TaxTMI 
TaxTMI 
2018 (6) TMI 1492
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....d the writ petition is finally disposed of by this judgment. 3. By this petition under Article 226 of the Constitution of India and prior to its amendment, the petitioner desires that this court should issue a writ of mandamus or any other writ, order or direction analogous to that writ, directing respondent no. 1 to this writ petition to guide the petitioner in making of an application styled as an application for compounding and to take on file and determine the compounding application within the time frame prescribed by the Foreign Exchange (Compounding Proceedings) Rules, 2000 (hereinafter referred to as "the Compounding Rules") or such other time frame as may be prescribed by this court. 4. Then, prayer clause (b) claims the following relief:- "(b) that this Hon'ble Court may be pleased to issue a writ of prohibition, or any writ, order or direction analogous to the writ of prohibition, restraining the Respondent No. 2 from proceeding with adjudication proceedings in the SCN No.F.No.T-4/2D/2015 dated 13 November 2015 until the decision of Respondent No. 1 on the compounding applications which will be filed by the Petitioner after guidance is forthcoming." 5. It is in....
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....gous to the writ of certiorari, calling for the records of the case and after going through the same and examining the legality thereof to quash and cancel the letter dated 1 December 2017 issued by Respondent No. 2 to Respondent No. 1 in relation to the compounding applications of the Petitioner;" 6. It would be necessary to set out the factual background, in which this petition has been filed by the petitioner company incorporated under the Companies Act, 1956. The petitioner carries on business of operating news channels. The petitioner company was established by Dr. Prannoy Roy an eminent journalist, claiming to be a pioneer in the introduction of electronic media in the space of news broadcasting. The first respondent is the Reserve Bank of India (RBI) constituted under the Reserve Bank of India Act, 1934. It has been conferred with wide-ranging powers under the Foreign Exchange Management Act, 1999 (hereinafter referred to as "the FEMA"). The second respondent-Directorate of Enforcement is constituted under section 36 of the FEMA. It exercises powers of investigation in relation to the contraventions of the FEMA. The third respondent is the Union of India. 7. The petitione....
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....pounding, in the larger interest of the petitioner's stakeholders. Amongst the factors that weighed with the petitioner in arriving at its considered decisions were that apart from adverse publicity on various media platforms, including on social media, the adjudication proceedings would entail several years to complete, which would hamper day to day functioning of the petitioner and also prove to be a significant drain on resources of the petitioner. Even though the petitioner was certain that the end result will eventually be in favour of the petitioner, to avoid the prejudicial effect of such proceedings, including protracted litigation and related legal costs, the petitioner filed two compounding applications bearing C.A.No.3998/2016 and C.A.No.3999/2016, both dated 7th May, 2016 with respondent no. 1. The petitioner filed its compounding applications with respondent no. 1, since as per the said Rules, the jurisdiction for compounding lay with respondent no. 1. The copies of the said compounding applications are annexed as Exhibit 'E' and Exhibit 'F'. These compounding applications filed by the petitioner encompassed all the contraventions under the FEMA and....
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....concerned officers in the FID and OID of respondent no. 1 on several occasions to seek guidance in the matter of compounding. During these meetings, the concerned officers informed the petitioner's counsel that all the transactions undertaken by the petitioner, whether FDI or ODI, would be required to be set forth in a simplified manner. 16. Accordingly, vide the petitioner's counsel letters, both dated 11th April, 2017, the details of all such transactions were set forth in a simplified manner, by way of various charts and submitted to the FID and OID. After submission of the said letters dated 11th April, 2017 with FID and OID, neither the FID nor the OID have responded till date to the petitioner. In the meanwhile, vide letter dated 31st March, 2017, respondent no. 2 restarted the adjudication proceedings and fixed the date of hearing on 20th April, 2017. 17. On 20th April, 2017, the petitioner and its Directors' counsel, vide letter dated 20th April, 2017 requested respondent no. 2 to keep the adjudication proceedings in abeyance till respondent no. 1 provides guidance to the petitioner in the matter of compounding. Respondent no. 2, however, rejected the petition....
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.... no. 2 amounts to violation of section 3(d) of the FEMA, no corollary show cause notice has been issued by respondent no. 2 to the Bank of Baroda. 22. This writ petition was filed in this court on 1st July, 2017. An affidavit in reply was filed by the Directorate of Enforcementrespondent no. 2 and after the preliminary submissions, it was stated that the adjudication proceedings relating to the show cause notice dated 13th November, 2015 have been initiated against the petitioner for contravention of the provisions of the FEMA and the Rules/Regulations made under the Act, as mentioned in the show cause notice. The petitioner and its Directors have filed replies dated 30th March, 2016 and 18th April, 2016, in which, they have pleaded not guilty to the contraventions alleged in the show cause notice. 23. The petitioner informed the second respondent regarding filing of compounding application with the RBI and requested for keeping the adjudication proceedings in abeyance. The Enforcement Directorate, in para 8 of this affidavit stated that it is not bound to wait for the outcome of the application filed by the petitioner with the RBI and the Enforcement Directorate was entitled in ....
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....ns as raised in the petition as also the factual position narrated in this rejoinder. The petitioner also pointed out that the petitioner's application to keep the proceedings before the second respondent in abeyance Page 14 of 122 should have been granted because there is absolutely nothing, which would indicate contravention of the provisions of the PMLA/FEMA. This is nothing but an unlawful interference in the right of the petitioner to seek compounding and the issue is apparently raised to prejudice the court. The petitioner pointed out that there was no question of the second respondent directing the first respondent, much less by a letter dated 6th March, 2017, not to compound the offence on the ground of the alleged investigation under the PMLA in Aircel's case. The petitioner pointed out that it was summoned by the second respondent in connection with this case as a witness and not as an accused. In any event, before the communication of the second respondent to the RBI dated 6th March, 2017, the learned Special Judge- CBI/PMLA, vide two separate orders dated 2nd February, 2017 has already discharged all the accused in the Aircel's case. Exhibit 'B' and ....
