TMI Blog2009 (3) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for acquiring and transferring foreign exchange equivalent to ₹ 208 crores, without any previous general or special permission from the Reserve Bank of India; the directors of the company were also charged with violation of FERA, particularly Section 68. 3. According to the show cause notices, investigations by the income tax department revealed that the company was engaged in business of copper, telephone cables, aluminium and nonferrous items. It was alleged that out of the total equity of 4.25 crores, shares of face value of ₹ 10/- each, worth ₹ 12.5 crores were held by promoter directors and that one Twinstar Holding Ltd, an offshore company registered in Mauritius, held about 30 lakh shares. It was alleged that the three promoter directors were engaged in the business of investments and Twinstar Holding held hundred percent capital investment in three other companies to the extent of ₹ 73 crores; Twinstar Holding was incorporated in Mauritius, on 12-01-1993, with issued capital and paid up capital of US $ 100, as a subsidiary of M/s Volkon Investments Ltd; the latter was incorporated in Bahamas on 25-11-1992. M/s Volcan Investments had a share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carefully considered the arguments from both sides. However, it is an admitted position that these proceedings are conducted under FER Act and appeal before this tribunal is filed as a newly created/substituted forum after abolition of FERA Board by Section 49(1) FEM Act, 1999. As an appeal is continuation of original proceedings so FER Act, 1973, is the proper law for the disposal of this appeal, and not FEM Act, 1999. Therefore, the arguments based on Section 19(1) need not be discussed further. 6. It is settled on a catena of judgments that the phrase undue hardship conveys two factors, namely (1) prima facie case with a strong possibility of setting aside of the adjudication order; or (2) financial disability creating serious hurdles in pursuing the remedy of appeal the appellant herein are on the grounds of prima facie strong case. The second proviso of Section 52 (2) permits this tribunal to dispense with the pre-deposit of penalty if such pre-deposit causes undue hardship and the dispensation can either be unconditional or with certain conditions deemed fit. 7. At this preliminary stage, prima facie case is to be considered without going into merits of these appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nipulated foreign exchange, even while holding out that the Mauritius company had acquired shares in Sterilite. It was contended that none of the directors cared to disclose the source of wealth and foreign exchange by which control of those foreign companies had been obtained. In these circumstances the tribunal fell into complete error in granting exemption, as it did. The special director argued that the tribunal overlooked the settled position in law that the revenue or department is not required to prove its case with mathematical precision and that the standard of absolute proof is unattainable. In these circumstances the law accepts probability as a working substitute and does not require the prosecution to prove the impossible. Counsel contended that what is necessary is establishment of such a degree of probability that a prudent man can believe legal proof is not necessarily perfect proof. To this end, reliance was placed on the decision reported as Collector of Customs vs- D. Bhoormall 1974 (2) SCC 544. Counsel also relied on Section 71 of FERA and submitted that in such instances the burden of proof shifts on the party asked to answer the show cause notice. Since the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elter, which was done after gaining requisite approvals. It was contended that once the replies substantiated that necessary permissions were obtained from RBI, to enable investments in India, unless there was proof that the regulatory body had been kept in the dark with respect to the source of funds and the nature of transactions, the finding with regard to contravention of law could not have been arrived at. It is submitted most crucially that there is no provision of law which contemplates disclosure of source of funds by a foreign company which invests in India, nor the nature of transactions it is involved in, while making such investments. 12. It was argued that the burden of proving contravention of law, particularly Sections 8 and 68 of FERA was upon the authorities who alleged it; they had to first establish, prima facie, that the money obtained by foreign companies, who invested in Sterilite, were illegal. In the absence of such proof of foundational facts, there could not have been any finding of contravention of provisions of FERA, or FEMA. Reliance was placed on the decisions reported as Hindustan Steel Ltd vs- State of Orissa 1969 (2) SCC 627 and Akbar Badruddin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... review is available if the order is plainly unsupportable in law; if it was made by following an irregular procedure, or discloses ex-facie an unreasonable approach. 15. The tribunal was persuaded here, to grant complete exemption, by firstly concluding that the Special Director arrived at wrong findings, since there was no proof beyond reasonable doubt. The second ground was that RBI permission was available, and that mere non-cooperation of the company and or its directors, could not have led to adverse findings. 16. In the decision reported as Director of Enforcement v. M.C.T. M. Corpn. (P) Ltd., (1996) 2 SCC 471, the Supreme Court, relying on a previous Constitution Bench ruling in Maqbool Hussein vs- State of Bombay AIR 1953 SC 325, to negative the contention that penal provisions under fiscal statutes require, as a precondition, proof of facts beyond reasonable doubt, said that: In Corpus Juris Secundum, Vol. 85, at p. 580, para 1023, it is stated thus: A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the viola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vest in Sterilite was logical; it, as well as its directors had to afford some explanation. They did not do so. Their claim is that the necessary RBI approvals were furnished. The adjudicatory order, however, concluded that provisions of FERA were violated, and directed payment of penalties. 17. The mandatory nature of pre-deposit provisions in fiscal and economic legislation was underlined in Benara Valves Ltd. v. CCE,(2006) 13 SCC 347, in these terms : on merely establishing a 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 legs to stand on, 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 consequences 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court s judgment, setting aside the Tribunal s order, mandating pre-deposit, of the penalty amount, said that: 5. The Tribunal was of the view that neither any prima facie case was made out nor the financial stringency established to warrant dispensation of pre-deposit. A writ petition was filed before the Gujarat High Court primarily questioning the said order and also incidentally questioning legality of the proceedings. The High Court not only dealt with the impugned order before it relating to pre-deposit aspect but also the merits of adjudication. It elaborately discussed the merits of the adjudication proceedings, though it itself noted that the special civil applications were filed questioning correctness of the order relating to pre-deposit. Not only the High Court held that the order directing deposit was unsustainable but also held that the order of adjudication was unsustainable, overlooking the fact that the appeals were pending before the Tribunal. The High Court set aside the order passed by the adjudicating authority and remitted the matter to the adjudicating authority i.e. the Additional Director General. xxxxxxxx xxxxxxxx 8. It is not in dispute that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, of course, cases which demand that interim orders should be made in the interests of justice. Where gross violations of the law and injustices are perpetrated or are about to be perpetrated, it is the bounden duty of the court to intervene and give appropriate interim relief. In cases where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen s faith in the impartiality of public administration, a court may well be justified in granting interim relief against public authority. But since the law presumes that public authorities function properly and bona fide with due regard to the public interest, a court must be circumspect in granting interim orders of far-reaching dimensions or orders causing administrative, burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima faci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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