TaxTMI 
TaxTMI 
2021 (5) TMI 929
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....tion 3 of the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2000 (hereinafter referred to as the 'Place of Business Regulations'). 2. As the Show Cause Notice(s) and the Impugned Order(s)/Communication(s) are based on the same grounds for proceeding against the petitioner and the challenge thereto is common in both the petitions, the petitions are being adjudicated by way of this common judgment and order. 3. The petitioner herein is a private limited company incorporated under the Indian Companies Act, 1956. It is a subsidiary of JP Morgan India Securities Holding Limited, Mauritius ('JPMISHL'). 4. The genesis of the inquiry launched by the respondents originates from the judgment and order dated 23.07.2019 passed by the Supreme Court in W.P.(C) No. 940 of 2017, titled Bikram Chatterji & Ors. v. Union of India & Ors., finding various fraudulent transactions of Amrapali Group of Companies. 5. In the said judgment and order, various acts of fraud and statutory violations were alleged to have been committed by the JP Morgan Group of Companies. The Supreme Court in....
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.... 88. The FEMA rules prohibited the kind of transactions which were entered into with J.P. Morgan. Rule 4 of FEMA has been clearly violated. Master Circular No.8/2010-2011 of July 1, 2010, dealing with external commercial borrowings and trade credits clearly provides that external commercial borrowings are not permitted to be utilized for real estate business under the automatic route. The term real estate excludes the development of the integrated township. It was not a case of development of the integrated township. Even if it is taken to be a case of integrated township as submitted on behalf of J.P. Morgan, then also for approval route, hedging is required as pointed out by the Forensic Auditors in their report and borrowers had to submit their report about the signing of loan agreement with the lender for obtaining Loan Registration Number. In case J.P. Morgan had invested in the form of ECB, following would have been the requirements: (i) obtaining Loan Registration Number from the RBI; (ii) file ECB-2 returns every month to the RBI, (iii) to pay tax on interest payment to J.P. Morgan; and (iv) to file income tax return. We are in agre....
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....vided for in the books and standing in the books. The said payments have rightly been held by Auditors to be in contravention of the FDI norms and rules and for which the money was brought in India. 92. From 2013 to 2015, ASCPL has paid interest of Rs. 58.81 crores @ 17 percent, which is a highly abnormal rate. A sum of Rs. 14.41 crores was paid on 31.3.2013. Likewise, on 31.3.2014, Rs. 22.20 crores were paid and on 31.3.2015, another amount of Rs. 22.20 crores was paid. The violations were made with the knowledge of the IPFII Singapore and they were in connivance with the ASCPL." 6. The Supreme Court issued inter alia the following direction: "xxxxx (vi) In view of the finding recorded by the Forensic Auditors and fraud unearthed, indicating prima facie violation of the FEMA and other fraudulent activities, money laundering, we direct Enforcement Directorate and concerned authorities to investigate and fix liability on persons responsible for such violation and submit the progress report in the Court and let the police also submit the report of the investigation made by them so far." 7. Relying upon the above judgment and order of the Supreme Court....
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....s receiving salary from JP Morgan, USA. Thus JPIML is place of business in India of JP Morgan India Securities Holding Limited, Mauritius without prior approval of RBI. xxx Rs. 85 Crore xxx Contravention of Section 6(6) of FEMA read with the provisions of Regulation 3 of the FEM (Establishment in India of a Branch office or a Liaison office or a project office or any other place of Business) Regulations, 2000 JP Morgan India Securities Holding Limited, Mauritius & JPMIPL by establishing a place of business in India without prior approval of RBI. 16. Charges under FEMA: xxxxx e) JPMIPL has contravened the provisions of FEMA and Regulation issued by RBI as mentioned in Para 15 at Sl No.7 of the complaint to the tune of Rs. 85 Crore and thus has made itself liable to be proceeded against u/s 13 of FEMA." 8. It is important here to clarify that Complaint No. 01/2020 is interalia in relation to Rs. 85 crores invested by JP Morgan India Property Mauritius Company-II in M/s Amrapali Zodiac Developers Pvt. Ltd., whereas Complaint No. 02/2020 is inter alia in relation to investment of Rs. 140 crores approximately by IPFII-S Singapore PTE Ltd. in M/s Amrap....
