Madras High Court
Union Of India vs Maars Software International Ltd on 18 April, 2017
Equivalent citations: AIR 2017 (NOC) 961 (MAD.)
Author: S.Manikumar
Bench: S.Manikumar, D.Krishnakumar
In the High Court of Judicature at Madras
Pronounced on : 18.04.2017
C O R A M :
The Honourable Mr.Justice S.Manikumar
and
The Honourable Mr.Justice D.Krishnakumar
Civil Miscellaneous Appeal Nos.1997 & 1998 of 2010
and
M.P. No. 1 of 2010 in CMA Nos.1997 & 1998 of 2010
and
W.P. No. 15793 of 2010
CMA Nos.1997 & 1998 of 2010 :
Union of India
rep. By the Director of Enforcement
Enforcement Directorate
6th Floor, Lok Nayak Bhavan
Khan Market
New Delhi. ... Appellant in both CMAs
Vs.
1. Maars Software International Ltd,
3rd Floor, East Coast Chambers
92, G.N. Chetty Road
T.Nagar, Chennai 600 017. ... Respondent in
CMA No.1997/2010
2. Mr. T. Varadharajan
Managing Director
Maars Software International Ltd,
3rd Floor, East Coast Chambers
92, G.N. Chetty Road
T.Nagar, Chennai 600 017. ... Respondent in
CMA No.1998/2010
Prayer: Appeal filed under Section 35 of Foreign Exchange Management Act 1999, against the common order dated 07.01.2010 in Appeal Nos. 166 & 176 of 2008, passed by the Appellate Tribunal for Foreign Exchange, New Delhi, directing the Enforcement Directorate to refund the amount of pre-deposit within 30 days from the date of receipt of the order.
For appellant : Mr. M. Dhandapani, Spl. Counsel
for Enforcement Directorate
For respondents : Mr.
W.P. No. 15793 of 2010
1. Maars Software International Ltd,
3rd Floor, East Coast Chambers
92, G.N. Chetty Road
T.Nagar, Chennai 600 017.
2. Mr. T. Varadharajan
Managing Director
Maars Software International Ltd,
3rd Floor, East Coast Chambers
92, G.N. Chetty Road
T.Nagar, Chennai 600 017. ... Petitioners
Vs.
1. The Union of India
rep. by the
Secretary to Govt. of India
Ministry of Finance
Department of Revenue
North Block,
New Delhi 110 001.
2. The Special Directorate
Directorate of Enforcement
Government of India
Lok Nayak Bhavan
6th Floor, Khan Market
New Delhi 110 011.
3. The Deputy Director
Directorate of Enforcement
Mittal Chambers
2nd Floor, Nariman Point
Mumbai 400 021.
4. The Assistant Director
Directorate of Enforcement
Mittal Chambers
2nd Floor, Nariman Point
Mumbai 400 021.
5. The Appellate Tribunal for
Foreign Exchange
4th floor, Janpath Bhavan
Janpath, New Delhi. ... Respondents
Prayer: Writ Petition is filed under Article 226 of the Constitution of India, praying to issue a Writ of Mandamus, directing the respondents to refund the pre-deposited penalty amount of Rs.1 crore to the 1st petitioner and Rs.25 lakhs to the 2nd petitioner along with due interest and comply with the order dated 07.01.2010 of the 5th respondent Tribunal and pass further orders.
For appellant : Mr.Veerasik Kumaragiri
For respondent : Mr.
J U D G M E N T
(Judgment of the Court was made by D. Krishnakumar,J) The Revenue has filed the Civil Miscellaneous Appeals Iin C.M.A. No.1997 and 1998 of 2010 before this Court, against the common order dated 07.01.2010 in Appeal Nos. 166 & 176 of 2008, passed by the Appellate Tribunal for Foreign Exchange, New Delhi and directing the Enforcement Directorate to refund the amount of pre-deposit within 30 days from the date of receipt of the order. The Company has filed the Writ Petition in W.P. No.15793 of 2010, seeking for a direction to the respondents to refund the pre-deposited penalty amount of Rs.1 crore and Rs.25 lakhs to the company/ 1st and 2nd petitioners respectively, along with due interest and comply with the order dated 07.01.2010 of the 5th respondent Tribunal and pass further orders. As the issue involved arises from the same order, the appeals and writ petition are taken up for disposal, all together.
