Court quashes ED's communication, directs RBI on compounding applications; upholds proviso to Rule 8(2)

The court admitted the writ petition, quashed the ED's communication, and directed the RBI to proceed with the compounding applications independently. The court upheld the constitutional validity of the proviso to Rule 8(2) but stressed the necessity of substantial material for invoking it. The decision safeguards the RBI's compounding authority from vague ED communications, ensuring proper scrutiny of contraventions under FEMA.

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Issues Involved:
1. Admissibility and Disposal of Writ Petition
2. Issuance of Writs under Article 226 of the Constitution of India
3. Compounding of Contraventions under FEMA
4. Powers and Jurisdiction of RBI and Enforcement Directorate
5. Constitutional Validity of Proviso to Rule 8(2) of the Foreign Exchange (Compounding Proceedings) Rules, 2000
6. Judicial Review of Actions by Enforcement Directorate

Detailed Analysis:

1. Admissibility and Disposal of Writ Petition
The court admitted the writ petition and made the Rule returnable forthwith with consent from all parties. The petition was disposed of by this judgment.

2. Issuance of Writs under Article 226 of the Constitution of India
The petitioner sought various writs including mandamus and prohibition to guide and restrain the respondents from proceeding with adjudication until the decision on compounding applications. The petitioner also sought certiorari to quash letters/orders returning compounding applications and to strike down the proviso to Rule 8(2) of the Compounding Rules as unconstitutional.

3. Compounding of Contraventions under FEMA
The petitioner, a company operating news channels, filed compounding applications with the RBI for alleged FEMA violations. Despite compliance with administrative actions, the RBI returned the applications advising the petitioner to seek guidance from its divisions. The Enforcement Directorate (ED) issued a show cause notice and later communicated to the RBI that the contraventions were serious and suspected of money laundering, thus falling under the proviso to Rule 8(2) of the Compounding Rules.

4. Powers and Jurisdiction of RBI and Enforcement Directorate
The RBI and ED have parallel powers to compound contraventions under FEMA. The proviso to Rule 8(2) allows the ED to prevent the RBI from compounding if the contraventions are suspected of money laundering, terror financing, or affecting national sovereignty. The court emphasized that the RBI's power to compound should not be lightly interfered with and must be based on cogent material.

5. Constitutional Validity of Proviso to Rule 8(2) of the Foreign Exchange (Compounding Proceedings) Rules, 2000
The court upheld the constitutional validity of the proviso but clarified that the ED must possess reliable, cogent, and satisfactory material to invoke it. The court found that the ED's communication lacked sufficient material to justify the suspicion of money laundering.

6. Judicial Review of Actions by Enforcement Directorate
The court held that the RBI is not bound to act on vague and general communications from the ED. The RBI must proceed with the compounding applications unless the ED provides substantial material to support its view. The court quashed the ED's communication dated 1st December 2017 and directed the RBI to consider the compounding applications in accordance with law.

Conclusion:
The court quashed the ED's communication and directed the RBI to proceed with the compounding applications uninfluenced by the ED's letters. The court upheld the proviso's validity but emphasized the need for substantial material to support the ED's view. The court's decision ensures that the RBI's statutory power to compound contraventions is not undermined by vague communications from the ED.

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