2018 (4) TMI 1342 - AT - FEMA

Tribunal sets aside freezing orders under FEMA, emphasizing procedural fairness

The Tribunal allowed the appeals, setting aside the freezing orders and confirmation orders. It held that Section 37A of FEMA could not be applied ... Seizure of bank account due of the suspicion that foreign exchange was suspected to be held outside India in contravention of Section 4 of the FEMA, 1999 - Liberalise Remittance Scheme (LRS Scheme) - Exercise of powers conferred upon him in terms of the provisions of Section 37A(1) of FEMA, 1999 - Held that:- The main error in the impugned order is that RBI scheme has not been discussed at all. The impugned order is totally silent about the scheme. The relevant circulars of RBI 2004 to 2007 have not been considered. When, it was pointed to Mr. Rana, he says that these are not applicable. The said arguments of Mr. Rana is without any force as the circulars speak for themselves and those are applicable. It is also a matter of surprise that the hearing were conducted by the Ld. Competent Authority in disjoint manner, separately for appellant and separately for complainant. The said practice is not a healthy practice in our system. It is apparent that the Competent Authority did not want to hear the matter in the presence of both parties. The Competent Authority has violated the principles of natural justice by not affording cross-examination of respondent authority while passing the order by which the Appellant would have been able to establish the fallacy of allegations and also the fallacy of patent illegality of the order apart from exhibiting that there was no material nor the reason to believe as envisaged under Section 37-A(1) of FEMA, 99. In the nature of the seriousness of present case, the right to cross- examination would have been given in view of gravity of the matter. Had the said right been granted, there might have been different result. Rather in the present case, the adjudicating authority has issued the notice after the expiry of five months knowingly well that the proceedings were to be completed within the period of 180 days. Even no time left for the purpose of cross-examination of relevant witnesses. In the interest of justice equity and fairplay we allow the respondent to again verify the position as to whether the appellants have brought the entire amount of remittance within four weeks, from the date of the order after verification the amounts seized be released in the accounts of Appellants with YES Bank, Chhattarpur Branch, New Delhi within one week thereafter. The liberty is also granted to the respondent to move application for clarification if any pertaining to deposit of amount in question. Issues Involved:1. Legality of the freezing orders dated 15.06.2017.2. Retrospective application of Section 37A of FEMA, 1999.3. Compliance with the Liberalised Remittance Scheme (LRS) by the appellants.4. Procedural fairness and natural justice in the freezing orders and subsequent proceedings.Detailed Analysis:1. Legality of the Freezing Orders:The appeals were filed against the freezing orders dated 15.06.2017, which were confirmed by the order dated 08.12.2017. The freezing orders were issued under Section 37A(1) of FEMA, 1999, suspecting that the appellants held foreign exchange outside India in contravention of Section 4 of FEMA. The amounts seized were substantial, e.g., Rs. 2,21,43,125/- from Ashwani Kumar Mehra's account. The appellants challenged these orders, arguing they were contrary to law and procedure.2. Retrospective Application of Section 37A of FEMA, 1999:The appellants argued that Section 37A of FEMA, which came into effect on 14.05.2015, could not be applied retrospectively to transactions that occurred between 2010 and 2013. The Competent Authority had held that Section 37A could be applied retrospectively, but this was found to be contrary to the settled law, as explained in the Supreme Court judgment in CIT v. Vatika Township (P) Ltd., which states that legislation is presumed not to have retrospective operation unless explicitly stated.3. Compliance with the Liberalised Remittance Scheme (LRS) by the Appellants:The appellants claimed they had complied with the LRS, which allowed resident individuals to remit up to USD 200,000 per financial year without prior approval from the Reserve Bank of India (RBI). The remittances were made through authorized dealers like Citibank, and the funds were used to purchase shares and extend loans to companies abroad. The appellants argued that they had adhered to all procedural requirements of the LRS, and the transactions were lawful.4. Procedural Fairness and Natural Justice:The appellants contended that the reasons for the freezing orders and the 'material' and 'reason to believe' were not provided to them, violating principles of natural justice. The Competent Authority conducted hearings separately for the appellants and the complainant, which was deemed a violation of fair hearing practices. The appellants were also denied the opportunity to cross-examine witnesses, which is integral to the principles of natural justice, as upheld by various Supreme Court judgments.Conclusion:The Tribunal allowed the appeals, setting aside the freezing orders and the confirmation orders. It was held that Section 37A of FEMA could not be applied retrospectively to transactions that occurred before its enactment. The Tribunal emphasized the importance of procedural fairness, including providing reasons for the freezing orders and allowing cross-examination of witnesses. The Tribunal also noted that the appellants had complied with the LRS and had repatriated the amounts back to India. The respondent was directed to verify the repatriation of the amounts and release the seized funds accordingly.