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.... filed a rejoinder affidavit to the counter affidavit of the RBI and it reiterated the contentions raised in the earlier affidavit-in-rejoinder filed to the second respondent's affidavit-in-reply. It also raised additional contentions. An additional counter affidavit on behalf of the RBI was also filed on 22nd August, 2017, in which, it was stated the the compounding applications submitted by the petitioner were returned by the Compounding Authority for the reasons mentioned in the letter dated 24th January, 2017. As on 6th March, 2017, neither there was any old compounding application filed by the petitioner pending before the RBI nor any fresh application has been filed by the petitioner thereafter. In these circumstances, the first respondent reiterated that the writ petition deserves to be dismissed, as the reasons for returning the compounding applications are well founded. 27. Since the amended copy of the petition was supplied, counter affidavit on behalf of the Enforcement Directorate-second respondent came to be filed dated 22nd August, 2017, in which, after reiterating the earlier stand, it is stated as under:- "i) Pursuant to the directions of the Hon'ble Supr....
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.... of Rs. 5.1 crores on 23.07.2009 and passed on to the Mauritius based subsidiary of Astro. NDTV News was also a party to the above agreement. The above facts show the connection between NDTV Ltd. with Astro in receiving funds from Mauritius based subsidiary of Astro through AHMPL, in Aircel-Maxis Case. iii) Maxis was to acquire Aircel Limited by purchasing its shares for an amount of about UD$ 800 million. It was to do so through its subsidiary GCSHL. For this purpose GCSHL applied in January 2006 to Foreign Investment Promotion Board (FIPB) for the approval of the Central Government. Under the applicable rules, then Finance Minister was empowered to grant such approval if the amount involved in foreign investment was up to Rs. 600 crores. If the amount involved in foreign investment was more than Rs. 600 crores it was the Cabinet Committee on Economic Affairs ("CCEA") which was competent to grant the approval. Accordingly in such cases then Finance Minister was required to forward the application to CCEA. In the Aircel Maxis case, the Finance Minister did not follow this procedure and himself granted the approval on 20.03.2006 even though the amount involved in foreign investme....
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....th Asia Creative Assets Ltd. (SACAL) to NDTV Lifestyle Holdings (P) Limited ("NLHL"), a subsidiary of NDTV Limited, ostensibly for acquiring 49% stake in the company. Significantly, at that time the worth of NLHL was only a few thousand US dollars. The amount paid by Astro/SACAL was therefore far in excess of the value of the shares. Before receiving the amount of US$ 40 million from Astro, NLHL in the same F. Y. transferred Rs. 183.25 crores to another associate company of NDTV Limited i.e. NDTV Networks Plc., U. K. ("NNPLC") in U. K. Subsequently NNPLC has undergone voluntary liquidation in the same Financial Year. viii) The Enforcement Directorate therefore has a serious suspicion that NDTV Ltd. is involved in money laundering activities and it is possible that the result of the ongoing investigation will establish this fact. ix) The US$ 40 million was paid by NLHL to NNPLC ostensibly towards the acquisition of shares held by NNPLC in various companies forming part of the NDTV group companies. This was a contravention of the FEMA Regulations. This is one of the violations/contraventions that NDTV has sought to compound vide its Compounding Application dated 19th August 201....
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....tioner prayed that no pending case can interfere with the petitioner's right to seek compounding of the offences and for these reasons, the petition be allowed. 30. With these materials, though the petitioner was heard on subsequent dates by this court, what we have seen is that the petition was listed on 6th November, 2017, but was adjourned to 13th November, 2017. On 13th November, 2017, after hearing both sides, this court passed the following order:- " On the earlier date, we had called upon the learned counsel appearing for the Union of India to produce the file of the decision which is communicated vide communication dated 6th March 2017 addressed by the Special Director of Enforcement Directorate to the Chief General Manager, Foreign Exchange Department, OID, Reserve Bank of India, Mumbai. The learned counsel appearing for the second and third respondents, on instruction from Mr.Kamal Singh, Deputy Director, states that the Enforcement Directorate will withdraw the decision communicated by the aforesaid letter dated 6th March 2017. He further states that this statement will not preclude the Enforcement Directorate from applying its mind as regards exercise of power un....
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....he merits of the amended pleas. Therefore, the merits have to be gone into at a subsequent stage. All contentions and pleas of the Directorate of Enforcement with regard to the merits of these added paragraphs are, therefore, expressly kept open. Without prejudice to the contentions of all parties on merits, the chamber summons is made absolute. The amendment is allowed. The writ petition stands amended in terms of the Schedule to the chamber summons. There would be no order as to costs. 7. It is also argued by the RBI that any allegations made by the petitioner against it are not admitted. Once the reply filed to the chamber summons is exhaustive and dealing with merits of the amended pleas, they are not filing any additional affidavit. Therefore, the court can proceed on the available material. 8. Let the amendment be formally carried out within a period of one week from today, but we would proceed on the footing that the petition stands amended. 9. List the writ petition on 12th February, 2018 at 3.00 p.m." 32. In pursuance of that order, Mr. Venegaonkar learned advocate appearing for the second respondent produced a sealed envelop which was opened and re-sealed and k....
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....utory regulator and repository of foreign exchange dealings, is vested with powers to compound all contraventions under the FEMA, save and except for contraventions under section 3(a) of the FEMA (vide Rule 4 of the Compounding Rules) and the Enforcement Directorate is the sole repository of powers to compound contraventions under section 3(a) of the FEMA (vide Rule 5 of the Compounding rules. The procedure for compounding is set forth in Rule 8 of the Compounding Rules. It confers power upon the Compounding Authority to call for any information, record or other documents relevant to the compounding proceedings, and stipulates that the compounding authority shall pass an order of compounding after affording an opportunity of hearing, as expeditiously as possible and not later than 180 days from the date of application. 36. Mr. Dwarkadas would submit that the proviso to Rule 8(2) of the Compounding Rules was introduced vide the impugned notification dated 20th February, 2018. A reading of the proviso would mean that before the Directorate of Enforcement can form a view, it must be satisfied that the proceeding initiated under Rule 4 of the Compounding Rules must relate to a serious....
