Telangana High Court
T. V.Madhusudan Rao vs Special Direactor on 21 November, 2025
THE HONOURABLE SMT. JUSTICE RENUKA YARA CIVIL MISCELLANEOUS SECOND APPEAL Nos.32 and 33 of 2014 COMMON JUDGMENT:
Heard Sri Y. Sreenivasa Reddy, learned counsel for the appellants and Sri Anil Prasad Tiwari, learned Standing Counsel for Directorate of Enforcement for respondent. Perused the entire record.
2. These Civil Miscellaneous Second Appeals are preferred by the appellants aggrieved by the common order dated 20.08.2014 passed by the Appellate Tribunal for Foreign Exchange, 15th Floor, Hindustan Times House, K.G. Marg, New Delhi, ('Appellate Tribunal'), in Appeal Nos.132 and 133 of 2011, wherein applications filed by the appellants seeking stay of the common adjudicating order dated 13.10.2011 in Order No.SDE/SKS/VI/9/2011 passed by the Special Director of Enforcement, Enforcement Directorate, Government of India, New Delhi, ('Adjudicating Authority'), were disposed of.
3. The brief facts of the case are that the Assistant Director, Directorate of Enforcement, Hyderabad Zonal Office, lodged a complaint under Section 16 (3) of the Foreign Exchange Management Act, 1999 (hereinafter referred to as 'the Act') against both the appellants herein for contravention of provisions of the Act and Rules thereunder, more particularly, Section RY,J CMSA_32_&_33_2014 3(d) read with Section 42 of the Act. M/s. Vasavi Impex is a proprietary concern and the appellant-B. Sanjay is the proprietor and appellant-T. V. Madhusudhan Rao is its authorized signatory. Appellant-T.V. Madhusudhan Rao, assured appellant-B. Sanjay that he would get 25 to 30% interest per annum on the amount of Rs. 3,00,000/- invested in stone cutting tools business. Appellant-T.V. Madhusudhan Rao, was proprietor of M/s. Mark Stonex, which was trading in granite cutting tools, which was established prior to M/s.Vasavi Impex. Granite cutting tools were imported from China and were locally sold. While so, on 17.12.2007 officials of the Directorate of Enforcement searched the residence of appellant-T.V. Madhusudhan Rao and on 18.12.2007 they seized a laptop, Rs.5,00,000/- and certain documents. The statement of appellant-T.V. Madhusudhan Rao was recorded on 18.12.2007 and again on 07.01.2008 which show that he was importing granite cutting tools from China and selling them locally. The said tools were purchased in the name of M/s. Vasavi Impex, which stood in the name of appellant-B.Sanjay. Appellant-T.V. Madhusudhan Rao being the authorized signatory looked after the entire business and the supplier in China appointed them as sole representative in Andhra Pradesh for importing cutting tools. The business started in the year 2007 and granite cutting tools were imported for four to five times from M/s.Quanzhou Zahongzhihzui Diamond Tool Co. Ltd., China, by under 2 RY,J CMSA_32_&_33_2014 valuing the prices and the difference totally amounting to USD 4 lakhs approximately. The amount in Indian currency was paid to one Prakash from Begum Bazar, who used to pay the same to one Hukum in Chennai for onward payment to the suppliers in China. An amount equivalent to USD 80,000/- was paid to said Prakash of Begum Bazar in October, 2007 and amount equivalent to 250 USD was sent through a friend for payment to the suppliers at China. The documents which were seized in the premises of appellant-T.V. Madhusudhan Rao contain the actual C&F prices quoted by the supplier. The said prices were given by the supplier's representatives when they visited India. The said prices related to the year 2006 and they were subsequently reduced by 5% to 10% of the actual price. While so, the value declared to the customs were 25 to 50% less than the actual value. The amounts were paid in personal capacity of appellant-T.V. Madhusudhan Rao as there was no segregation of the amount between various concerns looked after by him and that the appellant-B. Sanjay had signed the papers for opening of the concern.
4. Further, on the basis of the said complaint the Adjudicating Authority issued show cause notice No.T-4/5-Hyd/2009 (SCN-II) dated 23.11.2009 followed initiating formal proceedings against both the appellants under the Act. In the said proceedings, both the appellants were 3 RY,J CMSA_32_&_33_2014 given an opportunity to appear and were permitted to be defended by their respective counsel.
