Allowed

FPA-FE-05/DLI/2018 of Mrs. Shalini Mehra v/s Shri A.H. Khan Directorate of Enforcement, Delhi

ATFP13 Apr 2018FPA-FE-05/DLI/2018

Case brief

AI extract

What is this about?

The Tribunal addressed appeals against freezing orders passed under Section 37A(1) of the Foreign Exchange Management Act, 1999. It held that the provision could not apply retroactively to transactions between 2010 and 2013. Furthermore, the adjudicating authority violated natural justice by failing to serve reasons, denying the right to cross-examine, and exceeding the 180-day statutory limit. Consequently, the orders were set aside, and seized amounts were to be released upon verification of remittance.

What did the court decide?

Appeals allowed; orders dated 8.12.2017 and Confirmation order dated 15.6.2017 set aside; respondent allowed to verify remittance of entire amount within four weeks, after which seized funds to be released to appellants' accounts within one week.

FPA-FE-05/DLI/2018 of Mrs. Shalini Mehra v/s… — Constitutional and Fundamental Rights | ATFP (2018)

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APPELLATE TRIBUNAL, FOREIGN EXCHANGE MANAGEMENT ACT AT NEW DELHI

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Date of Decision:-13.04.2018

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(1) FPA-FE-01/DLI/2018
Shri Ashwani Kumar Mehra	…	Appellant
Versus
Shri A.H. Khan Directorate of Enforcement, Delhi	…	Respondent
(2) FPA-FE-03/DLI/2018
Shri Deepak Mehra	…	Appellant
Versus
Shri A.H. Khan Directorate of Enforcement, Delhi	…	Respondent
(3) FPA-FE-04/DLI/2018
Shri Navin Mehra	…	Appellant
Versus
Shri A.H. Khan Directorate of Enforcement, Delhi	…	Respondent
(4) FPA-FE-05/DLI/2018
Mrs. Shalini Mehra	…	Appellant
Versus
Shri A.H. Khan Directorate of Enforcement, Delhi Advocates/Authorized Representatives	… who appeared	Respondent
For the appellant :	Shri R.K. Handoo	, Advocate
For the respondent :	Shri Nitesh Rana,	Advocate
	Shri Prashant Pan	dey,
	Legal Consultant

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 1 of 36

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CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN SHRI G.C. MISHRA : MEMBER

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JUDGEMENT

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FPA-FE-01/DLI/2018, FPA-FE-03/DLI/2018, FPA-FE-04/DLI/2018 & FPA-FE-05/DLI/2018

¶9

By this common order we propose to decide the above mentioned appeals which have been filed against the order dated 08.12.2017 confirming the freezing order dated 15.06.2017. The Respondent is the Assistant Director of Enforcement Directorate.

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We have, after hearing, pronounced the orders of allowing the appeals. The reasons are to be given in view of last order. The reasons are now given by speaking orders.

¶11

The Respondent, in exercise of powers conferred upon him in terms of the provisions of Section 37A(1) of FEMA, 1999 and in terms of Notification No. G.S.R. 702 (E) dated 16.09.2015 and G.S.R. 701 (E) dated 16.09.2015 issued by the Ministry of Finance (Department of Revenue), Government of India, vide order dated 15.06.2017, seized balance amount to the tune of Rs. 2,21,43,125/- (equivalent to GBP 2,69,677/-) in respect of Savings Bank account number 008490700001612 held by Shri Ashwani Kumar Mehra, the appellant in appeal no. 01/2018, (PAN No. AAHPM8959M) standing with YES Bank, Chattarpur Branch, New Delhi vide Seizing Order No. HIU/S.O.2/37A/2017/AD (AHK) dated 15.06.2017. The said seizure was effected on the reason to believe that foreign exchange worth GBP 2,69,677/-

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 2 of 36

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(worth Rs. 2,21,43,125/- as on 14.06.2017) was suspected to be held outside India in contravention of Section 4 of the FEMA, 1999.

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It is alleged that, acting upon an information that Shri Ashwani Kumar Mehra s/o late Shri Devi Dass Mehra, had stakes/interests in various offshore entities in contravention of the provisions of the FEMA, enquiries were made with Reserve Bank of India to ascertain whether Shri Ashwani Kumar Mehra and C.No. Appl/DLH/CUS/ED Petition/02/2017 made any application regarding any overseas investments and whether he figures in the Overseas Investment Database maintained by the Reserve Bank of India. The Reserve Bank of India vide their letter dated 24.11.2016 replied that the name of Shri Ashwani Kumar Mehra does not figure in their Overseas Investment Database.

¶16

Enquiries were also made with the Income Tax Department and Income Tax Department vide their letter 27.12.2016 provided the Income Tax Returns of Shri Ashwani Kumar Mehra for assessment year from 2009-10 to assessment year 2016-17.

¶17

The Respondent, in exercise of powers conferred upon him by virtue of the provisions of Section 37A(1) of FEMA, 1999 and in terms of G.S.R. 702 (E) dated 16.09.2015 and G.S.R. 701 (E ) dated 16.09.2015 issued by the Ministry of Finance (Department of Revenue), Government of India, vide order dated 15.06.2017 seized balance amount to the tune of Rs. 3,08,45,942/- (equivalent to GBP 3,75,667) in respect of saving bank account number 008490700001167 held by Shri Deepak Mehra, Appellant in appeal no. 03/2018, (PAN No. AALPM1743P) standing with YES Bank, Chattarpur Branch, New Delhi vide Seizing Order No. FPA-FE-01,03,04 & 05/DLI/2018 Page 3 of 36

¶18

HIU/S.O.-1/37A/2017/AD/(AHK) dated 15.06.2017. The said seizure was effected on the reason to believe that foreign exchange worth GBP 3,75,667 (worth Rs. 3,08,45,942 as on 14.06.2017) was suspected to be held outside India in contravention of Section 4 of the FEMA, 1999.

¶19

It is alleged that, acting upon an information that Shri Deepak Mehra had stakes/interests in various offshore entities in contravention of the provisions of the FEMA, enquiries were made with the Reserve Bank of India to ascertain whether Shri Deepak Mehra had made any application regarding any overseas investments and whether he figures in the Overseas Investment Database maintained by the Reserve Bank of India. The Reserve Bank of India vide their letter dated 24.11.2016 replied that the name of Shri Deepak Mehra does not figure in their Overseas Investment Database.

¶20

Enquiries were also made with the Income Tax Department and Income Tax Department vide their letter 27.12.2016 provided the Income Tax Returns of Shri Deepak Mehra from Assessment Year 2009-10 to Assessment Year 2016-17.

