TaxTMI 
TaxTMI 
2014 (2) TMI 929
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....rred to as the "Adjudication Rules") to hold an inquiry as to whether the petitioner has contravened the provisions of section 13 of the Foreign Exchange Management Act, 1999 (hereafter referred to as "the Act"). The "opinion" is referred to in a letter dated 21.03.2013 which is also challenged. In view of a judgment of the Supreme Court and a judgment of a Division Bench of this Court, we have upheld the challenge on the ground that the respondents failed to furnish the documents relied upon by the first respondent in the show cause notice and on the ground that there are no reasons for the opinion. 5. The petitioner seeks an order directing the respondents to supply all the documents referred to in a complaint dated 13.07.2011 and not annexed to the complaint and the show cause notice and an order quashing a letter dated 04.06.2013 by which the respondents refused to furnish the documents to the petitioner. 6. The petitioner also seeks an order setting aside the decision contained in a letter dated 16.12.2011 passed by respondent No.1 and an order directing the respondent's to implement the decision contained in a letter dated 22.09.2011. By the letter dated 22.09.2011 (wrongl....
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....BCCI. Section 42 of the Act which provides for vicarious liability reads as under: - "42. Contravention by companies.- (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention 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 contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such contravention. (2) Notwithstanding anything contained in subsection (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other of....
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....n as stated in the complaint was that the BCCI had drawn foreign exchange in excess of the permissible limits and had entered into the transactions without the prior approval of the RBI and thereby contravened the provisions of section 5 of the Act. Accordingly, the complaint concluded that in view of section 42 of the Act and in view of his position in the BCCI, the petitioner was vicariously liable for the said offences. Respondent No.2, the complainant, inter alia sought permission to rely upon the documents mentioned in the "Annexure" to the complaint. The Annexure referred to 13 documents inspection whereof was granted to the petitioner. The question is whether the petitioner was also entitled to the other documents mentioned in the complaint. 10. Pursuant to the complaint, respondent No.1 served a show cause notice dated 20.07.2011 upon the BCCI, the petitioner, the honorary secretary and the honorary treasurer of the BCCI. The notice stated that a perusal of the complaint indicated contraventions by the BCCI of section 5 of the Act and the Rules thereunder to the extent of Rs.88,48,01,059 and that the other parties to the show cause notice were vicariously liable in terms o....
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....a 1.3 of the complaint. (h) The statement of Mr.N. Srinivasan dated 8.7.2010 relied upon in para 2.5 of the complaint is in continuation to his statement recorded on 7.7.2010 and is therefore incomplete. The statement dated 7.7.2010 of Mr.N. Srinivasan has not been provided. (i). Directive dated 21.05.2010 issued to IMG as relied upon in para 2.7 of the complaint. (j). Letter dated 16.07.2010 given by IMG to ED as relied upon in para 2.7 of the complaint. (k) The statement of Mr.Andrew Wildblood of 12.10.2010 relied upon in para 2.10 by reference confirms and incorporates the statements of Paul Manning, John Loffhagen and Peter Griffiths tendered on 29th and 30th Sept 2010 to ED. The statements of Paul Manning and John Loffhagen have not been provided which makes the statement of Andrew Wildblood incomplete." 12(A). The enforcement officer for the Special Director - respondent No.1 by his letter dated 22.09.2011 addressed to respondent No.2 stated that the respondent No.1 desired "that copies of the documents referred to in the complaint but not mentioned in the Annexure to the complaint, may be supplied to the noticee ......." By a further letter dated 24.11.2011 respondent N....
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....e case in his absence and pass an adjudication order on the basis of the material and evidence available to him. In view of one of the contentions raised by Mr.Chinoy it is of vital importance to note that this letter stated nothing more. It furnished no reasons for the first respondent's decision to initiate adjudication proceedings against the petitioner under rule 4. Mr.Setalvad confirmed that no reasons for this order are separately recorded or even passed. 15. The first issue pertains to the determination of the documents that the person served with a notice under section 13 of the Act is entitled to inspection of. Mr.Chinoy submitted that the authorities are bound to furnish all the documents that are relevant to the case irrespective of whether they are referred to and relied upon in the notice to show cause or not. Alternatively he submitted that the authorities are bound to furnish inspection of all documents referred to or relied upon in the notice to show cause. In the further alternative he submitted that the authorities are in any event bound to furnish inspection of documents relied upon by the authorities in the notice to show cause. Mr.Setalvad submitted that the ....