5. After considering the evidence on record and the defence taken by the appellants, the Adjudicating Authority passed the Order (Original) No.SDE/SKS/VI/9/2011, dated 13.10.2011, holding that the appellants indulged in use of non-banking channel for transfer of funds overseas while conducting business of import of stone cutting tools by M/s. Vasavi Impex and that the appellants have contravened Section 3 (d) of the Act for entering into financial transactions in India for creation of right to acquire foreign exchange of USD 2,77,251/- (equivalent to Rs.1,10,79,435/-) by persons outside India. In view of the said findings, the Adjudicating Authority imposed penalty of Rs.55,00,000/- on each of the appellants as proprietor and authorized signatory of M/s.Vasavi Impex under Section 13(1) of the Act. Further, an amount of Rs.5,00,000/- seized at the residence of appellant-T.V.Madhusudhan Rao being found to be involved in contravention of Section 3 (d) of the Act was confiscated. It is further held that Section 42 of the Act cannot be invoked and the penalty amount was directed to be deposited within 45 days from the date of receipt copy of the said order.
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6. Aggrieved by the said order, the appellants filed appeals in Appeal Nos.132 and 133 of 2011 before the Appellate Tribunal along with applications seeking to waive the pre-deposit. The Appellate Tribunal after considering the case of the appellants ordered to pay 30% of the penalty amount in cash and to furnish bank guarantee for remaining 70% by each of them individually to stay the recovery of penalty till disposal of the appeal within one month from the date of receipt of copy of such order. Aggrieved by the same, the present Civil Miscellaneous Second Appeals are preferred.
7. In the grounds of appeal, the case of the appellant-B.Sanjay is that except for lending his name and investing Rs.3,00,000/- he was never involved in any transaction of M/s.Vasavi Impex and therefore, Sections 3
(d) and 42 of the Act are not applicable to him. More-so, M/s.Vasavi Impex is not a company registered under Companies Act, 1956. Further, the appellants pleaded that the values of the imports were correctly stated before the customs and the same was not verified by the customs. The value of imported goods was compared with the value of the other importers and no evidence is produced to said effect. No opportunity was given to appellant-B.Sanjay to cross-examine the other appellant-T.V. Madhusudhan Rao and therefore, there was no opportunity to establish that 5 RY,J CMSA_32_&_33_2014 the appellant-B. Sanjay was not involved in activities associated with trade in M/s. Vasavi Impex. While the Appellate Tribunal has prima facie concluded that the business was closed and Income Tax Returns filed indicate that the appellants would suffer financial hardship in case waiver is not granted, the Appellate Tribunal directed the appellants to pay 30% of penalty in cash and furnish Bank Guarantee for the rest of the 70% within one month. It is contended that the Appellate Tribunal on one hand arrived at conclusion that directing to pay penalty would cause financial hardship on the other hand directed for payment of 30% in cash and 70% through Bank Guarantee. The appellants pleaded that no opportunity was given to them for conducting personal hearing and therefore, there is violation of principles of natural justice. On the aforementioned grounds, the appellants prayed that the order of the Appellate Tribunal be set aside and grant 100% waiver of the pre-deposit of penalty and direct the Appellate Tribunal to hear the appeal without insisting on pre-deposit of penalty.
