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TWIN REQUIREMENTS TO BE CONSIDERED WHILE DEALING WITH APPLICATION TO DISPENSE WITH THE PRE DEPOSIT OF PENALTY IN AN APPEAL TO APPELLATE TRIBUNAL

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TWIN REQUIREMENTS TO BE CONSIDERED WHILE DEALING WITH APPLICATION TO DISPENSE WITH THE PRE DEPOSIT OF PENALTY IN AN APPEAL TO APPELLATE TRIBUNAL
Mr. M. GOVINDARAJAN By: Mr. M. GOVINDARAJAN
February 25, 2009
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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Sec. 18 of the Foreign Exchange Management Act, 1999 ('Act' for short) provides for the establishment of an Appellate Tribunal ('Tribunal' for short) for foreign exchange to hear appeals against the orders of Adjudicating Authorities under Sec. 16 of the Act and the orders of Special Director (Appeals) under Sec.17 of the Act.

 Sec.19 of the Act deals with the procedure of appeal to the tribunal-

· The Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to Sec.17(1) or the Special Director (Appeals) may prefer an appeal to the tribunal;

· The appeal shall be filed within a period of forty five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director is received in such form verified in such manner and accompanied by such fee as may be prescribed;

· The appellant shall while filing the appeal deposit the amount of penalty, if any, with such authority as may be notified by the Central Government;

· In any particular case the tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person the tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose as to safeguard the realization of penalty.

Thus the above section provide the twin requirements to be considered while dealing with the application for dispensing with the pre deposit of penalty are-

§ Considering of undue hardship aspect; and

§ Imposition of conditions to safeguard the realization of penalty.

The above has been confirmed by the Supreme Court in the case 'Monotosh Saha V. Special Director, Enforcement Directorate' - (2008) 87 CLA 18 (SC). The matrix of the facts of the case is as follows:

Memorandum was issued by the Enforcement Directorate, Ministry of Finance. On the basis of certain statements recorded, it was indicated therein that Godsons (India) and its proprietor, the present appellant, had acquired foreign exchange contravening the provisions of Section 8(1) of Foreign Exchange Regulation Act, 1973 thereby rendering him liable to be proceeded under Sec. 50 of the Foreign Exchange Regulation Act, 1973. The memorandum was issued under Rule 3 of the Adjudication proceedings and Appeal Rules, 1974. The reply to the show cause notice was filed by the appellant. The Special Director imposed penalty of Rs.25 lakhs on the appellant. The appellant preferred an appeal before the tribunal and filed an application for dispensing with the requirement of pre deposit. The tribunal directed to pre deposit 60% of the penalty for the purpose of entertaining the appeal. An appeal was filed before the High Court was also dismissed. The High Court held that no case for hardship was made out either before the tribunal or before the High Court and therefore there was no scope of interference with the order of the tribunal. However, time permitting the deposit was extended. Hence the present appeal is before Supreme Court.

The appellant in compliance with the court's interim order deposited the amount of Rs.10 lakhs with the concerned Directorate.

The appellant submitted that a case for dispensing with the pre deposit was made out.

The respondent submitted that the appellant did not make out a case for dispensing with the deposit and therefore the order of the tribunal as affirmed by the High Court does not suffer from any infirmity.

The Supreme Court held that the principles relating to grant of stay pending disposal of the matters before the concerned forums have been considered in several cases.  It is to be noted that in such matters though discretion is available, the same has to be exercised judicially. It is true that on merely establishing prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand.  Petitions for stay should not be disposed of in a routine manner unmindful of the consequence flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved.  Merely because this court has indicated the principles that does not give a licence to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where the denial of interim relief may lead to public mischief, grave irreparable private injury or share citizens' faith in the impartiality of public administration, interim relief can be given.

The Supreme Court analyzed the provisions of Sec. 19 and held that two significant expressions used in the provisions are 'undue hardship to such person' and 'safeguard the realization of penalty' Therefore while dealing with the application twin requirements of consideration, i.e., consideration of undue hardship aspect and imposition of conditions to safeguard the realization of penalty.

Among the twin requirements one is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. The undue hardship is normally related to economic hardship. 'Undue' which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances. For a hardship to be 'undue' it must be shown that the particular burden to have to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.

The other aspect relates to imposition of condition to safeguard the realization of penalty. This is an aspect which the tribunal has to bring into focus. It is for the tribunal to impose such conditions as are deemed proper to safeguard the realization of penalty. Therefore, the Supreme Court held that the tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the realization of penalty.

The Court held that the tribunal has rightly observed that the rival stands have to be examined in detail with reference to material on record. Undisputedly the appellant had deposited the amount which was directed to be deposited. However, for the balance amount demanded with a view to safeguard the realization of penalty the appellant shall furnish such security as may be stipulated by the tribunal. On that being done, the appeal shall be heard without requiring further deposit if the appeal is otherwise free from defect.

 

By: Mr. M. GOVINDARAJAN - February 25, 2009

 

 

 

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