Sec.36 of the Foreign Exchange Management Act, 1999 ('Act' for short) provides that the Central Government shall establish a Directorate of Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the purposes of this Act. The Central Government may authorize the Director of Enforcement or a Deputy Director of Enforcement to appoint officers of Enforcement below the rank of Assistant Director of Enforcement.
Sec.37 of the Act gives powers of search, seizure etc., to the Directorate of Enforcement Under this section the following powers of given to the Directorate of Enforcement and the Central Government:
The Directorate of Enforcement and other officers of Enforcement, not below the rank of an Assistant Director, shall take up for investigation the contravention referred to in Section 13;
The Central Government may also, by notification, authorize any officer or class of officers in the Central Government, State Government or the Reserve Bank of India, not below the rank of an Under Secretary to the Government of India to investigate any contravention referred to in Section 13;
The officers vested with the power of investigation shall exercise the powers which are conferred on income tax authorities under the Income Tax Act, 1961 (43 of 1961) and shall exercise such powers, subject to such limitations laid down under that Act.
Thus it is evident the Officers are having powers provided under the Income Tax Act, 1961 and they can issue summons under Sec. 37 of the Act to any person for the purpose of investigation. The question raised to be discussed in this article is whether such summons issued by the Directorate of Enforcement could be stayed by the High Court. The Madras High Court in a recent judgment, reported in Business Line, dated 08.12.2009 gave a negative answer to this.
A writ petition was filed by Mr. K.A. Manshoor, who was issued a summon by the Enforcement of Directorate, Government of India, under Section 37 of the Act, challenging the issuance of summons dated December 12, 2008. The grounds raised by the petitioner are as follows:
There was no application of mind and the documents sought for would amount to a roving enquiry by the Directorate;
The Directorate, which had power to issue summons, could do so only if it was satisfied that the purpose had relevance to the issue in which the summons was issued.
The Enforcement Directorate submitted the following:
The provisions of FEMA could not be compared with other enactments;
The questions of application of Article 20(3) or Article 21 of the Constitution did not arise;
In 'TTV Dinakaran V. Enforcement Officer' - 1995 (80) ELT 745 (Mad) the attempt to challenge the summons served under Section 40 was repelled by the Court.
The High Court after considering the arguments put forth by the parties held as follows:
The petition in essence seeks a writ of prohibition against the Department for having issued the summons by exercise of powers vested on them under Section 37 read with Section 131 of the Income Tax Act;
There was a complete departure from the earlier enactment viz., Foreign Exchange Regulation Act, 1973 which was repealed by Section 49 of the Act;
The concept of an offence being committed had been dispensed with. The procedure under the present Act was for imposition of a penalty for contravention of provisions of the Act. The entire face of the Act had completely been overhauled. Hence at this stage, it was unthinkable to question the summons issued by the Directorate;
The Act had deliberately chosen not apply the concept of summons used either under the Code of Civil Procedure or under the Code of Criminal Procedure, but had chosen to apply analogous provisions in the Income Tax Act;
While interpreting the scope and width of Section 37, one could not apply the concept of summons as available in CPC, only because the power of a civil court was conferred on the authorities;
The High Court rejected the contention of the petitioner to stall the summons issued by the Directorate.