8. Learned counsel for the appellants argued that the provisions of Section 3 (d) of the Act are not applicable to the appellant-B.Sanjay as he was not involved in any of the activities of M/s.Vasavi Impex. The statement of appellant-T.V. Madhusudhan Rao does not disclose about the involvement of appellant-B. Sanjay in the transactions of M/s.Vasavi 6 RY,J CMSA_32_&_33_2014 Impex. The appellant-B.Sanjay is not aware of any payments in contravention of provisions of the Act. While so, the Directorate of Enforcement relied upon the documents relating to the year 2006, when M/s.Vasavi Impex was established in the year 2007. The contemporaneous imports were made at lower prices than those declared by M/s.Vasavi Impex. Even the domestic sale price of M/s.Vasavi Impex was more than the prices at which the other importers sold the identical goods. The allegations made by the Directorate of Enforcement are not corroborated with material evidence to bring home culpability with respect to allegation of undervaluation of imports or payment through illegal channels. The document dated 01.09.2007 which contains actual prices available in the files recovered from the appellant-T.V. Madhusudhan Rao was ignored. It is further argued that the Enforcement Directorate alleges payment of Indian currency by the appellants to one Prakash of Begum Bazar for onward payment to one Hukum at Chennai for onward payment to the China suppliers through hawala means. However, there is no evidence on record to establish the transaction of money from Prakash to Hukum to China suppliers. It is argued that only when there is evidence to show payment to China suppliers through hawala means, the allegation against the appellants can be proven. Since there is no evidence on record, it is argued that the penalty ordered by the Adjudicating Authority and 7 RY,J CMSA_32_&_33_2014 directions of the Appellate Tribunal to deposit 30% of the same in cash and providing Bank Guarantee for rest of the 70% is unsustainable.
9. In support of their case, learned counsel for the appellants relied upon the judgment of Bombay High Court in Vaseem Iqbal Kapadia v. Union of India 1 , wherein it is held that the direction to deposit total amount of penalty and to furnish bank guarantee for the balance of the sum adjudicated and demanded, in effect and in substance means denial of stay.
10. Further, in Virender Kumar Yadav v. Union of India 2, the Delhi High Court held that the Tribunal while considering any application for waiver of deposit is to take into account firstly the existence of prima facie case. It is further held that the Court can exercise its jurisdiction to grant waiver when the pre-deposit can cause undue hardship and therefore, directed for complete dispense with from pre-deposit of any amount of penalty for hearing of the appeal.
11. Reliance is placed by the learned counsel for the appellants in the case between ND Investments v. Union of India 3 of Bombay High Court, wherein it is held that imposition of a condition and of cash deposit of 40% of the amount awarded and imposed as penalty and giving Bank Guarantee 1 2015 (7) TMI 301- BHC 2 2009 (8) TMI 622 - DHC 3 2015 (8) TMI 236- BHC 8 RY,J CMSA_32_&_33_2014 of 60% for the balance, in the given facts and circumstances and peculiar to these cases, does not meet the ends of justice.
12. In M/s. Union Enterprises v. Union of India 4, the Calcutta High Court held that if sustainability of the adjudicating order is itself in doubt then dispensation, on ground of undue hardship should be granted. Likewise, in Priya Shah v. Enforcement Directorate 5 , High Court of Delhi held that when no material is placed to establish that the appellant actually operated the account in question, as such the matter was remanded back to the Tribunal to hear the appeal without insistence of the deposit of penalty.
13. Further, reliance is placed on Mohinder Kakar v. Assistant Director of Enforcement 6, the said judgment is not applicable to the facts of the present appeals as in the said matter the subject matter is whether where charge is based on valuation of any imported item, that valuation has to be based on competent evidence so as to substantiate charge and it cannot be a matter of statement of person proceeded against or of any other person. Reliance is also placed on the judgment in the case of Union of India v. Adani Exports 7, the same is also not applicable because the said 4 2014 (5) TMI 93- CHC 5 MANU/DE/1235/2009 6 [2000] 112 TAXMAN 602 (FERAB) 7 2007 (11) TMI 18 - SC 9 RY,J CMSA_32_&_33_2014 matter is about refund of confiscated amount and the present appeals are filed seeking waiver of the pre-deposit. The judgment in Mohtesham Mohd. Ismail v. Special Director, Enforcement Directorate 8 , relied upon by the learned counsel for the appellants is also not applicable as the issue dealt with therein is about Special Director appointed under the Act can himself prefer appeal before the High Court against the order passed by the Tribunal/Board.
14. Learned counsel for the appellants lastly relied upon the judgment in M/s. Bathina Technologies (India) Ltd., v. Special Director of Enforcement 9, wherein the High Court of Andhra Pradesh at Amaravati, held that a reading of Section 19 of the FEMA shows that the considerations for dispensing with pre-deposit under this provision is different from the similar relief under the other enactments. It is further held that it would be competent for the Court in exercise of its jurisdiction to grant waiver of pre-deposit since in such a case requiring a pre-deposit itself would amount to undue hardship. Having regard to the facts of the said case, pre-deposit was dispensed with subject to execution of undertaking before the appellate authority within eight weeks from date of the order.
