arun Kumar Kotian, 3) Valli Sekar (Assistant Vice President of Axis Bank) and 4) Manju Shrivastav (President Retail Banking Axis Bank). The Appellant had also requested for permission to examine himself and other witness in support of his defense. (b) On 19.10.2010 when the aforesaid application came up for hearing; no orders were passed on the application and the matter was listed for arguments on 18.11.2010. The application for permission to cross examine the witnesses whose statement have been relied upon by the FEMA authorities in support of show cause notice and the permission to examine the appellant himself has remained pending and has been not been adjudicated till date. (c ) The adjudicating authority committed a serious error in law in not allowing the Appellant to cross-examine the witness‟, whose statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii ) This Hon‟ble Tribunal in Shri Jaswinder Singh v. The Special Director, Directorate of Enforcement, Delhi being No. FPA-FE-217/DLI/2008 vide its judgment dated 10.07.2018 while observing the right to cross examination is an integral part of principles of natural justice has observed as under: 35 The statements should be corroborated from the independent facts and statements are not reliable till their veracity and genuineness is not tested by cross examination. 36. Therefore, under the established principles of natural justice, the appellant requested before the Adjudication Authority for permission to cross examine the witnesses so as to enable them to establish his innocence and to state and/or explain his case. (iii) In view of the aforesaid submissions and the law as laid down by the Hon‟ble Supreme Court in Andaman Timber Industries (Supra), the adjudicating authority by not passing any order on the Appellant‟s application for cross-examination has prejudiced the Appellant‟s case against the principles of natural justice and settled principles of law. Valuable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment dated 25.03.2019 ( reliance is placed on paragraphs No. 42 and 43 ) while observing the power of the Reserve Bank of India to grant an ex post factor permission in terms of the ratio as laid down by the Hon‟ble Supreme Court in Life Insurance Corporation of India v. Escorts (1986) 1 SCC 264 has observed that when an application is pending before the Reserve Bank of India, the adjudicating authority should not/cannot/couldn‟t have passed the Impugned Order imposing penalty on the Appellant as well as confiscation of the properties in question as well. Reason no. 6 THE APPELLANT IS AN INDIAN CITIZEN It is the admitted position that during the pendency of the present appeal, the Appellant has been granted the Citizenship of India on 01.01.2016. A certificate of Naturalisation bearing No. 5659 dated 01.01.2016 has been issued by the Ministry of Home Affairs under the provision of the Citizenship Act, 1955. Reason no. 7 It is admitted position that FEMA was enacted to deal with violations pertaining to foreign exchange laws. A bare perusal of the statement of objects and reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualified to be a transferee of such property nor subject to any condition of prior RBI permission for any such acquisition. 37. It is submitted that this Hon‟ble Supreme Court in M/s. Hindustan Steel Ltd. V. State of Orissa 1969 (2) SCC 627 in relation to a venial or technical breach of the provision of the Act or where the breach flows from a bona-fide belief has held as under: 8. Under the Act penalty may be imposed for failure to register as a dealer - Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age from Shri Adnan Khan. Ms. Sabah Galadari has also contended that properties cannot be confiscated under Sec. 13(2) of FEMA. However, I find that in Sec. 13 (2) of FEMA 40. The finding of the Adjudicating Authority qua the Sabah in paragraph 39 of the Impugned Order i.e. that since in the first place, the flats were purchased by Shri Adnan Khan illegally; the subsequent transfer was also illegal and other such findings in the said paragraph 39 of the Impugned Order are liable to quashed and set aside. 41. This Tribunal in M/s. True Axiz Resorts Pvt Ltd v. The Special Director, Directorate of Enforcement, Mumbai being Appeal No. FPAFE- 140/MUM/2010 ( reliance is placed on paragraphs No. 2, 3 6) vide order dated 14.06.2018 while adjudicating a contravention inter alia pertaining acquisition of shares in terms of Foreign Exchange Management (Transfer or issue of Security by a person resident outside India) Regulations 2000 and acquisition of agricultural land under the automatic route of foreign direct investment observed that when confiscation ex-facie is harsh, the order of the adjudicating authority has to be set-aside insofar as confi ..... 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