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....se notice received in this office on 26.05.2020. In this regard I have been directed to inform you that pursuant to your reply, the Ld. Adjudicating Authority is of the opinion that further proceeding in the matter should be held in terms of sub-rule (3) of Rule 4 of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. This is for your information please." 14. Along-with the counter affidavit filed to the present petitions, the respondents have also placed the File Noting(s) of 05.06.2020 which, according to the respondents, is the order/opinion of the respondent no. 1 in accordance with Rule 4(3) of the Adjudication Rules. The File Noting in Complaint No. 02/2020 reads as under: "I have carefully perused the complaint before me. I've also gone through the judgment of Hon'ble SC dated 23/07/2019 in WP(C) No. 940/2017 (especially para 91, 92 etc.) which is also referred by the complainant in the complaint before me. I have taken the cognizance of the complaint no. 02/2020 dtd. 08/01/2020 and SCN was issued on 29/01/2020. After due consideration of allegation levelled in the said complaint, judgment of Hon&....
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....81; * Nareshbhai Bhagubhai & Ors. v. Union of India & Ors., (2019) 15 SCC 1; * G. Vallikumari v. Andhra Education Society & Ors., (2010) 2 SCC 497; 18. On the other hand, Mr. Sanjay Jain, the learned Additional Solicitor General, and Mr. Amit Mahajan, the learned Central Government Standing Counsel, have submitted that there was no violation of Rule 4(3) of the Adjudication Rules in the present case. They submit that in the present case, the respondent no. 1 formed his opinion to proceed with the inquiry as required in Rule 4(3) of the Adjudication Rules. The same is duly recorded in form of an Office File Noting(s) dated 05.06.2020. They submit that the expression of the opinion as required in Rule 4(3) of the Adjudication Rules need not be in form of elaborate reasons and as an order; it is a mere formation of an opinion, and in fact, is not even appealable under Section 19 of the FEMA. They further submit that in the present case, the Supreme Court in its judgment and order dated 23.07.2019 has found various violations of the FEMA against the JP Morgan Group of Companies and its officers. The complaint filed by the respondent no. 2 before the respondent no. ....
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....nquiry should not be held against him. (2) Every notice under sub-rule (1) to any such person shall indicate the nature of contravention alleged to have been committed by him. (3) After considering the cause, if any, shown by such person, the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a chartered accountant duly authorised by him. (4) On the date fixed, the Adjudicating Authority shall explain to the person proceeded against or his legal practitioner or the chartered accountant, as the case may be, the contravention, alleged to have been committed by such person indicating the provisions of the Act or of rules, regulations, notifications, direction or orders or any condition subject to which an authorisation is issued by the Reserve Bank of India in respect of which contravention is alleged to have taken place. (5) The Adjudicating Authority shall, then, given an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary, the h....
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....n receiving such cause, the Adjudicating Authority is to then form an opinion as to whether an inquiry should be held against such noticee. In the second stage, if the Adjudicating Authority has formed an opinion of holding an inquiry against the noticee, the Adjudicating Authority has to fix a date for the appearance of the noticee, either personally or through his legal practitioner or a chartered accountant duly authorised by him, on which date the Adjudicating Authority has to explain to the noticee or his representative, as the case may be, the contravention alleged to have been committed by such noticee. Thereafter, the noticee has to be given an opportunity to produce documents or evidence in support of his defence. The Adjudicating Authority upon consideration of the evidence so produced, shall then pass an order either exonerating the noticee or finding him guilty of having committed any contravention of the Act or of the Rules/Regulations/Instructions/Direction/Orders, etc. and impose such penalty as he thinks fit. It is only this order which can be challenged by the noticee under Section(s) 17 or 19 of the FEMA. 23. The effect of this two-stage process in Rule 4 of th....
