Madhya Pradesh High Court
Suruchi Electronics Pvt. Ltd. vs Union Of India on 26 February, 2022
Author: Rohit Arya
Bench: Rohit Arya
1 WP.12669.2021
The High Court of Madhya Pradesh
WP.12669.2021
Suruchi Electronics Pvt. Ltd. & Anr.
Vs.
Union of India & Ors.
Gwalior, dated 26.02.2022
Shri Divyakant Lahoti and Shri Devmani Bansal, learned
counsel for the petitioners.
Shri Praveen Newaskar, learned Assistant Solicitor General
for respondent/Union of India.
Petitioners-noticees are before this Court taking exception to the impugned show-cause notice dated 08.04.2021 and 28.06.2021 issued under Rule 4(1) and 4(3) of Foreign Exchange Management (Adjudication Proceedings And Appeal) Rules, 2000 in the context of an enquiry contemplated under Section 16(3) of the Foreign Exchange Management Act, 1999 on the basis of complaint by an Authorized officer as provided for under the said sub-section.
2. Regard being had to the increase in the country's foreign exchange reserves, growth in foreign trade, rationalization of tariffs, current account convertibility, liberalization of Indian Investments abroad, increased access to external commercial borrowings by Indian corporates and participation of foreign institutional investors in country's stock markets, the present Foreign Exchange Management Act, 1999 (for short "FEMA") has been enacted. Chapter II deals with regulation and 2 WP.12669.2021 management of foreign exchange [Section 3 to 9]. Chapter III deals with authorized person [Section 10 to 12].
Chapter IV deals with contravention and penalties [Section 13 to 15]. Section 13 provides if any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty upto thrice the sum involved in such contravention where such amount is quantifiable, or up to Rs. Two Lakhs where the amount is not quantifiable etc. Section 14 provides for enforcement of the orders of Adjudicating Authority. Section 14A provides for power to recover arrears of penalty. Section 15 provides for power to compound contravention.
Chapter V deals with adjudication and appeal [Section 16 to 35]. Section 16(1) provides for appointment of Adjudicating Authority for adjudication under Section 13 by the Central Government. The Adjudicating Authority, after giving the person, alleged to have committed contravention under Section 13, against whom a complaint has been made under sub-section (3), a reasonable opportunity of being heard, may hold an enquiry for the purpose of imposing any penalty.
Sub-section (3) of Section 16 provides that no Adjudicating Authority shall hold an enquiry under sub-section (1) except upon 3 WP.12669.2021 a complaint in writing made by any officer authorized by a general or special order by the Central Government.
Sub-section (4) provides that the said person may appear either in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority.
Sub-section (6) empowers the Adjudicating Authority to deal with the complaint under sub-section (2) and as far as possible within one year from the date of receipt of the complaint.
The Adjudicating Authority is required to record reasons periodically in writing for not disposing of the complaint within the said period.
Section 17 provides for appeal to Special Director (Appeals) against the orders of the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement.
Section 19 provides for appeals to Appellate Tribunal against the order made by an Adjudicating Authority other than those referred to in sub-section (1) & (2) of Section 17, or the Special Director (Appeals) and Section 35 provides for appeal to the High Court against the order of Appellant Tribunal.
In exercise of the powers conferred by section 46 read with sub-section (1) of section 16, sub-section (3) of section 17 and sub-section (2) of section 19 of the FEMA, the Central Government has made rules for holding enquiry for the purpose of 4 WP.12669.2021 imposing penalty and appeals under Chapter V of FEMA. The Rules are called as Foreign Exchange Management (Adjudication Proceedings And Appeal) Rules, 2000 (for brevity "2000 Rules").
3. It appears that a detailed complaint under Section 16(3) of the FEMA has been filed before the Deputy Director, Directorate of Enforcement, Ahmedabad Zonal Office, Ahmedabad, (Adjudicating Authority), by an authorized officer Shri Ashish Meena, Assistant Director, Directorate of Enforcement, Indore, Annexure P-15.
