TaxTMI 
TaxTMI 
2026 (6) TMI 802
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....for consideration in these two writ petitions, they were heard analogously and are being disposed of by this common judgment. 3. The challenge in both writ petitions is directed against the decision of Respondent No. 4, ICICI Bank Limited, an Authorised Dealer Category-I Bank under the Foreign Exchange Management Act, 1999 (for short, "FEMA"), in declining to process certain foreign exchange transactions arising out of merchant trade transactions undertaken by the petitioner. 4. The petitioner contends that the refusal of the respondent bank is arbitrary, unsupported by law and has resulted in substantial commercial prejudice. 5. Respondent No. 4 opposes the writ petitions and contends that the impugned action was taken strictly in accordance with the contractual framework governing the parties, the declarations furnished by the petitioner and the regulatory obligations resting upon an Authorised Dealer Bank under the FEMA-RBI regime. FACTUAL BACKGROUND: 6. The petitioner is engaged in international trade and maintains banking relationships with Respondent No. 4. 7. It is not in dispute that the petitioner had availed various banking and credit facilities from Res....
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....ion for Import remittance towards Merchant Trade Transaction 1/ We... BITUMIX INDIA LLP..... (ordering/importing party) hereby confirm that the underlying transaction of AED 605795.66 for which funds are being remitted does not involve: a) any sanctioned/designated/restricted/blocked person or entity (Beneficiary/Shipping line/Vessel etc.); b) any comprehensive sanctioned country/region (Iran, Sudan, Syria, Cuba, Crimea Region of Ukraine and North Korea); and c) goods which have been sourced or originated from a comprehensive sanctioned country (Iran, Sudan, Syria, Cuba, Crimea Region of Ukraine and North Korea). BITUMIX INDIA LLP Designated Partner" ....................................................................................................... "To The Branch Manager ICICI Bank Ltd. Date: 18/11/2024 Ghy. Declaration for Import remittance towards Merchant Trade Transaction 1/We BITUMIX INDIA LLP (ordering/importing party) hereby confirm that the underlying transaction of AED 64959,00 AED for which funds are being remitted does not involve: ....
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....en. 19. The respondent bank consequently undertook a compliance review of the transactions. 20. Upon completion of such review, Respondent No. 4 declined to process the transactions. 21. Aggrieved thereby, the petitioner has instituted the present writ petitions under Article 226 of the Constitution of India. SUBMISSIONS: 22. Dr. A Saraf, learned senior Counsel appearing for the petitioner submits that the impugned action is arbitrary and unsustainable in law. 23. It is contended that there exists no prohibition under FEMA, the regulations framed thereunder or any direction issued by the Reserve Bank of India prohibiting the transactions in question. 24. It is further contended that Respondent No. 4 could not refuse to process the transactions merely on the basis of sanctions concerns arising under foreign regulatory regimes. 25. Learned senior counsel further submits that the petitioner had no knowledge of any alleged Iranian nexus and that no material exists establishing any deliberate misrepresentation on their part. 26. Per contra, Mr. K N Choudhury, learned senior counsel appearing for Respondent No. 4 submits that the issue is not whether the transa....
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....eld that a private banking institution does not become amenable to writ jurisdiction merely because its activities are subject to statutory regulation. 36. Likewise, in S. Sobha v. Muthoot Finance Ltd., reported in 2025 SCC OnLine SC 177, the Apex Court reiterated that extensive regulatory supervision, by itself, does not convert a private financial institution into a public authority. 37. However, those decisions do not lay down an inflexible proposition that a writ petition can never be maintained against a private banking institution. 38. The true test is not the corporate identity of the respondent alone but the nature of the function being performed and the character of the impugned action. 39. Respondent No. 4 has also contended that the disputes arise out of contractual arrangements between private parties and involve matters essentially commercial in nature. 40. The objection cannot be accepted in the broad form in which it is urged. 41. Respondent No. 4 is an Authorised Dealer Category-I Bank functioning under the statutory and regulatory framework established under FEMA and the directions issued by the Reserve Bank of India. 42. The impugned action co....
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....taking authentication of shipping documents such as bills of lading and air waybills. The IMB report in respect to the subject Bills of Lading under both the transactions shockingly revealed that the shipments of goods did not take place as per the stated references in the Bills of Lading. The report provided a detailed timeline of the vessels used for shipment of the goods from Bandar Abbas, Iran (not Jebel Ali, UAE as was represented in the various documents) to Port Klang, Malaysia, where the goods were further transshipped using another vessel before final discharge at Chittagong, Bangladesh. The report further stated that the vessels used for shipment of the goods - Artenos and Golsan, are both named on the US OFAC SDN sanctions list. Both vessels are ultimately owned by the Islamic Republic of Iran Shipping Lines Company (IRISL) who are also named on the OFAC SDN list. Additionally, the report also stated that (i) the containers listed on the Bills of Lading are owned and operated by HDS Lines, Iran, which are effectively a subsidiary of IRISL, and are also named on the OFAC SDN list; (ii) Avrasya Container Shipping Lines, the carrier named on the two Bills ....