8 2007 (10) TMI 273- SC 9 C.M.S.A.No.7 of 2015, decided on 07.05.2025.
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15. Learned counsel for the respondent argued that the Adjudicating Authority has considered case of both the parties by giving opportunity to both the appellants to put-forth their respective defence and only thereafter, passed the order imposing penalty. Similarly, the Appellate Tribunal considered the contentions of the appellants and passed the impugned order directing the appellants to deposit 30% cash and to furnish Bank Guarantee of rest of 70% penalty amount respectively. Hence, interference by this Court is unwarranted.
16. In support of his contentions learned counsel for the respondent relied upon the judgment of High Court of Delhi in Special Director of Enforcement v. Anil Agarwal 10, wherein it is held that the question which Court has to consider is the correctness and propriety of the Tribunal's impugned order granting complete exemption from the requirement of pre- deposit which is otherwise mandatory. In the said judgment, reference is made to the judgment of the Hon'ble Supreme Court of India in Benara Valves Ltd. v. CCE 11, Monotosh Saha v. Special Director, Enforcement Directorate12 and Union of India v. Adani Exports Ltd. 13, wherein it is held that importance of respecting the legislative mandate of pre-deposit, of 10 WP (C)No.17467 of 2006 and batch, decided on 31.03.2009 11 (2006) 13 SCC 347 12 2008 (11) SCALE 603 13 2007 (13) SCC 207 11 RY,J CMSA_32_&_33_2014 assessed, or penal amounts, wherever prescribed, as preconditions for appellate remedies. Further, it is held that the structure of several statues granting discretion to the tribunal or appellate bodies, in such instances appears to be driven by the logic of existence of undue hardship.
17. Further reliance is placed on the judgment of Bombay High Court in Rajkumar Shivhare v. Union of India 14, wherein it is held that ordinarily a writ petition against the order of the Tribunal on an application for waiver of pre-deposit would not be maintainable. Further, reference is made to the judgment of the Hon'ble Supreme Court of India in Ketan V. Parekh 15, wherein it is held as follows:
"27. In this context, reference can usefully be made to the judgment of this Court in Benara Values Ltd. v. Commissioner of Central Excise (2006) 13 SCC 347. In that case, a two Judge Bench interpreted Section 35-F of the Central Excise Act, 1944, which is pari materia to Section 19(1) of the Act, referred to the judgments in Siliguri Municipality v.
Amalendu Das (1984) 2 SCC 436, Samarias Trading Co. (P) Ltd. v. S. Samuel (1984) 4 SCC 666, Commissioner of Central Excise v. Dunlop India Ltd. (1985) 1 SCC 260 and observed:
"Two significant expressions used in the provisions are "undue hardship to such person" and "safeguard the interests of the Revenue". Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interests of the Revenue have to be kept in view. As noted above there are two important expressions in Section 35-F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established 14 FERA Appeal No.18 of 2012, decided on 15 Civil Appeal No.10301 of 2011, dated 29.11.2011 12 RY,J CMSA_32_&_33_2014 by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka that under Indian conditions expression "undue hardship" is normally related to economic hardship. "Undue"
which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.
For a hardship to be "undue" it must be shown that the particular burden to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it. The word "undue" adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
The other aspect relates to imposition of condition to safeguard the interests of the Revenue. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue.""
