2013 (8) TMI 584 - HC - FEMA

Court allows cross-examination of witnesses in appeal, sets time limits

Shahid Balwa, Vinod Goenka Versus The Directorate of Enforcement

The appeal was allowed, permitting the appellants to cross-examine three witnesses. The court directed the adjudicating authority to schedule ... Entitlement for Cross Examination – In the complaint that had been filed, the statements of three witnesses had been extensively relied upon - the application was filed by the appellants for seeking permission to cross-examine - it was stated that there was a need to cross-examine the witnesses to controvert their statements and to establish their (appellants) innocence as the charges had been denied by the said appellant – Held that:- The present appeal should be allowed to the extent that the appellants should be entitled to cross-examine the three witnesses whose statements had been relied upon by the respondent in the complaint – The respondent had failed to place on record any fact to show that prejudice would be caused to it if the appellant was permitted to cross-examine the witness - The learned counsel could not specify any prejudice – following Ayaaubkhan Noorkhan Pathan vs. State of Maharashtra [2013 (8) TMI 563 - SUPREME COURT] - the appellant intended to cross -examine the said person to controvert the veracity of the complaint regarding contraventions of various provisions of FEMA and it was further stated that the statements made by the said complainant in the complaint were inherently false. Cross-examination of witnesses had been held to be an integral part and parcel of the principles of natural justice - Refusal to grant permission to cross-examine witnesses would normally be an exception - The legal position that would follow is that normally if the credibility of a person who has testified or given some information is in doubt or if the version or the statement of the person who has testified is in dispute normally right to cross-examination would be inevitable - If some real prejudice was caused to the complainant, the right to cross-examine witnesses may be denied - it was not possible to lay down any rigid rules as to when in compliance of principles of natural justice opportunity to cross-examine should be given - In the application of the concept of fair play there had to be flexibility. Issues Involved1. Impugned order dated 24.01.2013 dismissing writ petitions.2. Alleged contravention of FEMA provisions by M/s Swan Telecom Pvt. Ltd.3. Issuance of shares without FIPB approval.4. Over-valuation of shares.5. Right to cross-examine witnesses.6. Principles of natural justice.Issue-wise Detailed Analysis1. Impugned Order Dismissing Writ PetitionsThe appellants challenged the order dated 24.01.2013 by the learned Single Judge, which dismissed their writ petitions. The learned Single Judge observed that the appellants were attempting to derail the adjudication proceedings by filing multiple applications at various stages.2. Alleged Contravention of FEMA Provisions by M/s Swan Telecom Pvt. Ltd.A complaint was filed on 01.07.2011 under Section 16(3) of FEMA for alleged contravention of Section 6(3)(b) of FEMA and related regulations by M/s Swan Telecom Pvt. Ltd. The complaint alleged that the company issued shares to M/s Etisalat Mauritius and M/s Genex Exim Ventures Pvt. Ltd. without FIPB approval, violating the provisions of FEMA and related regulations.3. Issuance of Shares Without FIPB ApprovalThe complaint stated that M/s Swan Telecom Pvt. Ltd. issued 5.27% equity shares to M/s Genex Exim Ventures Pvt. Ltd. and 44.73% equity shares to M/s Etisalat Mauritius without obtaining FIPB approval, thereby contravening the provisions of Para 3 of Schedule I of Regulation 5(1) of FEMA.4. Over-valuation of SharesIt was alleged that M/s Swan Telecom Pvt. Ltd. indulged in over-valuation of its shares issued to M/s Etisalat Mauritius to remain within the stipulated threshold of 49% equity prescribed for the automatic route, violating the provisions of Para 3 of Schedule I of Regulation 5(1) of FEMA.5. Right to Cross-examine WitnessesThe appellants contended that the principles of natural justice entitle them to cross-examine the witnesses whose statements were relied upon in the complaint. They argued that cross-examination is integral to fair adjudication and cited several judgments to support their claim.The legal position regarding the right to cross-examine was discussed extensively. The appellants relied on the judgments of the Kerala High Court in Central Govt. represented by Directorate, Enforcement Directorate, Foreign Exchange Regulation Act, New Delhi vs. Fr. Alfred Iames Fernandez and the Single Bench of the Delhi High Court in Mehar Singh v. Appellate Board Foreign Exchange, among others, to argue that they are entitled to cross-examine the witnesses.The respondents argued that there is no procedure prescribed under the Rules of 2000 for permitting cross-examination and cited the Supreme Court judgment in Raj Kumar Shivhare vs. Assistant Director, Directorate of Enforcement and Another, which held that FEMA is a complete Code in itself.6. Principles of Natural JusticeThe court examined various judgments to determine the applicability of the principles of natural justice in the context of cross-examination. The judgments cited include State of Kerala vs. K.T. Shaduli Grocery Dealer Etc, Khem Chand vs. Union of India and others, and Ayaaubkhan Noorkhan Pathan vs. State of Maharashtra, which emphasized that cross-examination is an integral part of the principles of natural justice.The court concluded that the appellants should be allowed to cross-examine the three witnesses whose statements were heavily relied upon in the complaint. The respondents failed to show any prejudice that would be caused by allowing cross-examination.ConclusionThe appeal was allowed to the extent that the appellants were permitted to cross-examine the three witnesses: Shri Ahmad Shakir, Shri Pratap Ghose, and Shri K. Vasudeva. The adjudicating authority was directed to fix appropriate dates for cross-examination within one month, and the process should be concluded within 10 working days from commencement. The cross-examination would be confined to questions permissible by law.The request to cross-examine Shri Rajeshwar Singh, Assistant Director, was denied as it was deemed without merit. The appeal was disposed of with these directions.