4. Based upon due deliberations, a show-cause notice dated 08.04.2021 has been issued to the petitioners bringing to their notice that the said complaint has been filed in connection with the contravention of provisions of Sections 7(1)(a), 7(3) and 42 of the FEMA read with Regulation 16 of the Foreign Exchange Management (Export of Goods & Services) Regulations, 2000, committed by them.
Besides, the noticees have also been given to understand that prima facie the aforesaid case of contravention of the provisions of FEMA and the Rules & Regulations made thereunder is to the extent of Rs.3,88,62,188/- (Rupees Three Crores Eighty Eight Lacs Sixty Two Thousand One Hundred Eighty Eight Only). Therefore, the noticees were required to show cause in writing within 30 days of the receipt of the notice as to why adjudication proceedings as contemplated under Section 13 of the FEMA be not held against them in the manner as provided 5 WP.12669.2021 under Rule 4 of 2000 Rules and as to why penalty be not imposed against them under Section 13(1) of FEMA.
5. The Adjudicating Authority, in order to enable the noticees to show-cause, has not only served the copy of complaint along with the notice but also provided an opportunity of inspection of documents and other material at the office of the Joint Director, Directorate of Enforcement, 11 th Floor, Satya One, Nr. Helmet Circle, Opp. Manav Mandir, Drive-in Road, Ahmedabad. The same reads as under:
"4. In issuing this Show Cause Notice, reliance is placed, inter-alia on the aforementioned Complaint along with the relied upon documents, as listed in the Annexure to the Complaint. Original of the said relied upon documents shall be made available for inspection to the Noticees, or his authorized representatives at the office of the Joint Director, Directorate of Enforcement, 11th Floor, Satya One, Nr. Helmet Circle, Opp. Manav Mandir, Drive-in Road, Ahmedabad-380052, upon prior appointment, on any working day during office hours.
It is further provided under Clause 5 that:
5. The Noticees further informed that in case it is decided to hold adjudication proceedings, as aforementioned, they would be required to appear either in person or through Legal Practitioner/Chartered Accountant, duly authorized by them to explain and produce such documents or evidence, as may be useful for or relevant to the subject matter of enquiry, and in case, the Noticees fail, neglect or refuse to appear before the undersigned on the appointed date and time, the adjudication proceedings shall proceed against them 6 WP.12669.2021 ex- parte."
It appears that the petitioners chose not to respond and maintained inertia for considerably long time. For the first time, reply dated 17.06.2021 against show-cause notice was submitted expressing difficulty to file detailed reply owing to prevalent Covid-19 pandemic conditions and requirement of old records for filing reply.
It further appears that the Adjudicating Authority fixed the case of personal hearing in adjudication proceedings arising out of the show-cause notice dated 08.04.2021 (stated to have been received on 22.05.2021), vide communication dated 28.06.2021 received by the petitioners on 05.07.2021. A perusal thereof suggests that Adjudicating Authority decided to proceed with the adjudication as contemplated under Section 13 of FEMA, under sub-rule (3) of Rule 4 of 2000 Rules. The date of personal hearing was fixed as 20.07.2021 at 11:00 am. It was also given to understand that in case of failure, neglect or refusal to appear as required under the notice, the Adjudicating Authority may proceed with the adjudication proceedings after recording reasons for doing so.
6. Shri Lahoti, learned counsel, referring to the 2000 Rules submits that the respondent/authority while taking recourse to Rule 4 issuing the impugned show-cause notice dated 08.04.2021, in fact, disclosed its mind to proceed against the petitioners for purported contravention of provisions of 2000 Rules without even 7 WP.12669.2021 awaiting the reply to the notice. As such, the outcome of the proceedings after filing of reply shall be a fait accompli. Hence, the impugned notice cannot withstand the test of judicial scrutiny.
He invited attention of the Court to Rule 4 of 2000 Rules which provides for holding of inquiry. Under sub-rule (1), a notice is issued to the person requiring him to show-cause, within said period as is specified by notice but not less than 10 days from the date of service of notice, why an enquiry should not be held against him. The notice so issued must indicate the nature of the contravention alleged against the person. Sub-rule (3) provides that after consideration of the cause, if any, shown by said person, the Adjudicating Authority has to form an opinion if an enquiry is required to be held. Thereafter, for further enquiry, a notice is to be issued fixing a date for appearance of the person either personally or through his legal practitioner or a Chartered Accountant duly authorized by him.