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....n fails, neglects or refuses to appear as required by sub-rule (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 provisions of Section 13 of the Act. (9) Every order made under sub-rule (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 authorisation is issued by the Reserve Bank of India in respect of which contravention has taken place and shall contain brief reasons for such decisions. (10) Every order made under sub-rule (8) shall be dated and signed by the adjudicating authority. (11) A copy of the order made under sub-rule (8) of Rule 4 shall be supplied free of charge to the person against whom the order is made and all other copies of proceedings shall be supplied to him on paym....
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....ed. To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules. Fair procedure and the principles of natural justice are in-built into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute. Part V: Duty of Adequate Disclosure 32. The real question that arises for consideration is whether the adjudicating authority even at the preliminary stage is required to furnish copies of all the documents in its possession to a noticee even for the purposes of forming an opinion as to whether any inquiry at all is required to be held. 33. In this regar....
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....(see Haryana Financial Corpn. v. Jagdamba Oil Mills.) 47. It appears that those Acts recognise rights of accused persons in a criminal case to a fair trial. It is clear that disclosure of unused material in criminal proceedings in the United Kingdom is regulated by the provisions of those Acts and applicable to criminal trials where the accused are charged with criminal offences. Duty of disclosure of unused material is not a definite concept to be applied in any and every case in this country. There is no such Act or law as in the United Kingdom, nor any procedure prescribed for disclosure of unused material in criminal proceedings. In the present case, the appellants are not defendants in any criminal trial. The judgment has no application as to the fact situation and the law applicable in the United Kingdom is not applicable to either the adjudicatory proceedings or even criminal trials in this country. 48. On a fair reading of the statute and the Rules suggests that there is no duty of disclosure of all the documents in possession of the adjudicating authority before forming an opinion that an inquiry is required to be held into the alleged contraventions by a noticee. Even ....
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.... refer to other documents. Whether a party is entitled to such other documents would depend upon whether the Adjudicating Authority relied upon them as well. That would depend upon the facts of each case. Merely because the Adjudicating Authority relied upon a document in the show cause notice, it does not necessarily follow that all the documents referred to in such documents were also relied upon by him or formed the basis on which he formed his opinion that an inquiry should be held. 22. A view to the contrary would render the entire proceedings unwieldy at the outset causing an enormous delay in the Inquiry. The opportunity to persuade the authority not to even proceed with the inquiry is an additional right conferred by the rules and ought not to be permitted to be abused by persons against whom inquiries are proposed to be held, to delay the inquiry. 23. Mr.Chinoy's reliance upon paragraph 25 of the judgment of the learned single Judge of the Delhi High Court in Natwar Singh's case, (2007) Law Suit (Del) 345, is also not well founded. We will refer to the judgment again in another context. Paragraph 25 records the statement on behalf of the Directorate to the effect only th....
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.... was issued on the basis of all the documents taken together. Vicarious liability under section 42 is not absolute. The person charged is entitled to defend himself on merits contending that there is no contravention. He is also entitled in a case where the contravention is clear to establish under the proviso to section 42 that the contravention was without his knowledge or that he exercised all due diligence to prevent such contravention. Thus even if some of the documents relied upon indicate a contravention under section 13, it would not be a ground for denying a person inspection of all the documents relied upon. They may be relevant regarding the persons personal defence under the proviso to section 42. 29. This view is supported by the judgment of a Division Bench of this court in the case of Shashank Vyankatesh Manohar vs. Union of India & Anr. 2013(12) LJSOFT 81 = 2013(5) ALL MR 551 where the Division Bench rejected a similar contention. "13. According to the learned Additional Solicitor General, the objections which have been raised by the petitioner would be considered and reflected in the final adjudication order which the Adjudicating Authority would pass. It is this....
