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TMI Blog1997 (7) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... rder was made ex parte without giving due opportunity to the appellants to defend themselves and that the adjudicating authority held adjudication proceedings considering the replies to the show-cause notices and forming an opinion as to whether personal hearing is called for as required by the mandatory provisions of rule 3(3) of the Adjudication Proceedings and Appeals Rules, 1974 ('the Rules'). The show-cause notices were issued on inspection of the original documents by the Deputy Director under his communication dated 5-6-1992 and the inspection was completed on 6-8-1992. The appellant filed reply to each of the show-cause notices, 14 in all, annexing thereto documentary evidence in support of the submissions made in the reply. It was, therefore, necessary for the learned Adjudicating Officer to consider the reply, and thereafter, if he was of the opinion that personal hearing was necessary he should have fixed a date for personal hearing giving the appellant a reasonable opportunity for the same. Instead, the learned adjudicating officer treated the reply to the show-cause notice as if they were the written arguments made in the course of the personal hearing and passed the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, we are concerned with the charges as contained in SCNs II to VII and X to XIV. 5. Although each of the seven appellants on whom various penalties have been imposed have filed separate appeals we propose to deal with each SCN in seriatim since some of the SCNs are common to more than one appellant and the matter has been dealt with in the impugned order SCN-wise. 6. Before we take up for consideration the findings in respect of the specific charges contained in the SCNs it is convenient to deal with some of the submissions made by Shri Chandrasekharan which are common to all the appeals. Shri Chandrasekharan submitted that as in any adjudication, and particularly where the adjudicating authority proceeds to impose heavy penalties, it is the duty of the adjudicating authority to look into the provisions of the Act or of any notification issued thereunder to see as to what are the elements of those provisions which are to be proved to constitute a contravention thereof and then to enquire whether the factual allegations and the evidence in support of those allegations do constitute any contravention of those provisions. He submitted that a mere perusal of the impugned order show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an inquiry for which it has jurisdiction makes a determination taking into consideration factors which it ought not to have, it will be acting without jurisdiction and its decision will be a nullity, and that the determination must be real and not purported. 7. Shri Chandrasekharan further submitted that all the appellants, except H.S. Duggal, who has been penalised only for the reason that he was the Managing Director of the appellant company, have been held guilty only on one ground, namely, that they have not obtained permission of the Reserve Bank. But the learned Adjudicating Officer failed to appreciate that the question of permission will arise only if the appellants had done anything which they could not have legally done without the said permis- sion. The appellants in the reply to each SCN, while denying the charge, had brought out all the relevant facts and stated that the permission was not required but the learned Adjudicating Officer completely ignored the replies. He submitted that the appellants have been penalised for being courteous in the replies where they stated that they bona fide believed that no separate permission other than that of Working Group was req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Adjudicating Officer. It is sufficient to observe at this stage that the submissions made by Shri Chandrasekharan are not without substance. 10. Dr. Shamsuddin has filed his written reply in brief containing the points he has argued. We will refer to the same as and when occasion arises. 11. We will now proceed to deal with the findings regarding the charge contained in each SCN for which the penalties have been imposed in the impugned order. 12. Show-Cause Notices II & III : SCN II had been issued to Uttam Singh Duggal & Co. Pvt. Ltd. ('the Company'), Prithipal Singh Duggal, Raminder Singh Duggal, Raminder Singh Duggal (HUF), Ranjit Singh Duggal and Bunoo Duggal. It has not been issued to H.S. Duggal but the penalty has been imposed on him also. The charge against individual appellants is that by continuing to hold various shares (as indicated against each) in the appellant company, without any permission of the RBI, the said appellants have contravened the provisions of section 29(1)(a) of the Act. Interestingly, in the SCNs the department has even reproduced the provision of section 29(1)(a). But that provision relates to carrying on of business, etc., in India; it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property, a provision similar to clause (c) of section 29(4) has not been enacted under section 31. If section 50 is allowed to operate independently