2008 (7) TMI 835 - HC - FEMA

Unlawful seizure and release of funds by Enforcement Directorate deemed illegal by court

Balhar Chand and others Versus State of Punjab and others

The court found that the SHO's action of handing over seized funds to the Enforcement Directorate without court orders was illegal. Additionally, the ... Whether the amount recovered which was a case property could be handed over by the S.H.O. to the Assistant Director, Enforcement Directorate, FEMA without the orders of the Court? Whether the Enforcement Directorate was justified in releasing the amount to the accused which was a case property of case of FIR No.311 dated 27.04.2001 registered at Police Station Sadar, Jalandhar under Sections 411/414 IPC read with Section 3(b) and 3(c) of FEMA Act, 1999? Held that:- There was a violation of provisions of FEMA Act and under Enforcement Directorate had to act and penalty imposed by him was a consequence to the act of the petitioners who had received cash amount from abroad through channels which were not permissible, but it does not absolve petitioners as the amount so received was to be declared before the Income Tax Authorities. Non-declaration of the amount will amount to evasion of tax and Income Tax Authorities are within their right to proceed under Income Tax Act in accordance with the provisions of law. Orders Annexures P-6 and P-7 are perfectly legal and no interference is called for, but by a flux of time, ground realities and circumstances may have changed. In case, trial of FIR No.311 dated 27.04.2001 has concluded, the petitioners may have been convicted or acquitted. This will change the rigor of the direction that amount of ₹ 7,81,000/- be deposited back. Furthermore, in case, Income Tax Authorities had assessed the amount and imposed the penalty, the requirement of depositing the amount of ₹ 7,81,000/- will also lose its sting, in case the penalty and the income tax assessed has been deposited. Therefore, even though have held that the impugned orders are perfect and legal taking various facts mentioned above, still there is scope for variance in the directions to deposit the amount. Accordingly, remand the matter back to the Court of Additional Chief Judicial Magistrate, Jalandhar, to take into consideration the outcome of trial in case FIR No.311 dated 27.04.2001 and proceedings before Income Tax Authorities. Issues Involved:1. Legality of the SHO's action in handing over the seized amount to the Enforcement Directorate without court orders.2. Justification of the Enforcement Directorate in releasing the seized amount to the accused.3. Allegation of double jeopardy under Article 20 of the Constitution of India and Section 300 of the Criminal Procedure Code.Issue-wise Detailed Analysis:1. Legality of the SHO's action in handing over the seized amount to the Enforcement Directorate without court orders:The court examined whether the SHO, Police Station Sadar, Jalandhar, acted legally in releasing the seized amount of Rs.11,80,000/- to the Enforcement Directorate without obtaining an order from the court. The judgment highlighted that according to Section 102 of Cr.P.C., the police officer is required to obtain a court order before parting with seized property. The Additional Chief Judicial Magistrate, Jalandhar, concluded that the SHO's act of releasing the amount to the FEMA authorities without court permission was illegal. This decision was upheld by the Additional Sessions Judge, Jalandhar, who emphasized that the SHO should have obtained an order under Section 457 Cr.P.C. before releasing the amount.2. Justification of the Enforcement Directorate in releasing the seized amount to the accused:The court also scrutinized whether the Enforcement Directorate was justified in releasing the seized amount to the accused. The Enforcement Directorate had imposed a penalty of Rs.1,33,000/- each on the accused and released the balance amount of Rs.7,81,000/-. The Additional Chief Judicial Magistrate found that the FEMA authorities also did not seek court permission before releasing the amount to the accused, which was illegal. This decision was affirmed by the Additional Sessions Judge, Jalandhar, who noted that the release of the amount without court orders adversely affected the investigation by the Income Tax Department under Section 132A of the Income Tax Act.3. Allegation of double jeopardy under Article 20 of the Constitution of India and Section 300 of the Criminal Procedure Code:The petitioners contended that the order to deposit the amount was in violation of Article 20 of the Constitution of India and Section 300 of the Criminal Procedure Code, as it would amount to double jeopardy. However, the court rejected this contention, stating that the Enforcement Directorate, Income Tax Authorities, and criminal court operate within their own jurisdictions. The court clarified that the penalty imposed by the Enforcement Directorate for violating FEMA Act does not absolve the petitioners from declaring the amount to the Income Tax Authorities. Non-declaration of the amount constitutes tax evasion, and the Income Tax Authorities are within their rights to proceed under the Income Tax Act.Conclusion:The court upheld the orders passed by the Additional Chief Judicial Magistrate, Jalandhar (Annexure P-6) and the Additional Sessions Judge, Jalandhar (Annexure P-7), stating that they were perfectly legal. However, the court acknowledged that the ground realities and circumstances might have changed over time. Therefore, the matter was remanded back to the Additional Chief Judicial Magistrate, Jalandhar, to consider the outcome of the trial in FIR No.311 dated 27.04.2001 and the proceedings before the Income Tax Authorities. If the trial and Income Tax proceedings have not concluded, the original orders are to be complied with. If there has been progress in the trial or Income Tax proceedings, the Additional Chief Judicial Magistrate is to pass a fresh order after hearing all parties involved. The Criminal Misc.No.43953-M of 2005 was disposed of accordingly.