Allowed

FPA-FE-06/DLI/2016 of Shri S.K. Mittal v. The Joint Director Directorate of Enforcement, Delhi

ATFP13 Nov 2024FPA-FE-06/DLI/2016

Case brief

AI extract

What is this about?

The Appellate Tribunal set aside a penalty order imposing Rs. 10 lakhs on an appellant for FERA contravention. The Tribunal held that the 10-year delay in issuing the Show Cause Notice rendered proceedings unreasonable under the Supreme Court's Citibank judgment. Additionally, it found a violation of natural justice due to the failure to supplied Relied Upon Documents.

What did the court decide?

The impugned order passed by the learned adjudicating authority is set aside and the appeal is allowed.

FPA-FE-06/DLI/2016 of Shri S.K. Mittal Vs. The Joint Director Directorate of Enforcement, Delhi — ATFP (2024) — LawSathi Research

¶1

APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

¶2

FPA-FE-06/DLI/2016 Shri S.K. Mittal … Appellant Versus

¶3

The Joint Director Directorate of Enforcement, Delhi

¶4

… Respondent

¶5

Advocates/Authorized Representatives who appeared

¶6

For the Appellant : Ms. Riya Arora, Adv. For the Respondent : Mr. Varun Mishra, Adv. CORAM SHRI V. ANANDARAJAN : MEMBER

¶7

ORDER 13.11.2024 This appeal arises from order No.

¶8

ADJ/FERA/73/DZ/2016/AD(RS) dated 28.03.2016 (“the impugned order”) passed by the learned adjudicating authority under Section 50 of the Foreign Exchange Regulation Act, 1973 (“FERA, 1973”) for the alleged contravention of Section 8(1) read with Section 71 of the said Act.

¶9

Facts in Brief

¶10

2. The relevant facts as stated in the impugned order are that an investigation in this case was initiated on the basis of an information received from a reliable source that NRE account No. 5043291019 maintained in the name of one Sh. Shankar Lal Jangid with the Citibank, New Delhi was being used for issuing gift cheques to persons resident in India. During the course of investigation, it was found that the account was opened in 27.04.1992 and foreign

¶11

FPA-FE-06/DLI/2016

¶12

Page 1 of 27

¶13

currencies equivalent to Rs. 17,34,121.26/- were deposited in the said NRE account by persons other than the account-holder during the period 13.05.92 to 30.05.92. Out of this, an amount of Rs. 13,53,176.31/- was deposited by one Sh. Umesh Mendiratta, Rs. 3,09,516/- by one Sh. M.K. Jain and Rs. 71,428.95 by unknown persons.

¶14

3. On completion of the investigation, a Memorandum dated 23.05.2002 was issued to, (i) Shri S.K. Mittal (the appellant herein) for alleged contravention of Section 8(1) read with Section 71 of FERA, 1973, for otherwise acquiring the foreign exchange equivalent to Rs. 17,34,121.26; (ii) Shri Umesh Mendiratta, Shri M.K. Jain and Shri Shankar Lal Jangid for the contravention of Section 8(1) read with Section 64(2) of FERA, 1973; and (iii) the Manager of Citi Bank NA, for the contravention of Section 6(4) and 6(5) read with Section 73(3) and 49 of FERA, 1973, for accepting foreign exchange in cash equivalent to Rs. 17,34,121.26 tendered by persons other than the account-holder. The noticees were asked to show cause in writing within 30 days of receipt of the said memorandum as to why adjudication proceeding as contemplated under section 51 of the FERA, 1973 should not be held against them for the said contravention.

¶15

4. The appellant, Shri S.K. Mittal, vide a letter dated 23.06.2002, denied all the charges framed against him.

¶16

5. Having considered the material placed before him and the submissions made by the noticees, the Assistant Director, Directorate of Enforcement, Delhi Zonal Office (“adjudicating authority”), proceeded to conduct the adjudication proceedings in

¶17

FPA-FE-06/DLI/2016

¶18

Page 2 of 27

¶19

the case and imposed the following penalties vide the impugned order:

¶20

(i) Rs. 5,00,000/- on the Citibank and its Manager-in-charge

¶21

(ii) Rs. 5,00,000/- on Sh. Shankar Lal Jangid

¶22

(iii) Rs. 10,00,000/- the present appellant, Shri S.K. Mittal

¶23

(iv) Rs. 5,00,000/- each on Sh. Umesh Mendiratta and M.K. Jain.

