9911796707
TMI Blog2023 (6) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a Private Limited Company incorporated under the provisions of the Companies Act, 2013 and it further claims that the Board of Directors of the petitioner/ Company is constituted only of Indian citizens. More than 1500 employees and around 50,000 Indian families are directly or indirectly dependent on the business of the petitioner who, as claimed by the petitioner, are Indian citizens. The petitioner gets incorporated as a Private Limited Company on 7-10-2014 as a subsidiary of Xiaomi Singapore Private Limited and Xiaomi H.K. Limited and is engaged in the business of procurement, supply and distribution of Xiaomi products in India which is popularly referred to as 'MI'. The business of the petitioner includes mobile phones, smart phones, mobile phone accessories and peripherals, smart watches, televisions, network component devices, laptops, computers, television accessories and the list goes on. The petitioner operates as a re-seller/distributor of mobile phones and related products in India. It is mainly in the distribution segment. 3. The petitioner claims to be purchasing locally manufactured smart phones for re-sale from third party Indian manufacturers, import spare p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it, therefore, pays royalty for use of these essential patents to Qualcomm as the patents are essential for functioning of mobile phones in telecommunication network, be it 3G, 4G or LTE standards. The royalty payments for these licensed intellectual property rights including the patents are based upon Subscriber Unit License Agreement. The Subscriber Unit License Agreement ('SULA' for short) was entered into between Xiaomi Inc., China and Qualcomm, USA. This was amended and assigned to Xiaomi Communications Co. Limited by way of assignment and amendment agreement. Therefore, from 01-10-2013 the agreement was between Qualcomm Inc., Xiaomi Communications Co. Limited and Xiaomi Inc. and Xiaomi Corporation. Thereafter the assignment agreement dated 1-04-2015 was entered into between Qualcomm Inc., Xiaomi Communications Co. Ltd., (China) and Xiaomi Corporation (Cayman Islands). The assignment agreement took note of the earlier assignment agreement regarding existence of SULA between Qualcomm Inc. and Xiaomi Inc./Xiaomi Technology Co. Ltd. The trail of payment of royalty moves through agreements, assignments, amendment agreements and SULA. From 2010 to 2014 till the establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 29th April 2022 invoking Section 37A(1) of the Act. 9. The petitioner files a petition before this Court calling in question an order of seizure / freezing dated 29-04-2022. This Court initially grants an interim order of permitting operation of the account for particular purposes. Later, this Court in terms of its order dated 05-05-2022 on the ground that the seizure order under Section 37A(1) of the Act is yet to be confirmed by the appropriate authority under Section 37A(3) of the Act, confirmed / clarified the interim order dated 05-05-2022 as clarified on 12-05-2022, to continue during the pendency of the confirmation proceedings. On the aforesaid score, the writ petition comes to be disposed. 10. After the disposal of the petition, the confirmation of the seizure order dated 29-04-2022 comes to be passed by the 6th respondent. It is the seizure order dated 29-04-2022 and the confirmation order dated 19-09-2022 of the seizure of Rs.5551,27,15,824/- is what drives the petitioner to this Court in the subject petition. While raising a challenge to the seizure order and the confirmation order, the petitioner has also challenged the constitutional validity of Section 37A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SH MEERZA AND OTHERS (1981) 4 SCC 335; (iv) STATE OF MAHARASHTRA AND ANOTHER v. INDIAN HOTEL AND RESTAURANTS ASSOCIATIOIN AND OTHERS (2013) 8 SCC 519; (v) RADHA KRISHAN INDUSTRIES v. STATE OF HIMACHAL PRADESH AND OTHERS (2021) 6 SCC 771; (vi) INTERNET AND MOBILE ASSOCIATION OF INDIA v. RESERVE BANK OF INDIA (2020) 10 SCC 274 and (vii) DEPUTY COMMISSIONER OF INCOME TAX AND ANOTHER v. PEPSI FOODS LIMITED (2021) 7 SCC 413. Since attachment/freezing of the amount aforementioned is even before any order could be passed or any judgment could be delivered on the allegations so made against the petitioner, it becomes a drastic and draconian power available at the hands of the Directorate of Enforcement to attach any property. In support of this submission, the learned senior counsel would place reliance upon the following judgments:- (i) RAMAN TECH. AND PROCESS ENGG. CO. AND ANOTHER v. SOLANKI TRADERS (2008) 2 SCC 302 and (ii) RADHA KRISHAN INDUSTRIES (supra). The learned senior counsel would emphasise on the words "hold" and "acquire" that are found in Section 37A or Section 4 of the Act. He would contend that "hold" would mean lawfully held and "acquire" would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrary. The learned Additional Solicitor General would further emphasise on the fact that the intention of the Legislature in bringing in the amendment to the Act in the year 2015 was to tackle the menace of black money being parked outside the nation, in the garb of business, like how the petitioner has managed and, therefore, it cannot be held to be arbitrary or otherwise. It is only regulatory. He would contend that the Delhi High Court in the case of J.SEKAR v. UNION OF INDIA 2018 SCC OnLine Del.6523 and the Apex Court in the case of ATTORNEY GENERAL FOR INDIA AND OTHERS v. AMRATLAL PRAJIVANDAS AND OTHERS (1994) 5 SCC 54 have clearly delineated the concept of reasons to believe which would straight away go against the contention of the petitioner. He would contend that judicial review in economic matters is extremely limited as is held by the Apex Court in the case of PRINCIPAL DIRECTOR OF INCOME-TAX (INVESTIGATION) AND OTHERS v. LALJIBHAI KANJIBHAI MANDALIA Civil Appeal No. 4081 of 2022 decided on 13-07-2022. It is further contended that under Section 37A(4) of the Act, the seizure order is mandated till adjudication proceedings. He would contend that between 05.05.2022 and 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought i.e., to hold Section 37A of the Act to be unconstitutional on the ground that it is manifestly arbitrary and violative of Article 14 of the Constitution of India? 