TMI Blog2022 (7) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... is provided to determine the violation of Section 4 of FEMA. Whether the Authorised Officer had reason to believe that any foreign exchange situated outside India is suspected to have been held in contravention of Section 4 or reasons recorded by the Authorised Officer would be sufficient to initiate action under Section 37-A of FEMA, are to be considered by the Competent Authority. At this stage, examining sufficiency of reason or otherwise under Article 226 of the Constitution of India would prejudice the case of either of the parties. It is best left to the Competent Authority to examine the same when it considers the entire issue under sub-Section (3) of Section 37-A of FEMA. Section 37A of FEMA provides mechanism to decide the contravention or otherwise of Section 4 of FEMA. The case of the petitioner is at the stage of sub-Section [1] of Section 37A of FEMA which is impugned in the present writ petition. Timeline is fixed under Section 37A of FEMA for conclusion of the proceedings initiated by the Authorized Officer. The Authorized Officer has passed seizure order which is in the nature of provisional order is to be placed before the Competent Authority within 30 days f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-Section (3) of Section 37-A of FEMA. - Writ Petition No. 9182/2022 ( GM-RES ) - - - Dated:- 5-7-2022 - Shankar Ganapathi Pandit , J. For the Appellant : Sajjan Poovaiah, Sr. Counsel and Aditya Vikaram Bhat, Adv. For the Respondents : M.B. Nargund, ASG and Madhukar Deshpande, CGC ORDER Petitioner, a company incorporated under the provisions of the Companies Act, 2013 is before this Court under Article 226 of the Constitution of India praying for a writ of certiorari to quash the order dated 29.04.2022 passed by the second respondent bearing No. F. No. T-3/BGZO/01/2022 under Section 37A[1] of Foreign Exchange Management Act, 1999 [for short FEMA ], seizing the movable properties i.e., money in the bank account of the petitioner maintained with the petitioner's bankers as mentioned in the schedule to the petition and for a direction to the respondents to conduct all further investigation and interrogations, if any, with respect to the petitioner through its employees or otherwise under video/audio recording and also permit the legal counsel of the petitioner be present during such investigations or interrogations, in order to prevent any form or harassme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74342 8773141481 3. Respondent No. 2, Directorate of Enforcement on the basis of information from the credible sources that petitioner had made certain foreign remittances in the name of royalty to foreign based entities in violation of the provisions of FEMA, initiated investigation. Summons under the provisions of FEMA were issued to the Ex-country head and Managing Director of the petitioner and their statements were recorded. Based on the collected information, the Authorized Officer passed seizure order under Section 37A[1] of FEMA, which is impugned in this writ petition. 4. Statement of objections filed by the respondent Nos. 1 and 2 state that petitioner is engaged in the trading of mobile phones, electronic gadgets and other accessories under the brand name of Xiaomi. Petitioner purchases the completely manufactured, box packed ready to sell/use mobile from four manufacturers based in India and directly sells it to distributors, without adding any technology or any other value to the purchased phones. Petitioner has not received any kind of service, software/IPR/technology directly or indirectly. When there is no use of any intellectua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral would submit that sub-Section [5] provides appeal to the Appellate Tribunal against the order passed by the Competent Authority. Learned Additional Solicitor General on the basis of the above referred provisions submits that Authorized Officer, on credible information that there is violation of Section 4 of FEMA, after recording reasons in writing under order at Annexure-A, seized the value equivalent of such foreign exchange. 10. Learned Additional Solicitor General would submit that since the petitioner has not used any technology or IPR of the Qualcomm or Beijing Xiaomi Mobile Software Company Limited, petitioner could not have paid any royalty. According to the learned Additional Solicitor General, royalty is paid only when a manufacturer uses technology or IPR patent holder. 11. Learned Additional Solicitor General would contend that since the petitioner has not used any technology or IPR, could not have paid any royalty. Hence, amount transferred from the banker of the petitioner to Qualcomm or Beijing Xiaomi Mobile Software Company Limited would attract Section 4 of FEMA. Petitioner could not have transferred the amount in the guise of royalty when he has not use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MA have no competency or jurisdiction to initiate proceedings against petitioner, as the case of the petitioner would not fall under Section 4 of FEMA. It is his submission that petitioner has not transferred or parked foreign exchange, foreign security or any immovable property situated outside India. It is submitted that petitioner has paid royalty since 2016 to the patent holder for using mobile technology i.e., SEP. It is submitted that petitioner has indirectly paid royalty to Qualcomm. Though license is indirect, payment of royalty is direct to Qualcomm. It is submitted that petitioner has paid royalty from 2016 to 2022 and the same is recognized and accepted by the Income Tax Authorities. It is submitted that Income Tax Authorities during assessment have accepted royalty paid by the petitioner to Qualcomm and when it was within the knowledge of the Authorized Officer with regard to acceptance of royalty by the Income Tax Authorities, the Authorized Officer ought not to have proceeded with. It is his submission that the ingredients of Section 4 are not satisfied so as to initiate proceedings under Section 37A of FEMA. 14. It is submitted that royalty paid to Qualcomm and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding that when jurisdiction itself is questioned or when order is passed in total violation of principles of natural justice. It is submitted that present writ petition is maintainable since petitioner is questioning the jurisdiction of the Authorized Officer under Section 37A of FEMA to initiate proceedings, when the ingredients of Section 4 is not fulfilled and further petitioner has no alternate remedy as contended by the learned Additional Solicitor General for respondents. With regard to contention of learned Additional Solicitor General that writ petition itself is premature, learned senior counsel would submit that order of attachment under Section 37A[1] of FEMA would have a far reaching effect on the petitioner's business and it would lead to civil death. 