TMI Blog2023 (12) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... d 13.03.2023, altering the provision from Sec.13(2) to Sec.13(1A) - Competent Authority constituted under the Act had vide his proceedings dated 03.02.2021, had decided not to seize the assets of the petitioners on a finding that these petitioners did not violate Sec.4 of the Act. HELD THAT:- Sec. 13 of the Act merely spells out the consequence of the violation of any of the provision of the Act, which includes Sec.4 embargo on a resident Indian, which mandates that no one who is resident in India shall hold foreign exchange or foreign securities outside India. The accusation which the petitioners herein now face is that they, as citizens and residents of India, are holding shares of a foreign company, and thus they have over stepped the line of prohibition under Sec.4. If the scheme of the statute is observed, Sec.13 comes into play only in the eventuality of the Adjudicating Authority entering a finding that the petitioners are guilty of the accusation which is now under enquiry. Set in the context, the corrigendum does not introduce any new set of allegations midway through an enquiry, but only put the petitioners on notice, that in the eventuality of they being found guil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had vested both the powers in the same authority? Then the power of seizure will be construed as an interim arrangement in aid of final adjudication. And, the law is settled that the reasoning of an interim order will have zero potency to impact the reasoning for a final decision. The fact, that both these powers are vested in different Authorities, does not make the order passed by the Competent Authority vis-a-vis the seizure of assets any superior as to interfere with the power of adjudication of the Adjudicatory Authority. It is plainly a question on jurisdiction, and it cannot be expanded interpretatively. Secondly, if the reasoning of the Competent Authority in refusing to seize the property is considered, it focuses essentially on whether payment has been made by the petitioners for the purchase of shares in the Singapore based company, which is forbidden under Sec.3(b) of the Act. . The way statute has presented Sec.3 and Sec.4, it appears to create independent class of prohibitions. Now, if the reasoning of the Competent Authority is required to be transmitted into the adjudicatory process contemplated under Sec.16, as was canvassed by the petitioners, then it may i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company is not found to have made a call for the same. This order of the Competent Authority is now under challenge by the Enforcement Directorate, before the Appellate Authority (ATFE) constituted under Section 19 of the Act. 4. Along side the proceedings for attachment, on the same set of allegations, the Authorised Officer (this time, it is the Assistant Director of Enforcement Directorate) moved the Adjudicating Authority (the Special Director of Enforcement Directorate) under Section 16(3) of FEMA, pursuant to which a show-cause notice dated 22.12.2021 was issued to all the petitioners herein for an alleged violation of Sec.3, Sec.4 and Sec.8 and few allied Regulations. The petitioners have responded to the same. Midway through the proceedings, a corrigendum dated 13.03.2023 was issued to the show cause notice against the petitioners, and the corrigendum issued are now under challenge in all petitions. Summary of Petitioner's Case: 5. The contention of the petitioners is that, when once the Competent Authority has recorded its finding in his order made under Sec. 37A that it has no material to conclude that the petitioners have violated Sec. 4 of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it proposes to hold an enquiry. (c) So far as the present case is concerned, on 03.02.2021, the Competent Authority has entered a categorical finding that there is no material to even arrive at a prima facie finding to hold that the petitioners have contravened Sec. 4 of the Act. Some ten months later, to be specific, on 01.12.2021, the same Authorised Officer moves the Adjudicating Authority with a complaint, making the same set of allegations, ignoring the fact that these facts were already found to have been baseless by the Competent Authority under Section 37A. Notwithstanding the same, the Adjudicating Authority issues a show cause notice dated 22.12.2021. The petitioners instead of showing cause, opted to file an application for compounding the perceived contravention of Sec. 13 before the RBI. However, during the pendency of this application for compounding, the Adjudicating Authority issued a notice dated 19.07.2022, fixing the date of hearing on 01.08.2022. There was an appearance. This is now well into stage II of Rule 4. And because at that point of time, the petitioners have not filed their reply to the show cause notice, the Adjudicating Authority was allowed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 37(A), he should not have to initiate a proceeding under Sec.16. Now, when the complaint discloses the proceedings of the Competent Authority dated 03.02.2021, the Adjudicating Authority should have allowed himself to be weighed by the reasoning of the Competent Authority. Therefore, it is plain non-application of mind on the part of the Adjudicating Authority to the materials before it. (c) It may be that at that relevant point of time when the Adjudicating Authority issued the notice under Rule 4(3), the response of the petitioners might not have been before him, but the very fact