Adjudication order quashed due to post-compounding proceedings, petitioners granted relief

The court quashed the adjudication order dated 21.11.2008, ruling that the continuation of proceedings post-compounding was impermissible under Section 15(2) of FEMA. The order was deemed invalid and without jurisdiction, leading to the cancellation of the show-cause notice and all related proceedings. The petitioners were granted relief as requested, with no costs imposed, as the adjudicating authority lost jurisdiction after the contravention was compounded.

---

---

Issues Involved:
1. Whether the adjudication proceedings could continue after the contravention was compounded under Section 15 of the Foreign Exchange Management Act, 1999 (FEMA).
2. Whether the adjudication order dated 21.11.2008 was valid and enforceable.
3. Whether the petitioners should be relegated to the alternate remedy of filing a statutory appeal.

Detailed Analysis:

1. Continuation of Adjudication Proceedings Post-Compounding:
The petitioners argued that under Section 15(2) of FEMA, no proceeding or further proceeding could be initiated or continued against them once the contravention had been compounded. The petitioners had compounded the contravention by paying the required amounts as directed by the Reserve Bank of India (RBI) on 20.11.2008. They asserted that the adjudication order passed by the Special Director of Enforcement on 21.11.2008 was illegal, invalid, and without jurisdiction since the proceedings pursuant to the show-cause notice could no longer continue after the compounding orders had been passed and the compounded amounts had been paid.

The court noted that Section 15(2) of FEMA clearly states that no proceeding or further proceeding shall be initiated or continued against the person committing such contravention once it has been compounded. The court observed that the compounding orders were passed on 20.11.2008 and the adjudication order was passed on 21.11.2008, indicating that the proceedings should have ceased once the contravention was compounded.

2. Validity and Enforceability of the Adjudication Order:
The respondents contended that the adjudication order was valid as they were not informed about the compounding applications by the petitioners. They argued that the petitioners did not implead the respondents in the compounding proceedings and hence, the compounding orders were not binding on them.

The court found that the petitioners had informed the RBI about the payment of the compounded amounts on 21.11.2008, and the RBI had issued certificates acknowledging the payment. The court held that the petitioners could not be held responsible for any delay in communication between the RBI and the Adjudicating Authority. The court emphasized that once the contravention is compounded, the adjudicating authority loses jurisdiction to pass any order related to the compounded contravention. Hence, the adjudication order dated 21.11.2008 was deemed contrary to statutory provisions, not maintainable, and without jurisdiction.

3. Alternate Remedy of Statutory Appeal:
The respondents argued that the petitioners should be relegated to the alternate remedy of filing a statutory appeal under Section 19 of FEMA before the Appellate Tribunal. The court rejected this submission, stating that the adjudication order was passed without jurisdiction since the contravention had already been compounded. Therefore, the petitioners were not required to seek an alternate remedy.

Conclusion:
The court quashed and set aside the adjudication order dated 21.11.2008 and allowed the writ petition in terms of the prayer clause, which included the cancellation of the show-cause notice dated 11.06.2008 and all proceedings thereunder. The court ruled that the continuation of adjudication proceedings post-compounding was not permissible under Section 15(2) of FEMA, and the adjudication order was invalid and without jurisdiction. The petitioners were granted relief as per their request, and no costs were imposed.

---