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....nterdict RBI's compounding powers on mere suspicion as to the commission of one or more out of the category of offences stipulated within the impugned notification vis-a-vis a person seeking to exercise the right of compounding conferred under section 15 of the FEMA. 41. Mr. Dwarkadas would submit that through the impugned notification, civil consequences under the FEMA are at risk of undermining and powers to compound a civil wrong are interfered with through introducing a tenuous link with potential criminal proceedings. Thus, two similarly situated persons, namely, both of whom otherwise have a vested statutory right under section 15 of the FEMA to seek compounding, are exposed to arbitrary and discriminatory treatment. Illustratively, where a person instituting an application under section 15 of the FEMA for compounding were purportedly suspected by the Enforcement Directorate, either prior to or after institution of such compounding application of an offence of money laundering, then, (a) the mere commencement of investigation by the Enforcement Directorate absent the mandatory pre-requisite of a predicate registered offence under sections 2(u), 2(y) and 3 read with the S....
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....ial review, unless the existence of circumstances is made out and in such a case, the onus of proof must lie on the Enforcement Directorate to establish that the facts justify such an inference. The Enforcement Directorate's actions are amenable to judicial review, since it is available to the petitioner to show that either such circumstances do not exist or that they are such that it is impossible for anyone to form an opinion therefrom suggestive of the aforesaid and to challenge any such conclusion/opinion on grounds of (a) nonapplication of mind or (b) perversity or (c) that it was formed on collateral grounds and was beyond the scope of the statute. Formation of opinion is a subjective process, which must be founded on the objective test of existence of circumstances suggesting that the inference is made out. While such an opinion is not subject to a challenge on the grounds of propriety, reasonableness or sufficiency, the honest formation of an opinion that an investigation is necessary. It is not reasonable to say that such opinion has been formed on circumstances which it thinks exist. The existence of circumstances, if questioned, has to be proved at least prima facie.....
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....a fide or is based on wholly extraneous or irrelevant grounds, the court would have the jurisdiction to examine, because in that case there would be no satisfaction in regard to matters on which the concerned authority was required to be satisfied. Exercise of power is subject to judicial review, at least to the extent of examining whether the conditions precedent have been satisfied or not. This examination will necessarily involve the scrutiny as to whether there existed material for the satisfaction that the situation had arisen. When considering the question of material it is not the personal whim, wish, view or opinion or the ipse dixit de hors material placed which is relevant for the purpose. The authority has to be convinced of, or has to have sufficient proof of information with regard to or has to be free from doubt or uncertainty about the state of things indicating the situation. Although the sufficiency or otherwise of the material cannot be questioned, the legitimacy of the inference drawn from the material is certainly open to judicial review. The burden of proof would, when there is a challenge brought in judicial review, be on the authority to satisfy that the mate....
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....followed thereafter. Therefore, the impugned notification cannot have any retrospective effect vis-a-vis the compounding applications and is not applicable to the petitioner. 47. Mr. Dwarkadas further submits that the impugned notification was not laid in the manner required in law forthwith after 20th February, 2017 and the explanation of the Enforcement Directorate that it has been tabled in Rajya Sabha on 6th March, 2018 (during the financial year of the writ petition) after the lapse of a mere 61 days (across four parliamentary sessions) renders the notification to the interdict of the salutary principle of administrative law. In the case of Babu Verghese vs. Bar Council of Kerala (1999) 3 SCC 422, it is held that if the statute prescribes a particular procedure to do an act in a particular way, that act must be done in that manner, otherwise, it is not at all done. A principle cited with approval in AICTE, wherein, it was held that non-placing on the floor of the Houses of Parliament, in the manner required under the relevant statute vitiated those regulations. The AICTE judgment was held by this Court in the case of Anil versus Maharashtra Academy of Engineering and Educatio....
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....ing such a view, thus endangering misuse by the Enforcement Directorate through manifest arbitrariness/ unreasonableness, without any accountability whatsoever, as apparent in the present case. Significantly, when the Enforcement Directorate issued its letter of 6th March, 2017 to the RBI purporting to interdict the petitioner's right to seek compounding, no notice or writing whatsoever had been received by the petitioner in relation to any purported investigation ongoing by the Enforcement Directorate. Again, therefore, absent requisite minimum objective safeguards, there can be no subjective satisfaction capable of being recorded; (c) finally, the impugned notification fails to define the contours of suspicion and confers unfettered powers upon the executive without guidance as to degree of suspicion, which must fulfill the minimum requirement of grave suspicion and necessarily be founded upon the existence of circumstances such that were supported by compelling material evidence, justifying tentative conclusions of certain definiteness and in the case of money laundering fulfill the minimum criterion of a registered predicate offence under the Schedule to the PMLA. As held b....
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.... the petitioner. This act of the Enforcement Directorate is contrary to the FEMA. Assuming without admitting that the Enforcement Directorate can communicate its views to the RBI within the meaning of the proviso to Sub-rule (2) of Rule 8, still, the RBI cannot be directed to abide by that view if that view of the Enforcement Directorate is not in accordance with the proviso. In other words, so long as the view taken and recorded by the Enforcement Directorate does not indicate that it is relating to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, the Compounding Authority is not obliged to abide or respect that view. It is then not obliged to remand the case to the appropriate adjudicating authority for adjudication under section 13 of the FEMA. 53. Even otherwise, Mr. Dwarkadas would submit that since this court has granted an opportunity to take inspection of the Enforcement Directorate's files, after taking inspection, the petitioner has informed this court that no material is found in the files justifying the Enforcement Directorate's action. Further, it is apparent that the Enforcement Dire....