that the proceedings of the Competent Authority was disclosed in the very complaint itself should have alerted the Adjudicating Authority in forming its opinion to hold an enquiry. And its decision to issue a corrigendum is a jewel in the crown of his fallacy. (d) As earlier said, Sections 13(2) and 13(1-A) operate in two different areas, and when once he has already closed the personal hearing, he cannot and should not bring about the correction through the corrigendum. Indeed this itself makes it explicit that the Adjudicating Authority has not applied its mind as its belated realisation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to his wife Anusuya, 22.5 lakhs shares to his daughter Sri Nisha, and another 2.50 lakh shares to his son Sundeep Anand. Inasmuch as both the petitioner in W.P. No.21096 of 2023 and his transferees (the petitioners in the other writ-petitions) of the aforesaid shares are citizens of India, they were served with a notice to show cause under Sec.16 read with Rule 4(1) of FEM (Adjudication Proceedings Appeal) Rules. These allegations are mere allegations in the show cause notice, and the petitioners have responded to it. Therefore, no right of the petitioners is affected at this stage, and hence this court may not entertain these writ petitions. c) Turning to the corrigendum dated 13.03.2022, this is based on the same set of allegations as was made in the respective show cause notices and not on any new facts. On service of the notice regarding the corrigendum on 10.04.2023, they sought a personal hearing, and it was also given to them on 12.04.2023. Thereafter, a notice/enquiry on the corrigendum was issued to the petitioners and on 01.05.2023, they did appear through their counsel. On the same day, they also presented their reply. It is in this reply, they challenged both the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould become evident that what Sec. 13 spells out is the consequence, and it does not deal with the process. The sequence of the process that leads to Sec.13 does not alter the character of the enquiry under Sec.16, more so, when the allegation both under the show-cause notice and also for supporting the intended corrigendum are the same. Having invoked Section 37-A, implies ipso facto application of Section 13 (1A). g) FEMA, is a complete code and the remedial fora, the Act as created should not be bye-passed and that this court, may not interfere when a remedial fora are created under a fiscal statute. If the scheme of FEMA is scrutinized, any person aggrieved by the decision of an Adjudicating Authority under Sec.16 has a right of appeal to the Appellate Tribunal for Foreign Exchange under Sec. 19 and further second appeal to this court under Section 35 of the Act. When this hierarchy of forums are created by the statute which are more competent as they are equipped to hear both on facts and on law, this court may not interfere at a preliminary stage will have pernicious effect on the functionality of the statute. Reliance was made to Rajkumar Shivhare Vs Assistant Director, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the petitioners on notice, that in the eventuality of they being found guilty of violating Sec.4, that the Adjudicating Authority might proceed against them under Sec.13(1A) consequence. Therefore, any alteration of provision regarding the consequence that may visit the petitioners will not, and cannot, prejudice the petitioners visa- vis the nature of accusation that they are now facing. Secondly, a close analysis of Sec.13 shows, it only provides a buffet of options to the Adjudicating Authority to choose from, on the course of action that the Authority may adopt when the stage is set for deciding the penal consequence of entering a finding of guilt. This situation is more akin to a Criminal Court altering a charge under Sec.216 Cr.P.C, without altering the facts constituting the accusation. 11. The petitioners have cited a list of authorities to fortify their contentions, but on a closer reading, this Court finds that their relevance is far distanced from the purpose for which they were relied on. In Shashank Vyankatesh Manohar v. Union of India [(2014) 1 Mah LJ 838], J.P. Morgan India Private Limited v. Directorate of Enforcement [(2021) 280 DLT 539], and Pranit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, releasing the properties of the petitioners from seizure. The reason which has formed the ground for the decision of the Competent Authority is that there are no materials to suggest that any money or foreign exchange has flown out of India to support the purchase of the shares in the Singapore based company. The untenability of this contention can be met in two ways: a) The scheme of the Act strongly suggests that any interim seizure of assets of those who may face an enquiry before an Adjudicatory Authority, by the Authorised Officer at the first instance followed by any order confirming it by the Competent Authority at the next level, is only intended to aid the Adjudicating Authority in fashioning Sec.13 consequences on proof of violation of any of the provisions of FEMA. It may loosely be equated to an order of interim attachment made under Order XXXVIII Rule 6 CPC. What is required to be noted is that the jurisdiction of the Competent Authority is limited to holding an enquiry as to whether the assets of those who are suspected to have violated the provision of FEMA should be seized, and it does not extend to the extent of adjudicating on the accusation of violation ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