¶21

The Respondent, in exercise of powers conferred upon him by virtue of the provisions of Section 37A(1) of FEMA, 1999 and in terms of G.S.R. 702 (E) dated 16.09.2015 and G.S.R. 701 (E) dated 16.09.2015 issued by the Ministry of Finance (Department of Revenue), Government of India, vide order dated 15.06.2017, seized balance amount to the tune of Rs. 5,01,215.55/- in respect of various bank account(s)/deposit(s) as detailed below held by Shri Navin Mehra, Appellant in appeal no. 04/2018, standing with various Banks, vide Seizing Order No. HIU/S.O.4/37A.2017/AD (AHK) dated 15.06.2017. The said seizure was effected

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 4 of 36

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on the reason to believe that foreign exchange worth GBP 2,97,070 (worth Rs. 2,43,92,538 as on 14.06.2017) was suspected to be held outside India in contravention of Section 4 of the FEMA, 1999. The details of amount/type of A/c and name of the banks are as below:

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S.No.	Balance Amount available (Rs.)	Type of Account	Name of Bank
1	1,26,713.39	FDR A/c	Oriental Bank of Commerce
2	1,27,452.63	FDR A/c	Oriental Bank of Commerce
3	5,126.00	FDR A/c	Oriental Bank of Commerce
4	10,169.00	FDR A/c	Oriental Bank of Commerce
5	5,258.00	FDR A/c	Oriental Bank of Commerce
6	78,572.00	FDR A/c	Oriental Bank of Commerce
7	28,571.53	SB A/c	Oriental Bank of Commerce
8	29,542.00	SB A/c	Canara Bank
9	26,150.00	SB A/c	City Bank
10	63,661.00	SB A/c	HDFC Bank

¶26

It is alleged that, acting upon an information that Shri Navin Mehra had stakes/interests in various offshore entities in contravention of the provisions of the FEMA, 1999 enquiries were made with the Reserve Bank of India to ascertain whether Shri Navin Mehra had made any application regarding any overseas investments and whether he figures in the Overseas Investment Database maintained by the Reserve Bank of India. The Reserve Bank of India vide their letter dated 24.11.2016 replied that the name of Shri Navin Mehra does not figure in their Overseas Investment Database. Enquiries were also made with the FPA-FE-01,03,04 & 05/DLI/2018 Page 5 of 36

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Income Tax Department and Income Tax Department vide their letter 27.12.2016 provided the Income Tax Returns of Shri Navin Mehra from Assessment Year 2009-10 to Assessment Year 2016-17.

¶28

The Respondent, in exercise of powers conferred upon him by virtue of the provisions of Section 37A(1) and in terms of G.S.R. 702 (E) dated 16.09.2015 and G.S.R. 701 (E) dated 16.09.2015 issued by the Ministry of Finance (Department of Revenue), Government of India, vide order dated 15.06.2017, seized balance amount to the tune of Rs. 1,76,43,309.81/- in respect of the following saving bank account numbers held by Mrs. Shalini Mehra (PAN No. AASPM6260G), Appellant in appeal no. 5/2018 vide Seizing Order No. HIU/S.O.-3/37A/2017/AD (AHK) dated 15.06.2017. The said seizure was effected on the reason that foreign exchange worth GBP 3,66,697 (worth Rs. 3,01,09,417/- as on 14.06.2017) was suspected to be held outside India in contravention of Section 4 of the FEMA, 1999. The details of amount, type of Account and the name of Banks are as below:

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[Table-A]

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Sl.	Amount (In Rs.)	FDR A/c No.	Name of Bank
No.
1	1,72,96,630.66	670028426700019	Deutsche Bank, KG Marg
			Branch, New Delhi
2	3669.66	400028426700019	Deutsche Bank, KG Marg Branch, New Delhi
3	2,81,109.49	03191000045946	HDFC Bank, South Extn.-
			II Branch, New Delhi
4	61,900.00	52810023403	Standard Chartered Bank,

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 6 of 36

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South Extn.-II Branch, New Delhi

¶34

It is alleged that, acting upon an information that Mrs. Shalini Mehra had stakes/interests in various offshore entities in contravention of the provisions of the FEMA, enquiries were made with the Reserve Bank of India to ascertain whether Mrs. Shalini Mehra had made any application regarding any overseas investments and whether she figures in the Overseas Investment Database maintained by the Reserve Bank of India. The Reserve Bank of India vide their letter dated 24.11.2016 replied that the name of Mrs. Shalini Mehra does not figure in their Overseas Investment Database.

¶35

Enquiries were also made with the Income Tax Department and Income Tax Department vide their letter 21.02.2017 provided the Income Tax Returns of Mrs. Shalini Mehra from Assessment Year 2009-10 to Assessment Year 2016-17.

¶36

The aforesaid freezing orders were passed against the appellants. The said orders of freeze were confirmed by Competent Authority, i.e. The Commissioner of Customs by his order Nos. (1) ED/02/2017 dated 8/12/2017 against Ashwani Kumar Mehra (2) ED/1/2017 against Shri Deepak Mehra, (3) ED/4/2017 against Shri Navin Mehra and (4) ED/3/2017 against Smt. Shalini Mehra.

¶37

The Appellant in the appeal no. 1/2018 challenged the order passed by the Respondent and of Competent Authority before the Hon‟ble High Court of Delhi in writ appeal No. W.P. (C) No.11387/2017 and the

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 7 of 36

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Hon‟ble High Court by its order dated 20/12/2017 directed the Appellant to file and avail appropriate remedy of appeal before us.

¶41

The case of all the appellants in appeals are that the order passed by the Respondent dated 15.06.2017 and the confirmation order passed by the Commissioner/Competent Authority dated 8/12/2017 are contrary to law and procedure.

¶42

The legal issues involved in all these appeals are common. In order to decide the appeals the facts are taken in appeal no. 1/2018 filed by Ashwani Kumar Mehra.

¶43

Undisputedly, on 04.02.2004 Liberalised Remittance Scheme was introduced by RBI in the year 2004, initially permitting resident individuals to freely remit USD 25,000 per year for the purpose prescribed therein which was later increased from time to time to USD 100,000 in 2007; to USD 200,000 in September 2007 per financial year. The Schemes are issued by RBI in terms of Section 10 (4) and 11(1) of FEMA, 1999.