18. The entire gamut of facts of the case show that the appellant- B.Sanjay is proprietor of M/s.Vasavi Impex and he has given authorization to appellant-T.V.Madhusudhan Rao to run day to day activities of the proprietorship concern i.e., appellant-T.V.Madhusudhan Rao is the authorized signatory of M/s.Vasavi Impex. Both the appellants have not disputed with the aforementioned stand taken by them respectively. However, on the basis of the complaint of the Assistant Director, Directorate of Enforcement, Hyderabad Zonal Office, show-cause notice 13 RY,J CMSA_32_&_33_2014 dated 23.11.2009 in File No.T-4/5-HYD/2009 (SCN-II) was issued to both the appellants. Thereafter, proceedings were initiated before the Adjudicating Authority and opportunity was given to both the appellants to appear before the Adjudicating Authority to put-forth their respective defence. On the basis of the statements given by appellant- T.V.Madhusudhan Rao coupled with documents seized during the search in the residential premises of appellant-T.V.Madhusudhan Rao, the Adjudicating Authority held that both the appellants have indulged in under valuation of import goods i.e., stone cutting tools by showing 10% to 25% less of the actual value. It is held that the said findings is not based on the statement of appellant-T.V.Madhusudhan Rao, but is based on the statement which is inconformity with the documents at page 5 and 15 of the file marked 'b' seized from residence of appellant-T.V.Madhusudhan Rao. The facts revealed by the appellant-T.V.Madhusudhan Rao corresponded with the contents of the documents seized during search.
19. The missing links are that the person named Prakash, who was in Begum Bazar and who was in contact with one Hukum in Chennai were not identified. Further, there is no evidence on behalf of the overseas supplier about actual prices of the stone cutting tools. However, on the basis of the statement of the appellant-T.V.Madhusudhan Rao and the 14 RY,J CMSA_32_&_33_2014 documents seized, it is held that the appellants herein have indulged in under valuation of imported goods and transfer of amounts through non- banking channels. Therefore, were found to have contravened provisions of the Act and as such penalty of Rs.55,00,000/- each was imposed and amount of Rs.5,00,000/- seized at the residence of appellant- T.V.Madhusudhan Rao was confiscated.
20. When an appeal was preferred along with stay petition before the Appellate Tribunal, the Appellate Tribunal considered whether there is prima facie case and undue hardship. Irrespective of the arguments made, according to the Appellate Tribunal, there was a question whether photocopies of the documents seized showing calculations which is at internal page 15 onwards can be relied upon for establishing as to whether the appellants indulged in use of non-banking channels for transfer of funds overseas in the conduct of business of import of stone cutting tools by M/s. Vasavi Impex and whether without arraying the company as a party, the appellants can be held liable for the alleged contravention of the provisions of the Act. On the basis of the aforementioned grounds, it is held that there is prima facie case. However, with respect to financial status to make prior deposit, it is stated that copies of Income Tax Returns filed show that the business of the company was closed in the year 2008 and therefore, the 15 RY,J CMSA_32_&_33_2014 appellants may suffer great hardship if they are not granted waiver to limited extent and therefore, the impugned order dated 20.08.2014 is passed.
21. The facts considered by the Appellate Tribunal while adjudicating stay petition are that there is prima facie case on behalf of the appellants and that M/s.Vasavi Impex was closed in the year 2008. When the proprietary concern is closed in the year 2008 and the business is no longer functional directing the appellants to make pre-deposit of penalty in their individual capacity would definitely cause undue hardship. However, as per guidelines laid down by the Hon'ble Supreme Court, undue hardship of the individuals has to be considered, but vis-à-vis recovery of penalty as and when the appeal is disposed of and the appellants are found liable to pay the penalty.
22. In the circumstances, since the proprietary concern i.e., M/s.Vasavi Impex has been closed down considering the individual risk of the appellants modifying the orders passed by the Appellate Tribunal would meet the ends of the justice. Considering the facts and circumstances of this case, this Court is of the considered opinion that directing the appellants to furnish Bank Guarantee towards 50% of the penalty amount and waiving deposit of rest of the 50% would meet the ends of justice. 16
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23. In the result, the Civil Miscellaneous Second Appeals are partly allowed by setting aside the order dated 20.08.2014 passed by the Appellate Tribunal by waving of pre-deposit of 50% of the penalty amount and directing the appellants to furnish Bank Guarantee for remaining 50% of the penalty amount each within one month from the date of receipt of copy of this order. Consequently, the recovery of penalty amount against the appellants shall remain stayed till disposal of the appeals before the Appellate Tribunal. There shall be no order as to costs. Miscellaneous applications, if any, pending shall stand closed.
_________________ RENUKA YARA, J Date: 21.11.2025 GVR 17