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....s it deems fit. (2) An authorisation under this section shall be in writing and shall be subject to the conditions laid down therein. (3) An authorisation granted under sub-section (1) may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that- (a) it is in public interest so to do; or (b) the authorised person has failed to comply with the condition subject to which the authorisation was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made thereunder. Provided that no such authorisation shall be revoked on any ground referred to in clause (b) unless the authorised person has been given a reasonable opportunity of making a representation in the matter. (4) An authorised person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission of the Reserve Bank, an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which ....
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....tself that the transaction placed before it is bona fide and is not intended to contravene or circumvent the provisions of FEMA or the rules, regulations, notifications, directions or orders issued thereunder. Viewed in the light of these statutory obligations, respondent No. 4 was fully justified in subjecting the transaction, to closer scrutiny, seeking further particulars concerning the shipment and its provenance, evaluating potential sanctions related implications, and undertaking such enhanced due diligence as the attendant circumstances reasonably warranted. 67. This Court is, therefore, of the considered view that an Authorised Dealer acting under Section 10(5) is neither expected nor permitted to function mechanically. Rather, it is required to undertake an independent assessment of the transaction placed before it and to satisfy itself that the transaction complies with the applicable statutory and regulatory framework. 68. The RBI framework governing Merchanting Trade Transactions similarly requires Authorised Dealer Banks to satisfy themselves regarding the genuineness, bona fides and regulatory compliance of the transactions undertaken through them. Marchanting t....
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....to the contractual framework governing the relationship between the parties. The rights and obligations of the parties are not determined solely by the FEMA-RBI regime but are also regulated by the facility agreement voluntarily executed between them. The parties are bound by the terms thereof and the legality of the impugned action necessarily falls to be examined in the backdrop of the contractual obligations undertaken by the petitioner and the rights reserved in favour of Respondent No. 4. 75. The facility agreement placed on record contains detailed provisions governing sanctions compliance, representations and warranties furnished by the borrower, obligations relating to the utilization of banking facilities and the consequences flowing from any breach thereof. Of particular significance are the provisions dealing with sanctions compliance and the rights of the respondent bank in relation to transactions attracting sanctions-related concerns. 76. Clause 6.1 of the General Conditions forming part of Schedule II to the facility agreement contains a series of continuing representations, declarations, warranties and covenants furnished by the petitioner. Clause 6.1(i) speci....
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....ner of doubt that the petitioner had expressly undertaken to ensure that the transactions undertaken through the banking facilities did not violate any applicable sanctions and that no sanctioned person or entity was involved in such transactions. Significantly, the petitioner specifically agreed that the sanctions contemplated under the agreement included, inter alia, those promulgated by the Office of Foreign Assets Control (OFAC), the United Nations, the European Union, India and other relevant jurisdictions. 80. The agreement further recognizes that sanctions-related concerns may arise in relation to the facilities and transactions thereunder, including documentary credits, guarantees, disbursements, payments, purpose and end-use of the facilities, origin of goods, shipment through particular countries or ports, vessels, liners, correspondent banks and participating entities. 81. Clause 6.1(xiii) casts a positive obligation upon the petitioner to ensure that the transactions do not violate any applicable sanctions and that no sanctioned persons or entities are involved in such transactions. The petitioner had agreed not to utilize the facilities for financing any transact....
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....olate or may violate sanctions obligations. 88. Consequently, once information came to the notice of the respondent bank giving rise to sanctions-related concerns and casting doubt upon the declarations and representations furnished by the petitioner, the respondent bank was not only entitled but contractually justified in re-examining the transactions and, if not satisfied, declining to process them. 89. The impugned refusal was therefore not an action dehors the contractual framework governing the parties. On the contrary, it was an action expressly contemplated and authorized by the facility agreement itself. 90. This Court is accordingly unable to accept the contention that the respondent bank acted without authority or beyond the scope of the contractual arrangements binding upon the parties. 91. The facility agreement, read as a whole, substantially supports the stand taken by Respondent No. 4 and furnishes a complete contractual foundation for the course of action ultimately adopted by it. 92. Viewed thus, the refusal complained of by the petitioner was therefore not dehors the contractual framework but was an action traceable to rights expressly reserved unde....
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.... 104. The declarations furnished to the respondent bank were not casual statements but formed the foundation upon which the bank was expected to undertake its regulatory and compliance assessment. 105. In transactions of the present nature, the obligation to furnish complete, accurate and truthful particulars rests squarely upon the customer seeking processing of the transaction through the authorized dealer bank. 106. Once information came to the notice of the respondent bank indicating an Iranian nexus and thereby casting serious doubt upon the correctness of the declarations furnished by the petitioner, the respondent bank was fully justified in reassessing the transaction. Such reassessment cannot be faulted merely because the petitioner subsequently attributed the discrepancy to lack of knowledge or inadvertence. 107. A subsequent plea of ignorance cannot compel an Authorised Dealer Bank to disregard material information that comes to its notice during the course of compliance review. On the contrary, it was the responsibility of the petitioner, before furnishing the declarations in question, to exercise due diligence and verify the origin of the goods, the shipment ....