¶44

The extract of the said scheme are reproduced below:-

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RESERVE BANK OF INDIA FOREIGN EXCHANGE DEPARTMENT CENTRAL OFFICE MUMBAI - 400 001

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RBI/ 2004/39 February 4, 2004

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A.P. (DIR Series) Circular No. 64

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All Authorised Dealers in Foreign Exchange

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 8 of 36

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Madam/Sirs,

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Liberalised Remittance Scheme of USD 25,000 for Resident Individuals

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As you are aware, we have been closely monitoring the macro-economic developments of the country and initiating suitable policy changes in tune with the changing scenario. As a step towards further simplification and liberalization of the foreign exchange facilities available to residents, it has been decided that resident individuals may freely remit upto USD 25,000 per calendar year for any purpose for which a Scheme has been formulated as detailed below:

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2. Eligibility

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All resident individuals are eligible to avail of the facility under the scheme. The facility will not be available to corporates, partnership firms, HUF, Trusts, etc.

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3. Purpose

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3.1 This facility is available for making remittance up to USD 25,000 per calendar year for any current or capital account transactions or a combination of both.

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3.2 Under this facility, resident individuals will be free to acquire and hold immovable property or shares or any other asset outside India without prior approval of the Reserve Bank. Individuals will also be able to open, maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme without prior approval of Reserve Bank. The foreign currency account may be used for putting through all transactions connected with or arising from remittances eligible under this scheme.

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3.3 It is further clarified that the facility under the scheme is in addition to those already available for private travel, business travel, gift remittances, donations, studies, medical treatment etc as described in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000. (Annexure B).

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3.4 The remittance facility under the scheme is not available for the following:

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i) Remittance for any purpose specifically prohibited under ScheduleI (like purchase of lottery/sweep stakes, tickets proscribed magazines etc) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000. (Annexure B).

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FPA-FE-01,03,04 & 05/DLI/2018 Page 9 of 36

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ii) Remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan.

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iii) Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as ―non co-operative countries and territories‖ viz Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine.

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iv) Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

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4. Remittance Procedure

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Requirements to be complied with by the remitter

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4.1 To avail of this facility, the individual will have to designate a branch of an AD through which all the remittances under the scheme will be made.

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4.2 The resident individual seeking to make the remittance should furnish an application letter cum declaration in the format as indicated in Annexure–A regarding the purpose of the remittance and declaration that the funds belong to the remitter and will not be used for the purposes as detailed above.

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Requirements to be complied with by the Authorised Dealers

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4.3 While allowing the facility to resident individuals, Authorised Dealers are required to ensure that the “Know Your Customer” Guidelines have been implemented in respect of these accounts. They should also comply with the Anti-Money Laundering Rules in force while allowing the facility.

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4.4 The applicants should have maintained the bank account with the bank for a minimum period of one year prior to the remittance. If the applicant seeking to make the remittance is a new customer of the bank, Authorised Dealers should carry out due diligence on the opening, operation and maintenance of the account. Further the AD should obtain bank statement for the previous year from the applicant to satisfy themselves regarding the source of funds. If such a bank statement is not available, copies of the latest Income Tax Assessment Order or Return filed by the applicant may be obtained.

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4.5 The AD should ensure that the payment is received out of funds belonging to the person seeking to make the remittance, by a cheque drawn on the applicant's bank account or by debit to his account or by Demand Draft / Pay Order.

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4.6 Authorised dealer should certify that the remittance is not being made directly or indirectly by /or to ineligible entities and that the remittances are made in accordance with the instructions contained herein.

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FPA-FE-01,03,04 & 05/DLI/2018 Page 10 of 36

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5. Reporting of the transactions

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The remittances made under this Scheme will be reported in the R-Return in the normal course. The ADs may also prepare and keep on record dummy Form A2, in respect of remittances exceeding USD 5000. Authorised Dealers may arrange to furnish on a quarterly basis, information on the number of applicants and total amount remitted to the Chief General Manager, External Payment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai-400001.

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6. Necessary amendments to the relevant Foreign Exchange Management Regulations, 2000 as also the relevant Notifications, issued under FEMA, 1999 are being issued separately .

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7. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned.

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8. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

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Yours faithfully,

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Grace Koshie Chief General Manager

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Encls.: As above

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The Reserve Bank has also issued another circular dated

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18.03.2004, extract of the same is reproduced below:-

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RESERVE BANK OF INDIA FOREIGN EXCHANGE DEPARTMENT CENTRAL OFFICE MUMBAI-400001

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RBI/ 2004/105 A.P. (DIR Series) Circular No. 80 March 18, 2004

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To all Authorised Dealers in Foreign Exchange

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Madam/Sirs,

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Liberalised Remittance Scheme of USD 25,000 for Resident Individuals- Investor Protection – Disclosure Requirements

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Attention of the Authorised Dealers is invited to the instructions contained in A.P. DIR (Series) Circular No. 64 dated February 4, 2004, whereby Reserve Bank announced a Scheme permitting resident individuals to make remittance for an amount not exceeding USD 25,000 per calendar year. This facility is available for making

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 11 of 36

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remittance up to USD 25,000 per calendar year for any current or capital account transaction or a combination of both.

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2. A number of foreign banks operating in India as well as Indian banks have been subsequently soliciting foreign currency deposits from residents under the above Scheme. It has been observed that several advertisements/ news items have appeared soliciting foreign currency funds/deposits at certain interest rates to be placed at overseas centers or on behalf of overseas mutual funds. These advertisements do not contain appropriate disclosures to guide potential depositors. In the case of banks operating in India concerns arise regarding adequate disclosures from the point of view of protecting the interest of the resident individuals. Further, marketing in India of schemes soliciting foreign currency deposits by foreign entities, not having operational presence in India, also raises supervisory concerns.

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3. It has therefore been decided in public interest, that all banks, both Indian and foreign, including those not having an operational presence in India, should seek prior approval from RBI for the schemes being marketed by them in India to residents either for soliciting foreign currency deposits for their foreign/overseas branches or for acting as agents for overseas mutual funds or any other foreign financial services company. The applications in this regard may be addressed to the Chief General Manager-in-Charge, Department of Banking Operations and Development, Reserve Bank of India, Central Office, Centre-1, World Trade Center , Cuffe Parade, Mumbai 400005.

¶98

4. The above instructions do not restrict the freedom of resident individual from investing in permissible capital account transactions under the Scheme.

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5. Reserve Bank has issued a press release in this regard, a copy of which is enclosed for the guidance of the Authorised Dealers.

¶100

6. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned.

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7. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

¶102

Yours faithfully, Grace Koshie Chief General Manager

¶103

The RBI circular dated 26.9.2007 to be extracted.

