TaxTMI 
TaxTMI 
2026 (6) TMI 184
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....9.2020. Vide the Seizure Order dated 11.09.2020 seizure had been effected of the properties held in the name of Shri S. Jagathrakshakan in India, valued at Rs. 17,23,59,458/- as listed in the Annexure-A to the said Order; also effected seizure of the properties held in the name of Ms. J Anusuya in India valued at Rs. 26,60,87,017/- as listed in the Annexure-B to the said Order, also effected seizure of the properties held in the name of Ms. J Sri Nisha in India valued at Rs. 23,23,57,523/- as listed in the Annexure-C to the said Order, and also effected seizure of the properties held in the name of Shri J. Sundeep Aanand in India valued at Rs. 22,11,17,507/- as listed in the Annexure-D to the said Order. 2. Ld. Counsel for the Appellant submitted that based on the election affidavit made to the Election Commission of India by Shri S. Jagathrakshakan regarding investments made in M/s Silver Park International Pte. Ltd., Singapore, the Appellant Directorate initiated inquires under FEMA. Enquiries were caused with Reserve Bank of India (RBI) vide letter dated 28.02.2019 regarding the ODI applications filed by Sh. S. Jagathrakshakan and his family members. RBI vide email dated 04.0....
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....2018. The shares were transferred on 'as is where is' basis and that the transferee i.e. Sh. Sundeep Aanand had to make payment for the said 2,50,000 shares when called upon by the Company. When enquired whether he had taken any RBI approval for the transfer of the said shares, Sh. Sundeep Aanand had stated that he was of the bona fide belief that only when money had been paid, the permission of RBI was required. Further since the transfer of shares were made by his father Sh. S. Jagathrakshakan, a resident Indian to him, another resident Indian, he believed that gifting of shares from father to son did not require any prior approval of the RBI. 5. Ld. Counsel for the Appellant submitted that in her statement dated 16.09.2019, Ms. J. Anusuya (Respondent No. 3 in the Appeal and since deceased) stated that, she was a resident Indian holding Indian Passport No. 22947878. Her husband, Shri S. Jagathrakshakan had transferred 45,00,000 unpaid shares of M/s. Silver Park International Pte. Ltd., Singapore to her vide Gift deed dated 15.09.2018. She had transferred her holdings in M/s. Silver Park International Pte. Ltd., Singapore equally to her son Sh. Sundeep Aanand & her daug....
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....rd resolution of M/s. Silver Park International Pte. Ltd., Singapore dated 15.09.2018, approving transfer of 70,00,000 shares held by Sh. S. Jagathrakshakan to his family members, i.e. 45,00,000 shares to his wife, Ms. J. Anusuya, 22,50,000 shares to his daughter, Ms. J. Sri Nisha and 2,50,000 shares to his son, Sh. J. Sundeep Aanand. A copy of Board resolution of M/s. Silver Park International Pte. Ltd., Singapore dated 02.05.2019, approving transfer of 45,00,000 shares held by Ms. J. Anusuya to her children. i.e. 22,50,000 shares to her daughter Ms. J. Sri Nisha & 22,50,000 shares to her son, Sh. J. Sundeep Aanand was also submitted. Ld. Counsel further submitted that vide letter dated 23.09.2019, Sh. Sundeep Aanand had submitted copy of Gift deed dated 15.09.2018, where from it was revealed that Sh. S. Jagathrakshakan had subscribed to 70,00,000 shares of M/s. Silver Park International Pte. Ltd., Singapore and that he had gifted 2,50,000 shares to his son, Sh. Sundeep Aanand. Sh. Sundeep Aanand appeared again on 10.10.2019 and tendered his statement. When questioned about the receipt of 22,50,000 shares of M/s. Silver Park International Pte. Ltd., Singapore from his mother Ms. J....
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....reign security as follows: "Foreign Security means any security, in the form of shares, stocks, bonds, debentures or any other instruments denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such as interest or dividends is payable in Indian Currency." Again, the Ld. Competent Authority misinterpreted the acquisition/ transfer of foreign security having referenced it to the Companies Act rather than Section 2(o) of FEMA. 10. Ld. Counsel for the Appellant Department alleged that the Ld. Competent Authority failed to consider the material placed on record by the Appellant. The Relied Upon Documents submitted before the Ld. CA in the Petition filed under Section 37A(2) evidenced the fact that the shares of M/s Silver Park International Pte. Ltd. were fully paid up was ignored. Not only the financial statement of M/s Silver Park International Pte. Ltd. for the period from 15.06.2017 to 30.06.2018 revealed that the shares were fully paid up, it was corroborated by the cash flow statement for the above period which reported that the proceeds from issuance of shares was SGD 1,00,00,00....
