2025 (9) TMI 1222 - AT - FEMA

Full waiver of pre-deposit denied; appellant must deposit 25% of penalty after evidence of Rs.12.9 crore receipt

M/s Navyug India Ltd. And Santosh Kumar Parmar Versus The Special Director Directorate of Enforcement, Chandigarh

AT denied full waiver of the pre-deposit. Finding record evidence of receipt of about Rs. 12.90 crore and recovered documents and statements linking the ... Application for waiver of the condition of pre deposit - financial hardship - no document to show financial condition has been filed - bogus export to seek inward remittance for hawala transaction - HELD THAT:- The facts on record shows that appellant had received a sum of Rs. 12.90 crore from M/s Ruchika International and from Reena International. The amount of Rs. 12.50 crore alleged to have been given to Dr. Naginder Khera to secure TTs from USA for the two companies named above. Documents recovered from Dr. Naginder Khera during the course of search has been used against the appellant apart from his statement under section 37 of the Act of 1999 apart from the statement of Praveen Khera and others. Smt. Praveen Khera while explaining page 19 of the bunch of papers recovered from the residential premises stated that 50,000 US$ at the rate of Rs. 48.60 per dollar was arranged by her husband for the firm of Sh. Santosh Parmar for arranging TTs for M/s Ruchika International and M/s Reena International. Santosh Kumar Parmar had given an amount of Rs. 24,30,000/- to her husband for opening the TTs of US$ 50,000. She also stated that as per the entries at page number 41 of the Bunch marked III Santosh Parmar and M/s Navyug India Ltd. made the payment of Rs. 1,10,62,000/- for arranging TTs of US$. There was no reason for Dr. Naginder Khera to name the appellant rather true disclosure was made on documents recovered from his residence. The appellant on the other hand submitted that merchandise was supplied for export. The export was made to M/s Ruchika International and M/s Reena International and accordingly the amount towards sale was received but alleged to be bogus sale by the respondent. At this stage, a comment on merit of the case would not be proper and may effect either of the parties at the time of final arguments, but taking over all view of the matter, it would be proper to direct the appellant to deposit 25% of the penalty amount to satisfy the condition of pre-deposit. The application for waiver of pre-deposit is disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal may waive or relax the statutory condition of pre-deposit required to maintain an appeal under section 19 of the Foreign Exchange Management Act, 1999 on grounds of financial hardship. 2. Whether the Tribunal may waive or relax the pre-deposit requirement where the appellant demonstrates a prima facie case on merits (i.e., whether a prima facie showing of merit can justify waiver of pre-deposit). 3. Whether an interim direction or deference to a pending modification application before a High Court excuses or postpones the Tribunal's obligation to decide the pre-deposit waiver application expeditiously. 4. If waiver is not granted in full, what is an appropriate conditional pre-deposit quantum that balances the object of the statute and the appellants' interests pending final adjudication? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Waiver of pre-deposit on grounds of financial hardship Legal framework: Section 19 of FEMA requires pre-deposit as a condition to maintain an appeal; the Tribunal has power to grant waiver/relief from pre-deposit in appropriate cases. Precedent treatment: The judgment does not rely upon or cite any judicial precedent; no prior authorities were followed, distinguished or overruled. Interpretation and reasoning: The Tribunal recognised that financial hardship is a recognized ground to seek waiver of the pre-deposit condition. However, it held that entitlement to relief on financial grounds requires pleading and documentary support establishing the inability to make the deposit (specific financial particulars, income/profit figures, and supporting documents). The appellants advanced oral submissions on financial incapacity and provided limited financial data (company profit figure and individual annual income) but produced no documentary proof in the waiver application. Given the absence of substantive pleadings and supporting documents, an outright waiver solely on the asserted hardship could not be granted. Ratio vs. Obiter: Ratio - A waiver on financial grounds requires substantive pleading and documentary proof of incapacity; mere assertions without supporting documents are inadequate to obtain full waiver. Obiter - The Tribunal's observation that financial hardship is a valid ground for waiver (if proved) is a guiding remark but not a determinative ruling in the absence of proof. Conclusions: The Tribunal declined full waiver on financial hardship because the appellants failed to file necessary pleadings and documentary proof. The Tribunal instead imposed a reduced pre-deposit (see Issue 4). Issue 2 - Waiver of pre-deposit on showing a prima facie case on merits Legal framework: The Tribunal may consider the merits of the case in deciding whether to relax the pre-deposit requirement; a prima facie case can justify waiver or reduction of pre-deposit in appropriate circumstances. Precedent treatment: No precedents were cited; the Tribunal proceeded on established practice that merits may be examined at a limited prima facie level for waiver purposes. Interpretation and reasoning: The appellants asserted that the penalty arose from erroneous allegations of bogus