Allowed

FPA-FE-18/BNG/2016 of Ajit G. Nambiar v/s The Joint Director Directorate of Enforcement, Bangalore

ATFP21 Sept 2017FPA-FE-18/BNG/2016

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed an appeal seeking waiver of penalty for failure to submit exchange control copies, invoking principles of natural justice and quasi-criminal nature of proceedings.

What did the court decide?

The impugned order and the appellate order were quashed and set aside; amounts deposited by the appellant were ordered to be refunded.

FPA-FE-18/BNG/2016 of Ajit G. Nambiar v/s The Joint Director… — Money Laundering | ATFP (2017)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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FPA-FE-18/BNG/2016

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Ajit G. Nambiar … Appellant/Applicant

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Versus

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The Joint Director Directorate of Enforcement, Bangalore … Respondent

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Advocates/Authorized Representatives who appeared

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For the appellant	: Shri J. K. Srivastava, Advocate
For the respondent	: Shri Parshant Pandey, L.C.
CORAM
JUSTICE MANMOHAN SINGH	: CHAIRMAN
SHRI G.C. MISHRA	: MEMBER

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ORDER 21.09.2017

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FPA-FE-26/BNG/2016

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The present appeal has been under section 19 of the Foreign Exchange Management Act, 1999 against the order dated 31^st August, 2016.

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The prayer has been made in the grounds of the appeal for waiver of the penalty amount. The said prayer is opposed by the learned counsel for the respondent. Admittedly, the complaint in the above said matter was filed on 2^nd September, 2015 mainly on the reasons that the appellant has not submitted the Exchange Control copies of bills and entries of certain transactions executed in the year 2000 and 2001 through HSBC bank and

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FPA-FE-18/BNG/2016

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Citi Bank. It is not denied that respondent’s complaint is based on the response received from the two authorized dealers in 2002 and in 2003 claiming that the appellant did not submit Exchange Control copies.

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There is a delay of about 15 years from the date of transaction i.e. for the year 2000-2001. In reply to the complaint, the appellant, inter alia, in paras 6 to 8 has raised following pleas:

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6. The complainant failed to take into consideration the instructions issued by the Reserve Bank of India to the Authorized Dealers under section 10(4) and 11(1) of FEMA, set out in its AP (DIR series) Circular No. 9, dated 24^th August, 2000, in which instruction no. A.17 (viii) requires the authorized Dealers to retain all relevant records evidence import of goods, as submitted by the importers, for a minimum period of one year from the date of its verification. There is no such requirement or obligation cast upon us. Hence, our mere inability to produce relevant records after more than 15 years cannot contravention of any provision of FEMA.

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7. The Complainant has, further, failed to take note of instruction no. A.18(i), which requires that in case an importer does not furnish the document of evidence of import, as required under paragraph A. 17, within 3 months from the date of remittance involving foreign exchange exceeding USD 5000, the Authorized Dealer should rigorously follow up for the next 3 months, including issue of registered letters to the importer, for submission of an appropriate document as evidence of import. The Complainant should have taken note of the fact that since the Authorized Dealers did not produce any record establishing their compliance with instruction A. 18(i) above, it must be presumed that we had, in fact, submitted all requisite documents as evidence o import in respect of the transactions in question.

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8. This Hon’ble Authority ought to consider that there is no material whatsoever in the Complaint to demonstrate that we have acted dishonestly. The Complaint does not even care to explain why this issue is being raised after 15 years. The Complaint does not state whether the Authorized Dealers and whether the Authorized duly discharged their obligations under the law and if not whether any action has been or is being initiated against the Authorized Dealers.

