TaxTMI 
TaxTMI 
2019 (9) TMI 940
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....Shri Adnan Sami Khan and Ms. Sabah Galadari. The common order was passed by the Special Director of Enforcement, therefore, both appeals are being decided by single order. 4. In the impugned order, it is held that since the said 8 flats purchased by Shri Adnan Sami Khan including the flats transferred to Ms. Sabah Galadari are the properties involved in the aforesaid contravention which were purchased under utter disregard to the direction of the RBI, these 8 flats i.e. Flat Nos. A-1201-B, A-1201C, A- 1301A, A-1301B, A-1301C, A1401A, A1401B and A-1401C in the building Oberoi Sky Garden, the said flats are confiscated to Central Government in exercise of the powers conferred on me under section 13 (2) of the Foreign Exchange Management Act, 1999. Further the penalty of Rs. 20,00,000/- (Rupees Twenty lakhs only) imposed on Shri Adnan Sami Khan who should be deposited in the Office of Directorate of Enforcement at 23/24, Mittal Chambers, 2nd floor, Nariman Point. Mumbai-400021. Part of the penalty amount of Rs. Ten Lakh has been deposited by Adnan Sami Khan. The possessions of eight flats and parking space is with him. 5. While passing the order, the Special Director has recorded th....
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....nan Sami was called for further enquiries and after repeated summons, he appeared on 20.01.2010 in response to summons dated 13.01.2010. In his statement dated 20.01.2010 recorded under Sec. 37 of FEMA, Shri Adnan Sami interalia stated that his full name is Adnan Sami Khan. He was born in Rawalpindi. He was a Pakistani national; and he had come to India on business visa eleven years before. (f) On being asked. Shri Adnan Sami stated that he had purchased Flat No. A1201-B and C, A-1301-A, B & C and A-1401- A, B & C, in Oberol Sky Garden Co-op. Hsg. Socy. Ltd. Lokhandwala Andheri (W), Mumbai on 29.12.2003; that out of the said flats 4 flats viz. A-1401, A,B and C and A-1201-C were purchased from R.S. Estate Developers Pvt. Ltd. (builder) and A- 1201 B, A-1301 B and A-1301 C were purchased from the builder and Mrs. Manisha S. Dhawan and A-1301-A from the builder and Mr. Rama Kapil Dhawan by way of tri-parte agreements. He had paid amounts totaling Rs. 2.53 Crores for purchase of these 8 flats. He further stated that for purchasing these flats, he had taken loan from Axis Bank (UTI Bank). He had transferred 5 Flats viz flat Nos. 1301A & C and 1401 A, B and C to his wife Sabah Galad....
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....isposing of house loan. When asked about mentioning his nationality as Indian on home loan application form, he stated that the Bank official had taken his signature prior to the filling of application form and that since he had applied for Indian Citizenship, he had declared himself as "Mr. Adnan Sami, adult, Indian Inhabitant (proposed)" on the Indemnity Bond, submitted to the Bank at the time of taking loan. (i). Enquiries were made with the Foreigners Registration office & Deputy Commissioner of Police, Mumbai. The Foreigners Registration Officer & Deputy Commissioner of Police, Special Branch (I), C.I.D. Mumbai vide their letter dated 06.02.2010 forwarded details of visa and other related details in respect of Shri Adnan Sami. It revealed that Shri Adnan Sami, a national of Pakistan holding Passport No. JO33468 issued on 29th July 2000 at Islamabad, was given "Visitor" visa No. P156000 valid from 03.08.2000 to 02.08.2001 with four entries on Passport No. JO33468, stay of 90 days of each visit with entry and exit point Mumbai and Delhi and permission to visit places Mumbai, Delhi, Calcutta, Chennai, Agra, Pune Hyderabad, Jaipur, Ahmadabad, Chandigarh, Goa, Bangalore and busin....