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RBI/2007-08/146

¶105

A.P. (DIR Series) Circular No. 9

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September 26, 2007

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To,

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All Category – I Authorised Dealer Banks

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FPA-FE-01,03,04 & 05/DLI/2018 Page 12 of 36

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Madam/Sir,

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Liberalised Remittance Scheme for Resident IndividualsEnhancement of limit from USD 100,000 to USD 200,000.

¶112

Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to A.P. (DIR Series) Circular No. 51 dated May 8, 2007 on the Liberalised Remittance Scheme for Resident Individuals (the Scheme).

¶113

2. With a view to further liberalize the Scheme it has been decided, in consultation with the Government of India, to enhance the existing limit of USD 100,000 per financial year to USD 200,000 per financial year (April – March) with immediate effect. Accordingly, AD Category – I banks may now allow remittance up to the USD 200,000, per financial year, under the Scheme, for any permitted current of capital account transaction or a combination of both.

¶114

3. All other terms and conditions mentioned in A.P. (DIR Series) Circular No. 64 dated February 4, 2004, A.P. (DIR Series) Circular No. 24 dated December 20, 2006 and A.P. (DIR Series) Circular No. 51 dated May 8, 2007 shall remain unchanged.

¶115

4. Necessary amendments to Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 (Notification No. FEMA 1/2000-RB dated 3^rd May 2000) are being notified separately.

¶116

5. AD – Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

¶117

6. The directions contained in this Circular have been issued under Section 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

¶118

Yours faithfully,

¶119

Salim Gangadharan Chief General Manager

¶120

It is the case of appellants that all amount was remitted strictly as per scheme even it is not the case of the respondent either that the amount remitted more than it was allowed by the circulars. It is contended on behalf of the appellants that they are individuals and Indian resident as per their case. The details of eligibility and purpose and remittance procedure are mentioned in clause 2, 3 and 4 of the scheme. It is also the case of the appellants that they have complied with all the procedure as per scheme. It is alleged that in order to buy the peace all appellants have brought the entire amount to this country who FPA-FE-01,03,04 & 05/DLI/2018 Page 13 of 36

¶121

even otherwise were entitled to the benefit of proviso to Section 37A (4) of the FEMA Act, 1999. Therefore proceedings should have been dropped.

¶122

The relevant period of remittance of amount was 3.2.2010 to 8.1.2013. The appellant in appeal no. 01/2018 and his family members under LRS scheme, have remitted the permitted amounts and have remitted foreign exchange abroad through its bankers, the authorised dealer under foreign exchange, M/s Citibank (authorised dealer), South Extension Part I, New Delhi. They opened an account abroad in which the remittance was credited, purchasing the shares of M/s. Stoneybay International Ltd and M/s. Maxhill Holdings Ltd, including buy back and loans to such companies between the said period, which as per law. It is not denied by the respondent that Citi Bank is the authorised dealer of RBI.

¶123

On 15^th June, 2017 the Income Tax Department initiated inquiries who did not find any fault with the transactions made by them. However the respondent while exercising of powers under section 37A(4) of FEMA, passed an interim order dated 15.06.2017 seizing the balance lying n the saving accounts of the appellant in appeal no. 1/2018 with YES Bank, Chattarpur branch, New Delhi to the tune of Rs. 2,21,43,1251/-, allegedly equivalent to GBP 269677 as on 14.06.2017. The said order was confirmed by order dt. 8.12.2017 by the Competent Authority. Similar orders were passed against the other appellants.

¶124

It was the case of the respondent at the time of passing the order that as per “material” and “reason to believe” the appellant Shri Ashwani Mehra suspected to hold outside India, GBP 269677 (worth Rs.2,21,43,125/- as on 14.6.2015) allegedly in contravention of

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¶126

Section 4 of FEMA. However, it is also not denied by the respondent that appellant at the time of remittance had declared the purpose as „LRS investment‟, but instead has purchased shares, extended loans to such companies. The amount was remitted through authorised dealer of the RBI.

¶127

The said appellant on receipt of the seizure order by communications on 14.07.2017 made a request for recall of the order, interalia, on the grounds that with the freezing order no “material” and “reason to believe” have been supplied and that admittedly the transactions had been made between the period 2010 to 2013. The section 37A of FEMA came on statute book on 14.05.2015, hence no order could be passed against the Petitioner u/s 37(A) by applying it retrospectively. It was also informed that impugned foreign exchange has been brought back and credited to Citibank on 11.07.2017.

¶128

The reasons to believe for issuance of the impugned seizure orders were not served to the appellants who stated that the Respondent by communication dated 19.07.2017 intimated the appellant that the necessary petition along with relevant material had already been forwarded to the Competent Authority, who shall dispose of the said petition within prescribed period of time.

¶129

The appellant again on 7.8.2017 sent and sought from the Respondent the “documents”. It was also mentioned that the whole amount has been brought back and credited to the account of the appellant with Citibank, South Extension, Part-I on 11.072017 in order to buy the peace though Section 37(4A) is not applicable to the

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FPA-FE-01,03,04 & 05/DLI/2018

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¶132

appellants in view of fact that the relevant period is 2010 to 2013. The law is incorporated in the statute in 2015.

¶133

On 16.11.2017 after a lapse of over five months, nearly before the close of 180 days, the Competent Authority, i.e. The Commissioner of Customs issued a notice on 16/11/2017 seeking appearance of appellant in the matter before him on 23/11/2017.

¶134

The appellant through his Counsel filed a detailed reply, interalia , submitted that the freeze order is passed contrary to law. The appellants had availed the facility under Liberalised Remittance Scheme, which is a general permission granted by RBI to Indian residents to conduct all the transactions of all types without any requirement of prior/post permission of RBI, therefore, there is no violation of FEMA.

¶135

There is no denial from either sides that Section 37A of FEMA came on the statute book on 14/05/2015 i.e. much after the transactions and could not be applied retrospectively, thus prerequisites for application of section 37A of FEMA for passing an order under the said section are not fulfilled, even otherwise, the basic material in possession of the officer; his reasons to believe (which already exist in writing as per Section 37-A of FEMA) have not been served nor any valid reasons are stated as the findings as to the violation of Section 4 of 1 FEMA have not been supplied, nor the communications with RBI and even the appellant had already repatriated the amounts as contemplated under section 37A (4) of FEMA,99 by which the freeze order deserves to be vacated.

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FPA-FE-01,03,04 & 05/DLI/2018

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Page 16 of 36

¶138

After hearing both parties separately, on 8.12.2017 Competent Authority confirmed the freeze order and passed the impugned order which is the subject matter of the present appeals.

