Court directs Enforcement Directorate to comply with Rule 4(3) for opinion formation to safeguard appellant's rights (3)

The court directed the Special Director, Eastern Region, Enforcement Directorate, to comply with Rule 4(3) by forming an opinion with recorded reasons. If adverse, the appellant must receive the opinion at least 15 days before the personal hearing. The court upheld the show cause notice but emphasized adherence to procedural requirements to safeguard the appellant's rights under the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.

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Issues Involved:
1. Compliance with Rule 4(1) and Rule 4(2) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000.
2. Validity of the show cause notice issued under Rule 4(3) without prior compliance with Rule 4(1) and Rule 4(2).
3. Application of the principle of prejudice in the context of procedural compliance.

Issue-wise Detailed Analysis:

1. Compliance with Rule 4(1) and Rule 4(2) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000:
The appellant challenged the show cause notice dated 06.07.2020 issued by the Special Director, Eastern Region, Enforcement Directorate, arguing that it was issued without adhering to Rule 4(1) and Rule 4(2) of the Rules of 2000. The appellant contended that these rules mandate a specific procedure for issuing notices and conducting inquiries, which was not followed in this case. The court examined Rule 4, which stipulates that the adjudicating authority must issue a notice requiring the person to show cause why an inquiry should not be held, indicating the nature of the alleged contravention.

2. Validity of the show cause notice issued under Rule 4(3) without prior compliance with Rule 4(1) and Rule 4(2):
The court noted that the adjudicating authority had issued a notice directly under Rule 4(3) without first issuing a notice under Rule 4(1) and Rule 4(2). This procedural lapse was central to the appellant's challenge. The court referenced the Supreme Court's judgment in Natwar Singh vs. Director of Enforcement, which emphasized that the adjudicating authority must follow the structured procedure outlined in the statute and the rules. The court also cited the Bombay High Court's decision in Shashank Vyankatesh Manohar vs. Union of India, which highlighted the importance of the two-tier adjudication process provided under Rule 4.

3. Application of the principle of prejudice in the context of procedural compliance:
The learned Single Judge had previously held that the appellant needed to demonstrate prejudice due to the procedural infraction. However, the appellate court found this application of the principle of prejudice to be misplaced. The court emphasized that the procedural requirements under Rule 4(1) and Rule 4(2) are mandatory and must be rigorously applied, especially given the severe consequences of proceedings under Section 13 of FEMA. The court concluded that the procedural safeguards provided by these rules must be followed to avoid arbitrary decisions and ensure fairness.

Conclusion:
The court disposed of the appeal by directing the Special Director, Eastern Region, Enforcement Directorate, to form an opinion after recording reasons in compliance with Rule 4(3). If the opinion formed is adverse to the appellant, it must be furnished to the appellant at least 15 days before the date of the personal hearing to meet the requirements of Rule 4(3). The court did not interfere with the show cause notice dated 06.07.2020 but ensured that the procedural requirements were met to protect the appellant's rights.

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