16. Since submissions and contra submissions are with regard to constitutional validity of the Act and maintainability of the writ petition in which challenge is to the vires of Section 37A of the Act and those submissions cutting at the root of the matter, I deem it appropriate to consider maintainability of the petition qua the challenge to the constitutional validity of Section 37A of the Act at the outset. 17. The constitutional validity of Section 37A of the Act is called in question by the petitioner. The petitioner is a Company, though registered in India, it is incorporated under the provisions of the prevailing Companies Act as obtaining in the People's Republic of China. The subsidiary companies are many in number, one of them is incorporated in India under the Companies Act, 1956. Therefore, a Company which has its roots in a country outside India can maintain a petition challenging the constitutional validity of any laws of this country on the ground that it violates its fundamental rights is the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to,- (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise. 21. Protection of life and personal liberty.-No person shall be deprived of his life or personal liberty except according to procedure established by law." Article 14 is a part of Part-III of the Constitution of India. Part-III deals with fundamental rights. Article 14 directs that the State shall not deny to any person equality before the law or equal protection of the laws within the territory of India. Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective of the fact that he is a foreigner or a citizen or an alien or it is an artificial person. 15. Like a citizen, a foreigner is also entitled to avail the personal rights which are enshrined in Article 14 of the Constitution. In Basheshar Nath v. Commissioner of Income-tax, Delhi and Rajasthan 1959 SC 149, (1) the Supreme Court laid down that the benefit of Article 14 is not limited to citizens alone but is also available to any person within the territory of India. 16. The first respondent did not dispute the applicability of Article 14 to any person, whether a foreigner or a citizen, within the territory of India, but its contention was that under Article 19(1)(g), the first and third petitioners have no fundamental right to carry on any trade, business or profession in this country and the plea of the petitioners under Article 14 of the Constitution cannot be considered by itself and they will, have to fall back upon the fundamental right guaranteed by Article 19(1)(g) of the Constitution. For this submission Mr. Venugopal sought sustenance from the decision of the Supreme Court in Indo China Steam Navigation Co. Ltd. v. Jasjit Singh, Additional Collector of Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 14 is contravened also must take in Article 19 if it has to succeed. The plain truth is that certain rights guaranteed to the citizens of India under Article 19 are not available to foreigners and pleas which may successfully be raised by the citizens on the strength of the said rights guaranteed under Article 19 would therefore, not be available to foreigners." 18. It is significant to note that in the present case Article 14 is being invoked by the petitioners without falling back upon Article 19(1)(g). 19. In order to appreciate whether Article 14 as pleaded in the instant case is available to the first and third petitioners to challenge the decision of the NAA, it would be necessary to refer to the various nuances of Article 14 of the Constitution. 20. Article 14 prohibits hostile discrimination of any person by the State. It is well settled that Article 14 ensures that the State metes out just, fair and reasonable treatment within the territory of India to every individual. It inhabits the State from acting arbitrarily since arbitrariness is anti-thesis of equality and comes into play whenever the exercise of power by the State of its instrumentality is contaminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution. Let us examine a case of two competing parties vying for a contract, one being a foreigner and the other being an Indian. In the event of the contract being granted to a foreigner, the Indian party indubitably can challenge the grant when the contract contravenes Article 14. Now for the reverse case where the contract is won by an Indian party, can it be justifiably contended that the foreigner who was in the run, will not be able to challenge the same though the action of the authority suffered from vide of arbitrariness. In the latter case there is no reason why the court should not use judicial review to scrutinise the action to see whether it is inconformity with Article 14 or falls foul of it. Access to, the court in all circumstances should be available. Courts cannot tolerate a less exacting