Partly allowed

FPA-FE-16/MUM/2011 of Shri Adnan Sami Khan v/s The Special Director Directorate of Enforcement, Mumbai

ATFP12 Sept 2019FPA-FE-16/MUM/2011

Case brief

AI extract

What is this about?

The Tribunal held that confiscation of flats was unjustified despite FEMA contravention. Confiscation under Section 13(2) was set aside due to lack of foreign exchange involvement and natural justice violations. Penalty under Section 13(1) was enhanced to Rs. 50 Lakhs.

What did the court decide?

Impugned order confiscated flats and parking spaces under Section 13(2) is quashed. Penalty under Section 13(1) is enhanced from Rs. 20 Lakhs to Rs. 50 Lakhs. Case partially allowed.

FPA-FE-16/MUM/2011 of Shri Adnan Sami Khan v/s The Special… — Money Laundering | ATFP (2019)

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APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS & PBPT ACT AT NEW DELHI

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Date of Decision: 12.09.2019

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(1) FPA-FE-16/MUM/2011

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Shri Adnan Sami Khan … Applicant/Appellant Versus The Special Director Directorate of Enforcement, Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellant : Shri Manik Dogra, Advocate Ms. Charul Sarin, Advocate Shri Harsh Kumar, Advocate For the Respondent : Shri Prashant Pandey, Legal Consultant (2) FPA-FE-17/MUM/2011 Smt. Sabah Sami Khan … Applicant/Appellant Versus The Special Director Directorate of Enforcement, Mumbai … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellant : Shri Mahesh Jethmalani, Sr. Advocate Ms. Mugdha Pande, Advocate Edith Dey, Advocate For the Respondent : Shri Prashant Pandey, Legal Consultant CORAM JUSTICE MANMOHAN SINGH : CHAIRMAN JUDGEMENT

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FPA-FE-16 & 17/MUM/2011

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The appeal no. FPA-FE-16/MUM/2011 has been filed by the Adnan Sami Khan under Section 17 of the Foreign Exchange Management Act, 1999 (hereinafter referred to as “ FEMA ”) against the order dated 21.12.2010 passed by the Special Director, Enforcement Directorate, Mumbai (hereinafter referred to as the “ Impugned Order ”).

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FPA-FE16 & 17/MUM/2011

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Page 1 of 44

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The appeal no. FPA-FE-17/MUM/2011 was filed by the Appellant Sabah Galadari against the common order of the Special Director of Enforcement, Mumbai bearing no. ADJ/42/B/SDE/RAJ/2010/FEMA passed by Special Director, Mumbai dated 21.12.2010.; in Show Cause Notice bearing no. T-4/08-B/SDE/RAJ/2010/FEMA/101 dated 12.04.2010

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By this order, this tribunal proposes to decide both appeals filed by Shri Adnan Sami Khan and Ms. Sabah Galadari. The common order was passed by the Special Director of Enforcement, therefore, both appeals are being decided by single order.

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In the impugned order, it is held that since the said 8 flats purchased by Shri Adnan Sami Khan including the flats transferred to Ms. Sabah Galadari are the properties involved in the aforesaid contravention which were purchased under utter disregard to the direction of the RBI, these 8 flats i.e. Flat Nos. A-1201-B, A-1201C, A- 1301A, A-1301B, A-1301C, A1401A, A1401B and A-1401C in the building Oberoi Sky Garden, the said flats are confiscated to Central Government in exercise of the powers conferred on me under section 13 (2) of the Foreign Exchange Management Act, 1999. Further the penalty of Rs. 20,00,000/- (Rupees Twenty lakhs only) imposed on Shri Adnan Sami Khan who should be deposited in the Office of Directorate of Enforcement at 23/24, Mittal Chambers, 2nd floor, Nariman Point. Mumbai-400021. Part of the penalty amount of Rs. Ten Lakh has been deposited by Adnan Sami Khan. The possessions of eight flats and parking space is with him.

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FPA-FE16 & 17/MUM/2011

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While passing the order, the Special Director has recorded the facts and findings of the case, the same are reproduced hereunder:-

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(a) Shri Adnan Sami Khan, a Pakistan national at present residing at Sky Oberoi Garden Lokhandwala, Andheri (W), Mumbai-400053 stand charged in show cause notice No. T-4/08B/SDE/RAJ/2010 dated 12/04/2010 for acquiring immovable properties in India for a total consideration of ₹ 2,53,34,750/- and for transferring some of the properties worth ₹ 1,57,71,250/- in violation of the provisions of clause (i) of subsection (3) of section 6 of the Foreign Exchange Management Act, 1999 (“FEMA” for short) read with Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 notified under Notification No. FEMA 21/2000 - RB dated 03.05.2000

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(b) Shri Adnan Sami Khan was asked to show cause why the immovable properties i.e. 8 flats and 5 parking spaces in respect of which aforesaid contraventions of the provisions of the FEMA has taken place, shall not be confiscated for credit to the Central Government in terms of the provision of Section 13 (2) of the FEMA.

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(c ) Ms. Sabah Galadarl. ex-wife of Shri Adnan Sami Khan was also given an opportunity to explain why the immovable properties i.e. 5 flats A-A1301A, A1301C, A1401A, A1401B and A1401C with three parking spaces numbered 60, 67 and 154 involved in the aforesaid contravention shall not be confiscated for credit to the Central Government in terms of the provisions of Section 13(2) of the FEMA.

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FPA-FE16 & 17/MUM/2011

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(d) The reasons are recorded at the time of issuance that reliable information was received in the office of the Directorate of Enforcement, Mumbai that Shri Adnan Sami Khan a Pakistani National, had purchased several immovable properties without the permission of Reserve Bank of India. On enquiries M/s. Oberoi Sky Garden CO-Op. Hsg. Socy. Ltd. by their letter dt. 21-4-2009 informed that Mr. Adnan Sami Khan had purchased Flat Nos. A- 1201-B, A-1201C, A-1301-A, A-1301-B, A-1301-C, A-1401-A, A- 1401-B and A-1401-C in the building Oberoi Sky Garden from M/s. R.S. Estate Developers Private Ltd; and subsequently Mr Adnan Sami Khan has gifted flat Nos. A-1301-A, A-1301-C, A- 1401-A, A-1401-B and A-1401-C to Mrs. Sabah wife of Mr. Adnan Sami Khan along with parking spaces and at present these fiats and parking spaces were held by his wife Mrs. Sabah Adnan Sami Khan. .

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(e ) Statement of Sh. Adnan Sami was called for further enquiries and after repeated summons, he appeared on 20.01.2010 in response to summons dated 13.01.2010. In his statement dated 20.01.2010 recorded under Sec. 37 of FEMA, Shri Adnan Sami interalia stated that his full name is Adnan Sami Khan. He was born in Rawalpindi. He was a Pakistani national; and he had come to India on business visa eleven years before.

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(f) On being asked. Shri Adnan Sami stated that he had purchased Flat No. A1201-B and C, A-1301-A, B & C and A-1401A, B & C, in Oberol Sky Garden Co-op. Hsg. Socy. Ltd. Lokhandwala Andheri (W), Mumbai on 29.12.2003; that out of the

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said flats 4 flats viz. A-1401, A,B and C and A-1201-C were purchased from R.S. Estate Developers Pvt. Ltd. (builder) and A- 1201 B, A-1301 B and A-1301 C were purchased from the builder and Mrs. Manisha S. Dhawan and A-1301-A from the builder and Mr. Rama Kapil Dhawan by way of tri-parte agreements. He had paid amounts totaling Rs. 2.53 Crores for purchase of these 8 flats. He further stated that for purchasing these flats, he had taken loan from Axis Bank (UTI Bank). He had transferred 5 Flats viz flat Nos. 1301A & C and 1401 A, B and C to his wife Sabah Galadari along with some parking spaces but afterwards his marriage with Sabah Galadari was declared null and void by the Family Court, so the said flats were under dispute Ms. Sabah Galadari was UAE national and lived in Dubal. He was not aware that Pakistani nationals could not purchase immovable property in India. He had engaged Mr. Harish of M/s. D.M. Harlsh & co., Advocates. Mumbai for looking into legal formalities regarding the purchase of flats. He had clarified that the office premises declared in his Income Tax return for Financial Year 2004-05 was situated at 1201 B & C at Oberol Sky Garden Society and same was shown as fixed assets in Income Tax returns filed for F.Y. 2003-04. On being shown Regulation 7 of Not. No. FEMA-21/200 dated. 3.5.2000 restricting the citizens of certain countries including Pakistan to buy immovable property in India, he stated that he had now come to know about this regulation and as per this regulation, he was not allowed to purchase immovable property without the permission of Reserve Bank of India; that he had neither applied for nor taken any such permission; that he further stated that his parents are nationals of Pakistan and had given his present passport for extension of VISA.