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....To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules. Fair procedure and the principles of natural justice are in-built into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute. xxxxx 34. As noticed, a reasonable opportunity of being heard is to be provided by the adjudicating authority in the manner prescribed for the purpose of imposing any penalty as provided for in the Act and not at the stage where the adjudicating authority is required merely to decide as to whether and inquiry at all be held into the matter. Im....
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....is required to be examined both for the purpose of considering the last alternative submission of the petitioner about breach of Rule 4 of the Adjudicating Rules and also for considering the aforesaid preliminary objection raised by the learned Additional Solicitor General about maintainability of the Writ Petition. 11. It is the case of the petitioner that Special Director is not following the mandate of the Adjudication Rules while adjudicating the show cause notices. In such a case, if the case of the petitioner is correct, it becomes the duty of this Court to ensure that the authorities comply with the statutory provision while adjudicating the show cause notices. It would be convenient to reproduce Rule 4 of the Adjudication Rules, which reads as under: -- xxxxx 12. On reading the above Rule, particularly sub-rules (1) and (3) thereof, it is clear that on the issue of show cause notice, a noticee is permitted to submit his reply to the same. In terms of the above Rule, the Adjudicating Authority has to consider the objections raised by the noticee and only if he forms an opinion that an inquiry should be continued further that the Adjudicating procee....
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....ons to the show cause notice would be considered, only if they are of particular type, such as, the noticee is a stranger to the proceedings and no other objection would be considered while deciding whether or not the adjudication must be proceeded with further. Even if one were to proceed on the basis of the submission of the learned Additional Solicitor General that only some type of cases would fall within the mischief of Rule 4 (1) and (3) of the Adjudication Rules, yet the fact that the Adjudicating Authority has applied his mind to the objection raised by the noticee would only be evident if the formation of his opinion is recorded at least on the file. This forming of opinion need not be a detailed consideration of all the submissions but must show application of mind to the objections raised by the noticee. In case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order. 15. However, this formation of opinion by the Adjudicating Authority is not required to be preceded by a....
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....bjections to the notice and thereafter, forming an opinion on these objections before proceeding further with the notice for re-opening an assessment. Even so, the Supreme Court in the matter of GKN Driveshafts in 259 ITR 19 has held that on receipt of notice under section 148 of the Income Tax Act, 1961, seeking to reopen a completed assessment, the party is entitled to seek from the Assessing Officer, the reasons recorded for re-opening the assessment. On receipt of the reasons recorded for re-opening the assessment, the party is entitled to place its objections to the reasons recorded for re-opening before the Assessing Officer. The Assessing Officer is then required to consider those objections and pass an order thereon before proceeding to reassess the assessee's income in respect of a completed assessment. Thus, the Supreme Court has provided for giving of reasons recorded while re-opening the assessment to the party and then dealing with the objections of the party. In this case, it has been specifically provided in Rule 4 of the Adjudication Rules that the noticee under the Act is entitled to raise objections to the issuance of the notice and the Adjudicating Autho....
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.... 38. In view of the above discussion, though we do not disturb, at this stage, the impugned show cause notices dated 25 November, 2011 issued by the Special Director, Directorate of Enforcement, to the Petitioner, we set aside the communication dated 6 June, 2013 issued by respondent No. 2, calling the petitioner for a personal hearing. We direct the Special Director, Directorate of Enforcement first to form his opinion, after recording reasons, whether to proceed against the petitioner with regard to the impugned 11 show cause notices, in light of the observations made in this judgment. If the opinion so formed is adverse to the petitioner, such opinion along with the reasons so recorded shall be furnished so as to reach the petitioner at least 15 days prior to the date of personal hearing. This would meet the requirements of Rule 4(3) of the Adjudication Rules." 26. The High Court of Bombay has, while appreciating the uniqueness of the two-staged inquiry process in Rule 4 of the Adjudication Rules, observed that the formation of opinion under Rule 4(3) need not be a detailed consideration of all the submissions but must show application of mind to the objections raised by th....
