2014 (2) TMI 929 - HC - FEMA

Court sets aside inquiry decision, emphasizes natural justice principles. Petitioner prevails, respondents to issue fresh notice.

Lalit Kumar Modi Son of Mr. KK. Modi Versus Special Director, Directorate of Enforcement Government of India And Others

The court ruled in favor of the petitioner, setting aside the decision to proceed with the inquiry due to the failure to furnish necessary documents and ... Contravention of the provisions of section 13 of the Foreign Exchange Management Act, 1999 (FEMA) - The petitioner seeks an order directing the respondents to supply all the documents referred to in a complaint dated 13.07.2011 and not annexed to the complaint and the show cause notice and an order quashing a letter dated 04.06.2013 by which the respondents refused to furnish the documents to the petitioner. - Held that:- the petitioner is entitled to be furnished the documents referred to in paragraph 3(k) of the letter dated 22.08.2011. The respondents shall be entitled to either issue a fresh show cause notice and proceed afresh on the basis thereof in accordance with law or to furnish the documents in paragraph 3 of the letter dated 22.08.2011 and thereafter form an opinion afresh under rule 4 after affording the petitioner a fresh opportunity to show cause as contemplated under Rule 4. On Mr.Setalvad's application, the operation of this judgment and order is stayed for a period of six weeks, in view of his statement that in the meantime the Special Director, Directorate of Enforcement will not proceed with the hearing pursuant to the impugned notices. This stay will not however, prevent the respondents from proceeding with the matter in accordance with this judgment. Issues Involved:1. Whether the authorities are bound to furnish all documents referred to or relied upon in the show cause notice.2. Whether the petitioner is entitled to inspection of documents not annexed to the complaint.3. Whether the opinion formed by the adjudicating authority under Rule 4(3) of the Adjudication Rules must be reasoned.Detailed Analysis:1. Furnishing of Documents:The petitioner argued that authorities must furnish all documents relevant to the case, whether referred to or relied upon in the show cause notice. The respondents contended that only documents relied upon in the notice need to be furnished.The court held that, based on the Supreme Court's judgment in *Natwar Singh v. Director of Enforcement*, the authorities are only bound to furnish documents relied upon in the show cause notice. The principles of natural justice require that documents forming the basis of the notice be provided to enable the petitioner to show cause effectively. The court rejected the petitioner's broader claim for all documents referred to, emphasizing that only those forming the basis of the notice are necessary.2. Inspection of Non-Annexed Documents:The petitioner sought inspection of various documents listed in a letter dated 22.08.2011, which were not annexed to the complaint but mentioned therein.The court determined that the petitioner is entitled to documents requisitioned from the franchisees and statements referred to in paragraph 3(k) of the letter, as these were relied upon in forming the opinion to proceed with the inquiry. The court noted that the show cause notice, which incorporated the complaint, relied on documents beyond those listed in the annexure. The court emphasized that documents forming the basis of the notice must be provided to the petitioner.3. Reasoned Opinion under Rule 4(3):The petitioner challenged the opinion formed by the adjudicating authority under Rule 4(3) of the Adjudication Rules, arguing it lacked reasons.The court agreed with the petitioner, referencing the Division Bench judgment in *Shashank Vyankatesh Manohar v. Union of India*, which mandates that the opinion under Rule 4(3) must be reasoned. The court found that the letter dated 21.03.2013 merely communicated an opinion without any recorded reasons, violating the requirement for a reasoned opinion to ensure fairness and transparency.Conclusion:The court ruled in favor of the petitioner, setting aside the decision to proceed with the inquiry due to the failure to furnish necessary documents and the lack of a reasoned opinion. The respondents were given the option to either issue a fresh show cause notice or furnish the requested documents and form a reasoned opinion afresh. The judgment emphasized the importance of adhering to principles of natural justice and procedural fairness in adjudication proceedings.