standard of judicial review in case of a contract where a foreigner is a competing party. Rights whether of a citizen or a foreigner conferred by Article 14 of the Constitution cannot be swept away except by a cataclysm. Consortium therefore can ask the Court to see whether the action of the first respondent measures up to the various dimensions of Article 14 and demolish it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bound of reasonableness it may be legitimate for the State to take into considerational national priorities and considered trade and foreign policies for awarding contracts to foreigner." (Emphasis supplied) A five judge Bench of the Apex Court in the case of SHAYARA BANO (supra) has held as follows: "71. In this view of the law, a three-Judge Bench of this Court in K.R. Lakshmanan v. State of T.N. [K.R. Lakshmanan v. State of T.N., (1996) 2 SCC 226] struck down a 1986 Tamil Nadu Act on the ground that it was arbitrary and, therefore, violative of Article 14. Two separate arguments were addressed under Article 14. One was that the Act in question was discriminatory and, therefore, violative of Article 14. The other was that in any case the Act was arbitrary and for that reason would also violate a separate facet of Article 14. This is clear from para 45 of the said judgment. The judgment went on to accept both these arguments. Insofar as the discrimination aspect is concerned, this Court struck down the 1986 Act on the ground that it was discriminatory in paras 46 and 47. Paras 48 to 50 are important, in that this Court struck down the 1986 Act for being arbitrary, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself. Arbitrariness is writ large on the face of the provisions of the 1986 Act. 49. We, therefore, hold that the provisions of the 1986 Act are discriminatory and arbitrary and as such violate and infract the right to equality enshrined under Article 14 of the Constitution. 50. Since we have struck down the 1986 Act on the ground that it violates Article 14 of the Constitution, it is not necessary for us to go into the question of its validity on the ground of Article 19 of the Constitution." (emphasis supplied)" The Apex Court refers to its earlier judgment in the case of K.R. LAKSHMANAN V. STATE OF T.N. AND ANOTHER reported in (1996)2 SCC 226 to hold that the validity of a statute can be examined on the touchstone of Article 14 of the Constitution of India on the ground of manifest arbitrariness and unreasonableness. On the other hand, the Apex Court in the case of INDO-CHINA STEAM NAVIGATION COMPANY LIMITED (supra) has held as follows: "35. There is one more point which must be mentioned before we part with this appeal. Mr Choudhary attempted to argue that if mens rea was not regarded as an essential element of Section 52-A, the said section would be ultra vires A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 52-A under Article 19(1)(f). If the said question were to arise for our decision in any case, we would have to consider whether the provisions of Section 52-A are not justified by Article 19(5). That is a matter which is foreign to the enquiry in the present appeal." A Division Bench of Allahabad High Court in a Judgment reported in POWER MEASUREMENT LIMITED (supra) has held as follows: "14. As such Art. 19(1)(d) and (e) are unavailable to foreigners because those rights are conferred only on the citizens. Certainly, the machinery of Art. 14 cannot be invoked to obtain that fundamental right. Rights under Arts. 19(1)(d) and (e) are expressly, withheld to foreigners. 15. After giving anxious consideration to the facts of the case and the submissions made by the learned counsel for the parties, we are of the opinion that the foreigners also enjoy some fundamental right under the Constitution of this country but the same is confined to Art. 21 of the Constitution i.e. life and liberty and does not include the rights guaranteed under Art. 19 of the Constitution, which are available only to the citizens of this country. Fundamental rights, which are available to the citiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unmistakably emerge is that Articles 14 and 21 of the Constitution of India, the nation's Grundnorm would be available to every person and they are not restricted to the citizens of the country only. However, Articles 15, 16 and 19 are restricted only to citizens of this country. The challenge in the case at hand is on the ground that the provision is unreasonable or manifestly arbitrary, both of which would come within the ambit of Article 14 of the Constitution of India and the petition challenging the constitutional validity on the ground that it is manifestly arbitrary and violative of Article 14 or unreasonable, again being violative of Article 14, are all maintainable contentions before the constitutional Courts of the country as they are 'person centric' and not 'citizen centric'. Therefore the first issue that has arisen for consideration qua maintainability is answered in favour of the petitioner holding the petition to be maintainable qua the challenge. Issue No. II: Whether Section 37A of the Act gives uncanalised and unguided power on it suffering from absence of safeguards.? 20. To answer this issue it is germane to notice the genesis of Section 37A i.e., clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the two countries at the earliest. Investigation into cases of undisclosed foreign assets has been accorded the highest priority, resulting in detection of substantial amounts of unreported income. For strengthening collection of information from various sources domestically, a new structure is being put in place which includes electronic filing of statements by reporting entities. This will ensure seamless integration of data and more effective enforcement. 