2025 (11) TMI 1643 - HC - FEMA

Interlocutory appeals on cross-examination denial held not maintainable; natural justice objections kept open for final appeal

Knight Riders Sports Private Limited Versus The Special Director of Enforcement.

HC held that the third member of the Tribunal was right in concluding that the appeals against the interlocutory orders dated 15 November 2017 and 30 ... Determining the issue of maintainability by third member - denial of opportunity to cross-examine and recall of witnesses - principle of natural justice - Learned Senior Counsel’s grievance was that the third member had made observations on the merits of the appeal instead of restricting itself to the issue of maintainability of the appeal - HELD THAT:- We clarify that should the Adjudicatory Authority decide finally against the Appellants, and the Appellants decide to challenge the final order-in-original disposing of the show cause notice by instituting an Appeal, the Appellants will have the liberty to challenge the orders dated 15 November 2017 and 30 October 2017 on the issue of alleged denial of opportunity to cross examine, in such Appeal or Appeals. At that stage, we are sure these challenges or grounds will be considered by the Tribunal, uninfluenced by any observations made in the order dated 26 July 2019. The order dated 26 July 2019, as mentioned above, basically agrees with one of the Members of the Tribunals in holding that the appeals against the orders dated 15 November 2017 and 30 October 2017 were not maintainable. Although Mr Desai points out that the observations were made on the merits of the matter, the learned third Member has clarified that they were made solely in the context of determining the issue of maintainability. Therefore, such observations do not and should not influence the decision on the merits of the challenge to the orders of 15 November 2017 and 30 October 2017; should any opportunity arise for the Appellants to contest these orders in the appeal they may have to file against the final adjudication order, if such an occasion arises. In our opinion, the above clarification will sufficiently protect the interest of the Appellants herein and at the same time will not indefinitely stall the adjudication proceedings pursuant to the show cause notice dated 24 March 2017. Though Mr Dessai submitted that the Appellants want to get on with the adjudication proceedings and move on, we note that the proceedings have remained stalled for almost 8 years due to the Appellants' non-maintainable appeal. The adjudication should not be delayed by any party hereafter. We dispose of both these Appeals. ISSUES PRESENTED AND CONSIDERED 1. Whether appeals before the Tribunal against adjudicatory orders dated 15 November 2017 and 30 October 2017 were maintainable where the Tribunal Bench was divided and a third member was required to decide maintainability. 2. Whether observations made by a third member in the course of deciding maintainability, which refer to merits, amount to disposal of the appeal on merits or otherwise prejudice future adjudicatory or appellate consideration. 3. Whether denial of opportunity to cross-examine two witnesses and refusal to recall witnesses for cross-examination in the adjudicatory proceedings constitutes a ground that requires reopening or fresh hearing when the appeal is held not maintainable. 4. What procedural relief, if any, should be afforded where an appeal is held not maintainable but adjudication on the show-cause notice remains pending or was earlier closed for orders, including timelines and scope for further material or application for production of evidence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of the Appeals and role of a third member Legal framework: Maintainability of an appeal is a threshold question for the Tribunal to determine before adjudicating merits; when a multi-member Bench is divided, the view of a third member settles the matter. Precedent Treatment: The Court treats internal Tribunal procedure of reference to a third member as binding to resolve divergence between members; no precedent was overruled or distinguished in the judgment. Interpretation and reasoning: The Tribunal's order dated 26 July 2019 aligns with one member of the Bench and the third member in holding the appeals not maintainable. The Court examined whether the third member improperly decided the merits instead of restricting to maintainability and found that the third member's references to merits were limited to the context of determining maintainability and did not amount to a merits disposal. Ratio vs. Obiter: Ratio - where Bench members differ, reference to a third member that concludes non-maintainability is authoritative and leads to dismissal of the appeals for want of maintainability. Obiter - incidental remarks by the third member touching merits but made for the limited purpose of resolving maintainability. Conclusions: The appeals were correctly held not maintainable by the Tribunal; the third member's conclusions on maintainability are effective to dispose of maintainability issue and do not amount to adjudication on merits. Issue 2 - Effect of incidental merit observations by the deciding member Legal framework: A deciding member tasked with resolving a preliminary question may refer to factual or legal aspects relevant to that question; distinction exists between observations necessary to determine a threshold issue and a final decision on merits. Precedent Treatment: The Court did not rely on or displace existing authorities but applied principle