TaxTMI 
TaxTMI 
2005 (11) TMI 539
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....00 pursuant to two separate SCN No. T-4/80-B/SDE/PKA/99 (SCN-I) and (SCN-II) both dated 18-11-1999 (hereinafter referred to SCN-I and SCN-II. Under SCN-I the original appellant in appeal No. 704/2000 died during the pendency of the appeal and his wife Smt. Ranjan K. Shroff (appellant in appeal No. 705/2000) is substituted, appellant in appeal Nos. 705/2000 and 706/2000 have been charged for contravention of section 9(1)(a), 9(1)(d) and 9(1)(e). Under SCN-II the appellants in appeal Nos. 778/2000, 779/2000 and 780/2000 have been charged for contravention of section 19(1)(b) for transferring shares in favour of appellants in appeal Nos. 707/2000, 708/2000 and 709/2000 being the persons resident outside India without any general or special permission of the RBI while the appellants in appeal Nos. 707/2000, 708/2000 and 709/2000 were charged for contravention of section 19(1)(b) and 29(1)(b) of the Act. At the end of the adjudication proceedings all the appellants have been found guilty and separate penalties are imposed as mentioned above. The applications filed by the appellants for dispensation of pre-deposit of penalty were considered by this Tribunal. On 1-2-2005 full dispensation....
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....ellants in appeal Nos. 704/2000 and 705/2000 respectively. (10) Letter dated 8-12-1998 sent to Enforcement Directorate by M/s. Bilawal & Co., Advocates and Solicitors for appellants in Appeal Nos. 704/2000 to 709/2000. 4. Similarly, another SCN No.T-4/80-B/SDE/99(SCN-II) 8542 (PKA) dated 18-11-1999 was issued alleging contravention of sections 19(1)(b) and 29(1)(b) to the appellants in Appeal Nos. 707/2000 to 709/2000 and 778/2000 to 779/2000 asking them to show cause why adjudication proceedings should not be held against them where reliance is placed on the documents mentioned in the Annexure "A" of the SCN-II which are the same as described in the Annexure "A" to SCN-I. 5. Shri Parag P. Tripathi , Sr. Advocate firstly contends that transactions in question pertain to the period December 1995. The appellants in appeal Nos. 707/2000, 708/2000 and 709/2000 are three daughters of Shri Kishore D. Shroff (original appellant in appeal No. 704/2000) and Smt. Ranjan K. Shroff (appellant in appeal No. 705/2000) had travelled out of India on different dates solely and entirely for educational purposes. In particular Ms. Kanan Shroff appellant in appeal No.709/2000 had travel....
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.... that relevant time, to stay abroad permanently and hence the charges levelled under section 9 or 29(1)(b) or 68 of the said Act are not at all sustainable on facts or in law. 7. Shri Sarvesh Chandra, learned counsel for the appellants in appeal Nos. 778/2000, 779/2000 and 780/2000 (hereinafter referred to as the appellant Company and its Directors) commences his argument adopting legal position as to the meaning of the term "person resident in India" as canvassed by Senior Counsel Shri Parag Tripathi and urges that the findings arrived at by the learned Adjudicating Officer as to the guilt of the appellant company and its Directors under section 19(1) of the Act are devoid of any merit and are not sustainable. Shri Sarvesh Chandra contends that para 2 of the Notification No. 114/92-RB dated 27-4-1992 issued under section 29(1) read with section 19(1) of FERA, 1973 is not applicable in the instant case. The said Notification has granted general permission to the appellant-company to allot any share to a NRI/OCB on non-repatriation basis provided the payment received through normal banking channel. In such case the appellant-company would require to inform RBI by filing a declara....
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....RBI and then make application for shares accompanied with such permission. Shri Sarvesh Chandra further submits that in the order of performance the obligation on the part of the applicant of share, if he is an NRI, comes before the obligation of Indian company starts under section 19(1)(b). Therefore, the question of making an enquiry as to whether the person is a non-resident would arise only if the applicant for shares discloses some facts which will give rise to an occasion to make an enquiry. It is further submitted that it is not humanly possible for a transferor Indian company to determine the legal status of an applicant of shares in terms of section 2(q) read with section 2(p) unless all the facts and circumstances necessary for such determinations are made available to it. Under the provisions of the relevant Act transferor-company has no authority to call for such information and that power is available only to the investigating and adjudicating authority under the Act. Alternatively it is stated that any enquiry to that effect by a transferor- company would be of no consequences as it cannot make a determinative and conclusive decision and law does not impose an obligat....