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....ters cited in the Enforcement Directorate's affidavit of 8th February, 2018 i.e. the FIR dated 2nd June, 2017, it mainly relates to an interest waiver/reduction that was granted by the ICICI Bank to the promoters and/or a holding company of the petitioner which does not directly concern the petitioner. In any event, the FIR was registered only on 2nd June, 2017 i.e. well subsequent to the Enforcement Directorate's letter dated 6th March, 2017 to the RBI. A writ petition being Writ Petition No.1863 of 2017 was instituted and is currently pending in the Hon'ble Delhi High Court against the FIR. In the writ petition, it was specifically averred by the petitioner that there is no allegation of any offence committed by the petitioner. Pertinently, in response thereto, the Enforcement Directorate in para 26E at page 4 stated that "no comments are offered for want of knowledge". In effect, this averment is tantamount to an admission that there is no offence by the petitioner, which is the subject-matter of the purported FIR; (ii) as regards the second of the matters cited in the Enforcement Directorate's affidavit of 8th February, 2018 i.e. the ECIR of 7th August, 2017, th....
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....on of Management of Private Colleges vs. All India Council for Technical Education and Ors., (2013) 8 SCC 271. (ii) Barium Chemicals Ltd. and Anr. vs. Company Law Board and Ors., AIR 1967 SC 295 (V. 54 C 59). (iii) Rameshwar Prasad and Ors. (VI) vs. Union of India and Anr., (2006) 2 SCC 1. (iv) State of T. N. and Anr. vs. P. Krishnamurthy and Ors., (2006) 4 SCC 517. (v) P. Vijayan vs. State of Kerala and Anr., (2010) 2 SCC 398. (vi) Kishan Singh (Dead) through Lrs. vs. Gurpal Singh and Ors., (2010) 8 SCC 775. 59. In answer to Mr. Dwarkadas's arguments, all that Mr.Dhond learned senior counsel appearing on behalf of respondent no. 1- RBI would submit is that the issue now raised is of a wider nature. The issue concerns invocation and application of the proviso below Sub-rule (2) of Rule 8 of the Compounding Rules. This court would have to rule upon that aspect of the matter and which is squarely arising between the petitioner and the Enforcement Directorate. So far as the RBI is concerned, it will abide by the order and directions of this court in this petition and act accordingly. The writ petition, therefore, is mainly contested by the Enforcement Directorate and th....
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.... can claim unfettered, unrestricted and absolute right of compounding an offence. It is not for an offender to dictate terms and he cannot decide whether he deserves to be tried for an offence or that the offence should be compounded. The power to take all such decisions vests exclusively in the State or the authority. Therefore, a person like the petitioner, who has contravened the provisions of the Act cannot choose for itself whether to be tried for such contravention and penalised or whether that contravention should be compounded. Precisely, this is what the petitioner has taken upon itself to decide and determine. If that cannot be determined by the petitioner, then, the whole petition must be dismissed solely on this reasoning and conclusion. More so, when the Compounding Authority/RBI does not complain of any undue or uncalled for much less illegal interference with its power under section 15 of the FEMA. 63. Alternatively and without prejudice to the above argument and in the event this court holds that there is a statutory mechanism, which enables the RBI to compound the offence, then, even that power vesting in the RBI is not absolute. It is coupled with a duty. The RBI....
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....e cannot exercise that power unmindful of the contravention or suspected involvement of the applicant in offences punishable under the PMLA. Equally, the RBI cannot ignore the mandate of the PMLA. A money launderer cannot escape the clutches of law by seeking recourse to the power of compounding the contravention of FEMA. The result would be that he would rely upon such proceedings and outcome or decision thereof to defeat the object of PMLA/FEMA and escape the consequences in law. It is well settled that the power conferred in a statutory authority under an Act cannot be exercised in such a manner so as to defeat and frustrate the object and purpose of a pari materia enactment or an another stringent law. Precisely, that is sought to be achieved in the instant case and therefore, neither the law is unconstitutional nor is the communication of the Enforcement Directorate vague or illegal by any means. Hence, the writ petition has no merit. 64. Mr. Venegaonkar then addressed us on merits and submitted that all that the proviso envisages is a formation of an opinion. That is not synonymous with the formation of a view. This formation of a view and formation of an opinion are not par....
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....oreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. It is a successor legislation to the Foreign Exchange Regulation Act, 1973 (FERA). In the statement of objects and reasons leading to FEMA, it was stated that the FERA was reviewed in 1993 and several amendments were enacted as part of the on going process of economic liberalisation relating to foreign investments and foreign trade for closer interaction with the world economy. At that stage, the Central Government decided that a further review of the FERA would be undertaken in the light of subsequent developments and experience in relation to foreign trade and investment. It was subsequently felt that a better course would be to repeal the existing FERA and enact a new legislation. The RBI was accordingly asked to undertake a fresh exercise and suggest a new legislation. A task force constituted for this purpose submitted its report in 1994 recommending substantial changes in the existing Act. However, after considering this report and significant developments, a decision was taken to repeal and replace the F....
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....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, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. (1-A) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37-A, he shall be liable to a penalty up to three times the sum involved in such contravention and confiscation of the value equivalent, situated in India, the the Foreign exchange, foreign security or immovable property. (1-B) If the Adjudicating Authority, in a proceeding under sub-section (1-A) deems fits, he may, after recording the reasons in writing, recommend for the initiation of prosecution and if the Director....
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....Power to compound contravention. - (1) Any contravention under section 13 may, on an application made by the person committing such contravention, be compounded within one hundred and eighty days from the date of receipt of application by the Director of Enforcement or such other officer of the Directorate of Enforcement and officers of the Reserve Bank as may be authorised in this behalf by the Central Government in such manner as may be prescribed. (2) Where a contravention has been compounded under sub-section (1), no proceeding or further proceeding, as the case may be, shall be initiated or continued, as the case may be, against the person committing such contravention under that section, in respect of the contravention so compounded." 70. A perusal of section 15, therefore, would reveal as to how any contravention made under section 13 would be compoundable on an application made by such person committing such contravention. He can make an application and then the contravention can be compounded. It can be compounded within 180 days from the date of receipt of application and the power to compound is either to be exercised by the Director of Enforcement or such other off....