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In support of his submission, the learned counsel for the appellant has referred the two decision of Hon’ble Delhi High Court. The first is in the FPA-FE-18/BNG/2016 Page 2 of 12

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case of M/s Xerox Modi Corp. Ltd. v/s Special Director, Directorate of Enforcement. The relevant portions are read as under:

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14. Learned counsel for the appellant further submits that the transactions in question were very old, i.e. pertaining to the period 01.12.1993 to 13.12.1996. The show cause notice had been issued only on 18.01.2002, i.e. after over five years of even the last transaction of 13.12.1996. Learned counsel submits that the appellants were not expected to maintain their records for such a long period. They further submit that under the ECM date 31.05.2005, in terms of para &A.20(iv)

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“ In case an importer does not furnish the Exchange Control copy of bill of Entry within three months from the date of remittance (or within prescribed period as provided in paragraph 7A. 10), the authorized dealer should issue a reminder to the importer asking him to produce it forthwith. If there is still no response, a reminder by registered post with acknowledgement due should be not later than one month from the date of the first reminder”

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15. Learned counsel submits that ht show cause notice does not recite that the authorized dealer had ever sent a reminder to the appellate company asking it to produce the exchange control copies of the Bill of entries on the basis that the same had not been produced within three months from the date of remittance. The authorized dealer, i.e. the Bank of India had also not claimed that it had sent a further reminder through registered post acknowledgment due, requiring submission of the exchange control copies of the Bills of Entries. It is submitted that the non-issuance of reminder, or a further reminder in terms of para 7A.20(iv) shows that said the said documents, namely, the exchange control copies of the Bill of Entries were duly submitted, which is why the cause for issuance of such notices did not arise. Reference is also made to clause (vi) of para 7A.20, which obliges that the exchange control copy of the bill of entry for home consumption/postal wrappers should be preserved by the authorized dealers for a period of one year from the date of its verification. Learned counsel submits that no such obligation is cast on the person remitting the foreign exchange for import. He submits that since the notice was issued after over five years, apparently, the authorized dealer, namely, the bank of India had not preserved the exchange control copy of the Bills of Entries in respect of the three remittances aforesaid.

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16. It is submitted that the documents relied upon and referred to herein above sufficiently establish that the appellant company had submitted the exchange control copies of the Bills of Entries in respect of the three transactions contemporaneously. The appellants, it is argued, cannot be condemned on account of delay in initiating proceedings which resulted in misplacement of original documents in the office of the appellant

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company. Lastly, it is submitted that the appellant – in the course of its business had made a large number of foreign remittances – to the tune of Rs.700 crores. The respondents had initially raised queries regarding 64 remittances, which, eventually got reduced to merely 3. He submits that this shows that the appellant was a credible and compliant business entity which could not be expected to indulge in such petty violations. It was highly unlikely that the appellant would not have made imports in respect of the three foreign remittances. In support of his submission, learned counsel has sought to place reliance on the following decisions:

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(i)M/s Bareily Electricity Supply Co. Ltd. v. The Workmen & Ors., AIR 1972 SC 330;

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(ii) Sunil Engineering Corporation & Ors. v. Union of India & Ors., 117 (2005) DLT 525; (iii) Shanti Prasad v. Director of Enforcement, (1963) 2 SCR 297;

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(iv) Bata India Ltd. v. Special Director, Enforcement Directorate, (1999) 95 Comp Cas 101 (Cal).

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(v) Vipin Gupta v. Director of Enforcement, Enforcement Directorate – in Crl A No.469/2008 decided on 16.07.2014 by this Court.

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17. On the other hand, Mr. Malhotra, learned counsel for the ED has submitted that the appellants cannot have a grievance with regard to communication being exchanged with the authorized dealer, namely, Bank of India, as aforesaid, since the appellant company had itself suggested that the ED may seek information from the Bank of India in its communication dated 14.07.2003.

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18. Mr. Malhotra further submitted that the authorized dealer in the present case was Bank of India. However, the appellants sought to rely upon the communication of Standard Chartered Bank dated 04.08.1994 sent to the Reserve Bank of India, whereby the Standard Chartered Bank, in turn, forwarded the communication dated 12.07.1994 claimed to have been addressed to Reserve Bank of India by the appellant company. Mr. Malhotra submits that since Standard Chartered Bank was not the authorized dealer, there was no occasion for the said Bank to forward the appellants communication of 12.07.1994 to the Reserve Bank of India. He submits that the Appellate Tribunal correctly rejected reliance placed on the said document by the appellants in para 18 of the impugned order, which reads as follows:

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“18. Now coming to the factual situation, from perusal of

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record it is clear that the said three remittances of foreign exchange were effected during the year 1993 & 1996. The appellants submitted the copy of the letter of Standard Chartered Bank regarding submission of documents of imports of goods dated 04.08.1994, Pg.171 on record. However, there is no mention of the subject remittances in this letter of Standard Chartered Bank and the appellants have not been able to prove the import of goods particularly when the Bank of India and not Standard Chartered Bank was the authorized dealer of the appellant company. As regards the third

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remittance, the appellants submitted photocopy of the letter to Bank of India but there is no bank receipt, stamp/signature on the letter. Thus, the appellants have not been able to prove the import of goods as against the remaining two subject remittances also”.