2. The facts of the case are as follows :-
M/s. Maars Software International Limited, having its registered office at Chennai, is engaged in the business of software exports and is also specialised in the area of Enterprises Resources Planning (ERP) implementation and has been offering services to both domestic and overseas customers. The company has been earning a substantial amount of foreign exchange for the country, by exporting software solutions to various countries for the over years. In the year 2001, Mumbai branch of the Enforcement Directorate started investigations against the company under Foreign Exchange Management Act, 1999 and summons were issued to Mr. T. Varadharajan, the then Managing Director of the company, who is the respondent in C.M.A No.1998 of 2010 and the 2nd petitioner in W.P.No.15793 of 2010 and statement was recorded. On the basis of the statement, the Assistant Director, Directorate of Enforcement, Mumbai/ 4th respondent in W.P.No.15793 of 2010, filed a complaint before the Special Director of Enforcement, under the provisions of Section 16(3) of Foreign Exchange Management Act, 1999, alleging that the investigation conducted by him reveals that an amount of Rs.19,33,90,485/- was pending realization against the exports effected by the company. The party-wise details of export proceeds outstanding for the period during 2000 to 2002 is detailed below :-
a)M/s. Maars Software Intl. Ltd., U.K - Rs. 5,72,79,784/-
b)M/s. Hitech Software Inc. USA - Rs. 10,31,11,442/-
c)M/s. Mascon Global Inc. USA - Rs. 93,67,085/-
d)M/s. MSIL, Dubai Branch - Rs. 1,78,42,481/-
e)M/s. MSIL, Chicago - Rs. 57,89,693/-
------------------------
- Rs.19,33,90,485/-
-------------------------
Hence, the department proceeded against the company towards the alleged contravention of Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 and also Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 and the Special Director of Enforcement, Mumbai issued a Show Cause Notice dated 11.06.2003 to the company, as to why adjudication proceedings, as contemplated under Section 13 of the Act should not be held against them, for the alleged contravention of provisions of the FEMA Act and the regulations made therein. Questioning the jurisdiction of the Special Director of Enforcement, Mumbai, and denying the charges, the company filed its objections dated 01.09.2003. But, the same was not considered and the Special Director of Enforcement, Mumbai proceeded with the matter.
3. Therefore, the company filed W.P.Nos. 1171 & 1172 of 2004 praying to prohibit the Special Director of Enforcement, Mumbai from taking further steps in the matter. By order dated 08.11.2004, this Court disposed of the writ petitions, transferring the proceedings to the Special Director of Enforcement, Delhi for further adjudication, without prejudice to the rights and contentions of either parties. The Special Director of Enforcement, Delhi has been vested with the jurisdiction for cases relating to Chennai Zone, as per the department notification dated 01.06.2000. Pursuant to the order of this Court, proceedings were transferred to the Special Director of Enforcement, Delhi and both the parties placed their materials and advanced their arguments before him. After hearing the submissions made by the parties and on considering the materials on record, the Special Director of Enforcement, Delhi passed an order dated 13.03.2008, holding that the appellant company is guilty of contravention of Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 and also read with Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 and imposed the following penalties, payable by the company :-
32. I impose penalty of Rs.4,00,00,000/- [Rupees Four Crores only] on M/s. Maars Software International Ltd., Chennai under Section 13 of the FEMA 1999.
33. I also impose penalty of Rs.1,00,00,000/- [Rupees One Crore only] on Shri T.Varadharajan, Managing Director M/s.Maars Software International Ltd., Chennai under Section 13 of FEMA 1999.
34. The penalty imposed should be deposited in the office of the Deputy Director, Enforcement Directorate, Janmabhoomi Chambers, 1st floor, Walchand Hirachand Marg., Mumbai -400 001, in the form of demand draft in favour of the Pay & Accounts Officer, Department of Revenue, Department of Revenue, New Delhi within 45 days of the receipt of this order.
4. Challenging the said order of penalty, the company filed an appeal before the Appellate Tribunal for Foreign Exchange, in Appeal Nos.166 and 176 of 2008, on the following among other grounds :-
1.The order impugned has been passed mechanically, based on the complaint and investigation conducted by the Assistant Director of Enforcement Directorate, Mumbai. As such the investigation is void ab-initio and non est in the eyes of law.
2.No enquiry was conducted by the Investigating Officer nor any records are available to show that the company is responsible or instrumental in non-realisation of dues.
3.All the reasonable steps have been taken by the company to realise the dues from overseas customers and repatriate to India such foreign exchange.