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....ints of time and hence the contravention under Section 4 of FEMA, needs to be treated separately for each such transaction. By subscribing to the shares of a foreign entity and transferring the said shares to resident Indians without RBI approval, the Respondent Nos. 2, 3, 4 & 5 herein had contravened the provisions of Section 4 of FEMA. 12. Ld. Counsel for the Appellant Department contended that the findings of the Ld. CA are erroneous in as much as the case laws cited in the impugned order pertained to erstwhile FERA and Customs Act, 1962 which are irrelevant and hence the ratios of the cited cases are inapplicable to the facts of the present case dealt under FEMA. The Ld. CA failed to uphold the Principles of Natural Justice by not serving copy of the written submissions filed by the Respondents Nos. 2, 3, 4 & 5 on the Appellant, thereby denying the Appellant an opportunity to counter the issues raised by the Respondents. Ld. Counsel therefore pleaded to allow the Appeal. 13. Ld. Counsel for the Respondents raised the preliminary objection that the Appeal is not maintainable in view of the provisions of Sections 37A(3) and 37A(4) of FEMA, which use the expressions 'rep....
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....ould be a case of contravention of Foreign Security Regulations. Unless there was a call by the Company M/s Silver Park International Pte. Ltd. Singapore, no money could have been paid by the Respondents. Ld. Counsel stated that RBI permission was not required since no subscription amount was sent for shares of the Company in Singapore. As per the Singapore Companies Act, there is no time limit for calling of payment. Ld. Counsel state that since the Company was struck off in 2020, no obligation is existed to pay any unpaid shares. Moreover, if no consideration had been paid the Company has the right of lien towards all those unpaid shares. Ld. Counsel argued that the Respondents had become the member of the Company by subscribing to the Memorandum of Association of the Company which meant that the Respondents had subscribed/undertaken/ promised to bring in some capital to the Company as and when it required in the future. The Foreign Company was formed with purpose to make investments and execute projects in the field of petroleum and mining all over the world. It had not commenced its full-fledged operation in the period in which Shri S. Jagathrakshakan was the Director of the Co....
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....the Respondent was only holding documents pertaining to the Subscribed Capital, wherein he enjoys certain rights agreed to by him and the Company i.e. by two private parties and it cannot be construed as Shares or Foreign security as specified under Section 4 of FEMA. As the provisions of FEMA comes into operation only when the subscribed capital blossoms into paid shares, the transfers made thereafter will also come under the purview of FEMA or Regulations after the shares have been paid for. At this stage the transfer (as a gift) of rights related to subscribed shares by the Respondent No. 2 Shri S. Jagathrakshakan to his family members will exclusively fall under the domain of the Respondent No. 2, his family members and the AoA of the Company. The above submissions made for the Respondent No. 2 were applicable to his wife Ms. J. Anusuya, (deceased) Respondent No. 3, son Shri J. Sundeep Anand Respondent No. 5, and his daughter Ms. J. Sri Nisha, Respondent No. 4 as well. 16. Ld. Counsel for the Respondents submitted that the following questions were framed by the Ld. CA in order to examine legality of the Order of Seizure dated 11.09.2020 issued by the Assistant Director/ Auth....
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..../-, the only inference that can be drawn in the matter is that there was no violation of Section 4 of FEMA by these two respondents i.e., Respondents 1 & 4 [Respondents No. 2 & 5 in this Appeal]. Thus questions 1) & 2) (raised in Para 15 of this Order) are answered." For clarification, questions 1) and 2) referred above are questions a) and b) of para 16 of this Order. 18. Ld. Counsel for the Respondent argued that it is on record that the gift of shares and change in Directorship has been informed to the Singapore authority i.e., Accounting and Corporate Regulatory Authority (ACRA) vide business file Authentication No. F188968020 dated 27.12.2018 under Receipt No. ACRA181226051957. In that document only Ms. Anusuya, Shri Sundeep Aanand and Ms. Sri Nisha are shown as Directors. In Singapore authority's document, only the 2 Respondents Shri Sundeep Aanand and Ms. Sri Nisha are shown as Directors. Therefore, it is stated that ample evidence is available revealing the gift of shares between the Respondents. Thus, question c) of para 16 of this Order, is answered. 19. Ld. Counsel for the Respondents, with the reference to question no. d mentioned in para 16 of this Order s....