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19. Having heard learned counsels for the parties and perused the record, as well as the order in original and the impugned order, this Court is of the view that the impugned order of the appellate tribunal and the order-inoriginal suffer from serious infractions of the principles of natural justice and, even on merits, it appears that the appellants were able to provide sufficient material on record to raise a serious doubt about the alleged violation of FEMA.

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20. The Supreme Court in Bareily Electricity Supply Co. Ltd. (supra), inter alia, observed as follows:

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“14. But the application of principle of natural justice does not imply that what is not evidence can be acted upon. On the other hand what it means is that no materials can be relied upon to establish a contested fact which are not spoken to by persons who are competent to speak about them and are subjected to crossexamination by the party against whom they are sought to be used. When a document is produced in a Court or a Tribunal the questions that naturally arise is, is it a genuine document, what are its contents and are the statements contained therein true. When the Appellant produced the balance-sheet and profit and loss account of the Company, it does not by its mere production amount to a proof of it or of the truth of the entries therein. If these entries are challenged the Appellant must prove each of such entries by producing the books and speaking from the entries made therein. If a letter or other document is produced to establish some fact which is relevant to the enquiry the writer must be produced or his affidavit in respect thereof be filed and opportunity afforded to the opposite party who challenges this fact. This is both in accord with principles of natural justice as also according to the procedure under Order XIX Civil Procedure Code and the Evidence Act both of which incorporate these general principles. Even if all technicalities of the Evidence Act are not strictly applicable except in so far as Section 11 of the Industrial Disputes Act, 1947 and the rules prescribed therein permit it, it is inconceivable that the Tribunal can act on what is not evidence such as hearsay, nor can it justify the Tribunal in basing its award on copies of documents when the originals which are in existence are not produced and proved by one of the methods either by affidavit or by witness who have executed them, if they are alive and can be produced. Again if a party wants an inspection, it is incumbent on the Tribunal to give inspection in so far as that is relevant to the enquiry. The applicability of these principles are well recognised and admit of no doubt”.

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21. In the present case, the order in original, as noticed above, is primarily founded upon the response dated 03.02.2004 received

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from Bank of India by the ED to its communication of 08.01.2004. It is not clear as to what is the nature and content of the information elicited by the ED from the Bank of India in its communication of 08.01.2004. It also remains in suspense as to what was the nature and content of the response sent by Bank of India in its communication dated 03.02.2004. It is not clear as to who sent the said alleged communication – i.e. whether it was sent by an authorized officer of the Bank or not.

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22. The submission of Mr. Malhotra is that the appellants had themselves suggested that the ED may get information from the Bank of India. Conveniently, the respondents ignore what they said in the last paragraph of their communication dated 14.07.2003, which has been extracted herein above. De hors the same, the obligation of the respondents to provide the said materials to the appellants, to enable them to deal with them is not whittled down merely because the appellants had suggested that information may be gathered from the Bank of India. The submission of Mr. Malhotra that even if the said documents were not put to the appellants at the adjudication stage, the appellants became aware of the fact (when they received the order-in-original) that the said correspondence has taken place with Bank of India. The appellants should have then approached the Bank of India and enquired about the same. This argument has only to be stated, to be rejected. Pertinently, when the appellant company demanded copies of the said communications vide their letter dated 29.03.2004, the same were not provided. Without having copies of the said communication, this Court fails to appreciate as to how the appellants could be expected to gather any information from the said Bank, or get them verified. In fact, the appellants were not even obliged to do so, and it was the primary obligation of the adjudicating authority to place all incriminating material – which was intended to be relied upon to condemn the appellants and penalize them in a quasi-criminal proceedings, before the appellants to elicit their response. The order imposing penalty is undoubtedly a prejudicial order as it entails quasi criminal and penal consequences. No such order could have been passed behind the back of the appellants, without confronting them with all the material which was sought to be relied upon and granting adequate opportunity to them to deal with the same. It was obligatory for the adjudicating authority to thereafter consider the response of the appellants, if any, and after consideration of the entire matter, pass the adjudication order. 23. In my view, the reasoning adopted by the Appellate Tribunal in para 19 borders of perversity, when it observes that the appellant company had not approached the Bank of India to seek clarification about the said letter dated 03.02.2004. Pertinently, it appears that the Appellate Tribunal also did not even consider it necessary to go through the said correspondences dated 08.01.2004 and 03.02.2004 between the ED and the Bank of India. The Appellate Tribunal did not consider it necessary to satisfy itself as to the nature of information sought from, and provided by the Bank of India. On this short ground, the order in original and the

