TaxTMI 
TaxTMI 
2010 (4) TMI 1121
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....ng the Petitioner that the adjudication proceedings in respect of the Memo. No. T-4/2-BAN/2000 (SCN I & II) dated 28th February 2000 and 27th March 2001 would be held in accordance with the procedure laid down in the Rules of the Adjudication Proceedings and Appeal Rules, 1974 (hereinafter referred to as `APAR') and accordingly fixing the case for personal hearing before him on 12th September 2002. Also challenged are all the consequential proceedings upon passing of the aforementioned order including the adjudication order dated 17th February 2005, passed by the Special Director finding the Petitioner guilty and levying a penalty of ₹ 10 lakhs for contravention of Section 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973 (FERA) and the orders dated 7th February 2006 and 19th January 2007, passed by the Appellate Tribunal of Foreign Exchange (`Appellate Tribunal'). 2. On 30th August 1999 a search was conducted by the officers of the ED at the Chennai residence-cum-office of the petitioner who was the Chairman of M/s Suri Computers Pvt. Limited, Chennai and M/s Sita Electronics, Hyderabad. Summons were issued to him on that date and his statement was recorded. He w....
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....Tribunal. 6. Before this Court it has been contended by the Petitioner that the proceedings against the Petitioner under FERA were initiated only on 22nd August 2002, i.e., after the expiry of the `sunset' period on 31st May 2002 in terms of Section 49(3) of FEMA. Therefore, the proceedings against the Petitioner for the alleged contravention of FEMA were without the authority of law. Although this point was not urged before the Adjudicating Officer, it was submitted that since it was a question of jurisdiction, it could be raised at any stage. 7. By an order dated 30th May 2007 while noting the above said submission, it was directed by this Court that no coercive steps will be taken against the petitioner pursuant to the impugned order. 8. This Court has heard the submissions of Mr. C. Mukund, learned counsel for the Petitioner and Ms. Rajdipa Behura, learned counsel for the ED. 9. Mr. Mukund seeks to draw a distinction between the "initiation" of adjudication proceedings and their "commencement" under the FERA after the Adjudicating Officer forms a prima facie view and an anterior stage when he only issues a show cause notice under Section 51 FERA, requiring the notices to sh....
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....et period in terms of Section 49(3) of FEMA. Therefore, there was no illegality committed in proceeding with the matter under the FERA and the Rules made thereunder. She refers to the decision of the Single Judge of the Madras High Court in Deputy Director, Enforcement Directorate, Madras v. Naina Maricair AIR 1990 Madras 22. 13. In order to appreciate the above contention, reference may be made first to Section 50 and 51 of the FERA. Under Section 50 if any person contravenes any of the provisions of the FERA [Section 13(1)(a), 18A and 19(1)(a)], he shall be liable to such penalty not exceeding five times the amount involved in the contravention or ₹ 5,000/- whichever is more as may be adjudicated by either the Director of Enforcement or any other officer of the ED not below the rank of Assistant Director. Section 51 of FERA reads as under:- "51. Power to adjudicate.- Power to adjudicate. For the purpose of adjudging under section 50 whether any person has committed a contravention of any of the provisions of this Act (other than those referred to in that section) or of any rule, direction or order made thereunder, the adjudicating officer shall hold an inquiry in the pres....
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....of the evidence produced before the adjudicating officer, the adjudicating officer 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 50: Provided that the notice referred to in sub-rule (1), and the personal hearing referred to in sub-rules (3), (4) and (5) may, at the request of the person concerned, be waived." 15. It appears from the reading of Rule 3(1) that even prior to holding an enquiry under Section 51 the adjudicating officer shall "in the first instance, issue a notice to such person" asking him to show cause "why adjudication proceedings should not be held against him". This notice under Rule 3(1) of APAR is, therefore, even prior to the commencement of adjudication proceedings. When a reply is received from the noticee then the Adjudicating Officer is expected to consider the said reply and form an "opinion" whether adjudication proceedings should be held. Upon formation of such opinion, the Adjudicating Officer shall under Rule 3 (3) "issue a notice fixing a date for the appearance of that person either personally or through his lawyer….."....
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....manner of doubt, therefore, that both notices dated 28th February 2000 and 27th March 2001 were notices relatable to Rule 3(1) of APAR which was the first of the two stages involved in the adjudication proceedings under FERA, 1973. If at this stage, after considering the replies to these notices the adjudicating officer was of the opinion that no further proceedings were called for, he could drop the proceedings. However, after considering such reply, if the adjudicating officer formed an opinion that adjudicating proceedings should be held then under Rule 3(3) of APAR he shall fix a date for appearance of the noticee. What should happen thereafter at the hearing is set out in Rules 3(4) to 3(7). The final adjudication order would thereafter be passed in terms of Rule 3(7) of APAR. 19. Turning now to the impugned communication dated 22nd August 2002, it seems that this was relatable to Rule 3(3) of APAR since it informed the petitioner of the date of hearing of the adjudication proceedings, arising from the notices dated 28th February 2000 and 27th March 2001. This is evident from unnumbered paras 1 and 4 of the said communication dated 22nd August 2002 which read as under:- "Thi....