102. Tracking down and bringing back the wealth which legitimately belongs to the country is our abiding commitment to the country. Recognising the limitations under the existing legislation, we have taken a considered decision to enact a comprehensive new law on black money to specifically deal with such money stashed away abroad. To this end, I propose to introduce a Bill in the current Session of the Parliament. 103. With your permission, Madam Speaker, I would like to highlight some of the key features of the proposed new law on black money. (1) Concealment of income and assets and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment upto 10 years. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act was sought to be amended to the effect that if any foreign exchange, foreign security or any immovable property situated outside India is held in contravention of the provisions of the Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India. Pursuant to this, the Finance Act, 2015 comes about, in which amendment to the Act is also envisaged. Section 142 of the Finance Act, 2015 deals with the genesis of Section 37A which later becomes an amendment to the Act by insertion of Section 37A. Therefore, it is germane to notice Section 37A. Section 37A reads as follows: "37A. Special provisions relating to assets held outside India in contravention of Section 4.-(1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Holding of foreign exchange, etc.-Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India." (Emphasis supplied) Section 4 deals with holding of foreign exchange, it directs that no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. Therefore, the acquisition, holding, owning, possessing or transfer of any foreign exchange from India, to outside India, would become an offence under Section 37A of the Act. Section 4 directs prohibition of any funds being transferred outside India. Sub-section (1) of Section 37A mandates that upon receipt of any information, if the Authorised Officer 'has reason to believe' that any foreign exchange, foreign security or any immovable property situated outside India is suspected to have been held in contravention of Section 4, the Authorized Officer may after recording reasons in writing, by an order seize value equivalent of funds available in India. Sub-section (2) of Section 37A mandates that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Co., (1996) 3 SCC 709] when it is said that a constitutional challenge can succeed on the ground that a law is "disproportionate, excessive or unreasonable", yet such challenge would fail on the very ground of the law being "unreasonable, unnecessary or unwarranted". The arbitrariness doctrine when applied to legislation obviously would not involve the latter challenge but would only involve a law being disproportionate, excessive or otherwise being manifestly unreasonable. All the aforesaid grounds, therefore, do not seek to differentiate between State action in its various forms, all of which are interdicted if they fall foul of the fundamental rights guaranteed to persons and citizens in Part III of the Constitution." It was held by the Apex Court, that triple talak was manifestly arbitrary in the sense that marital tie cannot be broken capriciously and whimsically by a Muslim man without an attempt to reconciliation to save it. It was further held that form of talak was violative of fundamental rights enshrined in Article 14 of the Constitution. The Apex Court strikes down triple talak on the very specific grounds of manifest arbitrariness, unreasonableness, capricious a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nebriated would pay little heed to the dignity or lack of consent of the women. This conclusion is sought to be supported by a number of complaints received and as well as case histories of girl children rescued from the dance bars. We are again not satisfied that the conclusions reached by the State are based on any rational criteria. We fail to see how exactly the same dances can be said to be morally acceptable in the exempted establishments and lead to depravity if performed in the prohibited establishments. Rather it is evident that the same dancer can perform the same dance in the high class hotels, clubs, and gymkhanas but is prohibited of doing so in the establishments covered under Section 33-A. We see no rationale which would justify the conclusion that a dance that leads to depravity in one place would get converted to an acceptable performance by a mere change of venue. The discriminatory attitude of the State is illustrated by the fact that an infringement of Section 33-A(1) by an establishment covered under the aforesaid provision would entail the owner being liable to be imprisoned for three years by virtue of Section 33-A(2). On the other hand, no such punishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to establish that the restriction is reasonable or that it is in the interest of general public. The High Court rightly scrutinised the impugned legislation in the light of observations of this Court made in Narendra Kumar [AIR 1960 SC 430 : (1960) 2 SCR 375], wherein it was held that greater the restriction, the more the need for scrutiny. The High Court noticed that in the guise of regulation, the legislation has imposed a total ban on dancing in the establishments covered under Section 33-A. The High Court has also concluded that the legislation has failed to satisfy the doctrine of direct and inevitable effect. (See Maneka Gandhi case [(1978) 1 SCC 248].) We see no reason to differ with the conclusions recorded by the High Court. We agree with Mr Rohatgi and Dr Dhavan that there are already sufficient rules and regulations and legislation in place which, if efficiently applied, would control if not eradicate all the dangers to the society enumerated in the Preamble and the Statement of Objects and Reasons of the impugned legislation. 