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....aughters had acquired non- residential status. A mere fact that a person having gone abroad and staying there for the purpose of staying would not render him the status of a person resident outside India. It is further necessary to show that he had gone abroad for uncertain period. 10. Lastly Shri Sarvesh Chandra contends that according to the respondent 16,35,700 shares were transferred in favour of Neha, Kanan and Kiran. The fact is that 5,23,200 shares were transferred in favour of M/s. Kanan Trusts whereas 5,49,900 shares were transferred to Kanan Shroff and 5,62,600 shares to Neha Shroff and nothing has been transferred to Kiran Shroff. The total of all these shares makes up to 16,35,700 but out of this 5,23,200 shares were transferred to M/s. Kanan Trusts and not Neha, Kanan and Kiran Shroff. 11. Per contra Shri T.K. Gadoo, DLA contends that core issue in these appeals is whether three Shroff daughters namely, appellants in appeal Nos. 704/2000 and 705/2000 are persons resident in India within the meaning of section 2(q) of FERA, 1973. Ms. Kanan Shroff, appellant in appeal No. 709/2000 got married to Shri Vijay J. Chandran, a non-resident and left with him for USA in or....
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....hroff daughters learned DLA contends that the said Shri Sanjay Bagai, the husband of said Neha Shroff is a non-resident and took leading role in transfer of shares in question of appellant-company. He had visited India in September 1995 and August 1996 and stayed about six weeks during each of the trip. Further it will be evident from the statement of Shri Kishore D. Shroff (since deceased) dated 2-12-1998 and the statement of Shri Dipesh Sheth that the appellant company had knowledge about the residential status of said Shri Sanjay Bagai and three Shroff daughters. Learned DLA points out that services of share brokers were utilised and cheques were received as consideration of the shares. 13. The admitted facts are that the appellants in Appeal Nos. 704/2000 and 705/2000 (both parents of three Shroff daughters) transferred from their own individual funds in different quantum in the bank accounts maintained in the name of appellants in appeal Nos. 706/2000, 708/2000 and 709/2000 which were operated through GPA holders who are their parents and are also appellants herein in appeal Nos. 704/2000 and 705/2000. Further, it is also admitted that certain shares were purchased in the n....
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.... (b) for carrying on in India a business or vocation in India, or (c) for staying with his or her spouse, such spouse being a person resident in India, or (d) for any other purpose in such circumstances as would indicate his intention to stay in India for an uncertain period; (iv) a citizen of India, who not having stayed in India at any time after the 25th day of March, 1947, comes to India for any of the purposes referred to in paragraphs (a), (b) and (c) of sub-clause (iii) or for the purpose and in the circumstances referred to in paragraph (d) of that sub-clause or having come to India, stays in India for any such purpose and in such circumstances. Explanation : A person, who has, by reason only of paragraph (a) or paragraph (b) or paragraph (d) of sub-clause (iii) been resident in India, shall during any period in which he is outside India, be deemed to be not resident in India;" 15. The definition given in section 2(p) of the Act has restrictive meaning. As observed by the Division Bench of Karanataka High Court in RBI v. Jacqueline Chandani [1996] 86 Comp. Cas. 231 that dictionary meaning of resident is not relevant for ascertaining th....
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....- (a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come or stays in India, in either case, otherwise than- (a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;" 18. It is also well-settled that principle of interpretation that where two views are possible adopt the one which is more favourable to the subject, cannot be applied to the Act involving economic and financial interest. The Hon'ble Supreme Court in the case of UOI v. Rai Bahadur Shreeram Durga Prasad (P.) Ltd. [1971] 41 Comp. Cas. 864 observed : "It is true that the regulations contained in the Act are enacted in the economic and financial interests of this country. The contravention of those regulations, which were told are widespread, are affe....