of and in addition to section 29(4)(c), the result would be that in spite of the Reserve Bank taking a decision not to issue any direction under clause (c) in the absence of any application for its permission the holder of the share would be liable to the penalty under section 51 and this being a continuing contravention he will have to make an application under clause (a) of section 29(4) in spite of the fact that clause (c) does not contemplate that such application must necessarily be made. In our opinion, this cannot be the intention of the Legislature as it would render the provisions of clause (c) redundant in the cases where no application has been made. Moreover, section 29(4)(a) provides that a non-resident holding the shares shall not be 'entitled' to continue to hold the shares unless he makes an application to the Reserve Bank for the purpose. In other words, if he does not make an application he is not entitled to hold the shares. Therefore, if a person does not make an application, he does not contravene any provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... don office. In regard to Ranjit Singh Duggal, it was stated that he is son of Raminder Singh Duggal and was a shareholder in his own name when he accompanied his parents to London; that he was a minor when he went to London. It was also brought out that all these persons continued visiting India from time to time during their stay abroad. In regard to Raminder Singh Duggal (HUF) it was stated that the HUF consisted of Raminder Singh Duggal, Bunoo Duggal and Ranjit Singh Duggal. It has been submitted that the HUF had all along been assessed in India and had not carried on any activities outside India. 16. Shri Chandrasekharan submitted that in spite of the factual position as brought out by the appellants in their replies to the SCNs, which has even been recorded by the learned Adjudicating Officer on pp. 10-11 of the impugned order he, strangely enough, did not consider those facts and recorded his finding that he was satisfied that the charges stand established. He submitted that it is not disputed that all these appellants were resident Indians before they went abroad; that the status of a person being resident in India and resident outside India is defined under section 2(p) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been imposed on the appellant company and its managing director, H.S. Duggal. Shri Chandrasekharan contended that even though no penalty has been imposed on the appellants charged under SCN III, the finding of contravention against them is liable to be set aside on two main grounds. Firstly, Raminder Singh Duggal was not a person resident outside India at the material time as he went abroad with the intention to stay there for a certain period that is to say, till the completion of the Baghdad University Project. He submitted that similar argument applied to four other appellants who also went abroad to stay there till the completion of the purpose for which they went abroad. He relied on the judgments of this Board in Gobind G. Assomoull v. Director of Enforcement [1995] 79 Taxman 155; P. Thangavelu v. Director of Enforcement [1988] 38 Taxman 8 (Mag.) and Puran D. Puri v. Director of Enforcement [1995] 80 Taxman 151 (Mag.), in support of his contention. Secondly, he submitted that as regards the charge under SCN III, the learned Adjudicating Officer clearly erred in ignoring the position that a company is a legal entity independent of its shareholders and employees. Raminder Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force to the determination of the status of a person in terms of section 2(p)( i)(c) also. In order to determine whether a person has gone out of India to stay abroad for an 'uncertain period', it is not necessary to consider the duration of the period of stay; what is necessary is to determine whether the period is uncertain or certain. A period can be made certain either by specifying certain dates or by reference to the occurrence of an event or completion of an object or purpose; in the latter case the period of stay may not be specified by certain definite dates but that does not mean that the period of stay is not definite or is not certain. Moreover, what is to be seen is the intention of the person in regard to the period of stay; the duration of stay may or may not be relevant and where it is relevant, it is only one of the factors, not the sole factor, for determination of the intention. 