¶24

6. Aggrieved by the said order, the appellant, Sh. S.K. Mittal, has filed the present appeal.

¶25

Arguments on Behalf of the Appellant

¶26

7. Detailed submissions have been made on behalf of the appellant on both facts and law. It is firstly contended that the impugned SCN was issued after almost 10 years from the date of the alleged transaction and was, therefore, bad in law. The alleged transaction took place in the year 1992 as per the Show Cause Notice/Memorandum of Charge and the said Show Cause Notice/Memorandum of Charge was issued after 10 years, i.e., on 23.05.2002, right before the sunset period of FERA, 1973 was to expire, on 01.06.2002. It is contended that it is trite law that when there is no period of limitation prescribed in the statute, the Show Cause Notice (SCN) should have been issued within reasonable time. 10 years is not a reasonable time. Reliance in placed upon the judgement of the Hon'ble Supreme Court in Union of India and Another vs. Citi Bank, 2022 SCC OnLine SC 1073 wherein the alleged transaction took place in the year 1992 and 1993 whereas the SCN was issued in the year 2002, i.e., a decade after the said transaction took place. The Hon'ble Supreme Court was pleased to set aside the Show Cause on the ground that the transaction took place in 1992

¶27

FPA-FE-06/DLI/2016

¶28

Page 3 of 27

¶29

and notice was issued in 2002, right before the sunset period. The

¶30

relevant para of the aforesaid judgement is quoted as under:

¶31

"23. Admittedly, in the present case, the alleged transactions had taken place during the financial years 1992 and 1993. Show Cause Notices for the said transactions were issued in the year 2002 and that too just before the sunset period of FERA was to expire, i.e., on 01.06.2002. We are therefore of the considered view that show cause notices and the proceedings continued thereunder are liable to be set aside on this short ground."

¶32

It is submitted that the present case involves nearly the same period of delay in issue of SCN as in the case before the Hon‟ble Supreme Court.

¶33

8. The next contention of the appellant is that he was not supplied with a copy of the Relied Upon Documents (RUDs). The impugned Memorandum/Show Cause Notice was issued on 23.05.2002. Vide letters dated 23.06.2002 and 18.01.2005, the appellant requested for copies of the RUDs. However, copies of the same were not supplied to the appellant, let alone allowing inspection of the original RUDs. The decision of the Hon'ble Supreme Court in T Takano vs. Securities and Exchange Board of India and Another (2022) 8 SCC 162 is relied upon wherein, while emphasising on the duty of the prosecuting agency to disclose documents which it wishes to rely upon to the noticee, it has been held that there are three fundamental purposes of disclosure of information: (i) reliability, i.e., the court will be able to perform its function accurately only if both parties have access to information and possess opportunity to address arguments and counter arguments; (ii) fair trial, i.e., this will enable the parties to effectively participate in the proceedings; and (iii) transparency and accountability, i.e., the investigative agencies are held accountable through transparency and not opaqueness. It was held by the FPA-FE-06/DLI/2016

¶34

Page 4 of 27

¶35

Hon'ble Supreme Court that keeping a party abreast of the information that influenced the decision not only promotes transparency of the judicial process but also ensures fair trial and reliability. Contrary to this, the impugned order has been passed mechanically without supplying copy of the RUDs to the appellant and without keeping the aforementioned tenets of law in mind.

¶36

9. It is next contended that the impugned order was passed without issuing a call notice to the appellant. On 23.05.2002, the impugned Show Cause Notice (SCN) was issued to the appellant. It was received by the appellant on 28.05.2002. On 26.06.2002, the appellant responded to the impugned SCN wherein he denied all the allegations qua him and sought an opportunity to cross- examine the co-noticees. After almost three years, on 11.01.2005, a call notice for personal hearing was issued to the appellant on 20.01.2005 and on 18.01.2005, the appellant responded to the said call notice. Thereafter, no hearing took place on 20.01.2005. As per the impugned order, another call notice dated 27.01.2005 was issued for a personal hearing on 14.02.2005. However, the personal hearing in the impugned SCN only took place after 10 years on 08.03.2016, and thereafter, the impugned order was passed ex parte. The appellant did not receive the call notice dated 27.01.2005 or any call notice issued thereafter and therefore, was not given an opportunity to be heard before the learned adjudicating authority. Nothing has been placed on record by the respondent to show that any call notice for personal hearing was received by the appellant after call notice dated 11.01.2005. Copies of the reply dated 26.06.2002 to the impugned SCN, call notice dated 11.01.2005, reply dated 18.01.2005 to the call notice have been placed on record by the appellant.