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....s letter dated 3/5/2010, 6/5/2010 and 14/5/2010 acknowledged the show cause notice and requested for time as the notice was out station. (n). Since no reply was filed by Shri Adnan Sami Khan, he was granted personal hearing on 21/06/2010, alongwith Smt. Sabah Galadari. The matter was adjourned to 08/07/2010 at the request of the Advocate for Shri. Adnan Khan. On 08/07/2010 Shri Vibhav Krishna, Advocate appeared alongwith Shri Adnan Sami Khan and requested for further adjournment and the matter was adjourned to 10/8/2010, However, on Shri Vibhav Krishna, Advocate vide his letters dated 6/8/2010 and 21/8/2010 demanded colour Xerox copy of the documents relied upon. In the interest of justice, colour Xerox copies of the documents were furnished to Shri Vibhav Krishna on 24/8/2010. (o) The matter was again posted for hearing on 16/9/2010. However, on 27/9/2010 Shri Adnan Sami appeared and informed that his Advocate is busy in High Court and requested for adjournment. He was asked to clear date in consultation with his advocate, for next hearing. And the matter was fixed for hearing on 19/10/2010. On 19/10/2010 Shri Vibhav Krishna, Advocate appeared with Shri Adnan Sami and submit....
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....mission for purchase of property in India. The applicant was also not aware of any letter dated 14/10/2002 issued by the Reserve Bank of India to M/s. D.M. Harish & Co., Advocates refusing to grant permission. The Applicant was not aware of the engagement of M/s. D.M. Harish and Co. on his behalf, he was not consented and did not have any knowledge and did not grant any permission for the letter dated 2nd September, 2002 to be address to Reserve Bank of India. He was not even aware that any such letter had been addressed to Reserve Bank of India, seeking permission. Further, he was not aware and has till date not been furnished the said letter by M/s. D.M Harish & Co. viz., letter dated 14.10.2002 addressed by Reserve Bank of India to M/s. D.M. Harish & Co. refusing to grant permission. (iii) He submits that he has applied for Citizenship of India in the year 2002 with the Government of India and has given undertaking that in the event the citizenship was approved he shall surrender his citizenship in Pakistan. The Applicant has also complied with formalities for grant of Citizenship in India, Including inter-alia by inserting a public notice in Free Press Journal in Mumbai dated....
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....f India to the application made by the applicant for grant of Expostfacto permission. The applicant submits that the show cause notice issued by authorities dated 12/4/2010 entails serious consequences if the Reserve Bank India's permission is not granted. (viii) The applicant therefore submits that in the interest of justice, till such time the application for the Expost-facto, sanction is considered by the Reserve Bank of India and attains a finality, the FEMA authorities may adjourn the matter by a period of 2 months in order to enable the applicant to pursue his application with the Reserve Bank of India. The Applicant submits that it is only after the response of the Reserve Bank of India is received, it attains the finality that the present show cause be proceeded with. The applicant submits that severe consequences shall be caused to the applicant if the permission is not granted and the present FEMA proceedings is proceeded with. The applicant had purchased the flats in December 2003 and the flats were registered in 2004 and the applicant has been in possession, use and enjoyment of the flats since last 6 years and therefore, the balance of convenience is entirely i....
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....ers Pvt. Ltd. He had purchased these properties on 29/12/2003 and at that time when he was holding visitor visa to stay in India was limited to 90 days or 180 days at a time. 10. It was held in the impugned order that considering the totality of all these facts and circumstances it was held that the contention of the noticee (about ignorance of the letter of M/s. D.M. Harish & Co.) is false. Even going by his version that M/s. D. M. Harish & Co. did Inform him about the further developments it can be said safely that If M/s.. D. M. Harish & Co. had not informed him it was his duty to inquire from them especially when he had engaged them. It was opined in the impugned order that one of the reason to disown the letter of M/s. D. M. Harish & Co. is to legitimatize the so called ex post facto permission from the Reserve Bank of India. No doubt he has taken the stand of forgotten the statements recorded by the Inquiry Officer and in order to overcome the difficulty created by the said letter of M/s. D. M. Harish & Co. and to pursue the latest application with Reserve Bank of India the noticee has put up a new argument about post facto permission. Noticee has approached RBI for post f....