22. Considering the cases of each of the 5 appellants in the light of the position as hereinbefore stated, it cannot be disputed that Prithipal Singh does not fall in categories (a) and (b) under section 2( p)(i). He does not fall under category (c) also. He went abroad for studies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmission for continuing to remain non-resident Director of the Company when he was non-resident. I am satisfied that the charges stand established." It is, thus, clear that the learned Adjudicating Officer did not consider the question whether RBI's permission was at all required. If holding of shares or continuing as director in the facts of the case is not prohibited under section 29(1)(a) or 29(4)( a) and section 29(1)(a) and (b), respectively, the question of permission does not arise. Section 29(1)(a) and (b) deals with a situation where a non-resident person or non-Indian Company desires to (a) carry on in India any activity of training, commercial or industrial nature or establish in India an office, branch or other place of business; (b) acquire an undertaking of any person or company who or which is carrying on any trade, commerce or industry, or (c) purchase shares in India of any such company. Therefore, in order to apply section 29(1)(b), read with section 29(4)(a), it is necessary that the person/holder of shares in the appellant company [which admittedly is the company referred to in section 29(1)(b)] is a person resident outside India. In our opinion, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and no payments had been made to any of the shareholders. In regard to the amounts which were alleged to have been made by the company on the instructions of the said five shareholders, it has been clarified that those amounts have been shown in the company's accounts as debits against the five shareholders and these debits pertain to the payments made to the income-tax authorities, expenses incurred in relation to income-tax proceedings in India and some small sundry expenses of club bills. 27. Shri Chandrasekharan, the learned counsel for the appellant, contended that since none of the five persons mentioned in the show-cause notice was 'non-resident' at the relevant time, the question of contravention of section 9(1)(d) or section 9(1)( e) does not arise at all. We have already held, while dealing with show-cause notice Nos. II & III, that none of the said persons who have also been named in the SCN-IV can be considered to be 'non-resident' at the material time. Therefore, the finding of contravention of section 9(1)(d) and of section 9(1)(e) on the part of the appellant company is liable to be set aside. 28. Shri Chandrasekharan further submitted that the treatment given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of the RBI, which had the effect of securing that the receipt of Jordan Dinnar 1.5 million has been delayed. 31. Shri Chandrasekharan, the learned counsel for the appellant, submitted that in respect of this show-cause notice, the learned Adjudicating Officer proceeded on the wrong assumption that an amount of JD 1.5 million was due to the appellant company from foreign party. He has not recorded any reason and has not referred to the evidence on the basis of which he has assumed that the said amount of JD 1.5 million had become due and payable to the appellant company. He submitted that the question of repatriation of the amount arises only if the amount had become due. He further submitted that the assumption of the learned Adjudicating Officer is contrary, on the one hand, to what was allegedly revealed by the investigation and, on the other hand, to the facts as brought out in the company's reply to the show-cause notice which have been relied on and reproduced in the impugned order itself. He submitted that in order to apply the provisions of section 16(1)(a) to the alleged non-receipt of foreign exchange it is necessary for the department to prove that the company-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of JD 5,03,115. It appears from the statement supplied by the Municipality of Greater Amman that after making the payments of statutory and other dues directly to various agencies in respect of their dues against the appellant company, the Municipality paid an amount of JD 1,47,879.449 by crediting the same to BCCI, the company's Bank in Amman. Thus, the net amount of JD 147,879.449 admitted as payable to the appellant company stands received by the company. The learned Adjudicating Officer failed to appreciate that in construction contracts, the value of the work as shown in the final bill is not the amount receivable; it is subject to permissible deductions and adjustment of debits and it is only after all the adjustments are made that the net amount finally payable is determined. In view thereof the amount of JD 5,03,115 or JD 5,06,000, whatever be the true figure, was not the amount which the appellant company had the right to receive; it had the right to receive only the amount of JD 147,879.449 which stands already received by it. The rest of the amount comprised in the total amount of JD 1.5 million was the amount of the disputed claims; it cannot be considered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is clear from this letter that the RBI had allowed the United Bank of India to cover the overdraft by furnishing the guarantee. If approval of the RBI was required and if there was no approval of the RBI, the question of RBI entertaining any request of the bank to furnish the guarantee to cover the overdraft did not arise, much less to accord its approval. The learned counsel submitted that the appellant had informed the Enforcement Directorate, duly supported by a copy of the FIR that the records pertaining to the Projects had been destroyed in fire in 1984 riots and, therefore, he was handicapped in furnishing the documents. He submitted that although RBI's letter of 16-2-1987 was sent to the learned Adjudicating Officer under registered cover just 3 days after submission of the reply to the SCN but he has conveniently avoided to consider that evidence had held the appellant company guilty of contravention. 