It is submitted that the formation of opinion by the Authority is not an empty formality. Albeit subjective in nature, nevertheless the same has to be on the basis of relevant material. Learned for the petitioners relies upon the judgment of the Hon'ble Supreme Court to bolster his submissions viz. Barium Chemicals Ltd. and another Vs. Company Law Board and others reported in AIR 1967 SC 295.
He further submits that it is only after formation of the opinion upon the cause shown, that for the purpose of enquiry the 8 WP.12669.2021 date is required to be fixed by the Adjudicating Authority to explain to the person or his representative the contravention alleged to have been committed by said person indicating the provisions of the Acts, Rules, Regulations, Notifications, Directions, Orders or any condition as provided for under sub-rule
4. Thereafter, the Adjudicating Authority shall give an opportunity to said person to produce such documents or evidence as he may consider relevant to the enquiry as provided for under sub-rule 5.
In the instant case, after issuance of the impugned show- cause notice dated 08.04.2021 though the same was received on 22.05.2021 but reply could be filed on 17.06.2021 for the reasons stated in the reply, including the Covid-19 pandemic and the record required for filing the reply being more than 10 years' old with further prayer to extend the time to file comprehensive reply to the notice after laying hands on the relevant documents. The Authority without formation of the opinion reached the conclusion and has issued another notice fixing personal hearing under sub-rule (3) on 28.06.2021. As a result, on one hand, the petitioner is denied the opportunity of responding to the first show-cause notice with complete documentation and on the other hand he is subjected to further stage of enquiry which may lead to proceedings under Section 13 of the FEMA for imposition of penalty. Therefore, the procedure adopted by the Authority in issuance of impugned show-cause notice dated 08.04.2021 and the notice for personal hearing dated 28.06.2021 tantamount to 9 WP.12669.2021 infraction of regulated procedure as contemplated under Rule 4 of 2000 Rules.
While further elaborating his submissions, Shri Lahoti, learned counsel, submits that the enquiry contemplated under Rule 4 is of immense significance with serious consequences. Adherence to the procedure prescribed is sine qua non to the concepts of natural justice and rule of law. Learned counsel submits that if a particular act is to be done in the manner in which it is provided in the Statute, there is no other way to do the act other than the manner in which it is required to be done. He refers to the judgment of Hon'ble Supreme Court in the case of State of Uttar Pradesh Vs. Singhara Singh & Ors. reported in AIR 1964 SC 358. With the aforesaid submissions, learned counsel for the petitioner submits that the the impugned show- cause notice dated 08.04.2021 and the notice for personal hearing dated 28.06.2021 cannot be sustained. He also relies upon the judgment of the Hon'ble Supreme Court in the case of Natwar Singh Vs. Director of Enforcement And Another reported in (2010) 13 SCC 255.
7. Per contra, Shri Newaskar, learned Astt. Solicitor General, appearing for respondent/Union of India, submits that the instant case is of contravention of provisions of FEMA and the rules and regulations made thereunder, to the tune of Rs.3,88,62,188/- (Rupees Three Crores Eighty Eight Lacs Sixty Two Thousand One Hundred Eighty Eight Only).
10 WP.12669.2021 Learned counsel submits that as per the information petitioner-M/s Suruchi Electronics Pvt. Ltd. Bhind opened current account no.0123k26912060 with IndusInd Bank, Gwalior on 26.08.2008. The company was in the business of manufacturing of electrical and electronic products. The company received three remittances as export advance in the said account, out of which two export advances aggregating to Rs.277.14 lacs during the period 2010, remained unutilized. The bank asked the company to submit export documents against outstanding export advances but there was no response which raised the suspicion about the source of funds and genuineness of the purpose. Thereafter, a detailed enquiry was held with summons to the representatives of the company. Statement of Mr. Vishal Chand Bothra, one of the directors of the company who was in charge of and responsible for the export business of the company, was recorded as detailed in para 6(i) to 6(xi) of the return. For want of explanation and satisfactory evidence, it was found that M/s Suruchi Electronics Pvt. Ltd., Bhind failed to make the shipment of goods within one year from the date of receipt of advance payment amounting to US $ 8,49,916 (Rs.3,88,62,188/- approx) and contravened the provisions of Sections 7(1)(a), 7(3) and 42 of the FEMA read with Regulation 16 of the Foreign Exchange Management (Export of Goods & Services) Regulations, 2000.