4.Since no amount was due in foreign exchange, there was no contravention of aforesaid provisions and so, there is no occasion to impose any penalty upon the company by the Special Director.
5.There is no contravention under FEMA or under any regulations, which authorises the competent authority to levy additional penalty separately upon such person.
6.The Special Director did not adhere to the principles of natural justice and ignored the material facts and principles of law.
5. The Appellate Tribunal, after considering the submission of the parties concerned, by order dated 07.01.2010, came to the conclusion that the department has failed to bring on record the material evidence against the company, for contravention of FEMA 1999 and the impugned proceedings has proceeded on wrong assumption, quashed the penalty order impugned therein and allowed the appeals. It further directed the Enforcement Directorate to refund the amount of pre-deposit within 30 days from the date of receipt of the order therein. Against allowing the appeals filed by the company, the department has filed the Civil Miscellaneous Appeals in C.M.A. Nos. 1997 and 1998 of 2010 before this Court and since the pre-deposit has not been refunded by the department, the company has filed the W.P. No.15793 of 2010.
6. Learned counsel for the department would contend that the company by their letter dated 16.04.2003 submitted transcript of accounts of its Charlotte Branch office, along with the party wise details of export proceeds outstanding during the period 2000 to 2002, as extracted above. However, the company failed to produce copies of export invoices cum softex (software export detail) forms, against the said amount from their overseas customers. Hence, show cause notice dated 11.06.2003 was issued to the company, for non-realisation of export proceeds Rs.19,33,90,485/-, in contravention to Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 and also read with Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 and further read with Section 42(1) of FEMA 2000. Further, it is submitted that queries were also raised by the department relating to joint venture/ wholly owned subsidiaries. To that effect, the company had replied that a wholly owned subsidiary company in USA was started in the year 1996 and one joint venture company in UK was started in 1999. The wholly owned subsidiary company in USA was fully operational till early year of 2001 and thereafter the entire business are looked after by Chicago branch office. The joint venture company in UK is still operative and that 98% of equity is being held by MSIL, Chennai and the remaining 2% equity is held by 3 British nationals. A team of 2 officials of Mumbai Zonal office of the department, was deputed to Chennai to conduct investigation on the show cause notice and the company furnished information to the Enforcement department. Whileso, the company challenged the investigation conducted by the Bombay Zonal Office in W.P. Nos. 1171 and 1172 of 2004, on the ground of its jurisdiction. Based on the order dated 28.01.2004, passed by this Court in the aforesaid writ petitions, the said investigation was transferred to the Special Director of Enforcement I, New Delhi, for further adjudication.
7. Learned counsel for the department, further submitted that, under the provisions of FEMA Act, there is no bar to take up cases for investigation, by any Zonal Office, in so far as the statutory scheme of the Act is concerned and that the provisions of FEMA do not provide any jurisdictional limit for conducting investigation. Further, it is submitted that so far as the investigation is concerned, the Enforcement Director has power to investigate all over the country, with effective assistance of all the branches of either their department or other allied departments, which have useful information and effective investigation, in order to safeguard the foreign exchange. Therefore, as far as jurisdiction is concerned, the contention of the company is no longer a valid ground, since the investigation has been conducted only by the Bombay Zonal office in this case, which is well within their powers and therefore the show cause notice dated 11.06.2003 issued by the then Special Director of Enforcement, Mumbai Zonal Office, on the basis of the complaint filed under Section 16(3) of the Act, is maintainable. Based on the above facts and as per the order of this Court, the Enforcement Directorate, New Delhi commenced the adjudication proceedings, after giving an opportunity of hearing to the parties and final order was passed on 13.03.2008, holding that the company is guilty of contravention of Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 and also read with Regulation 9 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000 and imposed a penalty of Rs.4,00,00,000/- against the company and Rs.1,00,00,000/- against the Managing Director under Section 13 of the FEMA, 1999.
8. Learned counsel further submitted that the Appellate authority, namely, the Tribunal, erroneously allowed the appeals filed by the company against the penalty order, without considering the provisions of the FEMA Act and by overlooking Section 42 of Act. It is urged by the learned counsel for the department that Section 42 of the Act clearly states that the amount representing the full export value of goods or software exported shall be realised and repatriated to India, within six months from the date of export. The company has not complied with the provisions of Section 42 and hence the order passed by the Tribunal is liable to be set aside.