¶139

It is not in dispute that the appellants availed the Liberalise Remittance Scheme (hereinafter called LRS Scheme) of the Government of India/RBI under which RBI has granted general permission permitting all the individuals, resident in India, to remit up to the prescribed limit foreign exchange abroad for all transactions, both capital account transactions and current account transactions or combination of both. As per scheme the individuals resident in India could use the said remittances freely to acquire, hold immovable property or shares or any other assets outside India, without prior approval of the Reserve Bank of India.

¶140

The individuals (persons resident in India) could open, maintain and hold foreign currency accounts with the banks outside India, for making the remittances under the scheme. Thus without the approval of RBI the resident individuals are permitted to use remitted amount for all transactions connected with or arising from remittances eligible under the scheme.

¶141

The LRS scheme envisaged by RBI is in addition to other facilities under which the individual could remit foreign exchange as like for private travel, business travel, gift remittances, donations, studies, medical treatment, etc, etc.

¶142

The LRS scheme was started in the year 2004, initially permitting resident individuals to freely remit USD 25,000 per calendar year for the

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purpose prescribed therein which was later increased from time to time to USD 100,000 in 2007; in September 2007 to USD 200,000 and even today, the said scheme is available to the resident individuals. The said factual position is not denied by the respondent.

¶145

To implement the Reserve Bank of India issued from time to time circulars starting from A. P. (DIR series) Circular No. 64 in February 2004; Circular No. 80 dated 18^th March 2004, enhancing the limit from USD 25,000 to USD 50,000; raising the limit of USD 100,000 and Circular No.9 dated September 26/2007 raising the limit USD 200,000 so on and so forth. The same is also not denied by the respondent.

¶146

Admittedly, the Appellant and his family, as per the LRS scheme, have remitted the permitted amounts and as far as the Appellant is concerned, the Appellant between the period of 3/2/2010 to 8/1/2013 remitted foreign exchange abroad through its bankers, the authorised dealer under foreign exchange, M/s. Citibank, South Extension Part I, New Delhi. This aspect is not disputed by the respondent.

¶147

The Appellant had opened an account abroad in which the remittance was credited, purchasing the shares of M/s. Stoneybay International Ltd and M/s. Maxhill Holdings Ltd, including buy back and loans to such companies between the period 3/2/2010 to 8/1/2013.

¶148

As mentioned the transactions had been made between the period 2010 to 2013 and section 37A (1) of FEMA came on statute book on 14/05/2015, hence no order could be passed against the Appellant u/s 37(A)(1) by retrospectively applying Section 37(A) of FEMA, 99.

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¶151

The Ld. Competent Authority has held that section 37A of FEMA, though incorporated on the Statute Book on 14.5.2015 could be applied retrospectively as there was no such bar for applying said section retrospectively, ignoring that such section having penal consequences cannot apply retrospectively. There is no saving clause. The relevant period in the matter is 2010-13 which is not denied by the counsel appearing on behalf of respondent.

¶152

The said finding is contrary to settle law laid down by the Supreme Court judgment, in the case of CIT v. Vatika Township (P) Ltd., (2015)

¶153

1 SCC 1 , at page 21. See para 27-35 :

¶154

General principles concerning retrospectivity

¶155

27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of “ interpretation of statutes ”. Vis-àvis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.

¶156

28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow‟s backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyr e⁶ , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.

¶157

29. The obvious basis of the principle against retrospectivity is the principle of “ fairness ”, which must be the basis of every legal rule as was observed in L’OfficeCherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.⁷ Thus, legislations which

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¶160

modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.

¶161

30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators‟ object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Govt. of India v. Indian Tobacco Assn.⁸ , the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra⁹ . It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are ( sic not) confronted with any such situation here.

¶162

31. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by outweighing factors.

¶163

32. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labelled as “declaratory statutes”. The circumstances under which provisions can be termed as “declaratory statutes” are explained by Justice G.P. Singh¹⁰ in the following manner:

¶164

“ Declaratory statutes

¶165

The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES^†* and approved by the Supreme Court^†† : „For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to

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have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word “declared” as well as the word “enacted”.‟ But the use of the words „it is declared‟ is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is „to explain‟ an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language „shall be deemed always to have meant‟ is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law.”

¶169

The above summing up is factually based on the judgments of this Court as well as English decisions.

¶170

33. A Constitution Bench of this Court in KeshavlalJethalal Shah v. MohanlalBhagwandas¹¹ , while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: (AIR p. 1339, para 8)

¶171

“ 8 . … The amending clause does not seek to explain any preexisting legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115 of the Code of Civil Procedure, and the legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act.”

¶172

34. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See CED v. M.A. Merchant¹² . )

¶173

35. We would also like to reproduce hereunder the following observations made by this Court in Govind Das v. IT O¹³ , while holding Section 171(6) of the Income Tax Act to be prospective and inapplicable for any assessment year prior to 1-4-1962, the date on which the Income Tax Act came into force: (SCC p. 914, para 11)

¶174

“ 11 . Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd

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¶177

Edn.) and reiterated in several decisions of this Court as well as English courts is that

¶178

„all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only .‟”

¶179

(emphasis supplied)

¶180

36. In CIT v. Scindia Steam Navigation Co. Ltd.¹⁴ , this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year i.e. the first day of April, any change in law affecting tax liability after that date though made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year…”

¶181

It is not denied by Mr. Rana that in the impugned order the issue of benefit of the scheme and circulars have not been considered by the Competent Authority.

¶182

After insertation of section 37A on 14.05.2015 if any contravention of section 4 of the FEMA, the circulars issued by RBI have to be read alongwith the said section i.e. 37A sub section (4).

¶183

A mere reading the scheme that Remittances under LRS are for all purposes (Both current and capital account transfer) and permit an Indian resident individual to do all what has been erroneously alleged in petition before competent authority to be contrary to „LRS investment‟ without explaining the terms „LRS investment‟ or stating how and in what manner contravention is made out.

¶184

Remittances are made during the period 3-2-10 to 8.1.2013 while as Section 37A of FEMA came to statute book on 14.5.2015 hence action u/s 37A could not be applied retrospectively.

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¶187

In communication it was further informed that impugned foreign exchange has been brought back and credited to M/s. Citibank on 11.7.2017. The said factual position was informed by the appellants from time to time, however counsel for the respondent is not sure that the amount has been brought back or not, however the communication issued on behalf of appellants is not disputed as well as averment made in the pleading. It is a matter of fact that the Competent Authority for five months, after a lapse of over five months, before the close of 180 days, the Competent Authority, issued a notice on 16/11/2017 seeking appearance of Appellant in the matter before him on 23/11/2017 still the reply was filed by defending their case without serving the copy of reasons to believe and material documents.

