2022 (9) TMI 1266 - HC - FEMA

Court quashes Enforcement Directorate notices, upholds FEMA inheritance transfer, petitioner not liable.

The court quashed the show cause notice and subsequent notices issued by the Enforcement Directorate, citing vagueness and lack of compliance with legal ... Offence under FEMA - Eligible charge against petitioner in SCN - no permission was given for repatriation of sale proceeds to person resident outside India and that acquisition and transfer of immovable property by her heirs residing outside India would be covered - petitioner has contravened the provisions of Section 6(3)(i) of FEMA read with Rule 8 of FEMA (Acquisition and Transfer of Immovable Property in India) Regulations 2000 (FEMA Regulations) and thereby petitioner has rendered itself liable to be proceeded against under Section 13(1) read with Section 42(1) of FEMA - HELD THAT:- Issuance of a show cause notice is not an empty formality. Its purpose is to give a reasonable opportunity to the affected persons to contend that they have not committed any breach. Proper opportunity should be given to the person likely to be affected by the order proposed to be made a notice of the action intended to be taken, inform him about the materials on the basis of which the appropriate authority proposes to take action and give a fair and reasonable opportunity to such person to represent his case and to correct or controvert the material sought to be relied upon against him. It is essential for a show cause notice to indicate the precise scope of the notice and also to indicate the points on which the recipient of the show cause notice give a reply. In our view, there is nothing in the show cause notice to give any indication as to what are the allegations to which petitioner should furnish a statutory explanation. In paragraph 9 of the show cause notice, it is stated that without obtaining the prior permission of RBI, petitioner has repatriated the sale proceeds to M/s Salvation Army but the provisions relied upon in the show cause notice by respondent no.2 has nothing to do with repatriation of any sale proceeds. Further, Regulation 8 of the said Regulation only provides ‘save as otherwise provided in the act or regulations no person resident outside India shall transfer any immovable property in India’. It does not refer to any acquisition. As could be seen from the show cause notice itself the admitted position is Mrs. Meerabai Dawson held immovable property in India, which she inherited from her parents, who were resident in India. The Executors of the Will of Mrs. Meerabai Dawson only disposed the immovable property that she had inherited from her parents who were residents in India, and repatriated the sale proceeds to the beneficiaries of her Will. The beneficiaries did not transfer any property in India from respondent no.2 to allege breach of Regulation 8. Moreover, petitioner was, admittedly, only the power of attorney holder and legal counsel of the Executor’s of the Will of Mrs. Meerabai Dawson and therefore, cannot be held liable in the facts of the present case. We are inclined to exercise our jurisdiction under Article 226 of the Constitution of India and quash and set aside the impugned show cause notice. Issues Involved:1. Alleged contravention of Section 6(3)(i) of FEMA and Regulation 8 of FEMA Regulations.2. Validity and adequacy of the show cause notice issued by the Enforcement Directorate.3. Applicability of Section 6(5) of FEMA.Issue-wise Detailed Analysis:1. Alleged Contravention of Section 6(3)(i) of FEMA and Regulation 8 of FEMA Regulations:The Enforcement Directorate (ED) issued a show cause notice to the petitioner, alleging that the petitioner repatriated the sale proceeds of Rs.5,01,47,271/- to the Salvation Army without obtaining prior permission from the Reserve Bank of India (RBI), as required under FEMA and its Regulations. The ED claimed that this action contravened Section 6(3)(i) of FEMA and Regulation 8 of FEMA (Acquisition and Transfer of Immovable Property in India) Regulations 2000. Section 6(3)(i) of FEMA allows RBI to regulate the acquisition or transfer of immovable property in India by a person resident outside India. Regulation 8 prohibits the transfer of immovable property in India by a person resident outside India unless otherwise provided in the Act or regulations.2. Validity and Adequacy of the Show Cause Notice:The court emphasized that the issuance of a show cause notice is not an empty formality and must provide a reasonable opportunity for the affected persons to present their case. The notice must inform the recipient about the materials and grounds on which the authority proposes to take action. The court referred to established legal precedents, including Jugal Kishore Jajodia Vs. S. C. Prasad and Om Shri Jigar Association vs. The Union of India, which highlight the necessity of specifying provisional conclusions and grounds in the show cause notice to ensure that the affected persons can effectively respond.The court found that the show cause notice issued by the ED was vague and did not specify the grounds for the alleged contravention. The notice failed to provide clear allegations or the precise scope of the notice, making it difficult for the petitioner to furnish a statutory explanation. The court noted that the provisions relied upon by the ED in the show cause notice had nothing to do with the repatriation of sale proceeds.3. Applicability of Section 6(5) of FEMA:The court observed that the ED did not consider Section 6(5) of FEMA, which permits a person resident outside India to hold, own, transfer, or invest in immovable property in India if such property was inherited from a person who was resident in India. The court emphasized that Mrs. Meerabai Dawson inherited the immovable property in question from her parents, who were residents in India. Therefore, the Executors of her Will were permitted to dispose of the property and repatriate the sale proceeds to the beneficiaries of her Will.The court concluded that the petitioner, being the power of attorney holder and legal counsel of the Executors of Mrs. Meerabai Dawson's Will, could not be held liable for any alleged contravention. The court quashed and set aside the impugned show cause notice dated 5th October 2017, as well as the subsequent notices dated 27th September 2019 and 17th October 2019.Conclusion:The court exercised its jurisdiction under Article 226 of the Constitution of India to quash the impugned show cause notice and subsequent notices, finding them to be vague and not in compliance with the requirements of a valid show cause notice. The court also highlighted the applicability of Section 6(5) of FEMA, which permits the transfer of inherited property by a person resident outside India. The petition was disposed of with no order as to costs.