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....he question would still remain whether such documents i.e. documents referred to in the notice other than those mentioned in the annexure thereto are relied upon or not. If they are the authorities are bound to furnish them. In the present case the complaint does not in any event state that the documents other than those referred to in the annexure thereto are not relied upon. In fact the last sentence specifically stated "That the complainant (Respondent No.2) seeks permission of the Adjudicating Authority (Respondent No.1) to refer to and rely inter-alia on the documents mentioned in the "Annexure" to the complaint." It is clear from the expression "inter-alia" that the complaint did not rely only upon the documents referred to in the Annexure thereto. 33. The judgment in Natwar Singh's case does not support Mr.Setalvad's contention in this regard either. From a reading of the judgment as a whole and alongwith the judgment of the learned single Judge and of the Division Bench in that case, it is apparent that the petitioner therein sought not merely the documents relied upon but also those in the "possession" of the authorities which he believed supported his case on merits. It ....
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....earned single Judge recorded that the petitioners had requested for supply of the entire documents "available with" the Directorate of Enforcement, pertaining to the show cause notices "including the documents not relied upon." Throughout the judgment, there are references to the petitioner's demand for copies of the documents which were in "possession" of the authorities. Mr.Setalvad relied upon paragraph 19 of the judgment wherein the learned Judge has quoted a part of the show cause notice. Mr.Setalvad relied upon the following words in the show cause notice :- "IN ISSUING this Show Cause Notice, reliance, inter alia, is placed on the documents mentioned in the Annexure to this Notice." He relied upon the fact that these were the very words in the show cause notice in the case before us. In view thereof, he contended that all that the learned Judge held the petitioner to be entitled to was the documents listed in the annexure to the notice and nothing else. We are not inclined to speculate in this manner and in this regard. The entire show cause notice is not set out in the judgment. It is difficult to say that the documents other than those mentioned in the annexure to the sh....
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....cees, therefore, knew the exact basis on which the Adjudicating Authority proposed to initiate an inquiry. They had an opportunity to explain their position qua the said material. The attempt made by the petitioner however was to seek disclosure of all the documents in possession of the Directorate of Enforcement regardless of whether or not the Directorate was placing any reliance upon the same. What is significant is that the Adjudicating Authority was at that stage taking only a prima facie view of the matter and was not either by the provisions of the Rule or by any other principle of fairness or considerations of equity, required to supply the material upon which the Enforcement Directorate did not place any reliance against the noticees. The insistence on the part of the appellants for disclosure of documents that were not being pressed into service against them was therefore unsupported by any legal requirement under the rules or principles of natural justice as applicable to such inquiries. The Adjudicating Authority was in that view legally correct in declining the request for supply of documents not relied upon by the Directorate of Enforcement. So also was the learned si....
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....detention incomplete and ineffective. Once the documents are referred to in the grounds of detention it becomes the bounden duty of the detaining authority to supply the same to the detenu as part of the grounds or pari passu the grounds of detention. There is no particular charm in the expressions "relied on ", " referred to" or "based on" because ultimately all these expressions signify one thing, namely, that the subjective satisfaction of the detaining authority has been arrived at on the documents mentioned in the grounds of detention. The question whether the grounds have been referred to, relied on or based on is merely a matter of describing the nature of the grounds. Even so in the case of Ramchandra A. Kamat v. Union of India & three-Judge-Bench decision of this Court to which one of us (Fazal Ali, J.) was a party, clearly held that even the documents referred to in the grounds of detention have to be furnished to the detenu. In this connection the court observed as follows: [SCC p. 273: SCC (Cri) p. 417, para 8] "This Court has repeatedly held that the detenu has a constitutional right under Article 22(5) to be furnished with copies of all the materials relied upon or r....
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.... Mr.Setalvad's case any further. This again is assuming that the cases under the CAFEPOSA apply to cases such as the one before us. 38. This brings us to a consideration of the question whether the documents of which the petitioner seeks inspection were relied upon in the show cause notice. 39. We enumerated earlier the documents of which the petitioner sought inspection in paragraph 3 of his advocate's letter dated 22.08.2011. Mr.Setalvad stated that the respondents are now agreeable to furnish the petitioner all the documents except those relating to the franchisees referred to in paragraph 3(f) and the documents mentioned in paragraph 3(k). It is necessary therefore, to only consider whether the petitioner is entitled to these documents. 40. Before considering this aspect, it is necessary to refer to the show cause notice once again. As mentioned earlier, the show cause notice refers to the complaint under section 16(3) and states : "On perusal of the said complaint and after considering the cause shown by the complainant in his complaint there appears to be contravention of the following provisions of the Act as specified in the complaint." The show cause notice itself doe....