¶37

FPA-FE-06/DLI/2016

¶38

Page 5 of 27

¶39

10. The next contention of the appellant is that the learned adjudicating authority has failed to comply with the Rule 4(3) of Foreign Exchange Management (Adjudicating Proceedings and Appeal) Rules, 2000 ("Adjudication Rules"). Rule 4(3) of the Adjudication Rules provides that once the learned adjudicating authority issues the SCN to the noticee, the noticee is permitted to reply to the same. In terms of the Rule 4(3), learned adjudicating authority must then consider the objections raised by the noticee in the reply and apply its mind to form an opinion weather to drop the proceedings or proceed further with the SCN. This formation of opinion must be on the record of the learned adjudicating authority and the same has to be supplied to the appellant. However, it is apparent from the bare perusal of the impugned order that the adjudicating authority has failed to form opinion as per the mandate of Rule 4(3). The decision in Shashank Vyankatesh Manohar vs. Union of India" 2014(1) Mh. L.J) is relied upon. It is pointed out that the decision of the Hon'ble Bombay High Court in that case was challenged before the Hon'ble Supreme Court by ED and the same was dismissed vide order dated 04.07.2014 in SLP(C) No. 8391/2014 titled, U.0.1 vs. Shashank Venkatesh Manohar & Anr. Thereafter, the ED issued a Technical Circular 11/2014 stating that since the Hon'ble Supreme Court dismissed the SLP, the decision of the Hon'ble Bombay High Court has attained finality. Therefore, all the learned Adjudicating Authorities must comply with it.

¶40

The text of Rule 4 of the Adjudication Rules is also cited, which is as under:

¶41

"4.Holding of inquiry

¶42

1. For the purpose of adjudicating under section 13 of the Act whether

¶43

any person has committed any contravention as specified in that section of

¶44

FPA-FE-06/DLI/2016

¶45

Page 6 of 27

¶46

the Act, the Adjudicating Authority shall, issue a notice to such person requiring him to show cause within such period as may be specified in the notice (being not less than ten days from the date of service thereof) why an inquiry should not be held against him.

¶47

2. Every notice under sub-rule (1) to any such person shall indicate the nature of contravention alleged to have been committed by him.

¶48

3. After considering the cause, if any, shown by such person, the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a chartered accountant duly authorised by him."

¶49

11. In light of the above, it is contended that the learned adjudicating authority has not only failed to provide the appellant with the RUDs but has also failed to consider the reply to the impugned SCN sent by the appellant and apply its mind to form the necessary opinion to further proceed with the impugned SCN.

¶50

12. The next contention on behalf of the appellant is that adjudicating authority has also failed to comply with the Rule 4(5) of the Adjudication Rules. The learned adjudicating authority erroneously proceeded ex parte against the appellant when the fact of the matter is that no call notice was served to the appellant. Even when the call notice was issued after 14 years on 23.02.2016, the same was not served upon the appellant at his correct address, despite the respondent department being aware of the address of the appellant. The appellant was not even informed of the dates of hearings before the learned adjudicating authority. In violation of Rule 4(5) of the Adjudicating Rules, the appellant was not given an opportunity to produce documents or evidence in inquiry. Rule 4(5) of the Adjudication Rules is cited under:

¶51

FPA-FE-06/DLI/2016

¶52

Page 7 of 27

¶53

“4. Holding of inquiry

¶54

5. The Adjudicating Authority shall, then, given an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary, the hearing may be adjourned to a future date and in taking such evidence the Adjudicating Authority shall not be bound to observe the provisions of the Indian Evidence Act, 1872."

¶55

It is submitted that evidently, the learned adjudicating authority has conducted the inquiry & proceedings in stark violation of Rule 4(5) of the Adjudication Rules.