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....dation for the suspicion must be based on certain reasons. Ld. Counsel submitted that in the considered opinion of the Ld. CA, unless it was shown by the investigating department that "something" was "held" in contravention of Section 4 of FEMA, Section 37A(1) will not come into play. In this case no share of any value was held in Singapore. Therefore, suspicion has no foundation. Ld. Counsel therefore pleaded to dismiss the Appeal. 21. We have considered the rival submissions and the material on record. The Hon'ble Supreme Court vide its Judgment dated 01.04.2026 in Civil Appeal Nos. of 2026 arising out of SLP (Civil) No(s). 23415 of 2025, SLP (Civil) No(s). 3469 of 2025, SLP (Civil) No(s). 23416 of 2025 and SLP (Civil) No(s). 23417 of 2025 [2026 SCC OnLine SC 517] has observed and ordered in paragraphs 38, 39 & 40 of the Judgment as follows: "38. In effect, the Adjudicating Authority has undone the order of the Competent Authority even while the appeal against the said order is pending. Such a course of action, in the opinion of this Court, tantamounts to abdicating the powers of the Appellate Authority, even when the order of the Competent Authority was still under c....
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.... in the present Appeal, on the grounds that the Authorised Officer, (the Assistant Director) had reasons to believe that foreign security was suspected to be held by the four Respondents in contravention of Section 4 of FEMA. It is therefore important to reproduce Section 4 and Section 37A of FEMA as follows: "4. Holding of foreign exchange, etc.-Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. 37A. Special provisions relating to assets held outside India in contravention of section 4.-(1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property: Provided that no such seizure shall be made in case where....
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....zed that Section 37A(5) of FEMA provides for an Appeal to the Appellate Tribunal only by 'any person aggrieved'. Since provisions of Section 37A(5) of FEMA do not mention the Central Government, Ld. Counsel argued that the Union of India/the Department cannot file Appeal in the Tribunal against the Order of the Ld. CA. Ld. Counsel further argued that on reading of Section 37A(3) and Section 37A(4) of FEMA distinction from Section 37A(5) of FEMA becomes obvious since in both the Sections 37A(3) & (4) of FEMA opportunity of being heard has been provided to the representative of the Directorate of the Enforcement which is not so in Section 37A(5) of FEMA. Further he argued that even in Section 19 of FEMA it is explicitly mentioned that the Central Government, besides any person aggrieved, can file an Appeal to this Tribunal against the Order of the Adjudicating Authority. On consideration of these arguments on maintainability, we first and foremost note from the Judgment (supra) dated 01.04.2026 of the Hon'ble Supreme Court of India the following first sentence of paragraph 40 of the Judgment: "As an upshot, we provide that the Appellate Authority shall first decide the appea....
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....B 865 : 163 LT 343 (HL)] referred to in Pye v. Minister for Lands for NSW [(1954) 3 All ER 514 : (1954) 1 WLR 1410 (PC)] .) The principles indicated in the said cases were reiterated by this Court in Mohan Kumar Singhania v. Union of India [1992 Supp (1) SCC 594 : 1992 SCC (L&S) 455 : (1992) 19 ATC 881 : AIR 1992 SC 1] . 18. The statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. 19. The court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with other parts of the law and the setting in which the clause to be interpreted occurs. (See R.S. Raghunath v. State of Karnataka [(1992) 1 SCC 335 : 1992 SCC (L&S) 286 : (1992) 19 ATC 507 : AIR 1992 SC 81] .) Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between two different sections or provisions of the same statute. It is the duty of the court to avoid a head-on clash between two sections of the same Act. (....