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FPA-FE16 & 17/MUM/2011

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(g) Enquiries made with Axis Bank revealed that the first account No. 020010100067315 (Savings Bank A/c) of Shri Sami was opened at Lokhandwala branch Andheri (w) on 16.1.2001 on the basis of copy of Pan Card No: AIAPK 9577 A (as Identity proof) and copy of Gas connection allotment by HPCL (as address proof) submitted by Shri Adnan Sami to the bankers. Enquiries also revealed that the second S.B. account No. 020010100422680 was opened in the same branch on 11.2.2006 on the basis of first account. It was revealed that Shri Adnan Sami had availed a loan of Rs. 1.50 crores vide loan account No. 004010600032948 on 27.1.2004 from the UTI Bank (now known Axis Bank) Mumbai Branch for the purpose of purchasing the said flats.

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(h). Further statement recorded under Section 37 of the Foreign Exchange Management Act, 1999 on 27.01.2010, Shri Adnan Sami interalia stated that the bank did not ask about his nationality so he did not disclose his nationality to the bank Officials; that the second S.B. account NO. 020010100422680 was opened on 11.02.2006, in order to separate his first account which he had used for daily expenses and the second account for disposing of house loan. When asked about mentioning his nationality as Indian on home loan application form, he stated that the Bank official had taken his signature prior to the filling of application form and that since he had applied for Indian Citizenship, he had declared himself as “Mr. Adnan Sami, adult, Indian Inhabitant (proposed)” on the Indemnity Bond, submitted to the Bank at the time of taking loan.

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(i). Enquiries were made with the Foreigners Registration office

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& Deputy Commissioner of Police, Mumbai. The Foreigners

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FPA-FE16 & 17/MUM/2011

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Registration Officer & Deputy Commissioner of Police, Special Branch (I), C.I.D. Mumbai vide their letter dated 06.02.2010 forwarded details of visa and other related details in respect of Shri Adnan Sami. It revealed that Shri Adnan Sami, a national of Pakistan holding Passport No. JO33468 issued on 29^th July 2000 at Islamabad, was given “Visitor” visa No. P156000 valid from 03.08.2000 to 02.08.2001 with four entries on Passport No. JO33468, stay of 90 days of each visit with entry and exit point Mumbai and Delhi and permission to visit places Mumbai, Delhi, Calcutta, Chennai, Agra, Pune Hyderabad, Jaipur, Ahmadabad, Chandigarh, Goa, Bangalore and business performance was allowed. It further revealed that till August 2005, the Visa given to Shri Adnan Sami was visitor‟s visa only with stay permission for 90 or 180 days. On 25.08.2005 an entry by the Section Officer of Ministry of Home Affairs was made as under. “The passport holder‟s visitor visa is converted in to “visitor visa for business purpose”. Other conditions regarding permission for commercial performance, period of stay, EPR status, entry and exit point and the number of places for visit as already allowed shall continue”.

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(j). Enquiries with the UTI Bank revealed that his first account No. 020010100067315 was opened on 16.1.2001 and he was introduced by the Branch Head Smt. Manju Srivatsa. Smt. Manju Srivastava in her statement recorded on 22.1.2010, she stated that she was not aware that he was a Pakistani national. Mr. Sami had submitted copy of Pan Card as Identity proof and copy of Gas connection with HPCL as address proof. The second account No. 020010100422680 was opened by the then Deputy Manager, Operation of Axis Bank Mr. Mahashabde on 11.2.2006 on the basis of first account and as per his statement recorded on

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22.1.2010, he was also not aware that Mr. Adnan Sami was a Pakistani national. Shri Mahashabde further stated that he had visited the address mentioned in the first account B-203, Ambika, MHADA Complex, Andheri (W), Mumbai 53 and had taken a copy of the Pan card.

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(k). The loan of Rs. 1.5 crores was granted to Shri Adnan Sami for purchase of flats and in the application form he has mentioned the nationality as Indian and submitted copy of pan card and address proof only. In the Indemnity Bond submitted on 21.1.04 he had mentioned Adult Indian Inhabitant (proposed). The loan was sanctioned on 24.12.2003 and disbursed on 27.1.2004. The statements of bank officials related with Retail Assets Division viz. Ms. Valli Sekar and Mr. Sujan Sinha were recorded on 22.1.2010 in this regard who stated that they were not aware that Mr. Adnan Sami was National of Pakistan. Ms.Valli Sekar in her statement dated 22.01.2010 stated that she had accepted the application form filled and submitted by Shri Adnan Sami and forwarded the same for further processing .

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(l). In view of the above, the show cause notice in question came to be issued to Shri Adrian Sami Khan and Smt. Sabah Galadari.

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(m) Shri Vibhav Krishna, Advocate vide his letter dated 3/5/2010, 6/5/2010 and 14/5/2010 acknowledged the show cause notice and requested for time as the notice was out station.

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(n). Since no reply was filed by Shri Adnan Sami Khan, he was granted personal hearing on 21/06/2010, alongwith Smt. Sabah Galadari. The matter was adjourned to 08/07/2010 at the request

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FPA-FE16 & 17/MUM/2011

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of the Advocate for Shri. Adnan Khan. On 08/07/2010 Shri Vibhav Krishna, Advocate appeared alongwith Shri Adnan Sami Khan and requested for further adjournment and the matter was adjourned to 10/8/2010, However, on Shri Vibhav Krishna, Advocate vide his letters dated 6/8/2010 and 21/8/2010 demanded colour Xerox copy of the documents relied upon. In the interest of justice, colour Xerox copies of the documents were furnished to Shri Vibhav Krishna on 24/8/2010.

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(o) The matter was again posted for hearing on 16/9/2010. However, on 27/9/2010 Shri Adnan Sami appeared and informed that his Advocate is busy in High Court and requested for adjournment. He was asked to clear date in consultation with his advocate, for next hearing. And the matter was fixed for hearing on 19/10/2010. On 19/10/2010 Shri Vibhav Krishna, Advocate appeared with Shri Adnan Sami and submitted that he should be allowed to cross-examine the persons whose statements have been relied upon. He was informed that if while deciding the issue, the statements of these persons are not taken into consideration, when he would like to argue the case.

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(p) Accordingly the matter was adjourned to 18/11/2010, However, Shri Vibhav Krishna did not appear on 18/11/2010 and vide his letter dated 18/11/2010 requested for further adjournment on the ground that he has been unwell and has been advised rest for two weeks. The matter was adjourned to 7/12/2010 with a direction that he should furnish medical certificate to this effect.

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FPA-FE16 & 17/MUM/2011

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6. A reply dated 3/12/2010 on behalf of Shri Adnan Sami Khan which interalia reads as under:-

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(i) The Applicant is Notieee No.1 in the above.