¶56

13. The next contention of the appellant is that exculpatory statement of co-noticee is inadmissible and there is no evidence against the appellant. The learned adjudicating authority, while passing the impugned order, has placed heavy reliance on the letter of the co-noticee Shankar Lal Jangid (the NRI account holder), implicating the appellant. The learned adjudicating authority committed a grave error in law in relying on the letter of the conoticee Shankar Lal Jangid because the same are exculpatory statements that cannot be relied upon in light of the principle laid down by the Hon'ble Supreme Court in Haricharan Kurmi vis. State of Bihar, AIR 1964 SC 1184 and the Hon'ble High Court of Delhi in Ram Lal Mehta V/s Director of ED reported in 2014 SCC OnLine Del 1902 . Further, the same are bald statements that are not supported by any material evidence, let alone any independent corroborating evidence. In fact, co-noticee, Shankar Lal Jangid was in Rajasthan when he submitted his letter with the respondent, his statement was also not recorded by the respondent, and neither was the alleged letter authenticated under section 72 of the FERA, 1973. Mechanical reliance on the said letter shows that the investigation done by the respondent was not done thoroughly and effectively. In

¶57

the present case, as per the list of RUDs, the respondent is relying FPA-FE-06/DLI/2016

¶58

Page 8 of 27

¶59

on the cash deposits. However, it has nowhere been mentioned that the cash deposits were made by the appellant nor is that the allegation qua him. The allegation qua him is for allegedly arranging the foreign currencies, however, no evidence has been placed on record vis-à-vis that allegation against the appellant. In any case, anyone could have made the deposits in the foreign currency in the NRE accounts before 31.07.1995. Prior to 31.07.1995, there was no requirement that the deposits in NRE accounts could not be made by persons other than the NRE account-holders. The judgement of the Hon'ble Delhi High Court in Standard Chartered Bank vs. Directorate of Enforcement 2010 SCC OnLine Del 4444 has been relied upon.

¶60

14. The next contention on behalf of the appellant is that in the pari materia case titled SK Mittal V. The Director, ED 2014 SCC OnLine Del 4744 , an SCN was issued to the appellant inter-alia under S. 8(1) FERA, 1973 for arranging foreign currency outside India and there was an inter-Bank transfer in the NRE account. The only difference between the aforesaid case and the present case is that the allegation in the present case is that the appellant arranged the foreign currencies inside India which was found to be deposited in the NRE Account. However, the substratum of the allegation remains that same, i.e., the appellant allegedly arranged the foreign currency. The Hon'ble High Court of Delhi in the aforesaid case was pleased to observe that firstly, exculpatory statement of the conoticee of the appellant cannot be relied upon to implicate the appellant, and, secondly, documents that were not authenticated under section 72 of the FERA cannot be relied upon as evidence.

¶61

FPA-FE-06/DLI/2016

¶62

Page 9 of 27

¶63

Furthermore, in the pari materia case being Shri AS Aneja @ Amarjit Singh Aneja v. The Special Director, ED [FPA- FE-05/DLI/2007] , this Appellate Tribunal was pleased to observe that firstly, an adjudication order can be set aside on the ground of failure to supply RUDs to a noticee along with failure to hear him, and secondly, no violation under section 8(1) of the FERA, 1973 is made out if foreign currency is deposited in NRE Accounts by persons other than account-holders because prior to 1995 foreign currency could be deposited by power of attorney holders of such account holders.

¶64

15. The next contention of the appellant is that the statement of the appellant relied upon by the respondent could not have been relied upon. On 30.09.1994 and 01.09.1994, a search and seizure operation was conducted at the appellant's residence by the officials of the respondent department during Preliminary Enquiry in another proceedings. The statement dated 30.09.1994 and 01.09.1994 of the appellant was recorded and he was, thereafter, arrested and granted bail. It is submitted that the respondent cannot place reliance on statement made by the appellant on 30.09.1994 and 01.09.1994 or the contents thereof as the same do not form the part of the Relied Upon Documents of the present SCN. Therefore, by relying on the said statement, the respondent effectively is trying to go beyond the scope of the present proceedings. Even otherwise, reliance cannot be placed on the statement dated 30.09.1994 and 01.09.1994 as the same stands retracted. The appellant preferred the Bail Application dated 01.09.1994 before the learned Additional Chief Metropolitan Magistrate, Delhi (ACMM) titled, “Enforcement Directorate vs. SK