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....e basis of banking loan sanctioned by AXIS bank and the income of the Appellant on which he had paid taxes. (c ). The respondent has failed to appreciate that the application of the Appellant was adjourned so that the pending application for the grant of ex post facto sanction attains finality and ex post facto permission if granted, the allegation of contravention in the show cause notice No.T-4/08-B/SDE/RAJ /2010/FEMA/100 dated 12th April, 2010 would become infructuous. (d) The respondent has overlooked and ignored that the appellant is the bonafide purchaser of the flat and was not aware that an Advocate had made an application on his behalf on 2nd September, 2002 for permission to purchase flats in Mumbai and the permission was refused vide letter dated 14th October, 2002. (e ). The respondent failed to appreciate that the appellant is a bonafide purchaser and was a victim of deceit and fraud by the builders who had suppressed the fact that application had been made by the builders' advocate with Reserve Bank of India on 2nd September, 2002 on behalf of the Appellant for permission to purchase Flats in Mumbai and which was refused vide letter dated 14th October, 2002 ....
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....d therefore the statement of Mr. Arun Kotian, Mr. Vikas Oberoi on behalf of R.S. Estate Developers and the Bank Officials that they were unaware of his nationality is false, inaccurate and incorrect. (k) The Notice has disregarded that the Noticee NO.1 (Appellant) having matrimonial dispute with the Noticee No.2 and he has revoked the Deed of Gifts for 5 flats all dated 12th May 2008 on the basis that his marriage to Sabah Galadari was void ab initio since she had not complied with formality of "Halala" and the submission of the Appellant was upheld by the Family Court vide order dated 14th October, 2009 and which was challenged in Family Court Appeal No. 79 of 2009 in High Court Bombay which has by its order dated 23rd March 2010 set aside the order of Family Court and has remanded the matter to Family Court for adjudication and being aggrieved by the said Order of High Court, Bombay the Appellant is in the process of filing the Special Leave Petition in Supreme Court of India, which is pending. (l) The notice overlooks that the application of obtaining the permission from RBI was carried out by the Advocates for R.S. Estate Developers and the Appellant was not even aware of t....
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....ear 2003 and the Appellant had disclosed his identity and PAN Card. There was no complaint and/ or enquiry against such purchase for next six years. Thereafter in May, 2008 the Appellant had gifted five flats to his then wife Sabah Galadari and has also executed mortgage deed for Flats on 13th May 2008. However, thereafter on account of matrimonial dispute and discovery of certain facts with shook the foundation of re-marriage to Sabah Galadari the Appellant had revoked the gift on 6th May 2009 and had also raised the plea of "Halala" in the Family Court, Bandra, Mumbai and which was upheld by Order dated 14th October, 2009. On that basis the gift became invalid. However, the said order has been set aside by High Court Bombay and the matter is to be prosecuted in Supreme Court of India. (p) The notice fails to consider the factual position that the Appellant has come to India 11 years ago and has pursued his career in music and has expressed his intention to stay in India for an uncertain period and as in fact stayed in India for long duration and is entitle to be treated as Resident in India and would be covered under the definition of "Resident in India" and the provision 3 of ....
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.... name and the share certificates of the society are in her name, thus she is the sole legitimate owner of the five flats and three car parking spaces gifted to her. It is alleged that she had advanced a sum of Rs. 5.30 crores to her former husband from time to time between 8th April, 2007 and 23rd January, 2009, a substantial part of which was utilized for the furnishing with fittings of the said 5 flats. She was not aware that Mr Sami had executed the gift deed in her favour vis-à-vis the 5 flats without obtaining the requisite permission of Reserve Bank of India. In respect of remaining 3 flats (Flat no. A1201-B, A1201C and A1301B car parking space no.83 & 153), which also were purchased without RBI permission, therefore, had created an equitable mortgage in favour of the Appellant to secure a separate loan amount of Rs. 1.08 Crores advanced to him. Many issues raised by her have been denied on behalf of Mr. Sami at the time of hearing of appeals. 16. It is argued by Mr. Mahesh Jethmalani, learned Sr. Counsel appearing on behalf of Sabha Galadari. The following facts compound Mr Sami‟s violation of Regulation 7: (a) That he had applied for RBI permission to purcha....