17. Having heard the learned Additional Solicitor General for respondents and learned senior counsel for petitioner, the only point which falls for consideration is as to, Whether the writ petition is liable to be dismissed as not maintainable on the ground of availability of alternate remedy and the writ petition is premature? 18. The answer to the above point would be that petitioner has no alternate r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent Authority in the adjudication proceedings, person aggrieved is provided with remedy of appeal to the Appellate Tribunal under sub-Section [5] of Section 37A of FEMA. At the stage of seizure order under sub-Section (1) by the Authorized Officer, petitioner is not provided any opportunity and the order is passed on the basis of material available with the Authorized Officer. The Authorized Officer would be in the process of passing order on the material from which he has reason to believe and suspect the transfer of foreign exchange in contravention of Section 4 of FEMA. Only when the Competent Authority issues notice on submission of seizure order along with material by the Authorized Officer, then the person against whom seizure order is passed would get an opportunity. The appeal provided is against the order passed by 'Competent Authority' and not against the order passed by Authorized Officer'. Therefore, at this stage, it cannot be accepted that petitioner is provided with alternate remedy as contended by the learned Additional Solicitor General. 20. The contention of learned Additional Solicitor General that writ petition is premature, since the Authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. The Act has seven Chapters and 49 Sections and out of which, Chapter V, which deals with adjudication and Appeal, contains detailed provisions starting from Sections 16 to 35, thus spanning 20 Sections. A rule styled as the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 have been framed in exercise of powers under Section 46 read with sub-section (1) of Section 16, sub-section (3) of Section 17 and sub-section (2) of Section 19 of FEMA. 19. It is thus clear that Chapter V of FEMA, read with the aforesaid rules, provides a complete network of provisions adequately structuring the rights and remedies available to a person who is aggrieved by any adjudication under FEMA. The above decision makes it abundantly clear that FEMA is a complete Code in itself and is an act to consolidate and maintain law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange management in India. It also states that when statute creates a special mechanism for adjudication and when statute itself provides for remedy that too in a physical statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he technology or IPR of Qualcomm and whether there was agreement for usage of technology or IPR and whether the payment made by petitioner is for usage of technology or IPR is a question of fact which the Competent Authority has to decide. Normally, royalty is a payment made for usage of technology or IPR by the manufacturer to the IPR holder. In the case on hand, it is for the petitioner to establish that apart from manufacturer of mobile phones, the petitioner who purchases manufactured mobile phones would also be liable to pay royalty. Therefore, in the facts and circumstances of the case, I am of the opinion, that question with regard to jurisdictional issue may be urged before the Competent Authority and the Competent Authority could determine the same while passing order under sub-Section [3] of Section 37A of FEMA. The Hon'ble Apex Court in the case of Management of Express Newspaper (Private) Ltd., Madras Vs. The Workers and Others [AIR 1963 SC 569], has held that normally, the questions of fact though there may be jurisdictional facts, decision of which depends upon appreciation of evidence, should be left to be tried by the Special Tribunals constituted for that purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as FEMA are altogether different. The provisional attachment under CGST cannot be compared to that of seizure order under Section 37-A(1) of FEMA. 25. Section 37A of FEMA provides mechanism to decide the contravention or otherwise of Section 4 of FEMA. The case of the petitioner is at the stage of sub-Section [1] of Section 37A of FEMA which is impugned in the present writ petition. Timeline is fixed under Section 37A of FEMA for conclusion of the proceedings initiated by the Authorized Officer. The Authorized Officer has passed seizure order which is in the nature of provisional order is to be placed before the Competent Authority within 30 days from the date of such seizure order. The impugned order is dated 29.04.2022 and the learned Additional Solicitor General Sri. M.B. Naragund has submitted that within 30 days i.e., on 27.05.2022 itself the Authorized Officer has placed the seizure order along with relevant material before the Competent Authority. Since the seizure order and relevant material is already placed before the Competent Authority, it would be appropriate for this Court to direct Competent Authority to issue notice of hearing to the petitioner, hear the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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