¶65

FPA-FE-06/DLI/2016

¶66

Page 10 of 27

¶67

Mittal” wherein the appellant has categorically stated that no recovery was effected from the accused and he was forced and induced to make some involuntary statement by the Enforcement Officers." Therefore, it is evident that the said statement effectively stands retracted. The respondent has also failed to produce the statements made by the appellant on 30.09.1994 and 01.09.1994 on record in original. What has been placed on record by the respondent is a photocopy of that statement of which the appellant was supplied with an illegible copy.

¶68

16. Based on the above contentions, it is prayed by the appellant that the appeal may be allowed and the impugned order, along with the SCN and the orders passed by the respondent Directorate be set aside.

¶69

Arguments on Behalf of the Respondent Directorate

¶70

17. The respondents have strongly opposed the arguments and contentions put forward on behalf of the appellants. It is submitted on behalf of the respondents that this is a case where the appellant has been held to have contravened Section 8(1) read with Section 71 of FERA, 1973 for his role in acquiring foreign exchange equivalent to Rs. 17,34,121.26/- which was then deposited in an NRE account by persons other than the account-holder Sh. Shankar Lal Jangid, who was a „person resident outside India‟, without previous general or special permission of the Reserve Bank of India. A penalty of Its 10,00,000/- has been imposed upon the appellant in light of the aforementioned contravention.

¶71

18. It is firstly submitted that the Show Cause Notice was issued within a reasonable period of time. It is contended that the

¶72

FPA-FE-06/DLI/2016

¶73

Page 11 of 27

¶74

appellant‟s reliance on the decision is Union of India v. Citi Bank NA (supra) is entirely misplaced in the facts of the present case since the same deals with banks as noticees, and an entirely separate set of contraventions. In the present case, the noticee/appellant is an individual Chartered Accountant, who has by his very action of illegally acquiring foreign currency to the extent of Rs. 17,34,121.26/- contravened the provisions of Section 8(1) and 71 of FERA, 1973.

¶75

19. The appellant had acquired foreign exchange and the same was deposited in the NRE Account of one Shankar Lal Jangid by his agents (Umesh Mendiratta and MK Jain) from 27.04.1992 till 16.07.1992, which is the period of continuing contravention. Investigation was initiated by the respondent Directorate within a reasonable period of time, as it can be seen that the first statement of Shri S.K. Mittal was itself taken as early as on 13.10.1993. Subsequently several more statements were recorded and inculpatory documentary evidence was unearthed. The statements of the co-noticees were recorded through 1995 and 1996. Several call notices and letter directives were issued to noticees in the years 2000-2002 as well. This entire process eventually culminated in the Memorandum/SCN being issued on 23.05.2002.

¶76

20. It is also contended that the submission that the SCN was issued belatedly as well as the judgement in Citibank (supra) has already been placed by the appellant/noticee herein before the Hon'ble Supreme Court in a separate case. The Hon'ble Supreme Court has not recorded any observations in respect of the same and granted time to the Department to act on instructions in this respect. Therefore, the question as to whether this SCN was issued

¶77

FPA-FE-06/DLI/2016

¶78

Page 12 of 27

¶79

belatedly is still res integra before the Hon'ble Supreme Court in Union of India v. S.K. Mittal SLP(Crl) 9715/2015 . A copy of the order of the Hon'ble Supreme Court in the said SLP (Crl) case dated 18.01.2024 has been submitted by the respondent.

¶80

21. It is further submitted that the judgement in Citibank (supra), simply contemplates a situation where an SCN has been issued against a bank belatedly. It needs to be appreciated that the Hon'ble Supreme Court also made observations in respect of the period when records shall be maintained by the Banks to the very same judgment

¶81

“25. It can thus clearly be seen that the sand Rules require every Banking Company to preserve records stated in Rule 2 for five years and eight yours for records mentioned in Rule I respectively. No doubt that under Rule 4 of the said Rules, the RBI, having regard to the factors specified in and section (1) of Section 13-4, by an order in writing, is empowered to direct any banking company to preserve any of the books, accounts or other documents, etc. for a period longer than the period specified under the said Rules:

¶82

26. Undisputedly, no such order has been placed on record which required the respondents Banks to preserve records concerning the transactions in question for o period longer than eight years,

¶83

27. It could thus be seen that even under the said Rules, the Banks are required to preserve the record for five years and eight years respectively. On this ground also, permitting the show cause notices and the proceedings continued thereunder of the transactions which have taken place much prior to eight years would be unfair and unreasonable.