distinguishing threshold-determinative observations from merits adjudication. Interpretation and reasoning: The third member's references to aspects of the merits were confined to the maintainability analysis; the Court accepted the third member's clarification that such references were made solely to decide maintainability. Therefore, those observations should not be treated as binding on the merits in any future proceedings. Ratio vs. Obiter: Ratio - incidental merit-related observations made solely for determining maintainability do not preclude fresh merits adjudication; Obiter - cautionary remarks that such observations should not influence future Tribunal consideration. Conclusions: Observations by the third member touching merits, when explicitly confined to maintainability, do not constitute adjudication on merits and should not influence later adjudicatory or appellate decisions on the substantive issues. Issue 3 - Denial of opportunity to cross-examine and recall of witnesses: remedial consequences when appeal is non-maintainable Legal framework: The right to cross-examine witnesses is integral to fair hearing; where an adjudicatory order is alleged to have denied that right, appellate or fresh adjudicatory proceedings may need to provide a remedy, subject to procedural rules governing reopening, recall, or cross-examination. Precedent Treatment: The Court did not overrule or follow a particular precedent but applied the principle that fairness requires an opportunity to be heard and cross-examine where denial is asserted. Interpretation and reasoning: Since the appeals are non-maintainable and adjudication must proceed before the Adjudicatory Authority, the Court directed that a fresh opportunity for final arguments and to place replies/written submissions be granted. The Court recognised that officers who conducted earlier proceedings might no longer hold charge, and a fresh hearing would remove any objection that the same officer must decide. For further material or production of evidence, the Appellants may make a written application within four weeks of uploading the order; such applications to be decided on merits in accordance with law. Ratio vs. Obiter: Ratio - where an appeal on procedural denial is non-maintainable, the appropriate remedy is to require the original adjudicatory process to afford a fresh hearing and to consider timely applications for production of material or recall on their merits; Obiter - observations about passage of time and officer-in-charge may inform but do not determine remedial scope. Conclusions: A fresh hearing for final arguments and submissions is directed; the Appellants may apply within a prescribed time for production of further material, which the Adjudicatory Authority must decide on legal merits. This procedure adequately addresses alleged denial of cross-examination without treating the previously-filed appeals as maintainable. Issue 4 - Procedural directions, timelines, and liberty to raise similar grounds in future appeals Legal framework: Courts can issue directions to ensure timely adjudication and to preserve parties' rights to challenge final orders; appellate review is available against final adjudicatory orders, and parties retain liberty to raise procedural denial grounds thereafter. Precedent Treatment: The Court's directions are consistent with supervisory powers to prevent undue delay and to preserve parties' rights in subsequent proceedings; no direct precedent citation was used. Interpretation and reasoning: To prevent indefinite stalling while protecting the Appellants' rights, the Court directed disposal of the show-cause notices within four months of an authenticated copy of the order being placed before the Adjudicatory Authority. The Court clarified that if the Adjudicatory Authority ultimately decides against the Appellants, they are free to challenge the final order and may raise the alleged denial-of-opportunity grounds in that appeal; the Tribunal should consider those grounds uninfluenced by observations in the 26 July 2019 order. Ratio vs. Obiter: Ratio - directions establishing a finite timeline for final adjudication (four months) and expressly preserving the liberty to raise previously asserted procedural grievances in any future appeal; Obiter - assurance that the Tribunal will consider such grounds uninfluenced by earlier incidental observations. Conclusions: The adjudicating authority must conclude the show-cause proceedings within four months of receipt of the authenticated order copy; the Appellants retain liberty to challenge any adverse final order and to advance grounds of denial of cross-examination, with the Tribunal to consider those grounds afresh. Ancillary procedural findings Interpretation and reasoning: The Court rejected characterisation that the third member disposed of the appeals on merits; it found that the Appellants' initial misapprehension regarding the third member's findings was not sustained. The Court emphasised that prolonged stalling (noted as almost eight years) is impermissible and directed that adjudication should not be further delayed by any party. Ratio vs. Obiter: Ratio - final admonition that the adjudication process must proceed expeditiously; Obiter - remarks about the appellants' desire to move on and the passage of eight years contextualise urgency but do not determine substantive rights. Conclusions: Appeals disposed as not maintainable; adjudicatory process to be given fresh opportunity for hearing and finalized within prescribed timeframe; no costs awarded; civil applications disposed.