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....med by the Adjudicating Authority under Rule 4(3) must be informed and must reflect due application of mind; (d) The opinion formed must also reflect reasons for the same. Though detailed and elaborate reasons need not be given, the same must satisfy the test of reflecting due application of mind by the Adjudicating Authority. 29. The requirement of giving reasons, as observed by Lord Denning, M.R. in Breen v. Amalgamated Engg. Union, (1971) 1 All ER 1148 (CA), is one of the fundamentals of good administration. In Alexander Machinery (Dudley) Ltd. v. Crabtree, 1974 ICR 120 (NIRC), it was observed that "failure to give reasons amounts to denial of justice." "Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at." Right to reasons is an indispensable part of a sound judicial system. Reasons substitute subjectivity by objectivity. 30. In S.N. Mukherjee (supra), the Supreme Court emphasized the requirement of giving reasons, in the following words: "35. The decisions of this Court referred to above indicate that with regard to the requirement to record reasons the approach of this C....
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.... not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge." 31. The necessity of giving reasons was re-emphasized by the Supreme Court in Kranti Associates (P) Ltd. & Anr. v. Masood Ahmed Khan & Ors., (2010) 9 SCC 496, observing as under: "12. The necessity of giving reason by a body or authority in support of its decision came up for consideration before this Court in several cases. Initially this Court recognised a sort of demarcation between administrative orders and quasi-judicial orders but with the passage of time the distinction between the two got blurred and thinned out and virtually reached ....
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....ocess. (m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decisionmaking not only makes the Judges and decisionmakers less prone to errors but also makes them subject to broader scrutiny. (See David Shapiro in Defence of Judicial Candor, [(1987) 100 Harvard Law Review 731-37] (n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now virtually a component of human rights and was considered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain, EHRR, at 562 para 29 [(1994) 19 EHRR 553] and Anya v. University of Oxford, [2001 EWCA Civ 405 (CA)], wherein the Court referred to Article 6 of the European Convention of Human Rights which requires, "adequate and intelligent reasons must be given for judicial decisions". (o) In all common law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of "due process"." 32. In Bhikhubhai Vithlabhai Patel (supra), the....
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....t may have had arisen to make substantial modifications in the draft development plan. The expression: "as considered necessary" is again of crucial importance. The term "consider" means to think over; it connotes that there should be active application of the mind. In other words the term "consider" postulates consideration of all the relevant aspects of the matter. A plain reading of the relevant provision suggests that the State Government may publish the modifications only after consideration that such modifications have become necessary. The word "necessary" means indispensable, requisite, indispensably requisite, useful, incidental or conducive, essential, unavoidable, impossible to be otherwise, not to be avoided, inevitable. The word "necessary" must be construed in the connection in which it is used. (See Advanced Law Lexicon, P. Ramanatha Aiyar, 3rd Edn., 2005.) 26. The formation of the opinion by the State Government should reflect intense application of mind with reference to the material available on record that it had become necessary to propose substantial modifications to the draft development plan." 33. The Adjudicating Authority, under the Scheme of th....
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....of the Supreme Court in the said judgment. The allegations against the petitioner also cannot be said to be such that do not warrant any inquiry given the above factual background. The role of the petitioner and its employees and the capacity in which they acted in the transactions in question need a detailed inquiry as such allegations form part of a larger whole which is being inquired into. 38. In Maharashtra State Board of Secondary and Higher Secondary Education v. K.S. Gandhi & Ors., (1991) 2 SCC 716, the Supreme Court while reiterating the requirement of giving reasons, observed that "the applicability of the principles of natural justice is not a rule of thumb or a strait-jacket formula as an abstract proposition of law. It depends on the facts of the case, nature of the inquiry and the effect of the order/decision on the rights of the person and attendant circumstances." 39. Following the above judgment, in Hanuman Prasad & Ors. v. Union of India & Anr., (1996) 10 SCC 742, the Supreme Court held that even though the order may not contain the reasons, the record may indicate the same. In the facts of that case, it was observed that as the action of cancellation of the....