WHETHER A WRIT PETITION AGAINST AN ORDER OF PRE DEPOSIT UNDER SECTION 35 OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 IS MAINTAINABLE?

[Mr. M. GOVINDARAJAN]

                        Sec. 19 of the Foreign Exchange Management Act, 1999 deals with the appeal to appellate tribunal. It provides that the Central Government or any person aggrieved by an order made by an Adjudicating Authority or Special Directors (Appeals) may prefer an appeal to the Appellate Tribunal. Any person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Government. Where in any particular case, the Appellate tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realization of penalty.

                        What is the remedy available if any person is aggrieved against the order the tribunal on the application to dispense with pre deposit?  Sec. 35 of FEMA Act provides appeal to High Court against the order of the Appellate Tribunal.  It provides that any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal on any question of law arising out of such order.  Since the decision of the Tribunal on the application to dispense with the pre deposit does not involve any question of law appeal could not be filed before the High Court. 

                        In 'Union of India V. Classic Credit Limited' - (2009) 88 CLA 261 (Del.) the Delhi High Court, decided on 20^th October, 2008, ruled that a writ petition against an order of pre deposit under Section 35 is clearly maintainable.

                        In this case the respondent filed a writ petition against the order of the Appellate Tribunal directing to pre deposit of 50 per cent of the demanded penalty imposed by the Special Director. A preliminary objection was filed by the appellant herein before the learned Single Judge that in view of Section 35 of the Foreign Exchange Management Act, 1999 the respondent should have filed an appeal and not the writ petition.  The High Court directed the writ petition to be treated as an appeal under Sec. 35 of FEMA.

                        The respondents preferred CMs for recalling the order on the ground that the order rejecting the application for waiver of pre deposit is not appealable under Sec. 35 of the Act and the only remedy available with the respondents is to file writ petitions under Article 226 of the Constitution of India. The High Court recalled the earlier judgment.  It held - 'A plain reading of Sec. 35 would show that it does not confer any alternative remedy to the petitioner, to question the order of the Appellate Tribunal, declining the relief to the extent sought for.  In such circumstances, the power of the court to examine the correctness of the order under Article 226 is always preserved; it is another matter altogether that the court may not chose to exercise the jurisdiction, or decline using it, after examining the merits. If the order of this Court is not reviewed, the petitioner would be remediless, resulting in the rejection of its appeal for non payment of the amounts directed.'

                        The present appeal is against the recalling order of the Single Judge. The appellant Union of India submitted the following:

·        The words 'any decision or order' contained in Sec. 35 of the Act are of wide amplitude and cover the decision of the Appellate tribunal, which considers the question of pre deposit by a speaking order considering prima facie case and hardship aspect;

·        If the decision or order affects the substantial rights of the parties, an appeal is provided by the statute;

·        Such a decision is only appealable on the question of law;

·        The existence of an explicit provision of appeal rules oust the jurisdiction of the High Court under Article 226 of the Constitution of India from exercising its power of judicial review;

·        If appeal lies against such an order before the High Court a writ petition under Article 226 on that count would not be maintainable.

The respondent submitted the following:

·        Under Sec. 35 of the Act not every order of decision of the Tribunal is appealable before the High Court;

·        Only such orders or decisions which involve a question of law are appealable;

·        The order disallowing the application for waiver of pre-deposit only deals with specific issue qua the financial inability of the respondent to pre-deposit the amount of penalty so demanded;

·        Any challenge to such order was only on the factual matrix on the question of financial or undue hardship of the respondent to pre deposit the penalty;

·        Such challenge does not fall within the ambit of Sec. 35 of the Act;

·        It has been a consistent practice of various High Courts all over the country that the appeal would lie to the appellate forum against the final order involving the question of law and the interlocutory orders in the nature of pre deposit are always challenged by way of writ petition under Article 226 of the Constitution of India.