9. Per contra, learned senior counsel appearing for the company vehemently argued that the provisions under Section 8 of FEMA, 1999, could be invoked against the company only, where any foreign exchange is due or has accrued to the contravener and on failure to take all reasonable steps to realise and repatriate such foreign exchange to India. The department has failed to bring any material on record establishing the aforesaid, in the instant case. It is contended by the learned senior counsel that the department had also failed to bring any material on record to establish or show that any such amount is due to the company from any foreign customer and merely because the individual of the company did not say so earlier, cannot be a ground to disbelieve and discard the contention. As far as the statement made by Mr.T. Varadharajan, the Managing Director of the company, who is also a party to the proceedings, is not a voluntary statement but was recorded by force, pressure and coercion by the officials of the Enforcement Directorate. It is further contended that the Tribunal has rightly come to a conclusion that the department has not brought on record any material to show that the company has rendered services to any foreign customers of Dubai or Chicago. Further it is submitted that involuntary confessional statements has to be corroborated by independent evidences and the court should be satisfied that the said statements are voluntary and true. The Tribunal has rightly decided to issue orders in favour of the company, being convinced that the company has brought sufficient evidences to show that it has taken all reasonable steps to realise its dues from M/s. MSIL, UK and the company have realised and repatriated the entire amount due in US dollars from M/s. Hitech Software Inc., USA and M/s. Mascon Global Inc., USA. As regards the alleged dues stated to be receivable by M/s/ MSIL, Dubai and Chicago units, the company cannot be held guilty in the absence of any evidence establishing the existence of any such dues. By recording the above reasons, the Tribunal has rightly allowed the appeals in favour of the company and has set aside the order passed by the Adjudicating Authority. Therefore, there is no ground warranting interference with the orders passed by the Tribunal.
10. Heard learned counsel for both the parties and perused the material available on record.
11. At the time of admission of the appeals, the following substantial question of law was framed :-
Whether the company had failed to take all reasonable steps within the prescribed period, to release and repatriate to India, any foreign exchange which is due or accrued to it and in failure to do so, the department shall proceed, as per Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000 ?
12. The department by letter dated 16.04.2003 submitted transcript of accounts of its Charlotte Branch office, along with the party wise details of export proceeds outstanding during the period 2000 to 2002, totalling to a sum of Rs.19,33,90,485/-, as hereunder :-
a)M/s. Maars Software Intl. Ltd., U.K - Rs. 5,72,79,784/-
b)M/s. Hitech Software Inc. USA - Rs. 10,31,11,442/-
c)M/s. Mascon Global Inc. USA - Rs. 93,67,085/-
d)M/s. MSIL, Dubai Branch - Rs. 1,78,42,481/-
e)M/s. MSIL, Chicago - Rs. 57,89,693/-
------------------------
- Rs.19,33,90,485/-
-------------------------
On the basis of the aforesaid letter, the company failed to produce copies of export invoices cum softex (software export detail) forms, against the said amount shown as outstanding. By letter dated 12.05.2003, the company had stated that most of their exports were executed on-site at the customers site. Further stating that the exports have not provided the copies of the export invoices. The said fact was also conveyed by its banker, namely, Bank of Baroda, Chennai Corporate Banking Branch by its letter dated 11.04.2003. Hence, the show cause notice dated 11.06.2003 was issued to the company, under Section 8 of the Act, read with Regulation 3 of the Foreign Exchange Management (Realization, Repatriation and Surrender of Foreign Exchange) Regulations 2000. Section 8 of the Act, reads as follows :-
Save as otherwise provided in this Act, where any amount of foreign exchange is due or has accrued to any person resident in India, such person shall take all reasonable steps to realise and repatriate to India such as foreign exchange within such period and in such manner as may be specified by the Reserve Bank Regulation No. 3 of Foreign Exchange Management [Realisation, Repatriation and surrender of Foreign Exchange] Regulation 2000, reads, A person resident in India to whom any foreign exchange is due or has accrued shall, save as otherwise provided under the provisions of the Act, or the rules and regulations made thereunder, or with the general or special permission of the Reserve Bank, take all reasonable steps to realise and repatriate to India such foreign exchange, and shall in no case do, or refrain from doing anything, or take or refrain from taking any action, which has the effect of securing :-
a) that the receipt by him of the whole or part of that foreign exchange is delayed; or
b) that the foreign exchange ceases in whole or in part to be receivable by him.