¶84

28. In this view of the matter, we find no error in the impugned judgments of the learned Single Judge as well as the Division Bench of the High Court of Delhi. The Civil Appeals as also the Criminal Appeals are therefore dismissed. No order at to costs.”

¶85

FPA-FE-06/DLI/2016

¶86

Page 13 of 27

¶87

22. A bare reading of the relevant extracted portion would indicate that same yardstick cannot be applied to banks and individuals alike. Thus, the judgement in Citibank (supra) is entirely misplaced and cannot be applied to the facts and circumstances of the present case. It is further submitted that the Hon'ble Supreme Court has dealt with the issuance of a SCN within reasonable time in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90 wherein the Apex Court refused to set aside a SCN issued after 8 years in the following terms:

¶88

“35. The appellants have also contended that in the absence of any prescribed limitation period, SEBI should have issued show-cause notice within a reasonable time and there being a delay of about 8 years in issuance of show-cause notice in 2014, the proceedings should have been dropped. This contention was not raised before the adjudicating officer in the written submissions or the reply furnished. It is not clear whether this contention was argued before the Appellate Tribunal. There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created, etc. The show-cause notice in the present case had specifically referred to the respective dates of default and the date of compliance, which was made between 30-8-2011 to 29-11-2011 (delay was between 927 days to 1897 days). Only upon compliance being made that the defaults had come to notice. In the aforesaid background, and so noticing the quantum of fine/penalty imposed, we do not find good ground and reason to interfere."

¶89

23. It is next submitted on behalf of the respondents that the call

¶90

notice dated 11.01.2005 for hearing on 20.01.2005 was duly served on the appellant and the appellant has even responded to it vide letter dated 18.01.2005. Pertinently, this letter was addressed to the

¶91

FPA-FE-06/DLI/2016

¶92

Page 14 of 27

¶93

appellant at his address in K-1/7, Chittaranjan Park, New Delhi and was duly received by him and responded to as well.

¶94

24. Subsequently, the call notice for the hearing scheduled on 08.03.2016 was also duly dispatched to the appellant at the same address. In the memo of the appeal the appellant claims to reside in the same address, therefore, there is no reason whatsoever for the call notice not being duly served on the appellant. The relevant documents in this regard have been placed on record by the respondents.

¶95

25. The next submission of the respondents is that the appellant has been proceeded against in consonance with The Adjudication Proceedings and Appeal Rules, 1974. The appellant has placed reliance on the judgement of Bombay HC in Shashank Vyankatesh Manohar (supra) stating that the Adjudication Proceedings and Appeal Rules were not followed. This submission is ex-facie erroneous and wholly legally untenable. The appellant's reliance on the same is entirely frivolous and misplaced since the judgement deals with the procedure under Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000, which are not the applicable rules to the case at hand since the proceedings relate to FERA, 1973, which had its own set of adjudication rules, viz Adjudication Proceedings and Appeal Rules, 1974. The 1974 Rules are not in pari materia or identical to the 2000 Rules referred to in the Shashank Vyankatesh Manohar case, rather these rules are drastically different. The Adjudication Proceedings and Appeal Rules, 1974 have been enacted under Section 79 of FERA, 1973, while the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 have been issued under Section 46 r/w

¶96

FPA-FE-06/DLI/2016

¶97

Page 15 of 27

¶98

Sections 16, 17 and 19 of FEMA, 1999. It is most pertinent to note that the 2000 Rules have not been issued in supersession or continuation of the Adjudication Proceedings and Appeal Rules, 1974 but are entirely separate. In the present case, the respondent Directorate has carried out the proceedings under challenge in complete consonance with the Adjudication Proceedings and Appeal Rules, 1974. The relevant provisions of the Rules have been extracted herein below:

¶99

“3. Adjudication proceedings:-

¶100

(1) In holding an inquiry under section 51 for the purpose of adjudging under section 50 whether any person has committed contravention of specified in section 50, the Adjudicating Officer shall, in the first instance, issue a notice to such person requiring him to show cause within such period as may be specified in the notice (being not less than ten days from the date of service thereof) wiry adjudication proceedings should not be held against him.