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(ii) The FEMA authorities have handed over the show cause notice inter alia stating contravention of provisions of FEMA Act by purchase immovable properties viz 8 fiats by Noticee No.1. During the perusal of the compilation of documents in support of the Show Cause Notice issued by FEMA, the Noticee No.1 was shocked and surprised to find that a letter dated 2/9/2002 had purportedly been addressed by M/s D.M Harish & Co., Advocates, purportedly on behalf of Noticee No.1, and addressed to the Reserve Bank of India, seeking inter alia permission in his favour for purchase of flats in Mumbai, India. The applicant was further shocked to learn that the Reserve Bank of India, vide a letter dated 14/10/2002 addressed to M/s. D.M Harish & Co., Advocates, had inter alia refused to grant permission as requested on the basis that as per policy a Pakistan national is not permitted to purchase property in India. The said letter was addressed to M/s. D.M. Harish & Co., Advocates and was purportedly delivered to them. The applicant states that he was not aware of M/s. D.M Harish & Co., Advocates or any person connected thereunder as having been engaged as his advocates and had not authorized M/s. D.M. Harish & Co., Advocates to address any letter on his behalf to the Reserve Bank of India seeking permission for purchase of flats by him. In fact, the applicant was not even aware that there was any requirement for obtaining any permission from

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the Bank of India for the purchase of property in India by the Applicant. The applicant was not aware that being a Pakistan passport holder, he was required to obtain permission for purchase of property in India. The applicant was also not aware of any letter dated 14/10/2002 issued by the Reserve Bank of India to M/s. D.M. Harish & Co., Advocates refusing to grant permission. The Applicant was not aware of the engagement of M/s. D.M. Harish and Co. on his behalf, he was not consented and did not have any knowledge and did not grant any permission for the letter dated 2^nd September, 2002 to be address to Reserve Bank of India. He was not even aware that any such letter had been addressed to Reserve Bank of India, seeking permission. Further, he was not aware and has till date not been furnished the said letter by M/s. D.M Harish & Co. viz., letter dated 14.10.2002 addressed by Reserve Bank of India to M/s. D.M. Harish & Co. refusing to grant permission.

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(iii) He submits that he has applied for Citizenship of India in the year 2002 with the Government of India and has given undertaking that in the event the citizenship was approved he shall surrender his citizenship in Pakistan. The Applicant has also complied with formalities for grant of Citizenship in India, Including inter-alia by inserting a public notice in Free Press Journal in Mumbai dated 5^th April, 2005. The Application has been made on the basis that the Applicant is from Indian Origin and is descendant of his mother‟s family who hail from Jammu-India. The Application is pending and the applicant bonafide believes that the application shall be granted. The Applicant has so far not received Intimation from the Government of India rejecting or refusing the application by the

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Applicant for grant of citizenship in India. The Applicant submits that prior thereto in the year 1998 he has been issued PAN Card by the Government of India bearing PAN No. AIAPK9577A.

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(iv) The Applicant submits that he had bonafide purchase 8 flats from M/s. R.S. Estate Developers and the entire transaction was coordinated by Mr. Vikas Oberoi of M/s. R.S. Estate Developers including inter-alia arranging of bank loan from Axis Bank, organizing registration of flats. It appears that M/s. D.M. Harish and Co. was engaged by Mr. Vikas Oberoi and M/s. R.S. Estate Developer-and on the basis of instructions of Mr. Vikas Oberoi the application was made by M/s. D.M. Harish and Co., Advocates. Mr. Vikas Oberoi is familiar with the Applicant and was aware that the Applicant was a Pakistani passport holder.

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(v) The Applicant submits that on the basis of legal advice the Appellant has made an application to the Reserve Bank of India for grant of Expost-facto sanction/ permission to purchase, enjoy, and occupy as owners the flats purchased.

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(vi) The applicant is also in the process of making of an application to the Government of India to expeditiously decide his application for citizenship which has been pending since the year 2002.

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(vii) It was submitted that the application dated 2nd December, 2010 has been made by the Applicant to the Reserve Bank of India grant of Expost facto sanction on the basis of the Judgment of the Supreme Court in the case of Life Insurance Corporation vs. Escorts India Ltd. & Ors. reported in 1986 SC 1370, whereby it

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has been held that the Reserve Bank of India has the power to grant expost-facto permission. The applicant submits that the expost-facto permission if granted has the effect as if the transaction was undertaken with the permission of the Reserve Bank of India and there would be no contravention of any provision of law. The applicant submits that there was reasonable prospect of the permission being granted by the Reserve Bank of India to the application made by the applicant for grant of Expostfacto permission. The applicant submits that the show cause notice issued by authorities dated 12/4/2010 entails serious consequences if the Reserve Bank India's permission is not granted.

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(viii) The applicant therefore submits that in the interest of justice, till such time the application for the Expost-facto, sanction is considered by the Reserve Bank of India and attains a finality, the FEMA authorities may adjourn the matter by a period of 2 months in order to enable the applicant to pursue his application with the Reserve Bank of India. The Applicant submits that it is only after the response of the Reserve Bank of India is received, it attains the finality that the present show cause be proceeded with. The applicant submits that severe consequences shall be caused to the applicant if the permission is not granted and the present FEMA proceedings is proceeded with. The applicant had purchased the flats in December 2003 and the flats were registered in 2004 and the applicant has been in possession, use and enjoyment of the flats since last 6 years and therefore, the balance of convenience is entirely in favour of the applicant.

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It was requested that:

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(a) The application be adjourned for a period of 2 months in order to enable the applicant pursue his application with the Reserve Bank of India for grant of Expost-facto permission and to obtain a response there under and to thereafter attain finality to the application made by the Applicant regarding the Expost-facto permission and entitlement of the Applicant to purchase, hold and enjoy the 8 flats in Mumbai, India.

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(b) For such further orders and directions as the authority may think fit and proper in the facts and circumstances of the case.

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On 7/12/2010 Shri Vibhav Krishna appeared before me and submitted that his client has applied for ex-post facto permission from RBI and till that time adjudication should be stayed. Shri Vibhav Krishna submitted a copy of the letter addressed to the RBI along with the annexure. The advocate Shri Vibhav Krishna was asked to argue the case on merits also. But he stated that he will, argue the case on merit only after the decision by RBI is taken about the ex-post facto sanction. Since Shri Vibhav Krishna refused to argue the matter on merits. He left with no other alternative, but to decide the case on the basis of available material. It is mentioned that Reserve Bank of India vide letter dated 15/12/2010 has refused to process the application of the noticee till investigation by the Directorate is over. It is evident that RBI refusal received after hearing already conducted on 07.12.2010.

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It is recorded in the impugned order that Sh. Adnan Sami Khan has not retracted his statement dtd. 20.1.2010 till date. He has not mentioned in any of his letters filed that the statement recorded on

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20.1.2010 were not voluntary or that the same were recorded under threat or coercion. He has levelled some charges against officers of Axis Bank and the Builder. But, he has not whispered a single word about the statement recorded by the Inquiry Officer on 20.1.2010. He has not filed any evidence of lodging complaint against Inquiry Officer before the higher authorities for pressurizing him while recording the statements on 20.1.2010.

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It was recorded that it was admitted by him that he has purchased 8 flats along with 5 parking spaces on 29.12.2003 in Oberoi Sky Garden for the consideration of Rs. 2,53,34,750/-, through loan from UTI Bank to the builder M/s. R.S Developers Pvt. Ltd. He had purchased these properties on 29/12/2003 and at that time when he was holding visitor visa to stay in India was limited to 90 days or 180 days at a time.

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It was held in the impugned order that considering the totality of all these facts and circumstances it was held that the contention of the noticee (about ignorance of the letter of M/s. D.M. Harish & Co.) is false. Even going by his version that M/s. D. M. Harish & Co. did Inform him about the further developments it can be said safely that If M/s.. D. M. Harish & Co. had not informed him it was his duty to inquire from them especially when he had engaged them. It was opined in the impugned order that one of the reason to disown the letter of M/s. D. M. Harish & Co. is to legitimatize the so called ex post facto permission from the Reserve Bank of India. No doubt he has taken the stand of forgotten the statements recorded by the Inquiry Officer and in order to overcome the difficulty created by the said letter of M/s. D. M. Harish & Co. and to pursue the latest application with Reserve Bank of India the noticee has put up a new argument about post facto permission.