127. The activities of the eating houses, permit rooms and beer bars are controlled by the following regulations: (i) The Bombay Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parlour shall be reflected in the plan. (vii) No similar place of public amusement exists within a radius of 75 m. (viii) The conditions mentioned in the licence shall be observed throughout the period for which the licence is granted and if there is a breach of any one of the conditions, the licence is likely to be cancelled after following the usual procedure. 130. The aforesaid list, enactments and regulations are further supplemented with the regulations protecting the dignity of women. The provisions of the Bombay Police Act, 1951 and more particularly Section 33(1)(w) of the said Act empowers the licensing authority to frame rules: "licensing or controlling places of public amusement or entertainment and also for taking necessary steps to prevent inconvenience to residents or passers-by or for maintaining public safety and for taking necessary steps in the interests of public order, decency and morality." 131. Rules 122 and 123 of the Amusement Rules, 1960 also prescribe conditions for holding performances: "122. Acts prohibited by the holder of a performance licence.-No person holding a performance licence under these Rules shall, in the beginning, during a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner/ District Magistrate to suspend or revoke a licence for breach of its conditions. Thus, sufficient power is vested with the licensing authority to safeguard any perceived violation of the dignity of women through obscene dances. 133. From the objects of the impugned legislation and amendment itself, it is crystal clear that the legislation was brought about on the admission of the police that it is unable to effectively control the situation in spite of the existence of all the necessary legislation, rules and regulations. One of the submissions made on behalf of the appellants was to the effect that it is possible to control the performances which are conducted in the establishments falling within Section 33-B; the reasons advanced for the aforesaid only highlight the stereotype myths that people in upper strata of society behave in orderly and moralistic manner. There is no independent empirical material to show that propensity of immorality or depravity would be any less in these high-class establishments. On the other hand, it is the specific submission of the appellants that the activities conducted within the establishments covered under Section 33-A have the effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with problem of ever-increasing dance bars. We also do not agree with the submissions that whereas exempted establishments are held to standards higher than those prescribed; the eating houses, permit rooms and dance bars operate beyond/below the control of the regulations. Another justification given is that though it may be possible to regulate these permit rooms and dance bars which are located within Mumbai, it would not be possible to regulate such establishments in the semi-urban and rural parts of the Maharashtra. If that is so, it is a sad reflection on the efficiency of the licensing/regulatory authorities in implementing the legislation. 136. The end result of the prohibition of any form of dancing in the establishments covered under Section 33-A leads to the only conclusion that these establishments have to shut down. This is evident from the fact that since 2005, most if not all the dance bar establishments have been literally closed down. This has led to the unemployment of over 75,000 women workers. It has been brought on the record that many of them have been compelled to take up prostitution out of necessity for maintenance of their families. In our opinion, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal right may be in the form of control or prohibition and that when the exercise of a fundamental right is prohibited, the burden of proving that a total ban on the exercise of the right alone may ensure the maintenance of the general public interest, lies heavily upon the State. It was held in the said decision that a law which directly infringes the right guaranteed under Article 19(1)(g) may be upheld only if it is established that it seeks to impose reasonable restrictions in the interest of the general public and a less drastic restriction will not ensure the interest of the general public. ... ... ... 