Section 42 of FEMA, 1999 is extracted below :
Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
13. According to the department, the investigation revealed that a sum of Rs.19,33,90,485/- was pending realisation against the exports effected by the company, at the time of issuing show cause notice. Therefore, for violation of the provisions of FEMA, action was initiated against the company. Perusal of the above stated letter dated 16.04.2003, clearly reveals that the company had furnished the partywise particulars for the outstanding dues, for the period 2000 2002. The company had stated that M/s. Maars Software International Ltd., UK is closed and having no operation and that the Reserve Bank of India who is the supreme authority as far as FEMA is concerned, in respect of granting permissions, waiver, write off etc., had already been informed that a sum of Rs.5,72,79,584/- was not realizable. To the aforesaid statement of the company, the adjudicating authority pointed out that in response to the letter dated 28.07.2005 sent to the Reserve Bank of India by Mr. T.Varadharajan, the Managing Director of the company, the Reserve Bank vide its letter dated 18.07.2005 had sought the company as to whether they had approached the Central Office with the documents stated in the letter for closure. The adjudicating authority concluded stating that no where the Reserve Bank had stated that the outstanding export is written off and so the reply of the company was rejected. As seen from the orders of the Tribunal, there is no finding to the extent that the company has obtained any order under Section 42 of FEMA. Therefore, the adjudicating authority has not considered the letter of the company dated 28.07.2005.
14. The record reveals that there is an export outstanding amount of Rs.19,33,90,485/- by the respondent company. The department have not accepted the contention of the company that they have taken all reasonable steps to realise its dues from M/s. MSIL, UK and the company have realised and repatriated the entire amount due in US dollars from M/s. Hitech Software Inc., USA and M/s. Mascon Global Inc., USA. As regards the alleged dues stated to be receivable by M/s/ MSIL, Dubai and Chicago units, the company cannot be held guilty in the absence of any evidence establishing the existence of any such dues.
15. Reading of the above said provisions would clearly reveal that the company should take all reasonable steps to release and repatriate to India, the entire amount due in US dollars within such period and in such manner as stated by the Reserve Bank of India. In the case on hand, the department states that the company had obtained no permission from the Reserve Bank of India, under Section 42 of FEMA. Therefore, any violation to section 42 of the Act, the provisions of FEMA would attract against the company. No material has been produced before this Court as to what steps have been taken to realise the amount, within the stipulated period. The company was not able to place any material to show the reason for the failure to realise the said amount within the stipulated period, or any permission for extension of period has been obtained from the Reserve Bank of India, as contemplated under Section 42 of the FEMA. In the absence of any such orders from the Reserve Bank of India, the contention of the company cannot be accepted. Therefore, as the company has not complied with the provisions of FEMA, the action initiated by the department, for violation of FEMA is in consonance with the provisions of law. In view of the above, the Tribunal has lost its sign to consider the above said provisions of law, in allowing the appeals. Therefore, we have no hesitation to interfere with the orders passed by the Tribunal and hence the same is liable to be set aside.
16. In view of the above discussions and decisions,we are of the view that the order dated 07.01.2010 passed by the Appellate Tribunal for Foreign Exchange in Appeal Nos. 166 and 176 of 2008 are set aside and the order passed by the Original Authority is restored.
17. Accordingly, the Civil Miscellaneous Appeal Nos. 1907 and 1908 of 2010 is allowed and consequently, the Writ Petition No.15793 of 2010 is dismissed. Consequently, the connected M.P is closed. No order as to costs.
(S.M.K.,J) (D.K.K.,J)
18.04.2017
Index: yes
avr
To
1. The Union of India
rep. by the
Secretary to Govt. of India
Ministry of Finance
Department of Revenue
North Block,
New Delhi 110 001.
2. The Special Directorate
Directorate of Enforcement
Government of India
Lok Nayak Bhavan
6th Floor, Khan Market
New Delhi 110 011.
3. The Deputy Director
Directorate of Enforcement
Mittal Chambers
2nd Floor, Nariman Point
Mumbai 400 021.
4. The Assistant Director
Directorate of Enforcement
Mittal Chambers
2nd Floor, Nariman Point
Mumbai 400 021.
5. The Appellate Tribunal for
Foreign Exchange
4th floor, Janpath Bhavan
Janpath, New Delhi.
S.MANIKUMAR,J
a n d
D.KRISHNAKUMAR,J
avr
C.M.A.Nos.1997 & 1998 of 2010
and
M.P. No. 1 of 2010 in
CMA Nos.1997 & 1998 of 2010
and
W.P. No. 15793 of 2010
18.04.2017
http://www.judis.nic.in