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TMI Blog2023 (12) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... ed foreign companies of the petitioner HELD THAT:- Section 37A(1) of the Act states that 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 of the Act, he may, after recording the reasons in writing, by an order, seize value equivalent thereto situated within India. It need not be emphasised that the power of seizure is of far-reaching consequences and, therefore, the pre-conditions stipulated in Section 37A(1) of the Act must be scrupulously complied with. The reason to believe must be based on tangible material, and as held by the Supreme Court in Radha Krishan Industries [ 2021 (4) TMI 837 - SUPREME COURT] should not be based on the imaginary grounds, wishful thinking, howsoever laudable that may be The foreign exchange transactions can be bifurcated into Current Account Transactions and Capital Account Transactions , as defined in Section 2(j) and 2(e) of the Act respectively. The transactions in question, which have been made the basis of the seizure order, can be categ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the respondents is ultra vires the Act or so whimsical as to warrant an interference of this Court at this stage, when the proceedings are pending before the Adjudicatory Authority. This Court is also cognizant of the fact that pursuant to the Impugned Order, the respondents have also filed a complaint before the Adjudicating Authority. This Court has been informed that substantial hearings have already taken place before the Adjudicating Authority on such complaint, and the same is likely to be disposed of in near future. This adds as a further reason for this Court not to exercise its discretionary powers under Article 226 of the Constitution of India. Petition dismissed. - HON'BLE MR. JUSTICE NAVIN CHAWLA For the Petitioner Through: Mr. S. Ganesh and Mr. Arvind Nayar, Senior Advocates with Mr. Ajay Bhargava, Mr. Atul Pandey, Mr. Hirak Mukhopadhyay, Mr. Milind Jain, Mr. Varun Yadav, Advs. For the Respondents Through: Mr. Anurag Ahluwalia, CGSC, Mr. Abhigyan Siddhant, Adv. for R-1. JUDGMENT 1. This petition has been filed by the petitioner praying for the following reliefs: - (a) Issue a writ of certiorari, or any other appropriate writ, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y - Systemically Important Non-Deposit taking company with the Reserve Bank of India (in short, RBI ). The petitioner is engaged in the business of providing unsecured short-term loans to its customers/borrowers in India via its Digital Application based platform called the CashBean . The petitioner had 58 employees on the payroll and around 427 employees working on a third-party payroll basis. The CashBean application of the petitioner had 60.3 million users, and 39.2 million registered customers, out of which only 3.75 million unique customers were selected after an assessment of creditworthiness for the loan. It is contended that it is because of the success of the CashBean application that the petitioner has a high recovery rate of the loans disbursed and profitable operations. 3. It is contended that the petitioner had engaged a Hong Kong based Company, namely Hong Kong Fintango Limited (hereinafter referred to as the HK Fintango ) for procurement of an IP licence and had entered into a Software Licence Agreement dated 01.10.2019 with it for providing IP and Digital Lending Software Licence, that is, the CashBean App to the petitioner for the Indian digital micro-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services and that these amounts are held outside India by the related foreign companies of the petitioner. It was alleged that the petitioner has, therefore, contravened Section 4 of the Foreign Exchange Management Act, 1999 (hereinafter referred to as the Act ), and an equivalent value of the property was liable to be seized from the petitioner in India. The above seizure orders have been confirmed by the respondent no. 2 vide the Order dated 04.02.2022 (hereinafter referred to as the Impugned Order ). Submissions of the Learned Senior Counsel for the Petitioner: 9. The learned senior counsel for the petitioner submits that under the Act, the foreign exchange transactions can be classified as Capital Account Transaction , as defined in Section 2(e) of the Act, or as Current Account Transaction , as defined in Section 2(j) of the Act. He submits that Section 6(3) of the Act provides that all capital account transactions are prohibited unless specifically permitted by the RBI. On the other hand, all current account transactions are permitted unless specifically prohibited. He submits that in the present case, the remittances in question pertain to those incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, provide any justification for the invocation of the draconian power of seizure under the Act. 14. The learned senior counsel for the petitioner submits that even otherwise, all the fees/charges that are levied by the petitioner from its customers, are transparently stipulated and presented to the customers, and are duly acknowledged and accepted by them before the loan disbursal. He submits that there is no Circular or Rule issued by the RBI capping the processing fees. He submits that even other major banking institutions impose substantial late fees charges for overdue credit card payments and charge high processing fees, which is not objected to by the Government. 15. The learned senior counsel for the petitioner reiterates that the respondent has, without any material evidence/document, falsely alleged that payments have been made by the petitioner against bogus invoices. He submits that the allegation of the respondent no. 1 that the petitioner was using the CashBean App even prior to the incorporation of HK Fitango, is not sustainable as the respondent failed to appreciate that the said App was developed by Mobimagic, who later transferred the same to HK Fitango, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t holding company of the petitioner. Mobimagic is again a related company of M/s Opera Limited, and so is M/s TenSpot Pesa Limited, to whom an amount of Rs. 8.5 Crores was provisioned, claiming to have received Technical Managerial Services. 20. He submits that even RBI found various violations to have been committed by the petitioner and has, therefore, cancelled the Certificate of Registration of the petitioner vide order dated 23.02.2023. 21. He further submits that the petitioner has also filed a complaint with the Adjudicating Authority in terms of Section 37A(2) of the Act, and the said proceedings are at a final stage. 22. He submits that, therefore, in the present facts and circumstances, this Court should refuse to exercise its discretionary jurisdiction under Article 226 of the Constitution of India and relegate the petitioner to its statutory remedies. Analysis and Findings: 23. I have considered the submissions made by the learned counsels for the parties. 