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....paid from funds remitted from abroad. Thus in addition to the violation of Regulation 7, there was a foreign exchange loss to this country as local funds & not foreign funds were used by a Pakistani citizen to acquire flats in India. (f) That even the loan of Rs. 1.5 Crores from Axis bank was secured by perpetrating a fraud. In the application form Mr. Sami disclosed his nationality as "Indian". (g) The fact that Mr Sami has subsequently been granted Indian citizenship is of no consequence whatsoever and certainly not an equitable consideration in his favour. It is doubtful if the authorities conferring citizenship on Mr Sami would have conferred that honour upon him had it been made aware of Mr Sami‟s several transgressions in his acquisition of 8 flats in Bombay as also other circumstances which are not relevant to these proceedings. 17. Finally, it is argued by Mahesh Jethmalani, Sr. Advocate that the impugned order of confiscation is erroneous and ought to be quashed and set aside, in a view of both law and equity qua the Appellant. It is argued by him that the observation made in 39 of the impugned order are against the law. The findings are given on the basis of wh....
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....r of Immovable property in India) Regulations 2000 (Notification No. FEMA/21/2000-RB dated 3rd May 2000), Regulation 7 of which reads as under: Regulation 7: Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries - No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years. 24. The prior permission in order to purchase the property is an essential ingredient of the provisions of the relevant Regulation i.e. Regulation 7. 25. The word prior permission contemplates that the parties in question should approach the authorities concerned in advance. The relevant date is under Section 29 is the date of purchase of acquisition or transfer of immovable properties in India by the citizen of certain countries included Pakistan citizens. 26. There is no denial that in order to secure the security and the sovereignty of the nation a decision has been taken to debar the nationals of a few countries from purchasing immovable properties in India. Nationals of ....
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....ircumstances. 31. The finding of Adjudicating Authority is contrary to 3 decisions, one of the High Court of Punjab & Haryana & two of High Court of Madras. (a) In Piara Singh v Jagtar Singh AIR 1987 P&H 93, the Hon‟ble High Court while addressing the issue of contravention of section 31(1) and 63 of the Foreign Exchange Regulation Act, 1973, which also correspond with Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations, 2000 and section 13(2) of the Foreign Exchange Management Act, 1999, held that: "Section 31(1) of the Foreign Exchange Regulation Act, 1973, provides that without the previous permission of the Reserve bank of India a person who is not a citizen of India, cannot acquire property, but it does not provide that if someone purchases any property the title therein does not pass to him. What the Act provides is that if a person contravenes Section 31 and some other sections, he can be penalized under Section 50 and can also be prosecuted under section 56. However, there is no provision in the Act which makes a transaction void or says that no title in the property passes to the purchases in case the....
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.... on transfer by virtue of registered documents. The payment was made against the loan in rupees. 33. Sec 13 (1) of the FEMA imposes a mandatory obligation on the Adjudicating Authority to impose a penalty or a contravention of any rule, regulation, notification, direction or order issued in exercise of powers under the FEMA. In particular, Sec.13(1) of the FEMA, 1999, uses the word "shall" for imposition of penalty, consequent upon contravention. This is in contrast with the provision under Sec.13(2) of the FEMA,1999, where confiscation of property involved in the contravention is dealt with. Sec. 13 (2) prescribes that the adjudicating authority "may" (and not "shall") if he thinks fit in addition to any penalty which he may impose for a contravention dealt with under Sec. 13(1), direct confiscation to the Central Government of the property involved in the contravention. In the instance case the Adjudicating Authority has a discretion vested in him whether to or not to confiscate under Sec.13(2), while having no discretion to not impose penalty under Sec.13(1), when adjudicating that there has been a contravention. 34. There was no absolute bar on a Pakistani citizen from acquir....