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....hority shall deal with the complaint under sub-section (2) as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint: Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period." 72. A perusal of sub-section (1) of section 16 would reveal as to how the Central Government can, for the purpose of adjudication under section 13, appoint as many officers of the Central Government as it may think fit, as the adjudicating authorities for holding an inquiry in the manner prescribed after giving the person alleged to have committed contravention under section 13, against whom a complaint has been made under sub-section (3), a reasonable opportunity of being heard for the purpose of imposing any penalty. How the adjudication has to be held and in what manner is then provided by the further sub-sections of section 15 and by section 17, there is an appeal provided to Special Director (Appeals) and there is a further appeal to the appellate tribun....
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.... is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation, or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation." 74. We would come to the consequences flowing from the language of section 48 a little later. For the time being, we only hold that such a comprehensive law has been made and enacted for the purpose of fulfilling the objectives particularly referred above. An interpretation, which would enable fulfillment of the objects and purpose, for which the law has been made, would, therefore, have to be placed on the provisions of this Act. An interpretation, which would defeat and frustrate this object and purpose must be avoided at all cost. Si....
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....riod of three years from the date on which a similar contravention committed by him was compounded under these rules. Explanation. - For the purposes of this rule, any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention. (3) Every officer specified under sub-rule (1) of rule 4 of the Reserve Bank of India shall exercise the powers to compound any contravention subject to the direction, control and supervision of the Governor of the Reserve Bank of India. (4) Every application for compounding any contravention under this rule shall be made in Form to the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai along with a fee of Rs. 5,000 by Demand Draft in favour of compounding authority." 76. A perusal of Rule 4, therefore, leaves us in no manner of doubt that the applicant cannot seek compounding of the contravention as of right, but the law permits him to make an application to the Compounding Authority and the Compounding Authority has to exercise the power of compounding subject to the directions, cont....
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....n, record or any other documents relating to the compounding proceedings and there is an outer limit to pass an order of compounding a contravention and that order has to be passed not later than 180 days from the date of the application. 78. It is not, therefore, right to urge that the Compounding Authority has to proceed only on the materials brought by the person seeking contravention, but the authority is free to call for any information, record or any other document relevant to the compounding proceedings. That information or record or any other document so long as it is relevant to the compounding proceedings, the Compounding Authority has a discretion to call for it and that may include anything in relation to adjudication as well. Therefore, absent the proviso, does not mean that the Compounding Authority cannot call for the relevant information, but in its discretion, it is free to call for it. Secondly, there being an outer limit for the exercise of the power that the authority is expected to adhere to that time limit. 79. All that the proviso does is to enable the Enforcement Directorate to communicate its view with regard to a serious contravention suspected of money ....
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.... it was referred to the Standing Committee on Finance, which presented its report to the Lok Sabha. Thereupon, the Central Government took the steps and the law was enacted. It has been amended by the Amendment Act 20 of 2005, the Amendment Act 21 of 2009 and the Amendment Act 2 of 2013. The Statement of Objects and Reasons leading to the Amendment Act 2 of 2013 states that the problem of money laundering is no longer restricted to the geo political boundaries of any country. It is a global menace that cannot be contained by any nation alone. In view of this, India has become a member of the Financial Action Task Force and Asia Pacific Group on money-laundering, which are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism. Consequent to the submission of an action plan to the Financial Action Task Force to bring anti money laundering legislation of India at par with the international standards and to obviate some of the deficiencies in the Act that have been experienced by the implementing agencies, the need to amend the Prevention of Money-Laundering Act, 2002 has become necessary.....
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....attempt to indulge, knowingly assist or knowingly become a party to, actual involvement in any process or activity connected with the proceeds of crime, including its concealment, possession, acquisition or use and projecting or claiming it as untainted property is an offence and whosoever is guilty of the same is said to be committing an offence of money laundering. Section 4 provides for its punishment. Then, Chapter III titled as "Attachment, Adjudication and Confiscation" contains provisions so as to attach properties involved in money laundering and its adjudication and vesting in the Central Government and thereafter its management and all this is to be found in sections 5 to 11. In Chapter IV, there are provisions setting out obligations of banking companies, financial institutions and intermediaries. Chapter V contains provisions in relation to summons searches and seizure etc. and there are three sections, namely, sections 22, 23 and 24. The first is "presumption as to records or property in certain cases", second is "presumption in inter-connected transactions" and the third is "burden of proof", which entirely rests on the person charged with the offence of money launder....
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....n the one hand, it is not permissible to add words or to fill in a gap or lacuna, on the other hand effort should be made to give meaning to each and every word used by the Legislature. "It is not a sound principle of construction", said PATANJALI SHASTRY, C.J.I., "to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute" [Aswinin Kumar Ghose v. Arabinda Bose, AIR 1952 SC 369 p. 377 : 1953 SCR 1; see further Union of India v. Hansoli Devi, AIR 2002 SC 3240, p. 3246 : (2002) 7 SCC 273; State of Orissa vs. Joginder Patjoshi, AIR 2004 SC 1039, p. 1142 : (2004) 9 SCC 278.] And as pointed out by JAGANNATHDAS, J., "It is incumbent on the court to avoid a construction, if reasonably permissible on the language, which would render a part of the statute devoid of any meaning or application" [Rao Shiv Bahadur Singh v. State of U. P., AIR 1953 SC 394]. "In the interpretation of statutes", observed DAS GUPTA, J., "the courts always presume that the Legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have ....
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.... to in Umed v. Raj Singh, AIR 1975 SC 43, p. 63 : (1975) 1 SCC 76]." 85. Therefore, we must start with a presumption that the legislature employs and uses every word as in this proviso with a purpose. That purpose is that the Compounding Authority should not compound contravention of the provision of the FEMA if the compounding proceedings have a relation to a serious contravention suspected of money laundering, terror financing etc. for that would totally defeat the object of enacting a stringent law like the PMLA. That is obviously a later law and the FEMA precedes it. One who is guilty of contravention of the provisions of the FEMA should not derive any advantage by getting that contravention compounded and with the aid of that compounding proceedings, seek to escape from the clutches of the PMLA. If that is how the proviso is brought in by an amendment to Rule 8, then, that purpose would have to be achieved. A meaning which would help achieving that purpose must be given to the expressions highlighted before us. 86. Mr. Dwarkadas, on being confronted with the returning of the compounding applications and as pointed out later on account of the view expressed by the Enforcemen....