195. There can also be no quarrel with the proposition that banking channels provide the lifeline of any business, trade or profession. This is especially so in the light of the restrictions on cash transactions contained in Sections 269-SS and 269-T of the Income Tax Act, 1961. When currency itself has undergone a metamorphosis over the centuries, from stone to metal to paper to paperless and we have ushered into the digital age, cashless transactions (not penniless transactions) require banking channels. Therefore, the moment a person is deprived of the facility of oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WLR 581: 2007 UKHL 11] These four tests were more elaborately articulated by the Supreme Court of United Kingdom in Bank Mellat v. Her Majesty's Treasury (No. 2) [Bank Mellat v. Her Majesty's Treasury (No. 2), 2014 AC 700 : (2013) 3 WLR 179 : 2013 UKSC 39] . ... ... ... VII. Climax 225.1. Therefore, in the light of the above discussion, the petitioners are entitled to succeed and the impugned Circular dated 6-4-2018 is liable to be set aside on the ground of proportionality. Accordingly, the writ petitions are allowed and the Circular dated 6-4-2018 is set aside. The Statement dated 5-4-2018, though challenged in one writ petition, is not in the nature of a statutory direction and hence the question of setting aside the same does not arise." (Emphasis supplied) What was called in question before the Apex Court was the measures taken by the Reserve Bank of India regulating its entities by directing not to deal with virtual currency or provide services for facilitating any person dealing with virtual currency. The parameters were again laid down by the Apex Court for examination and holding those circulars bad on the ground of proportionality. 24. The Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. (6) The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under Section 83 of the Act should not be equated with the attachment in the course of the recovery proceedings. (7) The authority before exercising power under Section 83 of the Act for provisional attachment should take into consideration two things : (i) whether it is a revenue neutral situation, (ii) the statement of "output liability or input credit". Having regard to the amount paid by reversing the input tax credit if the interest of the Revenue is sufficiently secured, then the authority may not be justified in invoking its power under Section 83 of the Act for the purpose of provisional attachment." (emphasis supplied) ... ... ... 49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of "the opinion" and that it is necessary "so to do" for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the Revenue can be protected only by a provisional attachment without which the interest of the Revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assessee can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act." (emphasis supplied) ... ... ... 76.4. The power to order a provisional attachment of the property of the taxable person including a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strictly fulfilled. 76.5. The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue. 76.6. The expression "necessary so to do for protecting the government revenue" implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment. 76.7. The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue. 76.8. In the facts of the present case, there was a clear nonapplication of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal. 76.9. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate State aim ensures that the law does not suffer from manifest arbitrariness. Legitimacy, as a postulate, involves a value judgment. Judicial review does not reappreciate or second guess the value judgment of the legislature but is for deciding whether the aim which is sought to be pursued suffers from palpable or manifest arbitrariness. The third requirement ensures that the means which are adopted by the legislature are proportional to the object and needs sought to be fulfilled by the law. Proportionality is an essential facet of the guarantee against arbitrary State action because it ensures that the nature and quality of the encroachment on the right is not disproportionate to the purpose of the law. Hence, the threefold requirement for a valid law arises out of the mutual interdependence between the fundamental guarantees against arbitrariness on the one hand and the protection of life and personal liberty, on the other. The right to privacy, which is an intrinsic part of the right to life and liberty, and the freedoms embodied in Part III is subject to the same restraints which apply to those freedoms." (Emphasis supplied) The Apex Court holds that existence of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Post amendment, Regulation 38 reads as follows: "38. Mandatory contents of the resolution plan.-(1) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. (1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor." The aforesaid Regulation further strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors' rights, together with priority in payment over financial creditors. 78. For all the aforesaid reasons, we do not find that operational creditors are discriminated against or that Article 14 has been infracted either on the ground of equals being treated unequally or on the ground of manifest arbitrariness." (Emphasis supplied) The Apex Court holds that while looking into viability and feasibility of resolution, plans that are approved by the Committee of Creditors, whether would pass muster under Section 30(2)(b) r/w Section 31 of the Insolvency and Bankruptcy Code. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the amounts that are lent and are thus not directly involved or interested in assessing the viability of the corporate debtors. Though not having the expertise or information to be in a position to evaluate feasibility and viability of resolution plans, such individuals, by virtue of being financial creditors, have a right to be on the Committee of Creditors to safeguard their interest. Also, the question that is to be asked when a debenture holder or fixed-deposit holder prefers a Section 7 application under the Code will be asked in the case of allottees of real estate developers - is a debt due in fact or in law? Thus, allottees, being individual financial creditors like debenture holders and fixed-deposit holders and classified as such, show that they are within the larger class of financial creditors, there being no infraction of Article 14 on this score. ... ... ... ... 