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impugned order of the Appellate Tribunal are liable to be quashed and set aside.

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29. In Shanti Prasad (supra), the Supreme Court observed that proceedings under FERA are quasi criminal in character, and it is the duty of the respondent/department as prosecutor to make out a case beyond all reasonable doubt that there has been a violation of the law. In this regard, reliance was placed on In re HPC Productions Ltd., 1962 (2) WLR 51.

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30. In my view, the respondents have not established the violation of provisions of FEMA as alleged against the respondent beyond all reasonable doubt. There is likelihood of the appellant company having utilized the remittances for import as claimed by it. The situation has to be viewed from the context that the initial inquiry pertained to 64 remittances. Eventually, the same was narrowed down to only four, and thereafter in respect of the fourth alleged remittance, the respondents were satisfied with the appellants explanation. According to the appellants, remittances to the tune of Rs.700 crores have been made in relation to the business of the appellant company. If one were to keep the entire conspectus of facts in view, it does not stand to reason that the appellant company would fall foul of the law in respect of such miniscule amounts as claimed by the respondent, compared to the total remittances made by it.

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31. For all the aforesaid reasons, the appeals are allowed and the impugned order-in-original, as well as the appellate order stands quashed. The amounts deposited by the appellants in pursuance of the original order of adjudication before the Appellate Tribunal, shall be refunded without any delay. Similarly, the amounts, if any, deposited in this Court shall also be refunded to the appellants without any delay.

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In the second decision which is also decided by the Hon’ble Delhi High Court in the matter of Innovative Tech. Pac Ltd. V/s Special Director of Enforcement. The relevant portions are read as under:

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3. Aggrieved by the order of the Adjudicating Authority, the appellant preferred an appeal before the Appellate Tribunal wherein though predeposit penalty was dispensed with however, the appeal was dismissed vide the impugned order dated 29th May, 2012. Hence the present appeal.

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4. Learned counsel for the appellant respondent raises a preliminary objection as to the maintainability of the present appeal without the predeposit. Learned counsel for the appellant has pointed out towards the order impugned wherein the pre-deposit of the penalty was waived. Hence this Court is inclined to entertain the present appeal without insisting upon pre-deposit of penalty.

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5. Learned counsel for the appellant contends that for three remittances dated 23rd March, 1993, 26th March, 1993 and 27th September, 1993 the appellant had placed on record the Bills of Lading. Since the show cause notice was issued on 27th May, 2002, just before the sunset period and served on the appellant on 15th February, 2006 after a lapse of 13 years, the appellant was not in possession of the exchange copies of Bills of Entry and the Bill of Lading having been placed on record the same was sufficient proof that the foreign remittances were against imports. Reliance is placed on the decision of this Court in Xerox Modi Corp Ltd. vs. The Special Director, Enforcement Directorate, Crl. A. Nos. 58 and 300/2009 decided on 15th January, 2015. 6. Learned counsel for the respondent however, submits that Bill of Lading is only a proof that goods were exported from the country of its origin however, whether they were imported into India or not can be only fortified from the exchange copy of the Bill of Entry which was not placed on record. Hence there is no illegality in the impugned order and the appeal be dismissed.