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....dicial review. He agreed that in the event the view taken by the Enforcement Directorate is questioned before a writ court exercising powers of judicial review, then, but for the adequacy or sufficiency of the material, the court is not prohibited from probing and finding out whether there was any material at all to arrive at that view. All that Mr. Venegaonkar would argue is that there is a difference between recording a view and forming an opinion. More so, when even suspicion would suffice. 88. We are mindful of these positions taken by the counsel, but we are in agreement with the petitioner that if the Enforcement Directorate is of the view that the compounding proceedings relate to a serious contravention suspected of money laundering as in this case, then, this court is not prevented from seeking appropriate clarifications from the Enforcement Directorate with regard to presence or availability of material in its possession before it forms the view. In our opinion, the use of the word 'view' hardly makes any difference. Eventually, whether a view can be equated with an opinion or not in the light of the far reaching consequences, the Enforcement Directorate would ha....
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....t, then, it is not necessary to declare the proviso unconstitutional. 89. We agree with Mr. Dwarkadas that no interpretation which totally takes away the power to compound contravention vesting in the RBI be placed on the proviso. We must, on a harmonious and complete reading of the statutory scheme, together with the rules, hold as above and that would ensure that the contravention can be compounded by resort to section 15 and the requisite rules by the RBI. It is only when a situation of the above nature is faced, then, the applicant seeking compounding of the contravention may invoke the powers of judicial review to strike down the actions of the statutory authorities. We will have to presume that the statutory authorities act within the four corners of the statute and their actions are reasonable, just and fair. Unless proven to be arbitrary, unreasonable and malafide, this presumption would operate as the power is not conferred in any authority, but high functionaries such as the Enforcement Directorate. The Directorate of Enforcement Directorate is expected to exercise its powers bonafide and reasonably. It is only in the event of a wholly uncalled for interdiction or interf....
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....te and that, in every case, it can seek a clarification from the Enforcement Directorate on receipt of its view as above. In a given case, of course, it would be open for the RBI to seek the details, but we expect from the RBI that it will not assist a wrongdoer or a law breaker to such an extent that he avoids the compliance and possibly consequences of the breach and of both, FEMA and a statute like the PMLA. Therefore, this will not be a rule, but an exception and for which, the RBI would definitely have to record reasons. However, when it seeks the details, it cannot refuse to hold the compounding proceedings in abeyance, which, in any event, it would have to . Secondly, after the details are known, it would have to makeover the papers to the adjudicating authority as required by the proviso for that authority to proceed and adjudicate the contravention. In no case, the RBI can probe or question the sufficiency or adequacy of the materials regarding the view of the Enforcement Directorate, but must leave the matter to the applicant seeking compounding to workout his/her remedies. That is how we can ensure that the proviso does not become a weapon or tool of unbridled harassment....
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....nd holding that there should be definite material and nothing should be in the realm of speculation and guesswork. That would negate the purpose of the proviso. Though Mr.Dwarkadas has relied upon several decisions in this behalf, we are of the clear view that the judgment of the Hon'ble Supreme Court in the case of Bhikhubhai Vithlabhai Patel and Ors. vs. State of Gujarat and Anr. (2008) 4 SCC 144 would guide all concerned. In the judgment before the Hon'ble Supreme Court, the proviso opening with the words "where the State Government is of opinion that substantial modifications in the draft development plan and regulations are necessary" fell for interpretation and the Hon'ble Supreme Court held as under:- 20. The State Government is entitled to publish the modifications provided it is of opinion that substantial modifications in the draft development plan are necessary. The expression "is of opinion" that substantial modifications in the draft development plan are necessary is of crucial importance. Is there any material available on record which enabled the State Government to form its opinion that substantial modifications in the draft development plan were neces....
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.... opinion. The use of word "may" indicates not only a discretion but an obligation to consider that a necessity has arisen to make substantial modifications in the draft development plan. It also involves an obligation to consider which are of the several steps specified in sub-clauses (i), (ii) and (iii) should be taken. 24. Proviso opens with the words "where the State Government is of opinion that substantial modifications in the draft development plan and regulations are necessary .....". These words are indicative of the satisfaction being subjective one but there must exist circumstances stated in the proviso which are conditions precedent for the formation of the opinion. Opinion to be formed by the State Government cannot be on imaginary grounds, wishful thinking, however, laudable that may be. Such a course is impermissible in law. The formation of the opinion, though subjective, must be based on the material disclosing that a necessity had arisen to make substantial modifications in the draft development plan. 25. The formation of the opinion by the State Government is with reference to the necessity that may have had arisen to make substantial modifications in the dra....
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....means what is indispensable, needful or essential." 28. In the case in hand, was there any material before the State Government for its consideration that it had become necessary to make substantial modifications to the draft development plan? The emphatic answer is, none. The record does not reveal that there has been any consideration by the State Government that necessity had arisen to make substantial modifications to the draft development plan. We are of the view that there has been no formation of the opinion by the State Government which is a condition precedent for exercising the power under the proviso to Section 17(1) (a) (ii) of the Act. 29. In Barium Chemicals Ltd. v. Company Law Board [AIR 1967 SC 295] this Court pointed out, on consideration of several English and Indian authorities that the expressions "is satisfied", "is of the opinion" and "has reason to believe" are indicative of subjective satisfaction, though it is true that the nature of the power has to be determined on a totality of consideration of all the relevant provisions. This Court while construing Section 237 of the Companies Act, 1956 held: (AIR p. 325, para 64) "64. The object of Section 237 ....
