2023 (10) TMI 1118 - HC - FEMA

ED proceedings quashed for failing to serve mandatory show cause notice under FERA Section 56

M/s. Shilpi Modes (Through Arvind Agarwal) Versus directorate of enforcement & Ors.

Delhi HC quashed ED proceedings under FERA Section 56 for violating natural justice principles. The petitioner was not served a mandatory show cause ... Proceedings initiated u/s 56 of FERA - non issue of SCN - Violation of principle of natural justice - HELD THAT:- No complaint can be filed unless the person accused of such offence has been given an opportunity of showing that he has such requisite permission. It is clear that from the facts of this case and also not disputed by Respondent that there is no such show cause notice which was issued and served on the fresh address of the petitioner at Gurugram. That apart, it is pertinent to note that though the notice issued under proviso to Clause (ii) of sub section (2) of Section 61 FERA was not served upon the petitioner, the demand notice dated 28.08.2020 was served upon the correct address. There is no explanation as to how and from where the ED obtained this correct address of the petitioner while issuing the demand notice. So far as the judgments of State Bank of India [2023 (3) TMI 1205 - SUPREME COURT] and Oil and Natural Gas Corporation Limited [2014 (10) TMI 589 - SUPREME COURT] relied upon are concerned, they laid down the law in respect of what is trite by now that rule of Audi Alteram Partem is fundamental to the policy of Indian law and as such any order by any quasi-judicial authority or any administrative authority entailing drastic civil consequences cannot be sustained except after affording an opportunity to the person who would have to face such civil consequences. There is no doubt in the mind of this Court that there has been clear violation of principles of natural justice in the present case. Since the respondent therein had failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court in that case clearly had erred in taking cognizance and on that basis, quashed and set aside the impugned order on charge. This Court respectfully concurs with the observations and the ratio laid down in the case United India Airways Ltd. & Anr. [2018 (4) TMI 421 - DELHI HIGH COURT] Proceedings being separate and not intertwined in respect of violation u/s 18(2) and (3) and Section 56 of the FERA - This Court is of the considered opinion that the substratum of violation of under Section 18(2) for becoming an offence u/s 56 has to be tested first by issuing show cause notice/opportunity notice so as to permit the petitioner to explain as to whether it got the requisite permission in accordance with law or not. Since the show cause notice or opportunity notice was never served upon the petitioner, the consequent proceedings initiated u/s 56 FERA cannot be continued. It is for violation of Section 18(2) and Section 18(3) of the FERA that would entail action u/s 56 FERA, but the intervening threshold of issuance of show cause notice/opportunity notice and hearing the notice before passing the decision upon such mandatory application of principles of natural justice alone that the action u/s 56 could, at all, have been initiated. As such the submission of Respondent on that count are found to be untenable. Present writ petition is allowed and as a consequence thereof, a writ of certiorari is issued quashing the exparte proceedings issued by the ED. Issues Involved:1. Violation of principles of natural justice.2. Service of notice under Section 61(2) of FERA.3. Validity of proceedings under Section 56 of FERA.Summary:Violation of Principles of Natural Justice:The petitioner argued that the proceedings initiated under Section 56 of FERA by the Enforcement Directorate were vitiated due to a violation of the principles of natural justice. Relying on Supreme Court judgments, the petitioner emphasized that any authority with the power to make decisions prejudicial to a person must act judicially and provide an opportunity for the affected party to present their case. The petitioner contended that they were never given such an opportunity, which invalidated the proceedings.Service of Notice under Section 61(2) of FERA:The petitioner further argued that the service of notice, as required under Section 61(2) of FERA, was not properly executed. Despite informing the Central Bank of India about their new address in Gurugram, the notices were sent to the old address. The petitioner highlighted that the Central Bank of India and the Enforcement Directorate failed to ensure the correct address was used, leading to the notices not being received. This procedural lapse was seen as a critical failure, rendering the proceedings void.Validity of Proceedings under Section 56 of FERA:The respondent countered that the proceedings under Section 56 of FERA were distinct and valid, even if the petitioner was not heard by the Adjudicating Authority. They cited a Supreme Court judgment upholding the vires of Section 56 of FERA. However, the court found that the Enforcement Directorate did not have the correct address of the petitioner, as evidenced by judicial records, and thus, the notice was never properly served.The court emphasized that the mandatory requirement under Section 61(2) of FERA to provide an opportunity to show cause was not met. This failure to serve the notice correctly and provide an opportunity to the petitioner before initiating proceedings under Section 56 was a clear violation of the principles of natural justice.Conclusion:The court concluded that the Enforcement Directorate's failure to serve the notice correctly and provide an opportunity to the petitioner invalidated the proceedings. The writ petition was allowed, and the ex parte proceedings initiated by the Enforcement Directorate, including the subsequent complaint, were quashed. The court also disposed of all pending applications in the case.