¶188

In reply, interalia, submitting that the freeze order is passed contrary to law and facts as well as the scheme of Liberalised Remittance Scheme, which is a general permission granted by RBI to Indian residents to conduct all the transactions of all types mentioned therein without any requirement of prior/post permission of RBI, hence there cannot be violation of FEMA.

¶189

Section 37-A of FEMA, was brought on the statute book with effect from 14/05/2015, inserted by Act of 2015 which empowered the authorised officer of Central government, who have reason to believe under section 37A (1), upon receipt of any information or otherwise of the suspicion of contravention of section 4 of FEMA, after recording reasons in writing by an order to seize equivalent value.

¶190

40. Section 37A of FEMA, is reproduced below: –

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¶193

―...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 the aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India, is less than the value as may be prescribed. (2) The order of seizure along with relevant material shall be placed before the Competent Authority, appointed by the Central Government, who shall be an officer not below the rank of Joint Secretary to the Government of India by the Authorised Officer within a period of thirty days from the date of such seizure. (3) The Competent Authority shall dispose of the appeal within a period of one hundred eighty days from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard to the representatives of the Directorate of Enforcement and the aggrieved person. Explanation.—While computing the period of one hundred eighty days, the period of stay granted by court shall be excluded and a further period of at least thirty days shall be granted from the date of communication of vacation of such stay order…‖

¶194

The impugned transactions admittedly have taken place between the period 2010-13 and in no way could order be passed u/s 37A of FEMA, 99 which came on Statute Book on 14/5/2015. Hence the whole proceedings are void ab initio .

¶195

The appellant submits that under Section 37A (4) itself provides that if amount is brought back to India, the Competent Authority on receipt of an application in this regard from the aggrieved person, and after affording an opportunity of being heard to the aggrieved person and representatives of the Directorate of Enforcement shall pass an appropriate orders as it deems fit, including setting aside of the seizure made sub-section (1). The letter exchanged between the respondent with

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RBI referred but not relied nor supplied despite demand made by the appellant.

¶199

In view of sub-section (4) of section 37A, in order to buy peace matter, the appellant had already repatriated the amounts as contemplated under section 37A (4) of FEMA, 99. But in the impugned order, findings are arrived that application prescribed was filed and bank documents to re-patriate are not clear although in the notice issued, it was clearly mentioned that the entire amount was repatriated. Learned Competent Authority conducted separate and disjoint hearing/hearings at separate times on the same day for the complainant and the respondent. Here annexed are copies of hearing.

¶200

The respondent failed to verify the said deposit rather in the impugned order alleged violation of the same section. Even the scheme of RBI has not been discussed in the impugned order despite of having full knowledge as appeared from recording the pleadings of the parties.

¶201

Counsel for the appellants has argued that the Competent Authority has wrongly rejected the contentions, despite of proof submitted. In order to show that the foreign exchange had been brought back to India. The argument were rejected merely on the reasons that no formal application was filed as envisaged u/s 37A(4) of FEMA, 99 and that there was no proof that same foreign exchange or immovable property has been brought back to India, a conclusion was passed in haste on the face of it as it has come on record of the case that the amount was brought back to India.

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¶204

Had the respondent passed the order for valid reasons of believe after examining the fact and serving a copy thereof to the appellants, the entire position of the matter would have been different. The result of the impugned order might have been different.

¶205

Section 37A envisages material and reasons to be recorded in

¶206

writing, however copies of the same was not provided to the appellant.

¶207

Copy of reasons to believe not served even upto the stage of deciding the appeal.

¶208

Admittedly no copy was served. This issue has been decided from time to time. We are of the view atleast conducting the searches the appellant is entitled to receive the copy thereof.

¶209

(i) In P.P Abdullah Vs. Competent Authority 2007 2 SCC 510 para 7 to 8 wherein it has been held by the Apex Court that reason to believe must be communicated along with counter affidavit at least and the authorities are bound to place the same before the court to check the veracity of the same and to come to the conclusion whether such reason to believe are relevant or germane or not.

¶210

(ii). In the case of CIT & Ors. v. Oriental Rubber Works , [(1984) 1 SCC 700], while considering the powers of retention of seized documents under Section 132 of the Income Tax Act, 1962, wherein the reasons for retention were required to be recorded in writing, but nowhere required to communicate those reasons to the aggrieved person, as in the case of Section 17 of PMLA, there is no express requirement for communicating the reasons so recorded, the Hon'ble Supreme Court held that irrespective of there being no such requirement in the statute, the concerned officer is bound to communicate the said reasons, as the failure to communicate shall materially prejudice the person so searched FPA-FE-01,03,04 & 05/DLI/2018 Page 26 of 36

¶211

under the provisions of Section 132 of the aforesaid Act. The relevant

¶212

extract from the judgment is as under:

¶213

―4. ...On a plain reading of the aforesaid provisions it will he clear that ordinarily the books of account or other documents that may be seized under an authorisation issued under Subsections (1) of Section 132 can be retained by the authorised officer or the concerned Income-fax Officer for a period of one hundred and eighty days from the date of seizure, where after the person from whose custody such books or documents have been seized or the person to whom such books or documents belong becomes entitled to the return of the same unless the reasons for any extended retention are recorded in writing by the authorized officer/the concerned Income Tax Officer and approval of the Commissioner for such retention is obtained. In other words two conditions must be fulfilled before such extended retention becomes permissible in law:' (a) reasons in writing must be recorded by the authorised officer or the concerned Income-fax Officer seeking the Commissioner's approval and (b) obtaining of the Commissioner's approval for such extended retention and if either of these conditions is not fulfilled such extended retention will become unlawful and the concerned person (i.e. the person from whose custody such books or documents have been seized or the person to whom these belong) acquires a right to the return of the same forthwith. It is true that Sub-section (8) does not in terms provide that the Commissioner's approval or the recorded reasons on which it might be based should be communicated to the concerned person but in our view since the person concerned is bound to be materially prejudiced in the enforcement of his right to have such books and documents returned to him by being kept ignorant about the factum of fulfillment of either of the conditions it is obligatory upon the Revenue to communicate the Commissioner's approval as also the recorded reasons to the person concerned. In the absence of such communication the Commissioner’s decision according his approval will not become effective.”