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....s to be founded. It is also not reasonable to say that the clause permitted the Authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It is equally unreasonable to think that the legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process. These analysis finds support in Gower's Modern Company Law (2nd Ed.) p. 547 where the learned author, while dealing with Section 165(b) of the English Act observes that "the Board of Trade will always exercise its discretionary power in the light of specified grounds for an appointment on their own motion" and that "they may be trusted not to appoint unless the circumstances warrant it but they will test the need on the basis of public and commercial morality." There must therefore exist circumstances which in the opinion of the Authority suggest what has been set out in sub-....
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....essary", in our considered opinion, does not confer any unlimited discretion on the Government. The discretion, if any, conferred upon the State Government to make substantial modifications in the draft development plan is not unfettered. There is nothing like absolute or unfettered discretion and at any rate in the case of statutory powers. The basic principles in this regard are clearly expressed and explained by Prof. Sir William Wade in Administrative Law (9th Edn.) in the chapter entitled "Abuse of discretion" and under the general heading "the principle of reasonableness" which read as under: "The common theme of all the authorities so far mentioned is that the notion of absolute or unfettered discretion is rejected. Statutory power conferred for public purposes is conferred as it were upon trust, not absolutely that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended. Although the Crown's lawyers have argued in numerous cases that unrestricted permissive language confers unfettered discretion, the truth is that, in a system based on the rule of law, unfettered governmental discretion is a c....
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....hould seek proper guidance from the above referred cells/departments. Thereafter, the Enforcement Directorate interdicted the proceedings and did not allow the RBI to proceed by communicating its view. That initial communication also was withdrawn when this court desired to know the material which enabled the Enforcement Directorate to communicate its view. Thereafter, another communication has been forwarded dated 1st December, 2017, which is also not backed by any material satisfying the tests laid down in the above judgment of the Hon'ble Supreme Court, but later on an affidavit was filed to the amended petition seeking to place the material, which was in possession of the Enforcement Directorate, based on which it communicated the view. These allegations are being levelled in the pleadings before us by the petitioner and the Enforcement Directorate has to meet the same. Hence, it is futile to urge that the petitioner has no right to seek compounding of the contravention and mere filing of the application does not mean the RBI is obliged to compound the contravention at the instance of the applicant. We are aware of the position that there is nothing like an duty to compound....
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....Authority. 2. In this regard, it is stated that the contraventions invoked against the noticees under Foreign Exchange Management Act, 1999 (FEMA) which are subject matter of compounding proceedings before RBI also part and parcel of offence of money laundering being investigated by the Directorate of Enforcement under the Prevention of Money Laundering Act, 2002 (PMLA). 3. Kind attention is also invited to the newly inserted proviso to sub-rule (2) of Rule 8 in the Foreign Exchange (Compounding Proceedings) Rules, 2000 which have been notified w.e.f. 20.02.2017. The said proviso stipulates that, in case of certain contingencies as mentioned therein, the RBI should not entertain any compounding application. The impugned contraventions under FEMA which are subject matter of compounding applications filed by the aforesaid noticees squarely falls within the provisions of proviso to Sub-rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000. 4. In view of the above, Enforcement Directorate is of the view that the impugned contraventions of the aforesaid Show Cause Notice are serious contraventions suspected of money laundering and are being investigated u....
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.... an exercise without which also the contraventions the compounding as has been sought can be compounded. As already mentioned above, substantially the Contraventions for which the compounding has been sought are the specific contraventions which are the subject matter of the SCN of Respondent No. 2. Accordingly, the Respondent No. 1 ought to have considered the compounding applications without diverting itself to other transactions because even if the Respondent No. 1 compounds any contravention(s) it will not affect any other contravention, if any, which the Respondent No. 1 and/or Respondent No. 2 can take up even after the compounding. Having said that, it is submitted that it is not the case of the Petitioner that the Respondent No. 1 should not examine any transaction but the Petitioner submits that the Respondent No. 1 should not link other transactions with the transactions in respect of which the compounding has been sought as the compounding has been sought only for specific transactions and the order of compounding will not affect other contraventions, if any. The Petitioner is stuck in a precarious situation in which the Respondent No. 2 is pressing for continuation of a....
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....ld, without any merit and basis. That is how the Enforcement Directorate deals purportedly with the amended paragraphs reproduced above. It is stated that the petitioner is one of the accused in FIR No. 217-2017A009 dated 2nd June, 2017 registered by CBI and suspected accused in the case registered by the Directorate vide ECIR/09/HIU/2017 dated 7th August, 2017. The petitioner is under investigation in another PMLA Case No. ECIR/05/DZ/2012 (for short known as "Aircel Maxis case"), in which overseas investigation is pending. Hence, the letter dated 1st December, 2017 was not issued on mere allegation of investigation under the PMLA to trigger the notification/amended provision in any manner. It is asserted that the view of the Directorate is based on the material facts being investigated under the PMLA against the petitioner. Then, it is stated that the Directorate has communicated its view to the RBI. The Enforcement Directorate denies that the RBI is acting at its behest and is merely holding up the compounding applications on account of a bald and general communication. 98. It is clear from what we have narrated above that the petitioner has already taken inspection of certain d....
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....e relevant record. He was fair enough to handover a sealed cover in this court and that sealed cover contains, according to Mr.Venegaonkar, the requisite material, based on which, the Enforcement Directorate's view has been communicated. Mr.Venegaonkar was further fair enough to state that this material can be perused by the court, but the same may not be allowed to be perused by the petitioner. 102. A perusal of this original record leaves us in no manner of doubt that the communication dated 1st December, 2017 is only based on some investigations resulting in a FIR, but that also not against the petitioner, but its holding company. In the record, there is a letter address by one K. P. S. Gill-IPS (Retired) on 26th January, 2015 received on 29th January, 2015, which letter is addressed to the Minister of Finance, Government of India. This complaint/letter states that there are efforts made by two serving IRS officers in the disguise of litigation in public interest to suppress inquiries and investigations by agencies such as the CBI, Central Board of Direct Tax, ED, SFIO, RBI, SEBI etc. over money laundering/tax evasion/corruption/receipt of bribe and illegal gratification/em....