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....ds it;" 21. Illustration (g) of the said section enables the court to presume that where any evidence is withheld by a party it must be against him. There are myriad of cases where the court has taken adverse inference for failure to discharge the presumption. In a prosecution case under the Dowry Prohibition Act, 1961 S. Gopal Reddy v. State of A.P. [1996] 4 SCC 596 arising out of the allegation that the marriage was cancelled on account of dowry demand, the letter which the girl's side received allegedly containing cancellation and dowry demand was not produced. The Hon'ble Supreme Court held that adverse presumption was to be drawn from the non-production of such a vital letter. 22. Shri T.K. Gadoo, learned DLA further contends that these appellants sought clarification from RBI only after initiation of these proceedings by the Department. Shri Gadoo led us to the conditional clarification given by the RBI saying that "since you have claimed that you were on a student visa etc." which shows that RBI has not accepted their contention in toto but asked them "you may have to establish your status before the Enforcement Directorate through necessary documents". Admittedly no s....
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....at process of meeting prospective investors, he had met Shri Sanjay Bagai who was having his own business in USA. He knew that Ms. Neha Shroff is the wife of said Shri Sanjay Bagai and her sisters Ms. Kanan Shroff and Kiran Shroff were also in USA and that he knew said Shri Sanjay for the last 5-6 years; that Shri Sanjay Bagai was a regular investor in the stock market and in many companies in India and he had promised them Investments to the tune of Rs. 50 crores but to start with had promised an initial investment of Rs. 10 crores by way of equity investments in M/s. DITCO Securities (P.) Ltd.; that on the basis of a Board resolution passed on 3-11-1995 and on mutual understanding between said Shri Sanjay Bagai and himself; it was decided that 35,89,400 shares of M/s. DITCO Securities (P.) Ltd. would be sold at Rs. 30 per share and funds would be placed in their company out of the local resident accounts held by Shroff family members and the total value of such shares was to be Rs. 1,76,82,000; that the shares were subscribed somewhere in December 1995 and they had received cheques on local accounts held by the members of said Shroff family and these transactions did not require ....
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....ation (I.) Ltd., and that the Shroff family had not shown any interest or claimed the balance payment of Rs. 1,08,97,000 from Shri Mukesh K. Mehta, the Stock broker." It is evident that the above statement of Shri Parag Mehta relates to further sale of shares by the members of Shroff family to M/s. Mahadeva Corpn. (I.) Ltd., hence, is not relevant for the purposes of our consideration. However, the statement of Shri Dipesh Sheth as appearing in para 18(ix) of the impugned order only reflects that the appellant company by its Board's resolution dated 3-11-1995 decided to sell its 35,89,400 shares to Shroff's family members. The shares were subscribed sometime in December 1995 and company had received cheque on local accounts held by the members of said Shroff family. Therefore, the statement does not show the knowledge of the appellant company about the non-residential status of three Shroff daughters prior to transfer of the above named shares in December 1995. The observations of the Adjudicating Officer on this point is thus merely based on suspicion and conjectures without concrete evidence. In such a situation neither the guidelines nor provisions of section 19 read with sec....
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....view was reiterated in Union of India v. Filip Tiago De Gama of Veden Vasco De Gama AIR 1990 SC 981. In D.R. Venkatachalam v. Dy. Transport Commissioner AIR 1977 SC 842, it was observed that Courts must avoid the danger of a prior determination of the meaning of a provision based on their own pre-conceived notions of ideological structure of scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation." 27. In Palvinder Kaur v. State of Punjab AIR 1952 SC 354, the Hon'ble Supreme Court has observed that it is absolutely necessary for the court to safeguard itself against the danger of basing their conclusions on suspicions howsoever strong. In the said judgment the Hon'ble Supreme Court referring to its earlier decision in the case of Hanumant Govind Nargundkar v. State of Madhya Pradesh AIR 1952 SC 343 cited warning given by Baron Alderson in Reg v. Hodge [1838] 2 Lewin 227, where Justice Alderson said as under : "the mind was apt to take a pleasure in adapting circumstances to one another and even in straining them a little, if need be, to force them to form part....