¶214

(iii). In the case of C.B. Gautam vs. Union of India (1993(1) SCC 78) a Constitution Bench of the Hon'ble Supreme Court of India held that the reasons to be recorded in writing shall not only be incorporated in the order but also shall be communicated to the affected parties. The relevant extract from the judgement is as under:

¶215

―Sec. 269UD(1), in express terminology, provides that the appropriate authority may make an order for the purchase of the property for reasons to be recorded in writing'. Sec. 269UD(2) casts an obligation on the authority that it "shall cause a copy of its order under sub-s. (1) in respect of any

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immovable property to be served on the transferor". It is, therefore, inconceivable that the order which is required to be served by the appropriate authority under sub-s. (2) would be the one which does not contain the reasons for the passing of the order or is not accompanied by the reasons recorded in writing. It may be permissible to record reasons separately but the order would be an incomplete order unless either the reasons are incorporated therein or are served separately along with the order on the affected party. Reasons for the order must be communicated to the affected party. ”

¶218

This decision has been followed in various judgments by various Courts, including the Hon'ble Supreme Court of India.

¶219

Mr. Rana, learned counsel for the respondent during the course of hearing has tried to justify the impugned order, by stating that the respondent is not sure as to whether the amount in question has been brought back or not. When the counsel for the appellant confronted with documents of the authority, he suggested that let the matter be remanded back. The authority after verification would pass appropriate fresh order in view of the provision of Section 37A(4) of the Act. He says that the amount in question has been brought and it was informed to the authority and it was the duty of the respondent to verify the same after submitting the proof of deposit. The Authority has wrongly rejected the contention as formal application was not filed. We are of the view that incase the amount has been brought in to the country and the proof thereof was filed, the respondent should have verified the same so that the Authority under the provision of Section 37(4) could have exercised is discretion.

¶220

The other argument of Mr. Rana has invoked section 37-A, section 4, Section 6 (3) (D) of FEMA, 99 and regulation 3 and 5 of The Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000. The said argument is also without any force as

¶221

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¶222

the present case. Infact the Competent Authority while passing the impugned order against the appellant in terms of section 6(3)(d) of FEMA, 99 which had been repealed from Statue Book by way of amendment w.e.f. 14.05.2015.

¶223

Section 6(3)(d) is also not applicable to the facts of this case as there is no violation of circulars, Section 37A and Section 4 of the Act. Section 6(3) (d) is already repealed on 14.05.2015. It is wrongly held that it is still in operation. Even otherwise in view of the Section 37A, the appellants have brought back the entire amount of remittance, the benefit of Section 37A(4) could have been granted even if the said provision could have applied retrospective dates.

¶224

In para 9 in the impugned order it is incorrectly held to that Appellant in his statement had stated that he do not obtain or apply for permission or approval, neither before or subsequently from RBI without appreciation that there was general permission to this effect by RBI as admittedly all the transactions were done by the appellant through authorised dealer as per schedule of RBI. If the scheme is read, it is clear that the transaction could be done through authorised dealer. The appellant has applied all prescribed forms which were annexed to the said scheme through authorised dealers.

¶225

The allegation of contravention of Section 10(6) of FEMA, 1999 is not correct. The Respondent has completely ignored as to eligibility, purposes and prohibitions as declared under LRS Scheme, which is a general permission of RBI binding on all including Respondent Enforcement Directorate in terms of Section 11 of FEMA, 99.

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¶228

The main error in the impugned order is that RBI scheme has not been discussed at all. The impugned order is totally silent about the scheme. The relevant circulars of RBI 2004 to 2007 have not been considered. When, it was pointed to Mr. Rana, he says that these are not applicable. The said arguments of Mr. Rana is without any force as the circulars speak for themselves and those are applicable.

¶229

It is also a matter of surprise that the hearing were conducted by the Ld. Competent Authority in disjoint manner, separately for appellant and separately for complainant. The said practice is not a healthy practice in our system. It is apparent that the Competent Authority did not want to hear the matter in the presence of both parties.

¶230

The Competent Authority has violated the principles of natural justice by not affording cross-examination of respondent authority while passing the order by which the Appellant would have been able to establish the fallacy of allegations and also the fallacy of patent illegality of the order apart from exhibiting that there was no material nor the reason to believe as envisaged under Section 37-A(1) of FEMA, 99.

¶231

“The Hon‟ble Supreme Court of India in the case of Ayaaubkhan Noorkhan Pathan v. State of Maharashtra & others reported in (2013) 4 SCC 465, has inter alia held that the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice.” The Constitution Bench of the Hon‟ble Supreme Court of India in State of M.P. v. FPA-FE-01,03,04 & 05/DLI/2018 Page 30 of 36

¶232

Sadashiuva Vishampayan reported in AIR 1961 SC 1623, has also confirmed the principle that, the rules of natural justice require that a party should be given the opportunity of cross-examining a witness.

¶233

i) In Prem Singh Vs. Special Director, Enforcement Directorate, CRL A.

¶234

276 of 2008, Delhi High Court, decided on 24.04.2014 , whereby it was held that the denial of right to cross examine the witnesses would cause prejudice to the accused as statements of witnesses are not substantive evidence in themselves. It was held in the said judgement that delay is not a ground for disallowing the opportunity to cross examine witnesses. The court laid down that:

¶235

―18. The impugned order of the AO fails to discuss this aspect although it has noticed the submission of learned counsel for the appellants that the said statements had been retracted as they had been given under threat and coercion. In order to determine whether the claim of the appellants that they were subjected to torture, threat and coercion was a credible one, the SD sought to have permitted the appellants to cross-examine the officers of the ED who recorded the statements. As regards Prem Singh, his statement is stated to have been recorded by A.K. Narang, Assistant Director. The statement of Rajendra Singh was recorded by Devender Malhotra. Neither of these officers was tendered for cross-examination. In the considered view of the Court, in the context of the specific allegation that the retracted confessional statements were obtained under torture and coercion, that aspect ought to have been examined by the SD. In the circumstances, the reasons given by the SD in the impugned AO for disallowing the request of the appellants for crossexamination of the ED officials only because it would tantamount to “further delay in finalising the proceeding” were not tenable or justified. The denial of cross examination of the ED officials by the appellants indeed has caused them severe prejudice since the ED was relying on the said statements as if they were by themselves substantive evidence.”

¶236

(iii) The Hon’ble High Court of Delhi in Devashis Bhattacharya Vs.

¶237

Union of India 159 (2009) DLT 780 , while deciding a case under

¶238

Foreign Exchange Regulation Act, 1973 had observed that:

¶239

―18. It is well settled that where an action under the statute entails civil consequences, then even if an opportunity of being heard may not be explicitly set out in the applicable legal provisions, the adherence to the principles of natural justice has to be read into such a statute.