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Noticee has approached RBI for post facto permission in view of the decision of the Supreme Court in the case of Escorts Ltd vs. LIC of India. In addition to the case of Escorts he has also relied upon a case delivered by the Bombay High Court in an arbitration petition (u/s. 5 of the Foreign Awards (Recognition and Enforcement) Act, 1961). He has also referred to appeal No. 98-110 of 1998 of ATFE in the case of Nowrosjee Wadia and Sons Pvt. Ltd. (dtd. 03/09/1998).

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It was found from the impugned order that the findings in the case of Escorts is not relevant in the present case as the said Judgment of the Hon‟ble Supreme Court has held that when previous permission was not essential ingredient of the contravening section, then the RBI may consider post facto permission. Escorts matter was about transfer of shares under the provisions of FERA. While deciding the matter the Hon‟ble SC had decided the issue of purchase of shares by foreign investor of Indian nationality/ origin under Non-residents Investment Scheme. The Hon‟ble SC had dealt with Sec. 29(1) (a) and 29(1)(b) in context of the particular facts of the case. While deciding the case, the Hon'ble SC has mentioned the background of the Act in following words

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“The present state of India economy which has to operate under the Existing World Economic System is such that India needs foreign exchange and, lots of it, to meet the demands of its developmental activities. It has become necessary to earn, conserve and build-up a reservoir of foreign exchange. So the Parliament and the Executive Government have been taking steps, from time to time, to regulate, to conserve and improve the foreign exchange resources of the country and the proper utilization thereof in the interest of the economic development of the country. The foreign exchange regulation act, 1973 was enacted for that purpose.”

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12. Case of Adnan Sami in Appeal

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(a) The Respondent overlooked the arguments canvassed on behalf of the Appellant fact that ex-post facto permission of Reserve Bank of India if granted, then there shall be no basis for the present proceedings under FEMA and allegation and contravention shall not stand.

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(b). The respondent has failed to appreciate that there was no circumstances for invoking provision of section 6 and Regulation 7 under FEMA since there was no involvement of foreign exchange and the flats were purchased on the basis of banking loan sanctioned by AXIS bank and the income of the Appellant on which he had paid taxes.

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(c ). The respondent has failed to appreciate that the application of the Appellant was adjourned so that the pending application for the grant of ex post facto sanction attains finality and ex post facto permission if granted, the allegation of contravention in the show cause notice No.T-4/08-B/SDE/RAJ /2010/FEMA/100 dated 12^th April, 2010 would become infructuous.

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(d) The respondent has overlooked and ignored that the appellant is the bonafide purchaser of the flat and was not aware that an Advocate had made an application on his behalf on 2^nd September, 2002 for permission to purchase flats in Mumbai and the permission was refused vide letter dated 14^th October, 2002.

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(e ). The respondent failed to appreciate that the appellant is a bonafide purchaser and was a victim of deceit and fraud by the builders who had suppressed the fact that application had been made by the builders' advocate with Reserve Bank of India on 2^nd

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September, 2002 on behalf of the Appellant for permission to purchase Flats in Mumbai and which was refused vide letter dated 14^th October, 2002 and despite refusal of permission the Builder had proceeded to sell the flats and collected consideration for the said flats in suppression of the refusal of permission by Reserve Bank of India.

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The respondent failed to appreciate that grave injustice would be caused to the appellant if the flats were permitted to be confiscated without permitting the Appellant to put forth his defence on merits.

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(f) The procedure contemplated under Section 16 of the FEMA Act for adjudication whether there is contravention of FEMA Act and the rules and regulations have not been followed. The notice seeks to directly invoke Section 13(2) viz. Confiscation of Immovable Properties without having complied with the provisions of Section 16 and presupposes contravention of the Act and imposition of penalty.

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(g) The Notice disregards that the Noticee No.1 had been issued a PAN Card by the Government of India in the year 2002 and in compliance of requirements of proof of identity and proof of address he had attached the PAN card issued and there is no dispute of his identity. Thereby the Noticee had discharged his statutory responsibility at the time of receiving documents for purchase of immovable property by duly quoting his PAN number as per Notification of CBDT Under Income Tax Act. The PAN Number having been quoted, it was within public knowledge of

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authorities to ascertain the identity of the Noticee and therefore the Noticee has conducted himself in accordance with law.

¶106

(h) The Notice has overlooked that quoting correct PAN on return of income, other correspondence with the Department of Direct Taxes is mandatory and PAN Card is widely recognized as proof of identity for financial transactions.

¶107

(i) The Notice has disregarded that the Noticee No.1 was a person of Indian origin as contemplated under FEMA Act since his mother's ancestors are from Jammu (India) and her family members reside in Jammu and which fact was reiterated in the Statement dated 20^th January 2010 and 27^th January 2010, wherein the Noticee has reiterated that his mother is are from Jammu.

¶108

(j) The Notice has erred and overlooked that the Noticee No. 1 is a reputed singer, musician and artist whose music has been widely appreciated in India since 1999 and news report of his a Pakistani nationality had been widely circulated and therefore it is common knowledge that he is a Pakistani national and therefore the statement of Mr. Arun Kotian, Mr. Vikas Oberoi on behalf of R.S. Estate Developers and the Bank Officials that they were unaware of his nationality is false, inaccurate and incorrect.

¶109

(k) The Notice has disregarded that the Noticee NO.1 (Appellant) having matrimonial dispute with the Noticee No.2 and he has revoked the Deed of Gifts for 5 flats all dated 12th May 2008 on the basis that his marriage to Sabah Galadari was void ab initio since she had not complied with formality of "Halala" and the

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submission of the Appellant was upheld by the Family Court vide order dated 14^th October, 2009 and which was challenged in Family Court Appeal No. 79 of 2009 in High Court Bombay which has by its order dated 23^rd March 2010 set aside the order of Family Court and has remanded the matter to Family Court for adjudication and being aggrieved by the said Order of High Court, Bombay the Appellant is in the process of filing the Special Leave Petition in Supreme Court of India, which is pending.

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(l) The notice overlooks that the application of obtaining the permission from RBI was carried out by the Advocates for R.S. Estate Developers and the Appellant was not even aware of the applicable regulations and the application made by the Advocates M/s. D.M. Harish & Co. on his behalf and thereafter the refusal of permission by Reserve Bank of India. The refusal of the application by Reserve Bank of India, by letter dated 14^th October 2002 is dubious and suspect document. It is does not provide any acknowledgement of delivery of such letter to M/s. D.M. Harish & Co, Advocates. In any event the Noticee No.1 had not been informed of the refusal by RBI dated 2^nd October, 2002 and was not forwarded the said letter of refusal by Reserve Bank of India dated 2^nd October, 2002 and therefore was unaware of such refusal of permission.

¶114

(m) The Notice disregards that there has been a total failure on the part of Axis Bank in discharge of its duties at the time of disbursement of loan and monitoring the repayment of banking loan and thereafter an attempt is made by bank to shield such of failure by making false statements viz Manju Shrivasta, Branch Manager, Axis Bank in her statement dated 22^nd January 2010 at

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pages 487 to 490 and statement of Valli Sekar, Assistant Vice President of Axis Bank, dated 22^nd January 2010 at Pages 491 to 494 wherein they have inter alia stated that they were unaware of the nationality of Noticee No. 1. They also obtained signatures on blank forms and have thereafter filled details without knowledge of the Appellant and without furnishing a copy to the Appellant and are now seeking to impute false statements to Noticee No.1, which is incorrect.

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(n) The notice fails to appreciate that the indemnity bond dated 24^th January 2004 of the Appellant is on the basis of a legitimate expectation that having been issued a PAN card by the Government of India and having applied for Citizenship of India which was under consideration by the Government of India, the Appellant had a legitimate expectation that he would be granted citizenship of India and it is on that basis that he had made reference to the word "proposed". Subsequent thereto the Appellant had also inserted a Public Notice dated 8.5.2005 in compliance of formalities for issuance of Indian citizenship and a passport and had he along with lawyers had met the Senior officials in the Government of India in March 2005 wherein he was assured citizenship.

