TaxTMI 
TaxTMI 
2023 (12) TMI 442
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.... two children outside India. 2. These transactions have set in motion the consequences spelt out in Foreign Exchange Management Act, 1999 (in short FEMA) against them. The allegation is that the petitioner in W.P. No.21096 of 2023, inasmuch as he is an Indian citizen had held shares or to state it differently foreign securities in a Singapore based company, has contravened Sec. 4 of the Act, and inasmuch as his wife and children are transferees of those shares, who being citizens of India, and are holders of those shares also have contravened Section 4. 3.Pursuant to this, the Authorised Officer (Adjudicating Authority of Directorate of Enforcement) has moved the Competent Authority (the Commissioner of Customs) under Sec. 37A of the Act, for seizure of certain assets of these petitioners. The Competent Authority held an enquiry under Section 37A(3) of the Act, and came to a conclusion, vide its order dated 03.02.2021, that there is no proof that any of the petitioners have ever paid for any shares floated by M/s.Silver Park, since the company is not found to have made a call for the same. This order of the Competent Authority is now under challenge by the Enforcement Directorate....
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....fficer under Sec. 16 of the Act. So far as the procedure contemplated vis-a-vis an enquiry contemplated under Sec. 16 is concerned, it is governed by the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000. Rule 4 in particular delineates the specific procedure which the Adjudicating Authority is required to adopt. In first the stage, a show cause notice under Rule 4(1) requiring the noticee as to why an enquiry under Sec. 16 should not be commenced against him, under Rule 4(2), the noticee is expected to show cause. Now under Rule 4(3), the Adjudicating Authority is required to form an opinion after considering the cause shown by the noticee, as to whether it needs to proceed with the enquiry or to drop the same. If the Adjudicating Authority forms an opinion to proceed with the enquiry and issues a notice under Rule 4(3), then on the date so fixed, it is required to explain the noticee or such of his agents before him, the specific contravention enumerated under Sec. 13 with regard to which it proposes to hold an enquiry. (c) So far as the present case is concerned, on 03.02.2021, the Competent Authority has entered a categorical finding that there is ....
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....thority may impose a fine and also confiscate so much property of the one who is found guilty, and it may go upto thrice the value of the contravention made outside the country, which has been seized pursuant to Section 37A. But under Section 13(2), the Adjudicating Authority may order confiscation such of the assets of the contravener, and direct that they are either brought back to India, or order that they may remain outside India. (b)But for both 13(1-A) and 13(2) to operate, still there must be material to suggest that there is a case for enquiry for contravention under Sec. 4. Here, when once the Competent Authority had held that there is not even prima facie material to hold that the petitioners have violated Sec. 4, the Adjudicating Authority should not have even formed an opinion while fixing a date for hearing under Rule 4(3), for enquiring into a non-existent violation of Section 4, which it may enquire. Inasmuch as the Authorised Officer is the one who had moved the Competent Authority under Section 37(A), he should not have to initiate a proceeding under Sec.16. Now, when the complaint discloses the proceedings of the Competent Authority dated 03.02.2021, the Adjudic....
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....mmissioner of Income-tax (International Taxation) [(2022) 141 taxxman.com 288 (Karnataka : (2022) 449 ITR 513 (Karnataka)]. Arguments for the Respondents: 7. Appearing for the Enforcement Directorate, Mr.AR.L.Sundaresan, the learned Additional Solicitor General made the following submissions: a) The show cause notice dated 22.12.2021 issued under Section 16 of the Foreign Exchange Management Act, in essence, alleges that the petitioner in W.P. No.21096 of 2022, on 05.06.2017 has subscribed to 70 lakhs shares in M/s.Silver Park International Pvt. Ltd, Singapore, without necessary RBI approval, towards which he is appeared to have paid SGD 70,00,000 equivalent to Rs. 32,69,00,000, and thus he has contravened Sec. 3,4, 8,15 of FEMA r/w relevant Regulation of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. b) Subsequently on 15.09.2018, he (the petitioner in W.P.No.21096 of 2023), had transferred 45.0 lakhs shares to his wife Anusuya, 22.5 lakhs shares to his daughter Sri Nisha, and another 2.50 lakh shares to his son Sundeep Anand. Inasmuch as both the petitioner in W.P. No.21096 of 2023 and his transferees (the petitioners in the other....
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....n of any property which has been seized under Sec.37-A, in the eventuality of an adjudication by the Adjudicating Authority that there has been a contravention of any of the provisions of the FEMA. Viewed thus, Section 13(1A) is merely an ancillary provision to Sec. 13(1), for other than confiscation, it literally reiterates the consequences spelt out under Section 13(1). Section 13(2) is an optional provision. In that, an Adjudicating Authority even at the point when he chooses to impose any penalty on a person facing enquiry before him under Section 13(1), can also proceed to deal with any of the assets of such person which are situated outside India. Here, the Adjudicating Authority has two choices: either he can direct such asset be brought to India, or he can pass such appropriate orders vis-a-vis retaining the property outside India on such conditions. f) Therefore, if the facts of the case are spread on the plane of the statutory scheme, it would become evident that what Sec. 13 spells out is the consequence, and it does not deal with the process. The sequence of the process that leads to Sec.13 does not alter the character of the enquiry under Sec.16, more so, when the al....
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....ity under Sec.37-A of the Act as affecting the authority of the Adjudicating Authority to issue corrigendum. 10. Sec. 13 of the Act merely spells out the consequence of the violation of any of the provision of the Act, which includes Sec.4 embargo on a resident Indian, which mandates that no one who is resident in India shall hold foreign exchange or foreign securities outside India. The accusation which the petitioners herein now face is that they, as citizens and residents of India, are holding shares of a foreign company, and thus they have over stepped the line of prohibition under Sec.4. If the scheme of the statute is observed, Sec.13 comes into play only in the eventuality of the Adjudicating Authority entering a finding that the petitioners are guilty of the accusation which is now under enquiry. Set in the context, the corrigendum does not introduce any new set of allegations midway through an enquiry, but only put the petitioners on notice, that in the eventuality of they being found guilty of violating Sec.4, that the Adjudicating Authority might proceed against them under Sec.13(1A) consequence. Therefore, any alteration of provision regarding the consequence that may ....
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....ry Authority, if the petitioners are found guilty of the violation of Sec.4 On facts, the petitioners have entered appearance for a hearing on the notice of corrigendum, and that they have began participating in the proceedings. They are now given an opportunity to raise their objection before the Adjudicatory Authority. In a circumstance such as this what is the prejudice that has visited the petitioners which warrants an interference by this court? None. 14. Here it is significant to note that the Hon'ble Supreme Court in Raj Kumar Shivhare Vs Assisant Director, Directorate of Enforcement [(2010) 4 SCC 772], has held that FEMA is a self-contained code and remedial fora, the Act as created should not be bye-passed. 15. Its now time to consider the merit of the arguments of the petitioners' counsel on the effect of the order of the Competent Authority passed under Sec.37-A of Act, releasing the properties of the petitioners from seizure. The reason which has formed the ground for the decision of the Competent Authority is that there are no materials to suggest that any money or foreign exchange has flown out of India to support the purchase of the shares in the Singapore ....