36. In our opinion, in view of the RBI's letter dated 16-2-1987, which has not been considered by the learned Adjudicating Officer, though it was on the record, the finding of contravention of section 8(1) cannot be sustained for the reasons advanced by Shri Chandrasekhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge under SCN-VI is also set aside. Show-Cause Notice No. VII : 39. The appellant company and its Managing Director H.S. Duggal have been found guilty of contravention of section 16(1)(a) of the Act alleging their failure to realise the amount of Iraqi Dinnar 4.8 million from the overseas party. The learned Adjudicating Officer has not disputed the fact that the company had submitted a bill for Iraqi Dinnar 26.2 million. He has also not disputed the statement made by H.S. Duggal on 4-4-1990 that though the company had submitted final bill for the amount of ID 26.27 million, yet the net amount recoverable by the company was ID 4.8 million after deduction of advance payments and running payments. It appears from the impugned order that on the basis of this statement, the learned Adjudicating Officer 'found' that the amount ID 4.8 million was recoverable by the company and on that assumption went into the enquiry as to the efforts made by the company to realise the said amount of ID 4.8 million. It appears from the reply to the SCN that the appellant company had furnished a detailed account of the facts and circumstances in which the company was prevented from pursuing their claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate that section 16(1)(a) was even otherwise not attracted as the company had yet to acquire a 'right to receive' the said amounts of foreign exchange. 41. In the premises, the finding of contravention of section 16(1)(a) as in SCN-VII as well as the penalties imposed on the company and its Managing Director H.S. Duggal are liable to be set aside. Show-Cause Notice No VIII: 42. The allegations made in SCN-VIII against the appellant company is that they had made inter-project transfer from their London bank account pertaining to Baghdad University Project to BCCI, Amman account pertaining to inter-section project. It is alleged that by transferring funds from Baghdad University project to inter-section project account without RBI's permission, the company contravened the provisions of section 16(1)(a). However, it is seen from the discussion in the impugned order in respect of SCN-VIII that while examining the replies of the company, the learned Adjudicating Officer has referred to para 12-D.7 of the Exchange Control Department (ECD) Manual, 1987 Edition, whereas in SCN-X, the ECD Manual applied to the company was ECD Manual, 1978 Edition, and not 1987 Edition. Moreover, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants and equipment had been imported on duty-free basis for the Baghdad University Project, on the condition that these items would be exported from Iraq on completion of the work. With the progressive completion of the work these items became surplus. The Resident Engineer of the foreign party asked the company to remove plant and machinery from the site. It was also brought out that the company was told that under the emergency conditions prevailing due to Iraq-Iran war they could keep the items of plant and equipment in Iraq only at the risk of being confiscated by the Iraqi authorities; that in these circumstances, the items of plants and equipment were exported out of Iran to Kuwait which was the nearest duty-free zone. From Kuwait two cranes were imported by the company in December 1985 against payment of import duty of Rs. 22 lacs. It was also brought out in the reply that the order of the Resident Engineer to remove surplus plant and machinery from the side was brought to the notice of the Working Group in its meeting held on 29-3-1988 in which Mr. K.V. Ambure and Mr. P.M. Bhatia of the Exchange Control Department and IEC Deptt. of the Reserve Bank of the India were presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without RBI's permission and thereby violated the regulations. The learned Adjudicating Officer did not adjudicate upon the questionwhether the allegations made by the RBI actually constitute the contravention of the provisions as alleged in the SCN. By merely accepting the complaint made by the RBI, the learned Adjudicating Officer has abdicted his duty to adjudicate after proper investigation. 51. For the aforesaid reason, the findings of contravention of the charges made in SCN-X as also the penalty imposed therefor are liable to be set aside. Show-Cause Notice No. XI: 52. The appellant company have been found guilty of not realising an amount of US $ 1.3 million, being the amount of compensation, from TROCON. 