¶240

19. There can be no dispute that the action permitted under section 61 of the FERA, 1973 certainly results in drastic penal consequences…‖

¶241

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¶242

(iv) The Hon’ble Supreme Court of India in Ramesh Ahluwalia Vs. State of Punjab & Ors. 2012 (10) SCALE 46 had observed that:

¶243

―18. This is in conformity with the principle that justice must not only be done. Actual and demonstrable fair play must be the hallmark of the proceedings and the decisions of the administrative and quasi judicial courts. In particular, when the decisions taken by these bodies are likely to cause adverse civil consequences to the persons against whom such decision are taken.‖

¶244

IV-A The Hon’ble Supreme Court of India in Ashiwin S. Mehta and Anr. Vs. Union of India (UOI) and Ors. (2012) 1 SCC 83 had observed that:

¶245

―27. It is thus, trite that requirement of giving reasonable opportunity of being heard before an order is made by an administrative, quasi judicial or judicial authority, particularly when such an order entails adverse civil consequences, which would include infraction of property, personal rights and material deprivation for the party affected, cannot be sacrificed at the alter of administrative exigency or celerity.‖

¶246

IV-B The Constitutional Bench of the Hon’ble Supreme Court of India in Khem Chand Vs. Union of India AIR 1958 SC 300 has defined the meaning of the term ―reasonable opportunity‖ to include an opportunity to defined by cross-examining the witnesses produced against the accused. The Hon’ble court held that: ―To summarize: the reasonable opportunity envisaged by the provision under consideration includes-

¶247

(a) An opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges levelled against him are and the allegations on which such charges are based;

¶248

(b) An opportunity to defend himself by cross-examining the witnesses produced against him and by examining himself or any other witnesses in support of his defense; and finally (c ) An opportunity to make his representation as to why the proposed punishment should not be inflicted on him.‖

¶249

iv). The Hon‟ble Supreme Court of India in Ayubkhan Noorkhan

¶250

Pathan Vs. The State of Maharashtra & Ors. Decided on 08.11.2012,

¶251

Civil Appeal No. 7728 of 2012 , after relying upon various authoritative judgments, has observed that cross-examination is an integral part and parcel of the Principles of Natural Justice. It held that”

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―Cross-examination is one part of the principles of natural justice.‖

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(v) A Constitution Bench of the Hon‟ble Supreme Court in State of M.P. v. Chintaman Sadashiva Vaishampayan, AIR 1961 SC 1623, has held that the Principle of Natural Justice require that a party be given the opportunity to adduce all relevant evidence upon which it relies, that evidence of the opposite party be taken in his presence, and that he be given the opportunity to crossexamine the witnesses examined by that party. Not providing the said opportunity to cross-examine is violative of the Principles of Natural Justice.

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(vi). In Lakshman Exports Ltd. v. Collector of Central Excise, (2005) 10 SCC 634, the Apex Court, while dealing with a case under the Central Excise Act, 1944, considered whether to grant permission for cross-examination of a witness. In that case, the assessee had specifically asked to be allowed to crossexamine the representatives of the concerned firm, in order to establish that the goods in question had been accounted for in the firm‟s books of accounts and excise duty had been paid thereof. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem.

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(vii). In K.L. Tripathi v. State Bank of India & Ors., AIR 1984 SC 273, the Hon‟ble Supreme Court has held that in order to sustain a complaint of violation of the Principles of Natural Justice on the ground of denial of opportunity to cross-examine, it must be established that some prejudice has been caused to the party by the procedure followed. A party which does not want to controvert the veracity of the evidence on record or does not want to controvert the testimony gathered behind its back cannot expect to succeed in any subsequent grievance raised by him on the ground that no opportunity of cross-examination was provided to him especially when the same was not requested and especially when there was no dispute regarding the veracity of the statement.

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(viii). In Rajiv Arora v. Union of India & Ors. , AIR 2009 SC 1100, the Apex

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Court held:

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―Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review.”

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(ix). The Hon‟ble Supreme Court of India in New India Assurance Company Ltd., v. Nusli Neville Wadia & Anr., AIR 2008 SC 876, while considering a case under the Public Premises (Eviction of Unauthorised Occu pants) Act, 1971, held that though the statute may not provide for cross-examination, the same being a part of Principles of Natural Justice should be held to be an indefeasible right. It was held as follows:-

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―If some facts are to be proved by the landlord, indisputably the occupant should get an opportunity to cross-examine. The witness who intends to prove the said fact has the right to cross-examine the witness. This may not be provided by under the statute, but it being a part of the principle of natural justice should be held to be indefeasible right”

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(x). The Hon‟ble Supreme Court in Needle Industries (India) Ltd.

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& Ors. v. N.I.N.I.H. Ltd. & Ors., AIR 1981 SC 1298, considered a

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case under the Indian Companies Act, and observed that:

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―It is generally unsatisfactory to record a finding involving grave consequences with respect to a person, on the basis of affidavits and documents alone, without asking that person to submit to cross-examination‖

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(xi). Hon‟ble High Court in Mehar Singh Vs. The Appellate Board Foreign Exchange 1986 (10) DRJ 19, while dealing with a case under the Foreign Exchange Regulation Act, 1973, decided the appeal in favour of the Appellants on the short ground that the applications made to the Director of Enforcement and before the Appellate Board during the pendency of the appeal to summon four witnesses for cross-examination, were not dealt with by the authorities below. It was held:

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―5. Non-summoning of the said witnesses for purposes of cross-examination has resulted in miscarriage of justice.‖

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In the nature of the seriousness of present case, the right to crossexamination would have been given in view of gravity of the matter. Had the said right been granted, there might have been different result. Rather in the present case, the adjudicating authority has issued the notice after the expiry of five months knowingly well that the proceedings were to be completed within the period of 180 days. Even no time left for the purpose of cross-examination of relevant witnesses.

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Under these circumstances, we allow the appeals and set aside the order No. HIU/S.O-2/37A/2017/AD/(AHK) dated 15.6.2017 and Confirmation order No. ED / 02/2017 under

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Appeal/DLH/Cus/ED/Appeal//9011 dated 8/12/2017 passed by the Competent Authority and proceedings there-under.

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However in the interest of justice equity and fairplay we allow the respondent to again verify the position as to whether the appellants have brought the entire amount of remittance within four weeks, from the date of the order after verification the amounts seized be released in the accounts of Appellants with YES Bank, Chhattarpur Branch, New Delhi

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within one week thereafter. The liberty is also granted to the respondent to move application for clarification if any pertaining to deposit of amount in question.

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