¶119

(o) The Notice fails to appreciate that the purchase of the immovable properties is by registered documents in the year 2003 and the Appellant had disclosed his identity and PAN Card. There was no complaint and/ or enquiry against such purchase for next six years. Thereafter in May, 2008 the Appellant had gifted five flats to his then wife Sabah Galadari and has also executed mortgage deed for Flats on 13^th May 2008. However, thereafter on

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account of matrimonial dispute and discovery of certain facts with shook the foundation of re-marriage to Sabah Galadari the Appellant had revoked the gift on 6th May 2009 and had also raised the plea of "Halala" in the Family Court, Bandra, Mumbai and which was upheld by Order dated 14^th October, 2009. On that basis the gift became invalid. However, the said order has been set aside by High Court Bombay and the matter is to be prosecuted in Supreme Court of India.

¶123

(p) The notice fails to consider the factual position that the Appellant has come to India 11 years ago and has pursued his career in music and has expressed his intention to stay in India for an uncertain period and as in fact stayed in India for long duration and is entitle to be treated as Resident in India and would be covered under the definition of "Resident in India" and the provision 3 of Section 6 (3) (i) r /w Regulation 7 would not apply.

¶124

(q). The Regulation 7 of FEMA (Acquisition) 2000 is ultra vires being beyond the ambit prescribed by Section 6 (3)(i) Fema Act 1999 and is also ultra vires as there are no guidelines for granting or refusing permission and thus suffer from vice of arbitrariness.

¶125

(r). The Authorities have placed reliance on the statement given by Ms. Manju Shrivastava, the Branch Head of UTI Bank and have relied on her statement recorded on 21^st January, 2010 stating the she was not aware that the Appellant was a Pakistani national and the Authorities have relied on gospel truth and denied opportunity to the Appellant to cross examine the said witness in disregard that an application was pending.

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The Authorities have misdirected themselves by relying on the version of Mr. Maha Sapte. The said version was not even provided to the Appellant.

¶129

(s) The Authorities have misdirected themselves and have denied the Appellant an opportunity to cross examine the witness whose statement have been relied in support of show cause notice and in disregard of application dated 27^th September, 2010 filed by the appellant which is pending.

¶130

It is stated that the Authorities have misconstrued the application dated 3^rd December, 2010 filed by the Advocate for the appellant interalia treating it as reply of the Appellant.

¶131

The Show Cause noticed dated 12^th April, 2014 was issued by the Respondent to the Sabah Galadari wife of Mr. Adnan Sami, for contravention of Sec. 6 (3) (i) of the Foreign Exchange Management Act, 1999 read with Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, notified under Notification No. FEMA 21/2000-RB dated 03.05.2000, who is citizen of UAE and also a person of Indian Origin. She as per law always is allowed to own property in India though the confiscated flats were purchased by Mr. Adnan Sami, a Pakistani National on 5^th April, 2007. The said factual position is not denied by the respondent.

¶132

It is alleged that her husband had gifted her the five flats, being Flat Nos. 1302/A, 1301/C, 1401/A, 1401/B and 1401/C along with the three parking spaces, situate at Oberoi Sky Garden Lokhandwala complex, Andheri(W), Mumbai- 400053 vide a registered Gift Deed dated FPA-FE16 & 17/MUM/2011 Page 23 of 44

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12^th May, 2008 and the society transferred the flats to the Appellants name and the share certificates of the society are in her name, thus she is the sole legitimate owner of the five flats and three car parking spaces gifted to her. It is alleged that she had advanced a sum of Rs. 5.30 crores to her former husband from time to time between 8^th April, 2007 and 23^rd January, 2009, a substantial part of which was utilized for the furnishing with fittings of the said 5 flats. She was not aware that Mr Sami had executed the gift deed in her favour vis-à-vis the 5 flats without obtaining the requisite permission of Reserve Bank of India. In respect of remaining 3 flats (Flat no. A1201-B, A1201C and A1301B car parking space no.83 & 153), which also were purchased without RBI permission, therefore, had created an equitable mortgage in favour of the Appellant to secure a separate loan amount of Rs.1.08 Crores advanced to him. Many issues raised by her have been denied on behalf of Mr. Sami at the time of hearing of appeals.

¶135

It is argued by Mr. Mahesh Jethmalani, learned Sr. Counsel appearing on behalf of Sabha Galadari. The following facts compound Mr Sami‟s violation of Regulation 7:

¶136

(a) That he had applied for RBI permission to purchase flats in India through his lawyer DM Harish in September 2002 and the RBI had refused such permission vide its letter dated 14.10.2002 addressed to M/s DM Harish & Co. Inspite of this refusal Mr Sami purchased 8 flats in December 2003.

¶137

(b) Before the Adjudicating Authority Mr Sami denied knowledge of this application to the RBI on his behalf by M/s DM Harish as also the rejection of that application

¶138

by RBI. The Adjudicating Authority has held that this

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stance was contrary to his statement recorded under the FEMA on 20.1.2010 where he admitted that he had engaged the said advocates for looking into all legal formalities for acquiring property in India. In this connection, Sr. Counsel has submitted that the Adjudication Authority‟s findings in paragraph 21 to 26 of the Impugned Order are correct.

¶142

(c ) Subsequent to the Impugned Order, Mr Sami addressed letters to the said Advocates DM Harish & Co denying that he had engaged them to obtain RBI permission and that the same must have been done by his wife, the Appellant herein. This was now the third stand taken by him, the first being recorded under FEMA as aforestated:- that it was he who had engaged M/s DM Harish & Co and the second being stand taken in a letter addressed by him to the RBI on 02.12.2010 wherein he claimed that M/s DM Harish & Co had been unilaterally appointed without his knowledge or permission by an entity called M/s RS Estate Developers or Oberoi Constructions.

¶143

(d) Finally, DM Harish & Co in its letter dated 14.7.2011 put an end to the matter in a reply to Mr Sami‟s advocates wherein the said advocates stated that “ the purport of your entire letter appears to be an attempt to make us a scapegoat for your client’s contraventions of the law and his evident and deliberate disregard for the law of the land, in an attempt to get away from the penalties imposed on him under FEMA .”

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(e ) Mr. Sami did not purchase the flats from monies remitted from abroad but fraudulently obtained a loan from Axis bank of Rs. 1.5 Crores. Admittedly out of an aggregate consideration of Rs. 2,53,34,750/- (Two Crores Fifty Three Lacs Thirty Four Thousant and Seven Fifty) for the 8 flats an amount of Rs.1.5 Crores was paid by virtue of the loan from Axis bank. The source of funds of the balance amount has not been revealed by Mr. Sami leading to an adverse inference that this amount too was not paid from funds remitted from abroad. Thus in addition to the violation of Regulation 7, there was a foreign exchange loss to this country as local funds & not foreign funds were used by a Pakistani citizen to acquire flats in India.

¶147

(f) That even the loan of Rs.1.5 Crores from Axis bank was secured by perpetrating a fraud. In the application form Mr. Sami disclosed his nationality as “Indian”.

¶148

(g) The fact that Mr Sami has subsequently been granted Indian citizenship is of no consequence whatsoever and certainly not an equitable consideration in his favour. It is doubtful if the authorities conferring citizenship on Mr Sami would have conferred that honour upon him had it been made aware of Mr Sami‟s several transgressions in his acquisition of 8 flats in Bombay as also other circumstances which are not relevant to these proceedings.

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Finally, it is argued by Mahesh Jethmalani, Sr. Advocate that the impugned order of confiscation is erroneous and ought to be quashed and set aside, in a view of both law and equity qua the Appellant. It is argued by him that the observation made in 39 of the impugned order are against the law. The findings are given on the basis of which the Adjudicating Authority rejected her contention that the five confiscated flats and the parking areas, title of which vested exclusively with the Appellant.

