Court upholds inquiry despite procedural lapse, dismisses petitions under Article 226 without costs.

The court upheld the inquiry against the petitioner despite a procedural lapse in not recording reasons. The decision was based on the Supreme Court's detailed judgment finding violations of FEMA by the JP Morgan Group of Companies. The court dismissed the petitions, exercising discretion under Article 226, without imposing costs. It clarified that the decision did not endorse the recording of the opinion and did not express any opinion on the merits of the allegations against the petitioner.

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Issues Involved:
1. Challenge to the Show Cause Notices, Orders, and Communications issued under FEMA.
2. Allegation of violation of Section 6(6) of FEMA and Regulation 3 of the Place of Business Regulations.
3. Procedural compliance with Rule 4(3) of the Adjudication Rules.
4. Requirement for the Adjudicating Authority to record reasons for proceeding with an inquiry.

Detailed Analysis:

1. Challenge to the Show Cause Notices, Orders, and Communications issued under FEMA:
The petitioner challenged the Show Cause Notices dated 29.01.2020, the consequent Orders dated 05.06.2020, and the Communications dated 03.09.2020 issued by the respondent, alleging procedural and substantive violations under FEMA. The petitions were adjudicated together due to common grounds of challenge.

2. Allegation of Violation of Section 6(6) of FEMA and Regulation 3 of the Place of Business Regulations:
The genesis of the inquiry against the petitioner originated from a Supreme Court judgment dated 23.07.2019, which found various fraudulent activities and statutory violations by the JP Morgan Group of Companies. The Supreme Court directed the Enforcement Directorate to investigate violations of FEMA and other fraudulent activities. The respondent alleged that the petitioner, a subsidiary of JP Morgan India Securities Holding Limited, Mauritius, had established a place of business in India without prior RBI approval, contravening Regulation 3 of the Place of Business Regulations.

3. Procedural Compliance with Rule 4(3) of the Adjudication Rules:
The petitioner contended that there was a violation of Rule 4(3) of the Adjudication Rules, which mandates a two-stage inquiry process. The Adjudicating Authority must first form an opinion on whether to proceed with an inquiry after considering the cause shown by the noticee. The petitioner argued that such an opinion must be recorded in writing and provided to the noticee upon request. The respondents, however, argued that the opinion need not be elaborate and is not appealable under Section 19 of FEMA.

4. Requirement for the Adjudicating Authority to Record Reasons for Proceeding with an Inquiry:
The court emphasized that the opinion formed under Rule 4(3) must reflect due application of mind and provide reasons, even if brief, to show consideration of the objections raised by the noticee. The court cited several judgments, including Natwar Singh v. Director of Enforcement and Shashank Vyankatesh Manohar v. Union of India, to support the requirement of recording reasons. The court found that the impugned opinion/order dated 05.06.2020 did not satisfy the requirement of giving reasons, as it merely listed the materials considered without providing reasons for proceeding with the inquiry.

Conclusion:
Despite the procedural lapse in not recording reasons, the court upheld the inquiry against the petitioner due to the Supreme Court's detailed judgment finding violations of FEMA and the larger context of the investigation. The court exercised its discretion under Article 226, considering the peculiar facts of the case, and dismissed the petitions with no order as to costs. The court clarified that this decision should not be seen as an endorsement of the manner in which the opinion was recorded and did not express any opinion on the merits of the allegations against the petitioner.

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