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....h for a consideration of SGD 1 per share. She also admitted of not having taken permission of RBI under belief that the same was not required for transfer of shares to another resident Indian. Ms. J Sri Nisha in her statement dated 16.09.2019 corroborated the statement of her father and mother and admitted having received in all 45,00,000 shares of which her mother had transferred 22,50,000 shares for the consideration of SGD 1 per share. Shri Sundeep Aanand in his statement dated 13.09.2019 admitted having subscribed to 20,00,000 ordinary shares on 15.06.2017 and thereafter had received 2,50,00,000 shares from his father vide Gift Deed dated 15.09.2018. No permission was taken from RBI since he too believed that such permission was required only when money had to be paid towards the subscription. In his further statement on 10.10.2019 he admitted having received 22,50,000 shares from his mother for consideration of SGD 1 per share. He stated that he had not made such payment and no RBI approval was taken, because he believed the transfer of shares from another resident Indian does not require any such permission. The Respondents had also submitted a copy of Gift Deed dated 15.09.2....
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....ir view of the financial position of the Company as at 30 June 2018, and of the financial performance of the business, changes in equity and cash flows of the Company for the financial period then ended; and b) at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. Directors The directors of the Company in office at the date of this report are as follows: Jegath Rakshagan Sundeep Anand Appointed on 15 June 2017. Jagathrakshakan Sri Nisha Appointed on 15 September 2018. Jagathrakshakan Anusuya Appointed on 15 September 2018. Thiayagarajan V T Appointed on 15 June 2017. Arrangements to enable directors to acquire shares and/or debentures Neither at the end of nor at any time during the financial period was the Company a party to any arrangement whose object is to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Directors' interest in shares or debentures According to the register of directors' sh....
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.... Note S$ ASSETS Current assets Cash and cash equivalents 9 6,000 Trade and other receivables 10 9,994,000 Inventories 11 0 10,000,000 Non-current asset Property, plant and equipment 12 0 0 Total assets 10,000,000 LIABILITIES Current liabilities Trade and other payables 13 3,300 Current tax payable 8 0 3,300 Total liabilities 3,300 NET ASSETS 9,996,700 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 14 10,000,000 Accumulated loss (3,300) TOTAL EQUITY 9,996,700 The accompanying notes form an Integral part of these financial statements. STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD FROM 15 JUNE 2017 (DATE OF INCORPORATION) TO 30 JUNE 2018 Share capital Accumulated loss Total attributabl....
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....ed and domiciled in Singapore. The address of its registered office and principal place of business of the Company is at 18 Roberts Lane #03-01 Goodland Building Singapore 218297. The principal activities of the Company are those of wholesale trade of a variety of goods without a dominant product. These financial statements are presented in Singapore Dollar, which is the functional currency of the Company. 2. Significant accounting policies 2.1 Basis of preparation These financial statements have been prepared in accordance with Singapore Financial Reporting Standards ("FRS") under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Company's accounting policies. It also requires the use of certain critical accounting estimates and assumptions. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. Interpretations and amendments....
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....y of the following conditions applies: (i) The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others; (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); (iii) Both entities are joint ventures of the same third party; (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company. If the Company is itself such a plan, the (vi) sponsoring employers are also related to the Company; The entity is controlled or jointly controlled by a person identified in (a); (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity) (viii) The entity, or any member of a group of which it is a part, provides key management personnel services t....
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....nagement, as well as written policies covering specific areas, such as currency risk, interest rate risk, credit risk and liquidity risk use of derivative financial instruments and investing excess liquidity. Currency risk The Company is not exposed to foreign exchange risk as most of its transactions are in Singapore Dollar. Interest rate risk The Company is exposed to interest rate risk through the impact of rate changes on interest bearing assets and liabilities. The interest-bearing assets comprise bank balances that are short-term in nature. Any short-term fluctuation in interest rates will not significantly affect the Company. No sensitivity analysis is prepared as the Company does not expect any material effect on the Company's profit or loss arising from the effects of reasonably possible changes in interest rates on interest-bearing financial instruments at the end of the reporting period. Credit risk Credit risk is the potential financial loss resulting from the customer defaulting on its contractual obligations to the Company. The Company has no significant concentrations of credit risk. The Company has policies i....