¶152

It is stated that his client Sabah Galadari was married for the second time to Mr Sami on 05.04.2007 and during the pendency of this marriage resided in 5 of the 8 flats which was her matrimonial home. The order of confiscation deprives her matrimonial home in which she is entitled to reside as per the order of the Family Court, Mumbai, when disposing of matrimonial proceedings between the Appellant and Mr. Sami.

¶153

19. It is also stated that she advanced an amount of Rs.5.3Crores, a substantial part of which was utilized for the furnishing & fitting of the matrimonial home. She is the exclusive and unconditional owner of the 5 residential flats by virtue of transfer of the title in the same by Mr. Sami by Registered Gift Deed dated 12.05.2008. The share certificate of the Co-operative Society in which the 5 flats are situated have been allotted in her name. The Confiscation of the flats will result in gross injustice to the Appellant.

¶154

20. It is submitted by Mr. Jethmalani that the Adjudicating Authority has not taken into consideration the case set out by her. There is total non-application of mind. The compelling reason for quashing the order of FPA-FE16 & 17/MUM/2011 Page 27 of 44

¶155

confiscation of 5 flats is the gross injustice to her. A just order under Section 13 of the FEMA is liable to be quashed for confiscation and increase the penalty put on Mr. Sami manifold.

¶156

It appears to this Appellate Tribunal that on many issues, Sabah in her appeal refuted the case of Sami and has made various allegations also but also at the same time, she is pressing the relief that as far as 5 flats are concerned, the impugned order be set-aside about confiscation.

¶157

As far as inter-se disputes between Sami and Sabah about the five flats and advance sum of Rs. 5.40 crores are concerned, the same cannot decided before this Tribunal who does not wish to express any opinion in that regard. Even no final findings can be given. It is to be decided by the Competent Court as per law.

¶158

(Sec. 29 of FERA/6(3)(1) of FEMA). Section 6 has been incorporated with a specific intention including “prohibiting" acquisition of immovable properties In India. To achieve the said goal RBI had issued the Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations 2000 (Notification No. FEMA/21/2000-RB dated 3^rd May 2000), Regulation 7 of which reads as under:

¶159

Regulation 7: Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries - No person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan without prior permission of the Reserve Bank shall acquire or transfer immovable property in India, other than lease, not exceeding five years.

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The prior permission in order to purchase the property is an essential ingredient of the provisions of the relevant Regulation i.e. Regulation 7.

¶163

The word prior permission contemplates that the parties in question should approach the authorities concerned in advance. The relevant date is under Section 29 is the date of purchase of acquisition or transfer of immovable properties in India by the citizen of certain countries included Pakistan citizens.

¶164

There is no denial that in order to secure the security and the sovereignty of the nation a decision has been taken to debar the nationals of a few countries from purchasing immovable properties in India. Nationals of those countries are supposed to strictly adhere to rule and regulations of India during their stay in India. Admittedly, on the date of purchase of flats the appellant has not got permission of the Reserve Bank of India for purchasing the immovable properties.

¶165

According to Sami documents of purchasing immovable property were, registered by the government authorities and he was sanctioned loan by a Bank. The Registration authorities are supposed to register the documents of immovable properties as per the provisions of the Stamp and Registration Act. As far as bank loan is concerned it is not known why the noticee had left the loan application form blank. He only knows as why he did not fill the column of his nationality while submitting the bank form, as per the case of the respondent at the time of hearing.

¶166

It is clear to the Appellate Tribunal from the entire gamut of the case that the purchasing/acquiring the 8 flats with five parking spaces in FPA-FE16 & 17/MUM/2011 Page 29 of 44

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Sky Oberoi Garden Lokhandwala, Andheri (W), Mumbai-400053 for total consideration of Rs. 2,53,34,750/- has contravened the provisions of clause (I) of sub-section (3) of section 6 of FEMA, 1999 read with Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of immovable Property in India) Regulations, 2000 notified under Notification No. FEMA 21/2000 -RB dated 03.05.2000.

¶169

Now the only issue left before this tribunal is about the imposing of penalty under section 13(2) of the Act with regard to confiscation of 8 flats and five car parking. It is to be examined as whether in view of facts and circumstances involved, whether exercising of power has been property exercise or not and as to whether the impugned order is sustainable on this aspect about the confiscation of flats and five parking space in light of facts and circumstances involved.

¶170

Sec. 13 (2) of FEMA reads as under-

¶171

(2) Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit, in addition to any penalty which he may impose for such contravention, direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government…”

¶172

It is evident from the above said provision that the same is not mandatory but discretionary. The penalty is to be imposed case to case basis as per facts and circumstances.

¶173

The finding of Adjudicating Authority is contrary to 3 decisions, one of the High Court of Punjab & Haryana & two of High Court of Madras.

¶174

(a) In Piara Singh v Jagtar Singh AIR 1987 P&H 93, the

¶175

Hon‟ble High Court while addressing the issue of

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contravention of section 31(1) and 63 of the Foreign Exchange Regulation Act, 1973, which also correspond with Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations, 2000 and section 13(2) of the Foreign

¶179

Exchange Management Act, 1999, held that:

¶180

“Section 31(1) of the Foreign Exchange Regulation Act, 1973, provides that without the previous permission of the Reserve bank of India a person who is not a citizen of India, cannot acquire property, but it does not provide that if someone purchases any property the title therein does not pass to him. What the Act provides is that if a person contravenes Section 31 and some other sections, he can be penalized under Section 50 and can also be prosecuted under section 56. However, there is no provision in the Act which makes a transaction void or says that no title in the property passes to the purchases in case there is contravention of the provisions of sub section (1) of Section 31. Section 63 contains a provision regarding confiscation of certain properties but it does not contain any provision for confiscation if there is breach of the provision of subsection (1) of Section 31. Therefore, it has to be held that property purchased in contravention of Section 31 is not liable to confiscation.”

¶181

(b) Piara Singh decision of the High Court of Punjab & Haryana was followed in R. Sambasivam v. Thangavelu Dhanabagyam 2000 SCC OnLine Mad 485 later and in paragraph 12 it was held that “ Section 31 of Foreign Exchange Regulation Act is not having the effect of nullifying the transfer and the purchasers are also getting good title to the property .”

¶182

(c ) Recently The Hon‟ble High Court of Madras while addressing the issue of contravention of section 31 of the FERA, 1973 by acquiring/transferring the property without Reserve Bank of India permission, in Sivaprakasam v Ilangovan, rep. by Power Agent Sundaramoorthy & Ors 2010 SCC OnLine Madheld the Hon‟ble High Court held that,

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“….. if a person contravenes the provisions of section 31, he can be penalized under sections 50 and 56, but it will not invalidate the passing of title to the purchaser of the property. From the dictum laid down in the said judgment, it is clear that the 1^st respondent can have a valid title to the properties even if there is a violation of the provisions of the Foreign Exchange Regulation Act and it is for concerned authorities to take action against him if there is any violation in holding the properties in India under the said Act…..”

¶186

32. The purchase of 8 flats by Mr Sami though in contravention of Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations, 2000 promulgated in exercise of powers conferred by clause (i) of sub-section (3) of section 6, sub-section (2) of section 47 of the Foreign Exchange Management Act, 1999 is not a void transfer in Civil Law. The FEMA Act, 1999 read with Regulation 7 of the FEM (Acquisition and transfer of immovable property in India Regulations, 2000 prohibits the acquisition and transfer of immovable property by a Pakistani citizen without RBI permission.

¶187

Admittedly the authorities cited above establish title to the property thus passed to the purchaser on acquisition and to the transferee on transfer by virtue of registered documents. The payment was made against the loan in rupees.

¶188

33. Sec 13 (1) of the FEMA imposes a mandatory obligation on the Adjudicating Authority to impose a penalty or a contravention of any rule, regulation, notification, direction or order issued in exercise of powers under the FEMA. In particular, Sec.13(1) of the FEMA, 1999, uses the word “shall” for imposition of penalty, consequent upon contravention. This is in contrast with the provision under Sec.13(2) of the FEMA,1999, where confiscation of property involved in the contravention is dealt with. Sec. 13 (2) prescribes that the adjudicating

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authority “may” (and not “shall”) if he thinks fit in addition to any penalty which he may impose for a contravention dealt with under Sec. 13(1), direct confiscation to the Central Government of the property involved in the contravention. In the instance case the Adjudicating Authority has a discretion vested in him whether to or not to confiscate under Sec.13(2), while having no discretion to not impose penalty under Sec.13(1), when adjudicating that there has been a contravention.

