TaxTMI 
TaxTMI 
2013 (8) TMI 435
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....how Cause Notices. All the show cause notices are issued to the Board (BCCI) and to the petitioner and six other persons. 2. The challenge to the impugned 11 show cause notices by the petitioner is on the ground that the same has been issued to him without jurisdiction as under the Act, he cannot be held liable under Section 42 of the Act for the breaches, if any, committed by the Board and by other persons and even otherwise no case is made out against him for violation of the Act. While the challenge to the notice of hearing dated 6 June 2013 is that the same has been issued without complying with the requirements of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (in short "Adjudication Rules"). 3. Factual Matrix (a) During the period 2008 to 2011, the petitioner was President of the Board. In the year 2008, the Board commenced conducting a domestic Cricket tournament by the name of Indian Premier League (IPL). The first edition of the IPL in 2008 was conducted in India and it was immensely successful. (b) The Board had declared that the second edition of the IPL for the year 2009 was proposed to be held during the period 10 April 2009 to 24 May....
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....odi, Chairman IPL Governing Council, Mr.Ratnakar Shetty, CEO IPL Governing Council, Mr.P.Kannan, Manager, Business and Commercial Services, IPL and Mr.S. Raman, COO, IPL All the impugned show cause notices specifically mentioned that the adjudication of the notices would be in terms of Rule 4 of the Adjudication Rules. Besides, a copy of the complaint dated 16 November 2011 which was the basis of all the notices were also enclosed to each of the impugned 11 notices. (e) On 23 February 2012, the petitioner filed his individual common reply to the 11 impugned show cause notices dated 25 November 2011. In his reply, the petitioner contended that notices issued to him are without jurisdiction as Section 42 of the Act would have no application in his case. This is for the reason that the Board is not Association of individuals but an Association of other Associations which are individually either registered as Societies or Trusts. Moreover, the Board is not a body corporate nor is it a firm. Therefore, the Board not being covered by explanation to Section 42 of the Act, no occasion to apply the same for imposition of penalty upon the petitioner can arise. Besides, on merits it was cont....
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....rovisions of Section 42 of the Act. (b) On merits, neither the complaint dated 17 November 2011 filed with the Special Director, Directorate of Enforcement read with the statements referred to therein nor the impugned 11 notices demonstrate even prima facie, that the petitioner had any role with regard to the remittances and receipts of foreign exchange in the conduct of second edition of IPL in the year 2009 in South Africa. On the contrary : (i) BCCI had constituted a separate Committee to administer IPL under the Chairmanship of Mr.Lalit Modi with a separate bank account to be operated by Treasurer, BCCI. (ii) At the BCCI meeting held on 22 March 2009, after deliberations the only role assigned to the petitioner was to choose the venue of Second IPL, 2009 between United Kingdom and South Africa, and nothing more. (iii) At the said meeting attended by Secretary, BCCI and Treasurer, BCCI, the petitioner had specifically stated that the bank account for Second IPL 2009 at South Africa should be opened after seeking clearance of RBI and the bank account would be operated by Hon. Treasurer Mr.M.P. Pandove. The members agreed with the said observations and appropriate resolution i....
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....djudication Rules and there is no breach of natural justice as personal hearing has been offered. Thereafter, a speaking order either dropping or confirming the notices will be passed, which in turn would be an appealable order. 6. We have considered the rival submissions. 7. As regards the first contention advanced on behalf of the petitioner, it would be too much to say that complaint against BCCI is not maintainable as it is not a company or a firm or an association of persons, but it is an association of societies. The definition of "person" in Section 2(u) of the Act reads as under : "(u) "person" includes (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) every artificial juridical person, not falling within any of the preceding subclauses, and (vii) any agency, office or branch owned or controlled by such person." It is clear that the definition is an inclusive one and, therefore, BCCI as well as Governing Council for IPL are persons within the definition of Section 2(u) of the Act. 8. As regards the second contention of the petitioner regarding ....
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....ourt may not issue a writ and the petitioner should be directed to respond to adjudication proceedings. Reliance was placed on the decision of the Apex Court in Special Director vs Mohd. Ghulam Ghouse 2004 (3) SCC 440. 10. It is true that ordinarily this Court would not entertain a Writ Petition against a show cause notice as the noticee would get an opportunity to submit his reply and of hearing before the adjudicating authority. However, the scheme of the Adjudication Rules in question is different from the other inquiries where an authority issues a show cause notice, the noticee submits his reply, the authority then hears the complainant and the noticee for taking a decision in the matter. Ordinarily, inquiries are not divided into different stages, unlike the inquiry for which procedure is laid down in Rule 4 of the Adjudication Rules. In ordinary inquiries, the inquiry officer is not required to form any opinion before conclusion of the inquiry. On the other hand, the scheme of Rule 4 of the Adjudication Rules is quite different and the same is required to be examined both for the purpose of considering the last alternative submission of the petitioner about breach of Rule 4....