53. It appears that TROCON, the Principal contractor, was to reimburse to the appellant company for the amount of US $ 1.3 million towards the expenses incurred on deportation of workers and other losses suffered by the company. As against this claim, the company had an obligation to execute the maintenance work for a period of 15 months after the completion of the project which they could not undertake due to non-release of funds by the Working Group. In the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and went on strike and for that reason deported to India. It is obvious that they had been paid the amount directly by TROCON as clarified in the statement reproduced above because there is nothing to indicate that the appellant company had made payments to those labour and staff. If that be the position the question of receipt of, the said amount of US $ 1.3 million from TROCON did not arise at all. Had the amount been paid by TROCON to the company in Baghdad the company would have paid the same to the labour and staff in Baghdad itself. Instead, the payment had been made by TROCON directly to labour and staff obviously on behalf of the company. For this reason also the question of contravention of section 16(1)(a) does not arise. 54. In view of the above, the finding of contravention of section 16(1)(a) and the penalties therefor in respect of the charges under this show-cause notice are liable to be set aside. Show-Cause Notice No. XII : 55. The appellant company has been found guilty of contravention of section 9(1)(a) for making payment to Wafa Dajani & Sons, a foreign party by way of agency commission without the permission of the RBI. It is apparent from the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been shown in the returns. In spite of the assertion made by the company the department has not controverted the assertion by showing that the returns filed by the company did not show payment of agency commission. If agency commission has been shown in the returns, it is obvious that the payment has been allowed by the Working Group and the Working Group would not have allowed the payment unless it was satisfied about the agency agreement itself. It is for the department to establish that the payment had been made without the permission of the RBI because the absence of the permission of the RBI is one of the essential ingredients to constitute the contravention of the provision of section 9(1)(a) or 9(1)(c). Instead of producing evidence to show that the RBI's permission had not been obtained the learned Adjudicating Officer has put the burden on the company. Even then the company tried to cooperate and furnished whatever information was available and indicated their inability to furnish further documents as the same were allegedly destroyed in 1984 riots. In the circumstances, it was not proper for the Adjudicating Officer to ignore collateral evidence and return the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and, hence, there is no violation of section 16(1)(a) of FERA, 1973. 60. On going through the impugned order we find that in spite of recording the said reply where the allegation in respect of the amount of Rs. 2,53,366.11 had been categorically denied the learned Adjudicating Officer did nothing to adjudicate upon the issue and to ascertain as to how the said amount in Indian currency has been found to be receivable by the company. What had he simply recorded is to say "I have considered the submissions of the company and have also examined the record. I do not consider that the company has made exhaustive efforts for realisation of their outstanding dues. I, therefore, impose the following penalties." It is, thus, quite clear that the learned Adjudicating Officer did not apply his mind to the issue nor did he adjudicate upon the charge before imposing the penalty. We are inclined to accept the submission made by Shri Chandrasekharan that in order to bring home the charge of contravention of section 16(1)(a) it is necessary to prove that the company refrained from taking any action which contemplates a deliberate omission of something which they were required to do. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegation that the company, while making payment of £ 1,000 per month to Shri R.S. Duggal, has violated any condition of the permission for opening of the London office. 63. In view of the above, the finding of contravention of section 9(1)(a) on the part of the appellant company is totally misconceived and liable to be set aside and so are the penalties imposed therefor on the appellants. 64. In view of the foregoing discussion in respect of the charges made under each show-cause notice, it is clear that none of the charges framed against the appellant company is sustainable either in law or on facts and the findings of the Adjudicating Officer in respect of each of those charges are liable to be set aside. Since the company cannot be held guilty of any of the charge, the penalties imposed on its managing director H.S. Duggal are also liable to be set aside. In fact the department had not even invoked section 68(1) in the show-cause notices for proceedings against H.S. Duggal in his capacity as Managing Director of the appellant company. The impugned order insofar as it holds H.S. Duggal guilty of contravention of the charges under SCN-II and III and imposes penalties th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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