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....Vigilance Commissioner. After a copy of this complaint, what the record contains, is the details of ECIR, which we have referred above dated 7th August, 2017. In that, full particulars have been set out. That includes a reference to Dr.Prannoy Roy, Ms.Radhika Roy and M/s. NDTV Ltd. The complaint is being investigated by CBI. The FIR is based on this complaint/material received by the CBI, New Delhi and in which, it is stated that the complaint refers to movable property and particularly funds of Rs. 403.85 crores obtained from M/s.Vishvapradhan Commercial Pvt. Ltd. by RRPR Holdings Pvt. Ltd. It includes proceeds to the tune of Rs. 48 crores approximately with RRPR Holdings Pvt. Ltd. and Rs. 53.85 crores with Dr. Prannoy Roy. The allegation is that these are bribes to create interest in favour of benami person and to gain covert control of NDTV Ltd. 103. We have already noted in the foregoing paragraphs as to how this is the same material the affidavit of the Enforcement Directorate makes a reference to. This is the same material which is stated to be the subject matter of a pending writ petition before the High Court of Delhi, New Delhi. On a perusal of the same, it is evident tha....
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....ce in forming a view and communicating it to the RBI. It is clear from the plain language of the proviso that it comes into play when with respect to any proceeding initiated under Rule 4 of the Compounding Rules, if the Enforcement Directorate is of the view that the said proceeding relates to a serious contravention suspected of money laundering, then, the Compounding Authority shall not proceed in the matter and shall remit the case to the appropriate adjudicating authority for adjudicating contravention under section 13 of the FEMA. It is, therefore, the relation with the compounding proceedings and the applicant initiating the compounding proceedings, which is the most vital and crucial factor. Absent the relation of the compounding proceedings as also of the applicant therein with a serious contravention suspected of money laundering, it would not be permissible for the Enforcement Directorate to take any view and communicate the same to the RBI by invoking this proviso. If such a interpretation is not placed on the priviso, there is a likelihood of the RBI being informed by a vague and general communication as in the present case not to go ahead and compound the contraventio....
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....a result of the above discussion, we hold that the view communicated by the impugned communication/letter dated 1st December, 2017 could not brought any compounding proceedings an end. The RBI was not bound to act in accordance with such general and vague communication. The proviso could not have been invoked by the Enforcement Directorate in the facts and circumstances of the case. However, we must at once clarify that we are not in agreement with Mr.Dwarkadas when he urges that for the proviso to be invoked and applied, there must be a predicate offence. In the sense, before the view is taken, the Enforcement Directorate would have to demonstrate and prove that a FIR or crime is registered and investigations under the Code (Cr. P. C.) for booking a case under the PMLA have commenced by the Enforcement Directorate. It is not correct to urge that all this is a pre-requisite or pre-condition to invoke the proviso to Rule 8(2) of the Compounding Rules. It all depends upon the facts and circumstances in each case. All that is required is to possess reliable cogent and satisfactory material for the suspicion to be raised. The nature of the same again depends on the facts and circumstan....
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....be returned to him after he replaces it with a certified true copy of the same. 111. We also proceed to direct the RBI to render the necessary guidance to the petitioner in the matter of compounding of the contraventions under the FEMA. Since it was clearly stated before us by the RBI that it is presently inhibited in considering the compounding applications or proceeding to decide the same in view of the communication/letter of the Enforcement Directorate, then, as a result of quashing of the same, the RBI is free to proceed and decide the same. However, our order does not oblige the RBI to compound the contravention and all aspects and matters, save and except the one decided above, can be taken into consideration by the RBI in deciding the compounding applications, if otherwise permitted by law. 112. In the view which we have taken, it is not necessary to deal with the judgments, which Mr. Venegaonkar brought to our notice especially on the point of compliance with the requirements of laying of Rules. Secondly, his reliance on the judgment in the case of Narayan Govind Gavate (supra) is misplaced because there, the Hon'ble Supreme Court was concerned with the question, par....
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....eparted from this test in coming to the above conclusion. 114. Then, his reliance upon a decision of the United States Supreme Court is also misplaced for in that decision as well, the said Court does not hold that a view taken is immune from judicial review. When the exercise of such nature even though subjective, if the relevant materials are lacking or the opinion has no basis, if it is found that the opinion is not based on any material at all and the exercise in that behalf is wholly arbitrary, then, we do not see how this decision can be said to be assisting Mr. Venegaonkar. 115. Mr. Venegaonkar heavily relied upon the order passed by the High Court of Delhi, New Delhi in the two writ petitions, which are filed by the petitioner (New Delhi Television Ltd. vs. The Deputy Commissioner of Income Tax and Anr.). These petitions were challenging a notice proposing reassessment proceedings by the Commissioner of Income Tax under sections 147-148 of the Income Tax Act and the order of provisional attachment of the petitioners' assets. 116. Now, it is apparent that sections 147 and 148 confer in the Income Tax Authority a power to reassess the income and the question posed befo....
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.... Though we are not in agreement with Mr. Dwarkadas and the material on record does not lead to this inference leave alone conclusion, it is extremely distressing to note that parties like the petitioner doubt the independence and impartiality of the above institutions. None should entertain this belief or voice it before a court of law for if that is noted in the proceedings, the very credibility and efficacy of such institutions/authorities is than questioned. It is extremely unfortunate that we have to take note of such submissions of the learned senior counsel. We feel that beyond noting these arguments, we should not express any opinion thereon. However, we hope that all concerned understand our pain and anguish. We are concerned in this petition with the actions of the RBI and the Enforcement Directorate, both of whom refer to the criminal proceedings launched by the CBI. Those in-charge of their affairs and those in power giving them directions ought to realise that nothing would be achieved if foundations and base of these institutions is shaken and if they allegedly obey every command of the political masters. The political parties and outfits in power, in opposition ought ....