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....iry under this rule the Adjudicating Authority shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the Adjudicating Authority may be useful for or relevant to the subjectmatter of the inquiry. (7) If any person fails, neglects or refuses to appear as required by subrule (3) before the Adjudicating Authority, the Adjudicating Authority may proceed with the adjudication proceedings in the absence of such person after recording the reasons for doing so. (8) If, upon consideration of the evidence produced before the Adjudicating Authority, the Adjudicating Authority is satisfied that the person has committed the contravention, he may, by order in writing, impose such penalty as he thinks fit, in accordance with the provisions of section 13 of the Act. (9) Every order made under subrule (8) of rule 4 shall specify the provisions of the Act or of the rules, regulations, notifications, direction or orders or any condition subject to which an authorization is issued by the Reserve Bank of India in respect of which contravention has taken place and s....
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....no application where prima facie, the noticee is connected to the alleged contravention such as in the present case and, therefore, the authority has formed the opinion to proceed with the inquiry and, therefore, the impugned notice for personal hearing has been issued on 6 June 2013. 14. This submission of the learned Additional Solicitor General would require one to read words into Rule 4 of the Adjudication Rules that the objections to the show cause notice would be considered, only if they are of particular type, such as, the noticee is a stranger to the proceedings and no other objection would be considered while deciding whether or not the adjudication must be proceeded with further. Even if one were to proceed on the basis of the submission of the learned Additional Solicitor General that only some type of cases would fall within the mischief of Rule 4 (1) and (3) of the Adjudication Rules, yet the fact that the Adjudicating Authority has applied his mind to the objection raised by the noticee would only be evident if the formation of his opinion is recorded at least on the file. This forming of opinion need not be a detailed consideration of all the submissions but must sh....
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....l order. 16. Secondly, though the proceedings under Section 13 of the Act do not result into any conviction or sentence, the consequences are equally penal and disastrous. The noticee may be held to be liable to a penalty up to three times the sum involved in such contravention where such amount is quantifiable. Section 13(1) of the Act reads as under : "13. Penalties.( 1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable......." As is apparent from the complaint at Exhibit "B", the amount for which the alleged contravention has taken place i.e. not obtaining the RBI permissions/clearances, are to the tune of about Rs.1314 crores. Hence, the penalty can go up to three times the said amount. Such an order would be enforceable under Section 14 of the Act, which provides that if any person fails to make full payment of penalty imposed....
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....or reopening the assessment. On receipt of the reasons recorded for reopening the assessment, the party is entitled to place its objections to the reasons recorded for reopening before the Assessing Officer. The Assessing Officer is then required to consider those objections and pass an order thereon before proceeding to reassess the assessee's income in respect of a completed assessment. Thus, the Supreme Court has provided for giving of reasons recorded while reopening the assessment to the party and then dealing with the objections of the party. In this case, it has been specifically provided in Rule 4 of the Adjudication Rules that the noticee under the Act is entitled to raise objections to the issuance of the notice and the Adjudicating Authority is obliged to consider those objections and form an opinion whether or not to proceed further with the show cause notice. Formation of opinion itself would presuppose an application of mind to the facts and the objections of the party before it is decided to proceed further with the show cause notice. This opinion cannot be arbitrary, but must be supported by reasons, howsoever, minimal those reasons may be, to evidence application ....
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....r.Srinivasan had pointed out that the Board would set up a SubCommittee in the form of a Governing Council to deal with all matters pertaining to Indian Premier League and "the Governing Council would consist of - (a) Mr. Lalit Modi as Chairman and seven other members including three former cricketers, office bearers of BCCI would be exofficio members of the Council, (b) Governing Council would be authorised to engage a Chief Executive Officer and other staff to attend to day to day affairs of Indian Premier League, (c) Indian Premier League will have " a separate Bank Account to be opened by the Treasurer, BCCI, Mr. N. Srinivasan " ; and (g) Indian Premier League will have its separate office at the Cricket Center, Wankhede Stadium, Mumbai........". (emphasis supplied) The following resolution was unanimously passed at the said meeting : "It is hereby resolved that the Hony. Tresurer of BCCI is authorized to open a separate Bank Account in the name of Indian Premier League." 24. Again, at the meeting held on 16 December 2007, the Special General meeting of BCCI approved the amendment proposed by Mr.N. Srinivasan, then Secretary, BCCI, to the Rules and Regulations of BCCI as....
