2024 (8) TMI 1341 - HC - FEMA

Delhi HC upholds FEMA seizure orders finding authorities had reasonable belief based on objective material before seizure

PC Financial Services Private Limited Versus Directorate Of Enforcement & Anr.

Delhi HC upheld seizure orders under FEMA, finding that authorities had examined relevant material and formed reasonable belief before effecting seizures. ... Eligibility of “reason to believe” before effecting seizure - as argued non-consideration of such evidence and tangible material placed on record by the appellant, would by itself, vitiate not only the seizure orders but also the order passed by the Competent Authority. HELD THAT:- As perused the Seizure Orders and find that the Officer has examined the relevant material before him in great detail and has, apparently after analysing the same, coupled with the statement of the CEO of the appellant, formed his “reasons to believe” before effecting seizures. We have also examined the orderof the Competent Authority under the FEMA and find that the same is based on tangible material which was analysed and consequently the seizure orders were confirmed. At that stage a Constitutional Court is not to interdict the investigations or probe the evidentiary value of such material gathered. It is trite that Courts exercising powers of judicial review would consider as to whether there was objective and tangible material available with the authorities before any action of effecting seizure was contemplated. A Court exercising writ jurisdiction is not sitting as an appellate court or authority. Thus, we are satisfied that the learned single Judge has exercised the jurisdiction vested, correctly. As urged many facts which cannot be evaluated or considered by a writ Court since the same would require evidence and the evaluation thereof - The issue as to what constitutes “capital account transaction” and “current account transaction” and as to how the appellant has transacted its business and by what mode etc. and whether the appellant is connected to the Opera Group and other entities like Mobimagic and HK Fintango, with whom and through whom, it is alleged that financial transactions were made which are alleged to be in violation of the provisions of FEMA, in our considered opinion, are highly disputed questions of fact. Having regard to the fact that the records indicate that there exists an absolutely diametrically opposite and contrary set of disputed facts, it is apparent that the Court exercising powers of judicial review under Article 226 of the Constitution of India, does not have the necessary wherewithal to render its opinion thereon. Impugned order relegating the appellant to the proceedings before the Adjudicating Authority without deciding the matter on merits itself - We find that the ld' Single Judge has noted that the respondents have already filed a statutory complaint before the Adjudicating Authority and substantial hearings have already taken place before it. We have found that the learned Single Judge has already examined the issue on merits and passed the impugned judgment. Having regard to the fact that the Adjudicating Authority while deciding the complaint shall obviously also decide the sanctity of the seizure as also the validity of the Confirmation Order dated 04th February, 2022 passed by the Competent Authority, we too find no reasons to interfere with the observations rendered by the learned Single Judge in the impugned judgment. Issues Involved:1. Validity of the impugned order dated 13th December 2023.2. Legality of the seizure orders issued by respondent no. 1.3. Compliance with the Supreme Court's directions dated 04th May 2023.4. Jurisdiction and appropriateness of the writ petition under Article 226 of the Constitution of India.Issue-wise Detailed Analysis:1. Validity of the Impugned Order Dated 13th December 2023:The appellant challenged the impugned order dated 13th December 2023, which dismissed their writ petition. The appellant argued that the learned Single Judge failed to consider the merits of the case and the tangible material or evidence before the Seizing Authority to form 'reason to believe' for effecting seizures. The Court found that the learned Single Judge had meticulously examined the facts, considered the submissions of the parties, and applied the law correctly. The learned Single Judge had also considered various provisions of the Act and concluded that there was enough tangible material before the Seizing Officer and the Competent Authority to confirm the seizure.2. Legality of the Seizure Orders Issued by Respondent No. 1:The appellant contended that the seizure orders were based on a misunderstanding of their business operations and lacked tangible material to form 'reason to believe.' The respondent alleged that the appellant had made foreign remittances under the guise of payments against bogus import of services, contravening Section 4 of the Foreign Exchange Management Act, 1999 (FEMA). The Court found that the Seizing Officer had examined the relevant material in great detail and formed 'reasons to believe' before effecting seizures. The Competent Authority's order dated 04th February 2022, confirming the seizure, was also based on tangible material. The Court agreed with the learned Single Judge that there was objective and tangible material available with the authorities before any action of effecting seizure was contemplated.3. Compliance with the Supreme Court's Directions Dated 04th May 2023:The appellant argued that the learned Single Judge violated the Supreme Court's directions dated 04th May 2023, which mandated hearing the matter on merits. The Court found that the learned Single Judge had considered the issues in detail and exercised jurisdiction in accordance with the contours of judicial review under Article 226 of the Constitution of India. The Court noted that the appellant had exercised its choice under the doctrine of election and wilfully and knowingly forgone the appellate remedy under FEMA, thereby electing the remedy under legal advice.4. Jurisdiction and Appropriateness of the Writ Petition Under Article 226 of the Constitution of India:The appellant argued that the learned Single Judge did not appreciate the material placed on record and relegated them to the proceedings before the Adjudicating Authority. The Court found that the learned Single Judge had examined the merits of the matter and concluded that the disputed questions of fact required detailed examination by the Adjudicating Authority. The Court agreed that a writ Court under Article 226 cannot act as an Appellate Authority and substitute its own opinion for that of the Competent Authority. The Court also noted that the learned Single Judge had observed that substantial hearings had already taken place before the Adjudicating Authority, and the complaint was likely to be disposed of in the near future.Conclusion:The appeal was dismissed as the Court found no merit in the appellant's contentions. The learned Single Judge had correctly exercised jurisdiction and considered the merits of the case. The seizure orders were based on tangible material, and the appellant had elected to pursue the writ petition under legal advice, thereby forgoing the appellate remedy under FEMA. The Court emphasized that a writ Court under Article 226 cannot act as an Appellate Authority and must respect the jurisdiction of the Adjudicating Authority to examine disputed questions of fact.