50. It was also argued that the UNCITRAL Legislative Guide, from which most of the provisions of the Code derive their succour, have also been breached. This is for the reason that financial contracts being different from operational contracts, the one should not be confused with the other. Also, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would highlight that having regard to the background in which the rights of the homebuyer were recognised as being one of that of a financial creditor, the amendment is clearly impermissible. He would also submit that having regard to the stand taken by the Government in the case before this Court, in particular, Pioneer [Pioneer Urban Land & Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416 : (2019) 4 SCC (Civ) 1] , the principles of promissory estoppel will apply and prevent enactment of the impugned provisions. He would expatiate and submit that the conditions which have been imposed render the remedy illusory. ... ... ... 25. Shri Piyush Singh, learned counsel pointed out that the real estate owners do not take any loan from financial institutions. They raise capital exclusively from the allottees virtually. In such circumstances, to put this threshold limit is clearly impermissible. He drew our attention to the judgment of the Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P., (1979) 2 SCC 409 : 1979 SCC (Tax) 144], to buttress his submission regarding availability of principles of promissory es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time, when the application was filed, which really is the relevant time to determine the question of maintainability of the application, with reference to what the law provided in regard to who can move the application but at the stage of the new law. 436. However, we cannot also lose sight of the fact that the legislature has power to impair and take away vested rights. The limitation that flows, however, is from both Articles 14 and 19 read with Article 21. It flows from the doctrine that the action of the State must be fair and reasonable. The question, as to validity of the retrospective law, is a matter to be judged on a consideration of the facts, the period of time, over which the retrospective law operates, the impact of the law on the vested rights, the public interest, the nature of the right, which is the subject-matter of the law and the terms of the law. 437. The nature of the right involved in this case, is the right of the financial creditors to move an application under Section 7. Though, Section 7 confers a right upon the financial creditor to file the application, the proceedings are one in rem. We have already dealt with the scope of the Code and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts on mere suspicion, without any reason to believe, and attachment of bank account does violate right to property under Article 300A of the Constitution of India. 29. The dominant submission is that there are no checks and balances in the power that can be exercised under Section 37A of the Act. I decline to accept the said submission on sheer examination of the said provision. Section 37A of the Act, which was given life in the year 2015, has six sub-sections. Sub-section (1) of Section 37A empowers the authorized officer prescribed by the Central Government who has reason to believe that any foreign exchange, foreign security or any immovable property, situated outside India, is suspected to have been held in contravention of Section 4, he may after recording the reasons in writing by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property. Sub-section (1) has several aspects upon receipt of information or otherwise. Therefore, there should be information and it should be by the prescribed officer of the Central Government. He should have reasons to believe and suspicion of a property to have been held in cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view of this Court, Section 37A cannot be declared to be unguided, unfettered, unbridled, uncanalised, whimsical or irrational and can be acted upon only on suspicion in terms of Section 4 of the Act. Suspicion may trigger seizure. Seizure by itself is not final. There are several procedures after such seizure. Therefore, the submission that it is manifestly arbitrary is to be noted only to be rejected, as the very submission is fundamentally flawed. 32. The other submission is concerning the description that the seizure can be of value equivalent situated within India of such foreign exchange, foreign security or immovable property. This very submission is negatived by a three Judge Bench of the Apex Court in the case of VIJAY MADANLAL CHOUDHARY (supra). The Apex Court delineating 'value equivalent jurisprudence', on identical provisions under the Prevention of Money Laundering Act, has held as follows: "6. Mr. Kapil Sibal, learned senior counsel appearing for the private parties/petitioners in the concerned matter(s) submitted that the procedure followed by the ED in registering the Enforcement Case Information Report is opaque, arbitrary and violative of the constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do with) used in the main provision is a present participle of word "relate" and the word "relatable" is only an adjective. The thrust of the original provision itself is to indicate that any property is derived or obtained, directly or indirectly, as a result of criminal activity concerning the scheduled offence, the same be regarded as proceeds of crime. In other words, property in whatever form mentioned in Section 2(1)(v), is or can be linked to criminal activity relating to or relatable to scheduled offence, must be regarded as proceeds of crime for the purpose of the 2002 Act. It must follow that the Explanation inserted in 2019 is merely clarificatory and restatement of the position emerging from the principal provision [i.e., Section 2(1)(u)]. ... ... ... 