In the aforesaid backdrop of facts, on a complaint made by the Authorized Officer under Section 16(3) of the FEMA based on 11 WP.12669.2021 complete facts, figures of objectionable transactions and violation of FEMA and the rules and regulations made thereunder, the Adjudicating Authority found the contravention of provisions of Sections 7(1)(a), 7(3) and 42 of the FEMA read with Regulation 16 of the Foreign Exchange Management (Export of Goods & Services) Regulations, 2000. Noticees were served with the copy of complaint along with the list of documents. Petitioners were called upon to show-cause as against adjudication proceedings under sub-rule (3) of Rule 4 of 2000 Rules. Along with the notice, not only the copy of the complaint was supplied but also the opportunity was extended to the petitioners to inspect the documents relied upon as detailed in Clause No.4 of the notice (supra). Hence, by no stretch of imagination, complaint of prejudice or violation of principle of natural justice can be made by the petitioner. Further, notice was received by the petitioner, on his own saying, on 22.05.2021. Instead of filing reply within 30 days, as was granted, reply was filed on 17.06.2021 (Annexure P-
16) after undue delay. During this period, petitioner never approached the Adjudicating Authority for inspection of the original/said relied documents either in person or through authorized representative as was disclosed in the show-cause notice itself.
Learned counsel further submits that in the obtaining facts and circumstances, the Adjudicating Authority, after consideration of reply and the material available, formed his opinion to proceed 12 WP.12669.2021 with the enquiry by issuing notice dated 28.06.2021 for personal hearing. As such, no fault can be found in issuance of impugned notice dated 28.06.2021. Petitioners shall be given full opportunity before the Adjudicating Authority as contemplated under sub-rule (4) to (8).
It is further submitted that as contemplated under sub- section (6) of Section 16, the Adjudicating Authority is required to deal with and dispose of the complaint under sub-section (2) thereof finally within a period of one year from the date of receipt of the complaint and failure to maintain time limit casts an obligation upon the Adjudicating Authority to assign reasons for not disposing of the complaint within said period. As such, the Adjudicating Authority has to bear in mind the period of limitation for completion of the proceedings.
In view of the aforesaid facts and circumstances, neither there is illegality nor jurisdictional error in issuance of the impugned notices.
Almost eight months' period has already come to an end ever since the issuance of notice dated 08.04.2021 with no progress in proceedings as the same are coiled in the litigation before this Court on unsustainable pleas intended to frustrate the proceedings before the Adjudicating Authority.
Referring to the judgment of Hon'ble Apex Court in the case of Special Director And Another Vs. Mohd. Ghulam Ghouse And Another reported in (2004) 3 SCC 440, learned 13 WP.12669.2021 counsel submits that the Hon'ble Supreme Court has taken strong exception to the interference made by the High Court under Article 226 of the Constitution entertaining the writ petitions, questioning legality of the show-cause notice and stalling enquiry as proposed retarding investigation process to find factual facts with the participation and in the presence of the parties.
Unless the High Court is satisfied that the show-cause notice was totally nonest in the eyes of law for absolute want of jurisdiction of the Authority to even investigate into the facts, instead of entertaining the writ petition, the petitioner should invariably be relegated to respond to the show-cause notice and take all pleas available on facts and law before the said Authority. Whether the show-cause notice was founded on any legal premise is a jurisdictional issue which can also be urged by the noticee and such issue can be adjudicated by the Authority issuing the very notice.
Further referring to the judgment of Hon'ble Supreme Court in Raj Kumar Shivhare Vs. Assistant Director, Directorate of Enforcement and Another reported in (2010) 4 SCC 772 (para 31 to 33), it is submitted that when a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. Moreso, when the High Court is the statutory forum of appeal on the question of law that should not be abdicated and given a go-by, by a litigant for invoking the forum of judicial 14 WP.12669.2021 review of the High Court under writ jurisdiction.
