2012 (7) TMI 710 - SC - FEMA

Supreme Court upholds quashing of part-time appointments to Appellate Tribunal under Rule 5 of 2000 Rules as ultra vires FEMA 1999

Union of India Versus S. Srinivasan

SC upheld HC's decision quashing appointments of part-time Members and Chairperson of Appellate Tribunal for Foreign Exchange under Rule 5 of 2000 Rules, ... Doctrine of ultra vires - whether Rule 5 of the Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000 is ultra vires the Foreign Exchange Management Act, 1999 Held that:- The High Court had quashed the appointment of part time Members and the appointment of Chairperson who was a part time Member once. As the appointment of part time Member was quashed, as a logical corollary, such a person could not be allowed to be appointed to the post of Chairperson. To elaborate; the disqualified Member cannot hold the post of a Chairperson as a stop gap arrangement. Thus, we do not find any error in that regard in the judgment passed by the High Court. The judgments and orders passed by the Appellate Tribunal by the Chairperson or Members who were not qualified and whose appointments have been quashed shall not be treated to be null and void. Issues Involved1. Ultra vires nature of Rule 5 of the Appellate Tribunal for Foreign Exchange Rules, 2000.2. Validity of appointments of part-time Members of the Appellate Tribunal.3. Eligibility of a part-time Member to act as Chairperson of the Appellate Tribunal.Detailed AnalysisUltra Vires Nature of Rule 5The primary issue was whether Rule 5 of the Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000, was ultra vires the Foreign Exchange Management Act, 1999. The Rule allowed for the appointment of part-time Members, which was contested as being beyond the scope of the Act. The Act did not contemplate part-time Members, and thus, any rule introducing such a concept was inconsistent with the parent statute. The Supreme Court upheld the High Court's decision, declaring the first and second proviso to Rule 5 as ultra vires Section 21(1)(b) of the Act, as it introduced the concept of part-time Members which was not envisaged by the Act.Validity of Appointments of Part-Time MembersThe second issue was the validity of the appointments of part-time Members who did not meet the eligibility criteria stipulated in the Act. The High Court quashed the appointments of respondent Nos. 3 and 4 as part-time Members and also the appointment of respondent No. 3 as the acting Chairperson. The Supreme Court agreed with the High Court's decision, stating that the appointments were invalid as they were based on a rule that was ultra vires the Act. The Court emphasized that a rule must conform to the provisions of the statute under which it is framed and must not travel beyond the scope of the enabling Act.Eligibility of a Part-Time Member to Act as ChairpersonThe third issue involved the eligibility of a part-time Member to act as the Chairperson of the Appellate Tribunal. The High Court had quashed the appointment of a part-time Member as the acting Chairperson, which was upheld by the Supreme Court. The Court held that a disqualified Member could not hold the post of Chairperson, even as a stopgap arrangement, as it would be contrary to the spirit of the Act. The Court clarified that only qualified persons should be appointed as Members and Chairperson, in compliance with the Act.ConclusionThe Supreme Court upheld the High Court's decision declaring the relevant provisions of Rule 5 as ultra vires and quashing the appointments of the part-time Members and the acting Chairperson. The Court also clarified that judgments and orders passed by the Appellate Tribunal during the period when the unqualified Members and Chairperson were in office would not be treated as null and void, relying on precedents to ensure the larger interest of justice. The appeals were disposed of without any order as to costs.