299. We find force in the stand taken by the Union of India that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held. To buttr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 5(1) of the 2002 Act. viii. The above SCN would require the noticee to produce evidence on which he relies and other relevant information and particulars to show cause why all or any of the property "should not be declared to be the properties involved in money-laundering and confiscated by the Central Government". ix. Section 8(2) requires the Adjudicating Authority to consider the reply to the SCN issued under Section 8(1) of the 2002 Act. The Section further provides to hear the aggrieved person as well as the officer issuing the order of provisional attachment and also take into account "all relevant materials placed on record before the Adjudicating Authority". After following the above procedure, the Adjudicating Authority will record its finding whether all the properties referred to in the SCN are involved in money-laundering or not. x. While passing order under Section 8(2) read with Section 8(3) there are two possibilities which might happen: a. the Adjudicating Authority may confirm the order of provisional attachment, in which case again, the confirmation will continue only up to i. the period of investigation not exceeding 365 days, or ii. till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttachment of proceeds of crime or property involved in money-laundering is concerned. xvii. Any person aggrieved of an order confirming the provisional attachment order can file an appeal before the Appellate Tribunal under Section 26(1) of the 2002 Act. The Appellate Tribunal on receipt of an appeal after giving the parties an opportunity of being heard will pass an order as it thinks fit either confirming or modifying or setting aside the provisional attachment order appealed against. xviii. Further, the order passed by the Appellate Tribunal is further appealable before the High Court under Section 42 of the 2002 Act on any question of fact or question of law arising out of the order passed by the Appellate Tribunal. 301. It is, thus, clear that the provision in the form of Section 5 provides for a balancing arrangement to secure the interest of the person as well as to ensure that the proceeds of crime remain available for being dealt with in the manner provided by the 2002 Act. This provision, in our opinion, has reasonable nexus with the objects sought to be achieved by the 2002 Act in preventing and regulating money-laundering effectively. The constitutional validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n." (Emphasis supplied) Therefore, the submission that Section 37A is vague deserves to be rejected. It further becomes germane to notice the judgment of the Apex Court in the case of RAJ KUMAR SHIVHARE (supra) wherein the Apex Court has held as follows: "15. It is thus clear that Chapter V of FEMA, read with the aforesaid Rules, provides a complete network of provisions adequately structuring the rights and remedies available to a person who is aggrieved by any adjudication under FEMA. ... .... ... 29. By referring to the aforesaid schemes under different statutes, this Court wants to underline that the right of appeal, being always a creature of a statute, its nature, ambit and width has to be determined from the statute itself. When the language of the statute regarding the nature of the order from which right of appeal has been conferred is clear, no statutory interpretation is warranted either to widen or restrict the same. ... ... ... 31. When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case the High Court is a statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal under sub-section (5) of Section 37A. It is a statutory remedy of filing an appeal against the order of the Competent Authority who confirms the seizure order passed by the Authorised Officer. Despite the statutory remedy of appeal being available, it is not the case that no writ petition would be maintainable. But, the writ petition would not become entertainable, as it is the discretionary remedy that this Court would exercise to entertain a petition or otherwise even if it is maintainable, in the light of the aforesaid reasons and the statutory mandate of filing an appeal, the petition would not merit any consideration, as any further observation by this Court qua merit of the matter would seriously prejudice the case of the petitioner before the Appellate Tribunal. 35. The only reason that is projected by the petitioners to knock at the doors of this Court despite the remedy of filing an appeal before the Appellate Tribunal being appealable under subsection (5) of Section 37A of the Act is that the order of the Competent Authority affirming seizure by the Authorised Officer does not bear application of mind. It is trite law that application of mind is discernible from an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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