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....djudicating officer can take `notice' of a contravention till he considers the reply and forms an opinion in terms of Rule 3(3) APAR. 23. In Videocon International Ltd., the Supreme Court had occasion to interpret the word "cognizance" occurring in Section 49 (3) of FEMA. In the said case, the Chief Enforcement Officer, ED filed a criminal complaint against Videocon International Ltd. on 24.05.2002 for alleged contravention of Sections 18(2) & (3), 68(1) and 56(1) of FERA. This was one week prior to the expiry of the sunset period. On 24th May 2002 itself the Magistrate took cognizance of the offence and issued summons to the accused. On 3rd February 2003, the Magistrate issued process requiring the respondent to appear before the court and answer the charge under the FERA. The High Court held that cognizance could be said to have been taken by the Magistrate only when he ordered issuance of process on 3rd February 2003. Since this was beyond the expiry of the sunset period, the proceedings were quashed. Reversing the High Court's judgment, the Supreme Court observed that the word "cognizance" was not defined in the Criminal Procedure Code, 1973 (CrPC). In its ordinary meaning, it....
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...., following `cognizance', the proceedings were `initiated' under Chapter XIV. Then comes the third stage of "commencement" of judicial proceedings. This is explained from the observation in para 24 of Videocon International Ltd., where it was observed that "without initiation of proceedings under Chapter XIV, there cannot be commencement of proceedings before a Magistrate under Chapter XVI". 27. If one were to compare the above Scheme of CrPC with the Scheme laid out in Rule 3 APAR, then the following three stages are apparent: (i) The Adjudicating Officer takes notice of the contravention and issues a notice in the first instance under Rule 3(1). This is similar to taking `cognizance'. (ii) After considering the reply, the Adjudicating Officer `initiates' the proceedings under Rule 3(3) when he fixes a date for hearing; (iii) On the date fixed under Rule 3(4) the Adjudicating Officer `commences' the proceedings. 28. Therefore, in the light of the law explained by the Supreme Court in Videocon International Ltd., it appears to this Court that when the notices dated 28.02.2000 and 27.03.2001 were issued, the Adjudicating Officer had taken "notice of the contravention". 29. In R. ....
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....s aspect is accordingly rejected. 33. The challenge to the validity of the orders dated 7th February 2006 and 7th January 2007, passed by the Appellate Tribunal requires to be considered. The plea urged by the Petitioner is essentially one of financial hardship. It is seen in the instant case that the adjudication order, as regards the contravention of Section 18(2) and (3) of FERA, 1973 levied a penalty of ₹ 10 lakhs on the Petitioner. As regards the second show cause notice dated 27th March 2001 a penalty of ₹ 20 lakhs was levied on the petitioner for contravention by Suri Computers Pvt. Limited of Section 9(1)(c) FERA, 1973, another ₹ 20 lakhs for the contravention by M/s Sita Electronics Pvt. Ltd. under Section 9(1)(c). Therefore, the total penalty amount was ₹ 50 lakhs. The Petitioner was by the order dated 7th February 2006 directed by the Appellate Tribunal to furnish a bank guarantee to the extent of 50% of the penalty amount, i.e., a sum of ₹ 25 lakhs. It is pointed out that M/s Sita Electronics Pvt. Ltd., of which the petitioner was Chairman, suffered huge losses and even the State Bank of India which had a decree in its favour for the dues ....
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....February 2006, the Tribunal itself has observed that a dismal picture of the financial condition was projected. However, it went on to observe that: "it is difficult to believe that the appellants with such an acquisitive instinct cannot make pre-deposit of a partial amount of the penalty. An American Legal Researcher Mr. Derret has recorded on economic projection that in Indian society when records of Government hospitals and schools are looked into, the income of ₹ 500 is generally shown by every patient or parent depicting a dismal picture to avail of unprovided benefits. The position of appellant in Appeal No.2/06 is also projected having a bad finance." 36. In the considered view of this Court, the above observations are based on surmises and conjectures and are not borne out by the records of the case. A decision directing the furnishing of a bank guarantee of ₹ 25 lakhs cannot possibly be based on such surmises and conjectures. The Appellate Tribunal erred in approaching the matter casually without adverting to the specific pleadings. Consequently, this Court holds that the Petitioner has been able to demonstrate lack of financial capacity to furnish bank guaran....