exports and that documentary/bill-wise details disclosed in the appeal demonstrate a prima facie case. The respondent relied on seized documents, confessions and statements (including statements recorded under section 37 of the Act and documents seized during searches) showing receipt of funds and alleged payment to intermediaries to arrange TTs, supporting the finding of bogus export. The Tribunal recognised that examination of merits at the pre-deposit stage is permissible but cautioned that detailed adjudication on merits at this interlocutory stage may prejudice either party at final hearing. Therefore, the Tribunal avoided definitive findings on merit; it treated the competing material (appellants' bill details vs. respondents' seized documents and witness statements) as creating contested prima facie positions but insufficient to justify complete waiver. Ratio vs. Obiter: Ratio - While the existence of a prima facie case on the merits may justify waiver or reduction, the Tribunal will not undertake a full merits determination at the pre-deposit stage; limited prima facie appraisal is permissible but must be cautious to avoid preclusion at final hearing. Obiter - Observations identifying specific evidentiary items for or against the parties are provisional and non-conclusive. Conclusions: The Tribunal declined to grant full waiver on merits alone because a conclusive prima facie demonstration in favour of the appellants was not made at the interlocutory stage; nonetheless the Tribunal recognised merit contentions as relevant to calibrating a reduced pre-deposit amount. Issue 3 - Effect of a pending modification application before the High Court on the Tribunal's duty to decide the waiver application Legal framework: Administrative and judicial directions requiring expeditious disposal of interlocutory matters do not automatically suspend the Tribunal's power or responsibility unless a modified order is produced. Precedent treatment: Not applicable; decision rests on procedural propriety and respect for extant orders rather than precedent. Interpretation and reasoning: The appellants urged deferral pending the outcome of a modification application before the High Court. The Tribunal held that in the absence of any modified order from the High Court, the Tribunal was bound to comply with the High Court's direction to decide the waiver application expeditiously and could not defer consideration merely because an application for modification is pending. The Enforcement Directorate had filed its response; therefore procedural fairness required adjudication rather than automatic postponement. Ratio vs. Obiter: Ratio - A pending modification application before a superior court does not automatically stay or displace the Tribunal's obligation to decide an interlocutory application unless and until the superior court issues a modified or stay order. Obiter - The Tribunal's statement that it 'must decide expeditiously' in deference to the High Court's direction is contextual to the facts. Conclusions: The Tribunal refused to defer decision on the waiver application for want of a modified High Court order and proceeded to decide the application on merits/procedural footing. Issue 4 - Appropriate quantum of pre-deposit when full waiver is denied Legal framework: The Tribunal has discretion to fix a reduced pre-deposit amount (percentage of penalty) while preserving the appealability and balancing the State's interest in securing amounts under challenge. Precedent treatment: No authority cited; the Tribunal exercised its discretionary power guided by the case specifics. Interpretation and reasoning: Considering (a) absence of documentary substantiation of financial incapacity, (b) contested prima facie material on merits (appellants' claimed export transactions vs. seized documents and statements indicating bogus receipts and payments for TTs), and (c) the need to avoid prejudicing final adjudication, the Tribunal chose a middle course - ordering deposit of 25% of the penalty amount within a fixed time-frame. The Tribunal explained that making definitive merit findings at this stage could affect final arguments and therefore limited its relief to reduction rather than waiver. Ratio vs. Obiter: Ratio - Where full waiver is not justified but some hardship or prima facie contention exists, the Tribunal may direct deposit of a reduced proportion (here 25%) of the penalty as a condition to maintain the appeal. Obiter - The specific choice of 25% is an exercise of discretion in the facts of this case and not a fixed rule for all cases. Conclusions: The Tribunal ordered deposit of 25% of the penalty within four weeks as the condition for admission of the appeal; the waiver application was disposed of subject to this deposit and further listing for hearing. Cross-references and Final Observations 1. Cross-reference: Issues 1 and 2 are related - both financial incapacity and prima facie merit can justify waiver; lack of pleading/evidence and contested facts on merits led the Tribunal to grant a reduced deposit (Issue 4) rather than full waiver. 2. Procedural cross-reference: Issue 3 informed the Tribunal's obligation to decide without deferral; this procedural determination catalysed substantive assessment under Issues 1-2 and the consequent discretionary reduction under Issue 4. 3. Practical ratio: To obtain full waiver of pre-deposit under section 19 FEMA an appellant must either plead and document financial incapacity adequately or establish a compelling prima facie case on merits; absent either, the Tribunal may exercise its discretion to require a reduced pre-deposit to balance competing interests.