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9. This Court in Xerox Modi Corp Ltd. (supra) relying upon the decision of the Supreme Court in the decision reported as 1972 SC 330 Bareily Electricity Supply Co. Ltd. vs. The Workmen & Ors. held: 19. Having heard learned counsels for the parties and perused the record, as well as the order in original and the impugned order, this Court is of the view that the impugned order of the appellate tribunal and the orderin- original suffer from serious infractions of the principles of natural justice and, even on merits, it appears that the appellants were able to provide sufficient material on record to raise a serious doubt about the alleged violation of FEMA.

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20. The Supreme Court in Bareily Electricity Supply Co. Ltd. (supra), inter alia, observed as follows:

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"14. But the application of principle of natural justice does not imply that what is not evidence can be acted upon. On the other hand what it means is that no materials can be relied upon to establish a contested fact which are not spoken to by persons who are competent to speak about them and are subjected to crossexamination by the party against whom they are sought to be used. When a document is produced in a Court or a Tribunal the

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FPA-FE-18/BNG/2016

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questions that naturally arise is, is it a genuine document, what are its contents and are the statements contained therein true. When the Appellant produced the balance-sheet and profit and loss account of the Company, it does not by its mere production amount to a proof of it or of the truth of the entries therein. If these entries are challenged the Appellant must prove each of such entries by producing the books and speaking from the entries made therein. If a letter or other document is produced to establish some fact which is relevant to the enquiry the writer must be produced or his affidavit in respect thereof be filed and opportunity afforded to the opposite party who challenges this fact. This is both in accord with principles of natural justice as also according to the procedure under Order XIX Civil Procedure Code and the Evidence Act both of which incorporate these general principles. Even if all technicalities of the Evidence Act are not strictly applicable except in so far as Section 11 of the Industrial Disputes Act, 1947 and the rules prescribed therein permit it, it is inconceivable that the Tribunal can act on what is not evidence such as hearsay, nor can it justify the Tribunal in basing its award on copies of documents when the originals which are in existence are not produced and proved by one of the methods either by affidavit or by witness who have executed them, if they are alive and can be produced. Again if a party wants an inspection, it is incumbent on the Tribunal to give inspection in so far as that is relevant to the enquiry. The applicability of these principles are well recognised and admit of no doubt".

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26. It appears that the appellants may have been penalized on account of a highly belated inquiry initiated by the ED, and with passage of time the appellants may not have preserved the original documents. In Vipin Gupta (supra) , the Court observed that the noticee could not have been expected to retain the proof of all remittances for over six years. The explanation given by it for not being able to immediately furnish the exchange control copies of the Bill of Entries was bonafide. I may note that in that particular case, during the appellate stage, the appellant had secured the certified copies of documents to prove the import of goods against some of the remittances - which is not the position in the case in hand. However, the same does not detract from the fact that notices have been issued belatedly - even though there is no period of limitation prescribed therefor. For such delays, the noticee cannot be made to suffer and the circumstance pleaded by the noticee that the documents have not been preserved or are not available would have to be given due weightage.

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27. In Sunil Engineering Corporation (supra), the petitioner raised a similar plea that the authorized dealer was not shown to have issued a reminder in terms of the ECM. The Court observed as follows:

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"6. Petitioners submit that original Bills of Entry had also been tendered but they were not having the receipt for the same as the same had been misplaced and was not traceable. However, petitioners had duly furnished the copies of Bills of Lading,

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Invoices. The photocopy of Exchange Control copy of the Bill of Entry duly carried endorsement by the Customs Authorities of the clearance of the goods. Mr. Sharma also submitted that the Bank itself had failed to comply with the procedure.

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7. In this view of the matter, there was hardly any doubt left regarding genuineness of the transactions which fact is not even disputed by the respondents. In these circumstances, the omission of the petitioners is merely a procedural irregularity. Reference is invited to the judgment of the Supreme Court in M/s. Hindustan Steel Ltd. v. The State of Orissa, AIR 1970 SC 253 wherein the Court while dealing on the question of imposition of penalty observed as under:-

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"Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.""