24. Before opining on the same, it is relevant to draw reference to the previous orders passed in the present petition:- (a) This Court by its order dated 31.05.2022, while issuing notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was allowed by the Supreme Court vide its order dated 04.05.2023. As this order would have some significance in the decision of this Court on the plea of the respondent that the petitioner has an alternate efficacious remedy, the order is reproduced in full herein below:- Leave granted. On hearing learned counsel for the appellant on 13.12.2022, we had issued notice and stayed the operation of the impugned order relegating the parties once again back to the appellate Court. This was in the scenarios set out in that order as under : Learned senior counsel for the petitioner has drawn our attention to the order dated 24.08.2022 at page 384 to contend that it was an agreed order that the matter should be heard by the learned Single Judge where the concession was made by the learned ASG. He submits that as on that date the Tribunal had already been constituted. On the matter being remitted to the learned Single Judge for consideration, (page 386) on 13.09.2022 the circumstances under which the matter was placed before the learned Single Judge for disposal was recorded and the counsel for the petitioner had made a statement that he chooses not to pursue the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejudice to the generality of the foregoing such transaction includes, (i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii) remittances for living expenses of parents, spouse and children residing abroad, and (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children; xxxxxx 3. Dealing in foreign exchange, etc. Save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person; (b) make any payment to or for the credit of any person resident outside India in any manner; (c) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner. Explanation . For the purpose of this clause, where any person in, or resident in, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) any class or classes of capital account transactions, not involving debt instruments, which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions; and (c) any conditions which may be placed on such transactions. (4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. (5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. (6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. (6) Any person, other than an authorised person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to authorised person under sub-section (5) does not use it for such purpose or does not surrender it to authorised person within the specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition of foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made thereunder shall be deemed to have committed contravention of the provisions of the Act for the purpose of this section. xxxxxx 13. Penalties. ( 1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the directions made in this behalf. xxxxxx 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: Provided that no such seizure shall be made in case where the aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India, is less than the value as may be prescribed. (2) The order of seizure along with relevant material shall be placed before the Competent Authority, appointed by the Central Government, who shall be an officer not below the rank of Joint Secretary to the Government of India by the Authorised Officer within a period of thirty days from the date of such seizure. (3) The Competent Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries (Supra), should not be based on the imaginary grounds, wishful thinking, howsoever laudable that may be 29. Section 4 of the Act states that, save as otherwise provided by the Act, no person resident in India shall inter alia hold, possess, or transfer any Foreign Exchange, Foreign Security, or any Immovable Property situated outside India. Holding, possessing, or transferring any Foreign Exchange outside India except in the manner authorised by the Act is, therefore, a violation of Section 4 of the Act. 30. The foreign exchange transactions can be bifurcated into Current Account Transactions and Capital Account Transactions , as defined in Section 2(j) and 2(e) of the Act respectively. 31. The transactions in question, which have been made the basis of the seizure order, can be categorised as Current Account Transactions . 32. Section 10(5) of the Act prescribes that the Authorized Person , before undertaking any transaction in foreign exchange on behalf of any person, shall require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37. The respondent no. 2 in the Impugned Confirmation Order has held and observed as under: - 10 .When there is a bonafide reason to doubt the burden lies on the respondent to prove that it is true transaction value in the course of international trade. There is no cogent evidence to show or demonstrate indeed the respondent participated in the transaction and the price is the sole consideration. For instance, the respondent has imported and utilized cash bean app free of cost on trial basis from 1st January 2019 to 1st October 2019 supplied by the group companies. The respondent during the period disbursed the loan amount Rs. 1470.63 crores. The Hongkong Fintango company was established on 04.09.2019 and the app had been developed much before its birth. The respondent company failed to show or place on record any evidence when, at what point of time Hongkong Fintango acquired the licence of the app proof of its purchase, what price and proof of its payment. It is shown that the respondent company purchased the app on 01.10.2019 from Hongkong Fintango. It is unbelievable that such a costly app was provided free of cost for nearly 9 months usage and itself shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whom the order under Section 37A of the Act is being passed. At the stage of passing the order under Section 37A(3) of the Act, the Competent Authority is not to arrive at a conclusive finding on the above. Though it may be true that the reason to believe must also be based on certain tangible material and should be reasonable and not be arbitrary or whimsical, at the same time, the Court in the exercise of its powers under Article 226 of the Constitution of India cannot act as an appellate authority and substitute its own opinion for that of the Competent Authority. 40. The powers under Article 226 of the Constitution of India are rather limited to testing the decision-making process and this Court can interfere with the same where there is a violation of the principles of natural justice or where the proceedings are found to be wholly without jurisdiction or where the decision appears to be completely arbitrary and without any material to support the same. In Radha Krishan Industries (supra), the principles applicable to the exercise of extra-ordinary discretionary power under Article 226 of the Constitution of India vis-a-vis availability of an alternate remedy, have been ..... 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