¶192

There was no absolute bar on a Pakistani citizen from acquiring a property in India. He could have acquired the property if he had obtained Reserve Bank of India permission. Title to the said property passed to him on acquisition but he was liable to pay penalty for acquisition without RBI permission.

¶193

After having gone through the entire record including pleading of parties, their written-submissions, impugned order as well as three judgements rendered by the High Courts, this Tribunal is of view that in view of facts and circumstances involved in the present case, the discretion under Section 13 (2) has been incorrectly exercised about the confiscation of eight flats and five parking space on the following reasons:-

¶194

Reasons no. 1.

¶195

The Sami was not involved neither malafide from transactions involving any foreign exchange. It is his case that the transactions in the present matter emanate from acquisition of immovable properties in Mumbai, for a total consideration of Rs 2,53,34,750/- by the Appellant and the Flats were purchased by Indian Rupees, out of monies earned in India (on which Income Tax has been duly paid), as well as monies loaned from

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India banks (such loans have been duly repaid). The said issue has not been considered at the time of exercising discretion u/s 13(2) of the Act.

¶199

Reason no. 2

¶200

It is submitted that the Sami has been an income tax payee since the year 2000 and has been in possession of a PAN Card. The entire consideration was a domestic transaction. There was absolutely no involvement of foreign currency in the sale and purchase of the Flats. The statements of the bank officials that they were not aware of the fact the Appellant in fact was a Pakistani national, at the time when the loan was sanctioned by the concerned officials of Axis Bank may not be true as Sami being an internationally reputed singer, musician and artist whose music has been widely appreciated in India since 1999 and news reports of his Pakistani nationality had been widely circulated.

¶201

Reason no. 3

¶202

RIGHT TO CROSS –EXAMINE MATERIAL WITNESS’ WAS DENIED

¶203

(a) It is admitted position that the Appellant had preferred an application for cross-examination of certain witnesses whose statements had been recorded and relied upon by the Respondent for issuance of the Show Cause Notice viz. 1) Mr. Vikas Oberoi, 2) Mr. Arun Kumar Kotian, 3) Valli Sekar (Assistant Vice President of Axis Bank) and 4) Manju Shrivastav (President –Retail Banking – Axis Bank). The Appellant had also requested for permission to examine himself and other witness in support of his defense.

¶204

(b) On 19.10.2010 when the aforesaid application came up for hearing; no orders were passed on the application and the matter was

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listed for arguments on 18.11.2010. The application for permission to cross examine the witnesses whose statement have been relied upon by the FEMA authorities in support of show cause notice and the permission to examine the appellant himself has remained pending and has been not been adjudicated till date.

¶208

(c ) The adjudicating authority committed a serious error in law in not allowing the Appellant to cross-examine the witness‟, whose statements form basis of the Impugned Order. Further, the adjudicating authority has not even dealt with the Appellants‟ application for cross- examination in the Impugned Order and as such the Impugned Order is violative of principles of natural justice.

¶209

(i) The Hon‟ble Supreme Court in Andaman Timber Industries v.

¶210

CCE (2016) 15 SCC 785 while examining the right to cross examine

¶211

the witness before the Adjudicating Authority has held as under:

¶212

“6 . According to us, not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the adjudicating authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the adjudicating authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the adjudicating authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the

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Tribunal to have guesswork as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.”

¶216

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination... [T]herefore, it was not for the adjudicating authority to presuppose as to what could be the subject-matter of the cross-examination and make the remarks as mentioned above.”

¶217

(ii ) This Hon‟ble Tribunal in Shri Jaswinder Singh v. The Special Director, Directorate of Enforcement, Delhi being No. FPA-FE-217/DLI/2008 vide its judgment dated 10.07.2018 while observing the right to cross examination is an integral part of principles of natural justice has observed as under:

¶218

“ 35… The statements should be corroborated from the independent facts and statements are not reliable till their veracity and genuineness is not tested by cross examination.

¶219

36. Therefore, under the established principles of natural justice, the appellant requested before the Adjudication Authority for permission to cross examine the witnesses so as to enable them to establish his innocence and to state and/or explain his case.”

¶220

(iii) In view of the aforesaid submissions and the law as laid down by the Hon‟ble Supreme Court in Andaman Timber Industries (Supra), the adjudicating authority by not passing any order on the Appellant‟s application for cross-examination has prejudiced the Appellant‟s case against the principles of natural justice and settled principles of law.

¶221

Valuable rights of cross examination in a matter where (serious nature of controversy is involved) can be ignored by any agency

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(particularly on those statue where prescribed period of adjudication is not prescribed) in the manner, the impugned order was passed in haste.

¶225

Reason No. 4

¶226

(a) It appears to this tribunal that the Impugned Order has been passed in haste. The Adjudicating Authority admittedly did not provide the Appellant with a reasonable opportunity to be heard as the Sami vide his application dated 03.12.2010 apprised the Adjudicating Authority of the representation made by the Appellant to the Reserve Bank of India dated 02.12.2019 for grant of ex-post facto sanction for permission to purchase, hold and enjoy flats in India and consequently had sought an adjournment for a period of two months in order to enable the application for grant ex-post facto sanction to be decided by the Reserve Bank of India.

¶227

(b) The Sami also vide application dated 03.12.2010 had sought an adjournment for the hearing fixed on 07.12.2010 to be adjourned to any date after 15.01.2011 as the Appellant intended to be present personally; as he had to travel out of India for performing musical concerts across the globe. However, on 07.12.2010 that the Adjudicating Authority not only did not grant an adjournment to the Appellant but also insisted that the Appellant argue the matter on merits. The advocate for the Appellant submitted hand-written written submissions on the order sheet, which as a matter of procedure is unprecedented.

¶228

Two separate applications were filed by the Appellant praying for adjournment, the Adjudicating Authority did not deem it fit to wait the outcome of the ex post facto application. The same shows the haste in passing the impugned order.

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Reasons no. 5

¶232

As mentioned in earlier paras, the Adjudicating Authority was informed that the Appellant had preferred an application (as mentioned herein above) for ex-post facto sanction before the Reserve Bank of India an adjournment for a period of two months. But, the adjudicating authority proceeded with passing the Impugned Order.

¶233

This Tribunal in Hindustan Lever Ltd. And Ors v. Special Director, Directorate of Enforcement, Mumbai being appeal No. FPA-FE-585, 586,587 and 588/MUM/2000 vide its judgment dated 25.03.2019 ( reliance is placed on paragraphs No. 42 and 43 ) while observing the power of the Reserve Bank of India to grant an ex post factor permission in terms of the ratio as laid down by the Hon‟ble Supreme Court in Life Insurance Corporation of India v. Escorts (1986) 1 SCC 264 has observed that when an application is pending before the Reserve Bank of India, the adjudicating authority should not/cannot/couldn‟t have passed the Impugned Order imposing penalty on the Appellant as well as confiscation of the properties in question as well.

¶234

Reason no. 6

¶235

THE APPELLANT IS AN INDIAN CITIZEN

¶236

It is the admitted position that during the pendency of the present appeal, the Appellant has been granted the Citizenship of India on 01.01.2016. A certificate of Naturalisation bearing No. 5659 dated 01.01.2016 has been issued by the Ministry of Home Affairs under the provision of the Citizenship Act, 1955.

¶237

Reason no. 7

¶238

FPA-FE16 & 17/MUM/2011

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Page 38 of 44

¶240

It is admitted position that FEMA was enacted to deal with violations pertaining to foreign exchange laws. A bare perusal of the statement of objects and reasons of FEMA would indicate that the intent of the legislature was to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange markets in India.

