2017 (7) TMI 312 - HC - FEMA

Court Upholds Validity of Show Cause Notice; Imposes Separate Penalties on Company and Partners

M/s. Madhav Maganlal & Co and Anr. Versus Union of India And Anr.

The court upheld the validity of the show cause notice issued within the statutory period under FEMA, emphasizing timely initiation of proceedings. It ... Penalties on account of violation of Sections 9(1)(b) and (d), Section 68(1), Section 64(2) and 63 of FERA - Whether the show cause notice is void being received by appellant after the sun set period? - Whether the statements given under section 108 of the Customs Act can be used as evidence against the accused? Held that:- The new law (FEMA) continues to govern action vis-à-vis all offences under the repealed law (FERA) in accordance with the provisions of the latter, the only restriction being that notice of contravention under Section 51 of FERA had to be taken by the adjudicating officer before the expiry of two years from the date of commencement of FEMA – that is to say, by 31.05.2002. Since the show cause notice in the present case was issued by the adjudicating authority on 31.05.2002 which would be within the sunset clause under FEMA, its validity cannot be questioned, the fact that such show cause notice was served only in 2003 being inconsequential. Since the action was initiated within the period provided in law, delay (if any) in relation to the directions in the order of CEGAT would not render it bad. In the present case, noticeably, the statements under Section 108 of the Customs Act have been taken note of by the authorities below for recording re-assurance on the ground the same corroborated the main incriminating circumstances, the same being seizure of unaccounted money and incriminating documents showing the infringing activity. The submissions that the order of the Customs authorities has been set aside by CEGAT takes the appellants nowhere. The said order only brought to an end the proceedings taken out under the Customs Act. The said result can have no effect on proceedings taken out under FERA, its provisions being distinct from those of the Customs Act. The questions of law raised in this appeal, thus, are answered against the appellants. Issues Involved:1. Validity of show cause notice received after the sunset period under FEMA.2. Imposition of separate penalties on a company and its partners/directors under FERA.3. Admissibility of statements given under section 108 of the Customs Act as evidence.4. Impugned order passed against acquitted appellants in Customs Act proceedings.Analysis:Issue 1:The appellants argued that the show cause notice received after the sunset period under FEMA was void. However, the court held that the notice issued within the statutory period was valid, emphasizing that the initiation of proceedings within the specified time frame was crucial. The court referred to relevant provisions of FEMA to support this conclusion, highlighting that the notice's service date was not consequential.Issue 2:The appellants contended that separate penalties could not be imposed on a company and its partners under FERA. The court dismissed this argument, distinguishing the case from a precedent under the Customs Act. Section 68 of FERA was referenced, which allows holding both the company and individuals responsible for contraventions, emphasizing the liability of persons in charge of the company.Issue 3:Regarding the admissibility of statements under section 108 of the Customs Act as evidence, the appellants raised concerns about the lack of independent investigation by the Special Director. However, the court cited precedents and upheld the reliance on such statements, emphasizing their evidentiary value in establishing violations under FERA.Issue 4:The appellants raised objections based on their acquittal in the Customs Act proceedings, challenging the impugned order under FERA. The court clarified that the Customs Act's outcome did not affect the FERA proceedings, as the legal provisions and violations under each statute were distinct. Therefore, the court ruled against the appellants on this issue.In conclusion, the court answered the questions of law against the appellants and dismissed the appeal, affirming the validity of the impugned order under FERA. The judgment underscored the distinct nature of legal proceedings under different statutes and upheld the enforcement of penalties under FERA based on the evidence presented, including statements recorded under the Customs Act.