¶101

(2) Every notice under sub-rule (1) to any such person shall indicate the nature of offence alleged to have been committed by him.

¶102

(3) If after considering the cause, if any, shown by such person, the Adjudicating Officer is of the opinion that adjudication proceedings should be held, he shall issue, a notice fixing a date for the appearance of that person either personally or through his lawyer or other authorised representative.

¶103

(4) On the date fixed, the Adjudicating Officer shall explain to the person proceeded against or his lawyer or authorized representative, the offence, alleged to have been committed by such person indicating the provisions of the Act or of the Rules, directions or orders made thereunder in respect of which contravention is alleged to have taken place

¶104

(5) The Adjudicating Officer shall then give an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and, if necessary, the hearing may be adjourned to a future date; and in taking such evidence the Adjudicating Officer shall not be bound to observe the provisions of the Evidence Act, 1872. (6) If any person fails neglects or refuses to appear as required by sub- rule (3) before the

¶105

FPA-FE-06/DLI/2016

¶106

Page 16 of 27

¶107

Adjudicating Officer, the Adjudicating Officer may proceed with the enquiry is the one of her are recording the reasons for doing an (73.comderation of the evidence produced before the has committed the contravene he mat, by under in wrong men such penalty as he fit in provisions of the section 50 : Provided that the notice referred to sub-rule (1) the and the personal hearing referred to in sub-rules (3), (4) and (5) may, at the rest of the person concerned, be waived"

¶108

26. It is submitted that the appellant was granted a fair and just chance of hearing. However, he avoided the same and never cooperated with the investigation. In consonance with Rule (3) of the Adjudication Proceedings and Appeal Rules, 1974, the appellant has been provided with a copy of the SCN and a Memorandum with all the requisite documents The appellant has acknowledged the receipt of the Memorandum filed against him vide letter dated 23.06.2002 Without prejudice to the above, the appellant‟s argument that the adjudicating authority has skipped a step as per the rules, in that the appellant has not been granted a notice under Rule 3(1) of the Rules requiring him to show cause as to why adjudication proceedings ought not to be held against him is entirely misconceived in view of the following excerpt of the Show Cause Notice:

¶109

"NOW THERFORE, the said Shri SK Mittal, Umesh Mendiratta, MK Jain. Shankarlal Jangid, Citibank NA New Delhi & its manager-in-charge are hereby required to show cause in writing (in Duplicate) within 30 days of receipt of this Memorandum as to why Adjudication Proceedings are contemplated in Section 31 of the FERA, 1973 read with sub-sections J& 4 of Section 49 of FEMA, 1999 should not be held against them for the said contravention."

¶110

27. It is contended that judgments relied upon by the appellant are misplaced and not applicable to the facts of the present case as

¶111

FPA-FE-06/DLI/2016

¶112

Page 17 of 27

¶113

already pointed out. Further, as regards the decision in S.K. Mittal v. The Director, Enforcement Directorate [Delhi HC-CRLA. 450 of 2010 & CRL MA. 4157 of 2011], it is submitted that the facts and findings of the same are easily distinguishable since the following findings were made in the case before the Delhi HC:

¶114

(i) Statement made by Shri Umesh Mendiratta was primafacie exculpatory

¶115

(ii) Letter of Mr. Sethi dated 07.08.1995 has not been authenticated in terms of Section 72 of FERA

¶116

(iii) The cash deposits were not the subject matter of the Memorandum/SCN.

¶117

28. Meanwhile, the present appeal, the subject matter of the Memorandum/SCN were the cash deposit slips as well as a plethora of other supporting evidence such as:

¶118

(i) Copies of cash deposit slips dated 27.04.1992, 13.05.1992, 14.05.1992, 15.05.1992, 18.05.1992, 21.05.1992, 22.05.1992, 29.05.1992, 30.05.1992, 02.06.1992, 13.06.1992, 04.07.1992, 16.07.1992

¶119

(ii) Statement of NRE Account maintained with Citibank, New Delhi in the name of Shri Shankar Lal Jangid.