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....ister of Directors' shareholding, it is stated that M/s Silver Park International Pte. Ltd. had 'ordinary shares, fully paid' as on 30.06.2018 distributed whereby Shri Sundeep Aanand held 2,250,000, Ms. Sri Nisha held 2,250,000, Smt. Anusuya held 4,500,000 and Shri V. T. Thiayagarajan held 10,00,000. (ii) The Board of Directors authorised the Financial Statement, which were signed by Shri Sundeep Aanand and Ms. J Sri Nisha as Directors. (iii) The Statement as on 30.06.2018 mentions Trade and other receivables of the amount SGD 9,994,000 and Share Capital of the amount as SGD 10,000,000. (iv) This is further corroborated by the Statements of Changes in Equity for the Financial Period from 15.06.2017 to 30.06.2018 showing the Balance at the beginning of the Financial Period i.e. the date of incorporation Share Capital as zero. The issuance of Shares at the end of the period is shown as Share Capital of 10,000,000 SGD and the amount attributable to equity holder of the Company as SGD 10,000,000. (v) The Statement of Cash Flows for the said period mentions Proceeds from the issuance of Shares as SGD 10,000,000. (vi) Paragraph 2.15 of the Not....
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....as nominal value it cannot be stated that the shares were of zero value. The arguments of the Respondents that the Company had been 'struck off' subscription does not impact the aforementioned inference that at the relevant time the subscription to Memorandum of Association/ shares were valued at SGD 1 per share even in the Financial Statement of the Company. 29. We are unable to agree with the conclusion of the Ld. CA in the Impugned Order that: "In this case no share of any value was held in Singapore." It has been argued by the Respondents, which has been accepted by the Ld. CA that it was the case of merely the subscription of shares by the Respondents without having paid money to infuse the Capital in the Company. As pointed out in the preceding paragraph of this Order that in the Statement of Cash Flows there is mention about the amount SGD 10,000,000 as proceeds from issuance of shares and net cash provided by the financing activity being SGD 10,000,000. Even for argument's sake, if it is taken that the Respondents had merely made subscription of shares, it cannot be ignored that such subscription entailed the preemptive rights to the allotee to hold on to suc....
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....y the learned Attorney General. From the position explained by the State Governments concerned, it is clear that the allocation letter by the Central Government creates and confers a very valuable right upon the allottee. We are unable to accept the submission of the learned Attorney General that allocation letter is not bankable. As a matter of fact, the allocation letter by the Central Government leaves practically or apparently nothing for the State Government to decide save and except to carry out the formality of processing the application and for execution of the lease deed with the beneficiary selected by the Central Government. Though, the legal regime under the 1957 Act imposes responsibility and statutory obligation upon the State Government to recommend or not to recommend to the Central Government grant of prospecting licence or mining lease for the coal mines, but once the letter allocating a coal block is issued by the Central Government, the statutory role of the State Government is reduced to completion of processual formalities only. As noticed earlier, the declaration under Section 1-A of the CMN Act does not take away the power of the State under Section 10(3) of....
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....each share, but also the subscription bestowed certain rights and privileges to its holder. Moreover, Regulation 2 (e) of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 states the following: "Definitions 2. In these Regulations, unless the context otherwise requires: (e) "Direct investment outside India" means investment by way of contribution to the capital or subscription to the Memorandum of Association of a foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase or private placement or through stock exchange, but does not include portfolio investment." It is clear that even subscription to the Memorandum of Association of a foreign entity has been regarded as direct investment outside India on par with purchase of existing shares of a foreign entity. We therefore infer that even if the subscription is for Memorandum of Association of a foreign entity, it shall be covered as foreign security. The Respondents have also admitted that no permission was taken from RBI to hold such foreign security. 32. The following finding made in paragraph 16 of the Impugned Or....
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....f the adjudication proceedings by the Adjudicating Authority under Section 16 of FEMA. It is therefore a temporary measure, which is also obvious from the proviso to Section 37A(4) of FEMA where setting aside of the seizure is provided for on disclosure that the foreign exchange, foreign security or immovable property has been brought back to India. 34. Since the penalty for the contravention of Section 4 of FEMA and for the contravention of any other provision of the Act which are invoked in the Show Cause Notice issued in the case, is to be determined under Section 13 and Section 13(1A) of FEMA, a caution needs to be exercised so that the seizure is made only of the 'value equivalent' situated within India of the foreign security situated outside India and not of value more than that. We observe that the foreign security held outside India by the four Respondents herein was of value 90,000,000 SGD. Transfer through gifting only meant that while the transferee gained in terms of holding more of foreign security, the transferor lost that much of the holding. We also note that the Respondent No. 3 Smt. J Anusuya has since demised. It is also on record that Shri S. Jagathrakshakan....