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28. In Bata India Ltd. (supra) , the Calcutta High Court observed that it was obligatory for the authorities under FERA (which stands replaced by FEMA) to consider the question of propriety of imposing penalty in the facts of a given case. It observed that it is settled law that penalty would not be imposed in quasi criminal proceedings merely because it is lawful to do so. Whether penalty should be imposed or not is a matter of discretion to be exercised judicially and on a consideration of all the relevant circumstances. The Calcutta High Court also placed reliance on the decision in Hindustan Steel Ltd. v. State of Orissa, (1972) 83 ITR 26 SC, which had been relied upon by this Court in Sunil Engineering Corporation (supra). The Calcutta High Court held as follows: "

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18. We are also of the view that in any event both the authorities under the said Act erred in not specifically considering the question of propriety of imposing penalty in the facts of the case. Decisions are legion in support of the proposition that penalty will not be imposed in quasicriminal proceedings merely because it is lawful to do so. Whether penalty should be imposed or not is a matter of discretion to be exercised judicially and on a consideration of all the relevant circumstances. In this connection reference may be made to the decisions in Hindustan Steel Ltd. v. State of Orissa, [1972] 83 ITR 26 (SC), Anantharam Veerasinghaiah and Co. v. CIT, [1980] 123 ITR 457 (SC) , and in Cement Marketing Co. of India Ltd. v. Asst. CST AIR 1960 SC 346. There was no such consideration in this case at all.

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19. That the proceedings for imposition of penalty under the Act are of quasi-criminal nature follows from the nature of the proceedings itself. It is also settled law that where proceedings are penal in nature, they are quasi-criminal proceedings. (See the decisions in CIT v. Anwar Ali, [1970] 76 ITR 696 (SC), and Shanti Prasad Jain v. Director of Enforcement, [1963] 2 SCR 297). The consequence of this is two fold, first is the question of mens rea before finding of guilt and second is the question of mens rea once guilt has been established. The decision in State of Maharashtra v. Mayor Hans George, [1965] 1 SCR 123, is an authority for the proposition that mens rea is not required to be established in respect of an offence under Section 8(1) of the Foreign Exchange Regulation Act, 1973, and that it was an offence which creates absolute liability. The decision is not apposite. We are not concerned with the pre-guilt finding of mens rea in this case. What is important is whether the appellant had any mala fide intention of violating the law".

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10. Thus the Courts have repeatedly held that in quasi criminal proceedings the penalty should not be imposed merely because it is lawful to impose the penalty. Whether penalty should be imposed or not is a matter of discretion to be exercised judicially and on consideration of all the relevant circumstances. Further simplicitor from the noncompliance of placing on record no inference can be drawn that the foreign remittance was not used for the purpose of import. It is trite law that to impose a penal liability compliance should be sought within a reasonable time and a person cannot be penalised for not retaining the documents for a period of 13 years. During the course of the present appeal, exchange copy of Bill of Entry qua transaction at Sr. No. 2 has already been placed however, despite best efforts the appellant could not locate the exchange copies of Bills of Entry qua other two transactions.

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11. In view of the belated show cause notice being served on the appellant, the defence of the appellant that it was not in possession of the copies of Bill of Entry for the two transactions is plausible. It cannot be held that the respondent has proved its allegation beyond reasonable doubt and the copies of the Bills of Lading probablise that the remittances were utilized for import.

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12. Consequently, the impugned orders passed by the Appellate Tribunal

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Counsel for the respondent submitted that the bank vide letter dated 14/01/2003 has confirmed that the appellant has not submitted the Exchange Control Copy of the Bank. The similar letter was issued by the bank on 15/07/2015, however, the counsel is unable to explain that once the respondent has received the letter dated 14/01/2003, why no setps with the respondent were taken for twelve years as that the complaint was filed in 2015. Though the appellant has specifically denied the stand taken by the bank. Thus, prima facie case of prayer made in the application is made out.

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In view of the above the appellant has made a case of exemption of depositing the penalty amount. It would be appropriate that the appeal be heard on merits. The respondent is granted six weeks time to file the reply with an advance copy to the counsel for the appellant who may file the rejoinder within four weeks thereafter.

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