In the instant case, even at the time of issuance of show cause notice dated 08.04.2021, petitioners were extended the opportunity of inspecting the document based whereupon the complaint has been made but the petitioners deliberately avoided the same. Hence, under such circumstances (supra), no interference is warranted and the writ petition deserves to be dismissed.
8. Heard.
9. It is settled law that the Court exercising extra-ordinary, constitutional jurisdiction under Article 226 of the Constitution of India generally does not countenance to the challenge made to show-cause notice issued to the petitioner unless of course show cause notice issued is without jurisdiction [coram non judice] or for want of provisions of law enabling issuance of notice. Otherwise, the petitioner is required to submit to the jurisdiction of the Authority issuing notice to show-cause on facts. Besides, the legal premise of the show-cause notice; a jurisdictional fact can also be urged by the noticee and shall be adjudicated upon by the Authority issuing the notice.
10. In the instant case, the challenge to the impugned show- cause notice dated 08.04.2021 and the notice for personal hearing dated 28.06.2021 is not on either of the counts; instead, with the complaint that the show-cause notices are not in compliance with the procedure prescribed under Rule 4 of 2000 Rules. It has been 15 WP.12669.2021 contended that first, the impugned show-cause notice dated 08.04.2021 is without any basis and secondly the impugned notice for personal hearing dated 28.06.2021 is polluted with illegality as neither the reply dated 17.06.2021 of the petitioner is considered nor there is relevant material available to form an opinion before issuance of the said notice under sub-rule 3 of Rule 4 of 2000 Rules. Besides, the petitioners are being subjected to a stale enquiry.
Such arguments, in fact and in effect, are in despair and devoid of substance, besides being de hors the facts on record. A bare perusal of the impugned show-cause notice dated 08.04.2021 clearly suggests that a detailed complaint under Section 16(3) of FEMA with supporting documents has been filed by the Authorized officer. Upon careful perusal of the complaint, the Adjudicating Authority prima facie found it to be a case of contravention of the provisions of FEMA and the Rules & Regulations made thereunder to the extent of Rs.3,88,62,188/- (Rupees Three Crores Eighty Eight Lacs Sixty Two Thousand One Hundred Eighty Eight Only). Petitioners, therefore, were called upon to show cause. That apart in para 4 of notice, reference to the documents attached to the complaint has also been given with the opportunity to the petitioners to visit the office of the Adjudicating Authority specified thereunder for inspection of documents relied upon in the complaint. But it appears that petitioners neither visited the office nor inspected the documents.
16 WP.12669.2021 Instead, after almost one month from the date of receipt of the notice, reply dated 17.06.2021 was submitted seeking further time to file reply primarily on the ground of Covid-19 pandemic and for laying hands on the documents to file reply. This Court is of the considered view that in all fairness, the petitioners should have visited the given office during working hours and inspected the documents for the purposes of filing reply. That has not been done. Under such circumstances, formation of opinion based on material on record as discussed above under sub-rule 3 of Rule 4 of 2000 Rules, neither can be faulted with for non-application of mind nor criticised for want of compliance of principles of natural justice. As a matter of fact, fair procedure and the principles of natural justice are in-built into the rules which have been adhered to at both the stages of issuance of notices. For the lapse on the part of the petitioners in the matter of inspection of documents and filing reply to the show-cause notice in the context of the complaint supplied to the petitioner, the impugned show-cause notice dated 08.04.2021 and the notice for personal hearing dated 28.06.2021 cannot be assailed.
In terms of sub-rule 4 of Rule 4 of 2000 Rules, after appearance of the petitioners in response to the notice for personal hearing, the Adjudicating Authority is required to explain to them or their representative as provided for the contravention alleged to have been committed by them. Thereafter, under sub-rule 5, the Adjudicating Authority shall then give an opportunity to the 17 WP.12669.2021 petitioners to produce such documents or evidence as they may consider relevant to the enquiry and if necessary, hearing may be adjourned to a fixed date. As such, sufficient safeguards have been provided under 2000 Rules in the matter of enquiry.