The Court analyzed the provisions of Sec. 35 of FEMA Act. The impugned order deals with an order of pre-deposit under Sec. 19 of the Act and is really incidental to the hearing of appeal and, in any case, would not involve any question of law. Whether pre deposit of a disputed duty or penalty would cause hardship and if so, to what extent, are essentially matters or facts which are to be taken into account considering various factors including in particular the financial capacity of the appellant and the prima facie case in appeal. Where the admission of an appeal from an order of Appellate Tribunal is conditional upon satisfaction of the High Court of the existence of a question of law, and therefore, fraught with uncertainty, it would not be proper for this court to refuse to exercise its writ jurisdiction on the sole of ground of existence of an alternative remedy of appeal.   The Court relied on the following judgments:

§         'Shaw Wallace & Co. Ltd., V. Income Tax Appellate Tribunal' 240 ITR 579, the Calcutta High Court held that the words every order of the tribunal has to be passed in appeal.  In the impugned case the tribunal has not passed in appeal but in a misc. application directed towards rectifying a mistake apparent from the record.   If the order under Sec. 254(2) of Income Tax Act had taken the shape of modifying by way of amendment or rectification, the original order to some extent, then both of those jointly might have been appealable under Sec. 260A; but an order of recall is clearly not appealable. Alternatively, even if appealable, the impugned order being also without jurisdiction, the writ application should be entertained in this case, as an exception, in the interest of expedition of the assessment proceedings;

§         'Ruby Rubber Industries V. Commissioner of Central Excise - (1999) 63 ECC 17' - the court held that Sec. 35L(b) clearly provides that any order having a relation to the rate of duty of excise or to the value of goods for purposes of assessment will be appealable to the Supreme Court.  Although much emphasis has been laid on the expression, 'among other thins', used in the said section by the learned counsel appearing for the respondent, in my view, such expression does not mean that appeal will lie against all orders passed by the tribunal including an order passed in the matter of pre deposit;

§         'Tijiya Steel(P) Ltd., V. Union of India - (2007) 2 CAL LT 358' - the court held that an order directing the pre-deposit or an order waiving pre-deposit may not involve any question of law far less a substantial question of law and, hence, may not be appealable.   In any case, such an order cannot be said to be an order in the appeal but it is an order incidental to the hearing of the appeal.   It cannot, therefore, be said that the petitioner has an adequate efficacious alternative remedy;

§         'Crystal Cable Industries Ltd., V. Union of India - MANU/WB/0402/2006 - the court held that "every order passed in appeal by the Appellate Tribunal" is qualified by a rider, that is, satisfaction of the High Court that the case involves a substantial question of law.   An appeal to the High Court is, therefore, not automatic. The condition precedent for entertaining an appeal is the satisfaction of the High Court of the case involving a substantial question of law;

§         'Ram & Shyam & Co. V. State of Haryana - (1985) 3 SCC 267 - the court explained the rule of exhaustion of alternative remedy in the following terms- The rule which requires the exhaustion of alternative remedies is a rule of convenience and discretion, a self imposed restraint on the court, rather than rule of law.   It does not oust the jurisdiction of the court.  Where the order complained against is alleged to be illegal or invalid as being contrary to law, a petition at the instance of person adversely affected by it, would lie to the High Court under Article 226 and such a petition cannot be rejected on the ground that an appeal lies to the higher officer or the State Government. An appeal in all cases cannot be said to provide in all situations an alternative effective remedy keeping aside the nice distinction between jurisdiction and merit.

The court after considering the facts and the above judgments held that an appeal under Sec. 35 is not ordained or an automatic procedure. The condition precedent for entertaining an appeal is the satisfaction of the High Court that the case involves a question of law as contemplated by Section 35 of the Act. The relief under Article 226 can be refused on the ground of existence of alternative remedy only if that alternative remedy is effective and equally efficacious.   Evaluation of circumstances which warrant waiver of pre-deposit would fall within the purview of Article 226 of the Constitution of India. In view of the foregoing discussion the court held that a writ petition against an order of pre deposit under Sec. 35 of the Act is clearly maintainable.