¶241

It is an admitted fact that the Appellant had purchased the Flats in question on the basis of income generated from India as well as a bank loan of AXIS bank, Lokhandwala Branch, Andheri (W), Mumbai in 2004 from Loan Account No. 004010600032948 dated 27.01.2004 aggregating to Rs 1.50 Crores. The Appellant has been an income tax payee since the year 2000 and has been in possession of a PAN Card.

¶242

Admittedly in the present case no foreign exchange involved and concomitantly there has been no loss of foreign exchange as the entire sale consideration has been paid by way of a loan and income which has not only been generated in India; but the tax which has so accrued on such income has also been paid by the Appellant herein.

¶243

In terms of section 13(2) of FEMA that the legislature apart from imposing penalty has conferred an additional power to the Adjudicating Authority that it may confiscate the property in respect of which the contravention has taken place if it thinks fit. The expression "thinks fit" is a very wide expression and it includes the application of judicial discretion of the Adjudicating Authority to adjudge the circumstances of the contravention as a whole to have an equitable and just opinion regarding the confiscation of the property. The Impugned Order has been passed with a view to confiscation of the Flats and parking space. None FPA-FE16 & 17/MUM/2011 Page 39 of 44

¶244

Page 39 of 44

¶245

of the surrounding facts and circumstances were taken into considered. There is no discussion on these reasons and facts. It is evident from the language of sub(2) of Section 13 of the Act is that it is not a mandatory to impose the penalty in every case, it dependents upon the facts of each case. In the present case, no case is made out to impose the penalty under Section 13(2) of the Act as the Authority has in closed mind has passed the order on the said provision.

¶246

As far as the Sabah is concerned as a UAE citizen there was no restriction on her acquiring immovable property in India, whether by purchase or gift and she was neither legally disqualified to be a transferee of such property nor subject to any condition of prior RBI permission for any such acquisition.

¶247

It is submitted that this Hon‟ble Supreme Court in M/s. Hindustan Steel Ltd. V. State of Orissa 1969 (2) SCC 627 in relation to a venial or technical breach of the provision of the Act or where the breach flows from a bona-fide belief has held as under:

¶248

“ 8. Under the Act penalty may be imposed for failure to register as a dealer — Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. 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

¶249

FPA-FE16 & 17/MUM/2011

¶250

Page 40 of 44

¶251

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.

¶252

The Hon‟ble High Court of Bombay in Dodsal (P.) Ltd. V. Foreign Exchange Regulation, Appellate Board [2004] 52 SCL 466 (Bom); MANU/MH/1088/2002 ( reliance is placed on paragraphs No. 4,7-8 &17 ) vide its judgment dated 22.07.2002; following the principles laid down in Hindustan Steel (Supra) has observed that it is not necessary to levy a penalty and/or confiscate the property once it is established that the only breach is just technical or venial. The Hon‟ble High Court has also observed that in the absence of mala-fide or when the contravening act was not carried out with an intent to cause loss of foreign exchange or it was not an intentional act to defeat the mandate of the law then such a contravention shall not be fit for imposition of penalty on such a party.

¶253

39. The said paragraph is reproduced below:-

¶254

“ As far as the 5 flats and parking spaces transferred to Ms Sabah Galadari is concerned, Ms Sabah Galadari has submitted that she was not the wife of Shri Adnan Sami when he purchased these flats; and that she has paid Rs.5.63 crores to Shri Adnan Sami Khan in lieu of which he had gifted these flats to her. However, since in the first place, the flats were purchased by Shri Adnan Khan illegally; the subsequent transfer was also illegal. The right to gift contemplates transfer of title arising from the transaction of purchase. Transfer by way can only be done by a person holding a valid title. Person having no title cannot transfer (gift) to another person. In absence of valid purchase deed gift i.e. being a national of country prohibited from purchasing immovable property in India) made by Shri Adnan Khan to his wife has no legal basis. The basic and fundamental defect in title deed disentitles Mrs Sabah Adnan Khan to have any legal right over the flats gifted to her by her husband. If she has paid for the flats to Shri Adnan Khan, it is for her to claim damage from Shri Adnan Khan. Ms. Sabah Galadari has also contended that properties cannot be confiscated under

¶255

FPA-FE16 & 17/MUM/2011

¶256

Page 41 of 44

¶257

Sec. 13(2) of FEMA. However, I find that in Sec. 13 (2) of FEMA

¶258

The finding of the Adjudicating Authority qua the Sabah in paragraph 39 of the Impugned Order i.e. that “ since in the first place, the flats were purchased by Shri Adnan Khan illegally; the subsequent transfer was also illegal” and other such findings in the said paragraph 39 of the Impugned Order are liable to quashed and set aside.

¶259

This Tribunal in M/s. True Axiz Resorts Pvt Ltd v. The Special Director, Directorate of Enforcement, Mumbai being Appeal No. FPAFE-140/MUM/2010 ( reliance is placed on paragraphs No. 2, 3 & 6) vide order dated 14.06.2018 while adjudicating a contravention inter alia pertaining acquisition of shares in terms of Foreign Exchange Management (Transfer or issue of Security by a person resident outside India) Regulations 2000 and acquisition of agricultural land under the automatic route of foreign direct investment observed that when confiscation ex-facie is harsh, the order of the adjudicating authority has to be set-aside insofar as confiscation of properties is concerned.

¶260

This Tribunal in Shri Dr. D. Rewatha Thera v. The Joint Director, Directorate of Enforcement, Lucknow being Appeal No. FPA-FE54/LKW/2014 ( reliance is placed on paragraphs No. 20, 22 &23) vide order dated 23.01.2019; while deciding an order passed under Section 13 of FEMA for violation of provision of Section 4 of FEMA and Regulation 3 of FEMA (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 has followed the ratio laid by the Hon‟ble Supreme Court in Hindustan Steel ( Supra ) and has further observed that the order of confiscation of properties would be unjustified

¶261

FPA-FE16 & 17/MUM/2011

¶262

Page 42 of 44

¶263

in view of absence of any conscious wrong doing on the part of the appellant.

¶264

43. The authorities cited above are fully in consonance with section 6 (h) (3) o the Transfer of Property Act, 1882 which reads as under:

¶265

Sec.6 (h) No transfer can be made.

¶266

(3) to a person legally disqualified to be Transferee”.

¶267

It is rightly submitted that a national of the countries specified under Regulation 7 of the Regulations can acquire or transfer immovable properties in India, provided that such a person obtains the requisite permission from the Reserve Bank of India. If the national so fails to apply for such a permission, the Reserve Bank of India has the power to accord an ex post facto permission with regards to the said transaction. The transaction in question is not a commercial transaction; as a matter of fact the Appellant still resides in the Flats.

¶268

The Flats were purchased by Indian Rupees, out of monies earned in India on which Income Tax has been paid, as well as monies loaned from India banks. The loans have been duly repaid. The Appellant pursuant to purchase of the Flats had also applied to the Government of India for grant of Citizenship and as stated above was granted a certificate of naturalization on 01.01.2016.

¶269

It is stated that Sami is residing in five flats out of the said eight flats with his wife and their two years old daughter. The interse dispute between the Appellant and the appellant in Appeal No. 17/2011 is outside the purview of the present appeal.

¶270

FPA-FE16 & 17/MUM/2011

¶271

Page 43 of 44

¶272

In the light of above, the impugned order is set-aside as far as exercise of discretion under Section 13(2) of the Act. The finding arrived under section 13(1) shall remain intact. Mr. Sami shall deposit the remaining Rs. 40 Lakhs with the respondent with three months from today. As no case of under section 13(2) (about confiscation of eight flats and five parking space), the said findings and part of the order is quashed. However, the penalty amount under the said provision of Section 13(1) is enhance to Rs. 50 Lakhs from Rs. 20 Lakhs. In view of changing his stand from time to time. This tribunal is empowered to increase the penalty amount under section 19(6) of the Act.

¶273