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....ent -Retail Banking - Axis Bank). The Appellant had also requested for permission to examine himself and other witness in support of his defense. (b) On 19.10.2010 when the aforesaid application came up for hearing; no orders were passed on the application and the matter was listed for arguments on 18.11.2010. The application for permission to cross examine the witnesses whose statement have been relied upon by the FEMA authorities in support of show cause notice and the permission to examine the appellant himself has remained pending and has been not been adjudicated till date. (c ) The adjudicating authority committed a serious error in law in not allowing the Appellant to cross-examine the witness‟, whose statements form basis of the Impugned Order. Further, the adjudicating authority has not even dealt with the Appellants‟ application for cross- examination in the Impugned Order and as such the Impugned Order is violative of principles of natural justice. (i) The Hon‟ble Supreme Court in Andaman Timber Industries v. CCE (2016) 15 SCC 785 while examining the right to cross examine the witness before the Adjudicating Authority has held as under: "6. Accordi....
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.... justice, the appellant requested before the Adjudication Authority for permission to cross examine the witnesses so as to enable them to establish his innocence and to state and/or explain his case." (iii) In view of the aforesaid submissions and the law as laid down by the Hon‟ble Supreme Court in Andaman Timber Industries (Supra), the adjudicating authority by not passing any order on the Appellant‟s application for cross-examination has prejudiced the Appellant‟s case against the principles of natural justice and settled principles of law. Valuable rights of cross examination in a matter where (serious nature of controversy is involved) can be ignored by any agency (particularly on those statue where prescribed period of adjudication is not prescribed) in the manner, the impugned order was passed in haste. Reason No. 4 (a) It appears to this tribunal that the Impugned Order has been passed in haste. The Adjudicating Authority admittedly did not provide the Appellant with a reasonable opportunity to be heard as the Sami vide his application dated 03.12.2010 apprised the Adjudicating Authority of the representation made by the Appellant to the Reserve Bank o....
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....zenship of India on 01.01.2016. A certificate of Naturalisation bearing No. 5659 dated 01.01.2016 has been issued by the Ministry of Home Affairs under the provision of the Citizenship Act, 1955. Reason no. 7 It is admitted position that FEMA was enacted to deal with violations pertaining to foreign exchange laws. A bare perusal of the statement of objects and reasons of FEMA would indicate that the intent of the legislature was to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange markets in India. It is an admitted fact that the Appellant had purchased the Flats in question on the basis of income generated from India as well as a bank loan of AXIS bank, Lokhandwala Branch, Andheri (W), Mumbai in 2004 from Loan Account No. 004010600032948 dated 27.01.2004 aggregating to Rs. 1.50 Crores. The Appellant has been an income tax payee since the year 2000 and has been in possession of a PAN Card. Admittedly in the present case no foreign exchange involved and concomitantly there has been no loss of foreign exchange as the entire sale con....
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.... acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. 38. The Hon‟ble High Court of Bombay in Dodsal (P.) Ltd. V. Foreign Exchange Regulation, Appellate Board [2004] 52 SCL 466 (Bom); MANU/MH/1088/2002 (reliance is placed on paragraphs No. 4,7-8 &17) vide its judgment dated 22.07.2002; following the principles laid down in Hindustan Steel (Supra) has observed that it is not necessary to levy a penalty and/or confiscate the property once it is established that the only breach is just technical or venial. The Hon‟ble High Court has also observed that in the absence of ma....
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....rect investment observed that when confiscation ex-facie is harsh, the order of the adjudicating authority has to be set-aside insofar as confiscation of properties is concerned. 42. This Tribunal in Shri Dr. D. Rewatha Thera v. The Joint Director, Directorate of Enforcement, Lucknow being Appeal No. FPA-FE- 54/LKW/2014 (reliance is placed on paragraphs No. 20, 22 &23) vide order dated 23.01.2019; while deciding an order passed under Section 13 of FEMA for violation of provision of Section 4 of FEMA and Regulation 3 of FEMA (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 has followed the ratio laid by the Hon‟ble Supreme Court in Hindustan Steel (Supra) and has further observed that the order of confiscation of properties would be unjustified in view of absence of any conscious wrong doing on the part of the appellant. 43. The authorities cited above are fully in consonance with section 6 (h) (3) o the Transfer of Property Act, 1882 which reads as under: Sec.6 (h) No transfer can be made. (3) to a person legally disqualified to be Transferee". 44. It is rightly submitted that a national of the countries specified under Regulation 7 of the....