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....The statement of Mr.Andrew Wildblood of 12.10.2010 relied upon in para 2.10 by reference confirms and incorporates the statements of Paul Manning, John Loffhagen and Peter Griffiths tendered on 29th and 30th Sept 2010 to ED. The statements of Paul Manning and John Loffhagen have not been provided which makes the statement of Andrew Wildblood incomplete." The petitioner has been furnished a copy of the statement of Andrew Wildblood. It is referred to in paragraph 2.10 of the complaint. Paragraph 2.2 of the complaint reads as under :- "2.10 Further, Mr. Andrew Wildblood, Vice President, IMG (UK) Ltd., appeared in this office on 12.10.2010 and in his statement he explained the services provided by IMG to BCCI-IPL in relation to the conduct of the Indian Premier League and stated that they had researched the correct split of rights between those that would be sold centrally by the BCCI and those to be sold locally by the respective franchises in order to arrive at the optimum financial position and that all of this would have been educated estimates of potential value as no precedent existed for the launch of such a league and that it was this financial research that would have sugge....
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....entitled to be furnished the documents referred to in paragraph 3(k) of the letter dated 22.08.2011. 47. The petitioner was denied the copies or even inspection of the documents referred to in paragraph 3 of the letter dated 22.08.2011. The respondents have now, during the course of this hearing, agreed to furnish all the documents except those relating to the franchisees referred to in paragraph 3(f) of the said letter and the statements referred to in paragraph 3(k) of the said letter. We have held that the petitioner is entitled to those documents as well. It must follow therefore, that the decision to proceed to the inquiry is liable to be set-aside, as the petitioner had no opportunity of showing cause against the respondents conducting the inquiry. Respondent No.1 would be entitled to proceed with the proposed inquiry only in the event of his furnishing the documents referred to in paragraph 3 of the letter dated 22.08.2011. Alternatively, the respondents would be entitled to issue a fresh show cause notice and proceed accordingly. They are at liberty to do so even now afresh. 48. Mr.Chinoy further submitted that the opinion is liable to quashed and set aside as it contains....
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....n the file. This forming of opinion need not be a detailed consideration of all the submissions but must show application of mind to the objections raised by the noticee. In case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order. 15. However, this formation of opinion by the Adjudicating Authority is not required to be preceded by a personal hearing but only consideration of the written objections of the noticee would meet the ends of natural justice. The personal hearing would be afforded to the noticee before the disposal of the show cause notice by a final order an appealable order. This formation of opinion must be on record of the Adjudicating Authority, in this case the Special Director, Directorate of Enforcement. Keeping this recording of reasons on the file would ensure that there has been a due application of mind to the objections raised by the noticee. This would be a necessary safeguard against forming arbitrary opinions. These recorded reasons must be furnished to the n....
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....read with Section 42 of the Act. 21. Thus, in view of the above discussion, we are of the view that Adjudicating Authority after issuing show cause notice and receiving objections to the notice from the noticee, is required to apply his mind to the objections by recording his reasons for forming an opinion on the file. This exercise need not be preceded by personal hearing and the order to be passed on the objections is not required to be detailed order, but it must disclose some link with the objections raised by the noticee and the opinion formed by the Adjudicating Authority. This recording of the opinion of the Adjudicating Authority would be given to the noticee when the proceedings are dropped in the form of an order. However, in cases where the opinion is formed to proceed further with the show cause notice, then a notice for personal hearing is required to be given to the party in terms of Rule 4 of the Adjudication Rules. However, if on receipt of the notice for personal hearing, the recorded reasons are sought for by the noticee, the same should be given. However, this recording of reasons is not an appealable order but it would give the noticee a chance during adjudicat....