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....rnational law and municipal law in India. The Apex Court also referred to Kesavananda Bharati v. State of Kerala, reported in (1973) 4 SCC 225, wherein it was observed that constitutional provisions may, where appropriate, be construed in the light of India's international commitments and obligations. Similarly, in Apparel Export Promotion Council v. A.K. Chopra, reported in (1999) 1 SCC 759, the Apex Court held that international conventions and norms may be accorded due regard while construing domestic law, particularly where no inconsistency exists between the two and where domestic law admits of such interpretation. 115. In Vishaka v. State of Rajasthan, reported in (1997) 6 SCC 241, the Apex Court reiterated that international conventions and norms, so long as they are not inconsistent with the fundamental rights guaranteed under the Constitution or with domestic law, may be relied upon to inform and illuminate the interpretation of municipal law, particularly in areas where domestic law is silent or where such interpretation advances the object and spirit of constitutional guarantees. 116. Equally, in Jolly George Varghese v. Bank of Cochin, reported in (1980) 2 SCC 360....
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.... No. 4 relies upon: (i) the contractual obligations voluntarily undertaken by the petitioner under the facility agreement; (ii) the declarations furnished by the petitioner regarding sanctions compliance and origin of goods; (iii) the statutory and regulatory obligations resting upon an Authorised Dealer Bank under FEMA and RBI directions; and (iv) information subsequently received during the course of compliance review. 124. This Court has already found that the subject facility agreement expressly contemplated sanctions-related concerns and conferred upon the respondent bank the right to refuse processing of transactions which violate or may violate sanctions obligations. 125. This Court has further found that the declarations furnished by the petitioner subsequently became the subject matter of doubt upon information coming to the notice of the respondent bank. 126. In such circumstances, the legality of the impugned action does not depend exclusively upon the independent enforceability of OFAC sanctions within India. 127. The matter can be decided on the basis of the contractual and regulatory framework governing the parties. E....
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.... process adopted by it suffers from arbitrariness, mala fides or perversity. 140. Whether the goods were ultimately of Iranian origin, whether particular vessels were involved, whether the petitioner possessed prior knowledge thereof and whether every concern entertained by the respondent bank was factually correct in every respect are questions which need not be conclusively determined in exercise of jurisdiction under Article 226 of the Constitution. 141. Such issues involve disputed questions of fact requiring detailed examination of commercial records, shipping documentation, transactional records and evidentiary materials. 142. A writ court is not ordinarily expected to undertake such an exercise. 143. More importantly, the legality of the impugned action does not depend upon this Court recording a definitive finding on those issues. 144. The relevant question is whether material existed before Respondent No. 4 which reasonably triggered its contractual and regulatory obligations and whether the respondent bank acted within the framework governing the parties. 145. It appears that upon undertaking verification with the International Maritime Bureau (IMB), a s....
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....onsiderations taken into account by the respondent bank were not extraneous to the exercise undertaken by it. 162. The respondent bank was acting within a framework consisting of: (i) obligations arising under FEMA and RBI directions; (ii) duties resting upon an Authorised Dealer Bank under Section 10 of FEMA; (iii) KYC, AML and due diligence obligations; (iv) FATF-related compliance considerations recognized under the regulatory framework; (v) sanctions-related provisions contained in the facility agreement; (vi) declarations furnished by the petitioner; and (vii) information subsequently received during the course of compliance review. 163. No material has been placed before this Court to demonstrate mala fides, arbitrariness, procedural unfairness, or the existence of any collateral or extraneous purpose behind the impugned action. 164. I am thus of the unhesitant view, that the respondent bank cannot be faulted for undertaking enhanced scrutiny when information came to its notice which, according to it, raised concerns regarding the declarations earlier furnished by the petitioner. Equally, the respondent b....
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....by a customer or indicating a potential nexus with a sanctioned jurisdiction, the bank cannot be compelled to disregard such information and proceed with the transaction as though no such concern exists. 171. In the considered view of this Court, a banking institution engaged in international financial transaction cannot be expected to ignore information bearing upon sanctions-related risks, particularly where the customer has furnished specific declarations concerning the absence of any nexus with sanctioned jurisdictions and circumstances subsequently emerged warranting further scrutiny of those representations. 172. This Court is, therefore, unable to hold that the impugned action of the respondent bank was arbitrary, irrational, unreasonable or otherwise susceptible to interference in exercise of the writ jurisdiction of this Court. CONCLUSIONS: 173. Upon total consideration of the matter, this Court records the following conclusions: (i) The writ petitions are maintainable; (ii) The objection relating to suppression of material facts is rejected as a preliminary ground for dismissal; (iii) Respondent No. 4, as an Authorised Dealer Categor....