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....he RBI seeking approval for opening a bank account outside India for IPL tournament. He further stated that he was not concerned with the accounts of BCCI and therefore, he was not aware about the details of remittances made to CSA for the tournament. On being asked about decisions taken in terms of the rule requiring decisions in the GC meetings to be taken by majority, Shri Manohar stated that to the best of his knowledge no decision was put to vote at the GC. He denied having been informed about the various expenses before they were made by the BCCI in SA for IPL 2009. He further stated that the Hon. Secretary was authorized to approve expenses on behalf of BCCI." 27. The complaint under Section 16(3) and other provisions of the Act lodged with the Special Directorate of Enforcement (Adjudicating Authority) also indicates that remittances were made to Cricket South Africa for conduct of IPI 2 tournament as per the forms submitted by Mr. M.P. Pandove, the then Honorary Treasurer between 31 March 2009 and 27 August 2010. In paragraphs 2.2, 2.11 and 2.14 of the complaint, it is stated as under : "2.2 Investigation revealed that the BCCI entered into an agreement with Cricket Sou....
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....the President/Working Committee of the BCCI; that the agreement with IMG Media was signed by Mr.Lalit Modi; that Cricket South Africa along with representatives from IPL and IMG and some officials from BCCI were authorized by the BCCI to organize and monitor the functioning of IPL 2 in South Africa." 29. As regards the procedure for making remittances during IPL in South Africa has been pointed out in the statement of Mr.Pandove, Honorary Treasurer, recorded on 19 August 2011, which is set out in the complaint specifically as under : " Further statement of Shri Pandove was recorded on 19th August 2011, wherein he inter alia, stated that the procedure in the BCCI for making remittances outside India was that all receipts and payments were effected after approval by the Working Committee/Honorary Secretary of the BCCI. In respect of the remittances made to CSA for hosting and conducting of the IPL in South Africa he stated that as per the decision of the IPL Governing Council and Working Committee, procedure for making the remittances was as under : a) The IPL Chairman, IPL Secretariat, IMG and CSA personnel were at South Africa to assist the CSA to conduct the tournament. b) The....
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....ements were recorded during the investigation. The petitioner would, therefore, prima facie be justified in submitting as far as opening and operating of bank account of IPL or obtaining permission of Reserve Bank of India for making remittances or receipts of foreign exchange was concerned, the petitioner was not in charge of and responsible to BCCI for the aforesaid operational matters. It is also the petitioner's case that the remittances and receipts of foreign exchanges without obtaining permission of Reserve Bank of India which took place without the petitioner's knowledge. The petitioner had exercised all due diligence to prevent such contravention by informing the Working Committee of BCCI at its meeting held on 22 March 2009 at Mumbai that permission of Reserve Bank of India should be obtained for opening an account and that the account would be operated by Treasurer Mr. M.P. Pandove. The Working Committee had accepted the above suggestion and the resolution in that regard was to be framed by Mr. N. Srinivasan. Mr. N. Srinivasan, Honorary Secretary of BCCI and Mr. M.P. Pandove, Honorary Treasurer of BCCI were also present at the said meeting apart from Mr.Lalit Modi who w....
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....was issued and why it got dishonoured. "10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are "every person". These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words : "Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence, etc." What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a ....
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....rovisions of Section 141 of the Negotiable Instruments Act, 1881, the principles laid down by the Supreme Court in S.M.S. Pharmaceuticals Ltd. Vs Neeta Bhalla and another, (2005) 8 SCC 89, are required to be applied to FEMA cases also. The Supreme Court has in terms held that the liability is cast on persons who may have something to do with the transaction complained of and not on the basis of merely holding a designation or office. It would depend on what role one plays and not on designation and status. Since the nature of liability and consequences cast by Sections 13 and 14 of the Act, as indicated in paragraph 16 of this judgment, are no less penal than the liability and consequences under Section 138 of the Negotiable Instruments Act, the only persons who can be said to be connected with the contravention of FEMA at the relevant time have been subjected to action. That is why even in case of a person holding the position of a managing director, he will not be liable if he had no knowledge of the contravention when the contravention took place or if he had exercised all due diligence to prevent the contravention of the Act. The liability is thus cast on persons who had someth....