At this stage, it shall be appropriate to quote paras 32 to 34 of judgment of Hon'ble Apex Court in Natwar Singh (supra) dealing with the provisions of sub-rule 3, 4 and 5 of Rule 4 of 2000 Rules under the head Part V: Duty of Adequate Disclosure:
"32. The real question that arises for consideration is whether the adjudicating authority even at the preliminary stage is required to furnish copies of all the documents in his possession to a noticee even for the purposes of forming an opinion as to whether any inquiry at all is required to be held.
33. In this regard, learned Senior Counsel for the appellant pressed into service the doctrine of duty of adequate disclosure which according to him is an essential part of the principles of natural justice and doctrine of fairness. A bare reading of the provisions of the Act and the Rules do not support the plea taken by the appellants in this regard. Even the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice. No Court can compel the Authority to deviate from the statute and exercise the power in altogether a different manner than the prescribed one.
34. As noticed, a reasonable opportunity of being heard is to be provided by the adjudicating authority in
18 WP.12669.2021 the manner prescribed for the purpose of imposing any penalty as provided for in the Act and not at the stage where the adjudicating authority is required merely to decide as to whether an inquiry at all be held into the matter. Imposing of penalty after the adjudication is fraught with grave and serious consequences and therefore, the requirement of providing a reasonable opportunity of being heard before imposition of any such penalty is to be met. In contradistinction, the opinion formed by the adjudicating authority whether an inquiry should be held into the allegations made in the complaint are not fraught with such grave consequences and therefore the minimum requirement of a show cause notice and consideration of cause shown would meet the ends of justice. A proper hearing always include, no doubt, a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view.
(Emphasis Supplied) As a matter of fact, the aforesaid quoted portion of the cited judgment, in conformity with the procedure laid down, clearly spells out that on the date fixed for personal hearing, the Adjudicating Authority shall explain the contravention, alleged to have been committed by such person, which also includes inspection of documents likely to be used against him. Whereas in the instant case, the Authority, consciously has afforded an opportunity of inspection of documents even at the stage of show cause, reflected from paragraph 4 of the show-cause notice, though not availed by the petitioner.
19 WP.12669.2021 In view of the foregoing discussion on facts and law, we are of the view that no indulgence is warranted in the matter of issuance of impugned show-cause notice dated 08.04.2021 and the notice for personal hearing dated 28.06.2021.
11. The Adjudicating Authority is yet to hold an enquiry and thereafter take a decision to initiate proceedings for imposition of penalty under Section 13 of the FEMA. Thereafter, the petitioner has a remedy of filing appeals viz. (1) under Section 17 to the Special Director (Appeals) against the orders of the Adjudicating Authorities, being an Assistant Director of Enforcement or a Deputy Director of Enforcement; (2) under Section 19 to the Appellate Tribunal against the order made by an Adjudicating Authority other than those referred to in sub-section (1) & (2) of Section 17, or the Special Director (Appeals); and (3) under Section 35 to the High Court against the order of Appellate Tribunal.
Though the petitioners complain of not being able to file reply on merits against the impugned show-cause notice, nevertheless there is no reason forthcoming as to why the petitioners have not attended the office of prescribed Authority as indicated in the impugned notice for inspection of documents attached with the complaint. Be that as it may, while responding to the notice dated 28.06.2021 for personal hearing, petitioners are always free to seek the opportunity for inspection of documents and file reply. Petitioners may raise all questions on facts and in 20 WP.12669.2021 law available to them in the context of the enquiry under Rule 4 of 2000 Rules. The Adjudicating Authority shall be well advised to consider the reply during the course of proceedings.
Four weeks' time, as prayed for, is granted to inspect the documents, if so advised, and file reply.
The Adjudicating Authority shall complete proceedings within eight weeks thereafter keeping in mind the time bound completion of proceedings as ordered bearing in mind the provisions of sub-section 6 of Section 16 of FEMA.
12. With the aforesaid, present petition stands disposed of.
(Rohit Arya) (Milind Ramesh Phadke)
Judge Judge
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PAWAN
DHARKAR
2022.03.04
14:29:09
+05'30'