¶120

(iii) Letter directive dated 14.09.2000 issued to Shri Shankar Lal Jangid under Section 33(2) of FERA, 1973.

¶121

(iv) Reply received from Shri Shankar Lal Jangid.

¶122

(v) Statement of Shri S.K Mittal dated 13.10.1993 & 18.10.1993

¶123

(vi) Statement of Shri Umesh Mendiratta dated 05.04.1995 & 06.04.1995.

¶124

(vii) Statement of Shri M.K Jain dated 05.01.1996 &

12.01.1996.

FPA-FE-06/DLI/2016

Page 18 of 27

29. The investigation and adjudication herein have also been supplemented by the records produced by Citibank pertaining to the NRE account, cash deposit slips and bank statements of the appellant which clearly indicate that the appellant had indulged in the contravention of the provisions of FERA, 1973. The foreign currencies which were found deposited in the NRE account of Shri Shankar Lal Jangid were acquired by the appellant, Shri S.K Mittal with the assistance of his employees Shri Umesh Mendiratta and Shri M.K Jain. A total of Rs. 17,34,121.26/- was involved in the contravention. Umesh Mendiratta assisted Shri S.K Mittal in depositing foreign exchange equivalent to Rs. 13,53,176.31/ Meanwhile Shri M.K Jain helped Shri SK Mittal in depositing Foreign Exchange equivalent to Rs. 3,09,516/-. The appellant himself has acknowledged in his reply to the SCN that Umesh Mendiratta was working for the appellant and was retained on a contractual basis.

¶129

30. In light of the above, it is submitted on behalf of the respondents that the appellant has indulged in clear contravention of the provisions of FERA, 1973 in terms of Section 8(1) read with Section 71 of FERA, 1973, by acquiring foreign exchange to the extent of Rs. 17,34.121.26/- from persons other than Authorized Dealers as mandated under the Act and its regulations. Therefore, this appeal ought to be dismissed.

¶130

Analysis & Findings

¶131

31. I have given careful consideration to the facts on record and the rival contentions of the parties. At the outset, I find that the appellant has raised certain preliminary legal issues which go to the root of the matter and must be addressed before considering the

¶132

FPA-FE-06/DLI/2016

¶133

Page 19 of 27

¶134

other arguments on merits. In this regard, it is firstly contended that the impugned SCN was issued after almost 10 years from the date of the alleged transaction and was, therefore, bad in law. The alleged transaction took place in 1992 as per the SCN/Memorandum of charge whereas the SCN/Memorandum itself was issued on 23.05.2002. The same cannot be regarded as a reasonable time period. I have considered the rival arguments in this regard and also perused the decisions of the Hon‟ble Supreme Court in Union of India and Anr. v. Citibank (supra) as well as in Bhavesh Pabari (supra) cited from the two sides. The legal position that emerges clearly from the two orders is that where the statute does not provide for a limitation period, the action must be initiated by authority concerned within a „reasonable‟ period. What is a „reasonable‟ period would, however, depend on the facts and circumstances of each case.

¶135

32. The respondent directorate has submitted that in the facts and circumstances of the present case, the investigation was initiated within reasonable period of time. In this regard, it is submitted the first statement of the appellant was recorded on 13.03.1993. Subsequently, several more statements were recorded and inculpatory evidence was unearthed. The statements of conoticees were recorded through 1995 and 1996. Several call letter directives were issued to the noticees in the year 2000-2002 as well. This entire process eventually culminated in the Memorandum/SCN issued on 23.05.2002. It may also be mentioned here that initially, it was submitted on behalf of the respondent that the matter of delay is pending before the Hon‟ble Supreme Court in Union of India V. S. K. Mittal SLP (Crl.) However, subsequently, it has been clarified by both parties that the said issue in the present case is net FPA-FE-06/DLI/2016 Page 20 of 27

¶136

Page 20 of 27

¶137

before the Hon‟ble Supreme Court though similar issue in another matter is said to be pending.

¶138

33. With regard the judgment of the Hon‟ble Supreme Court in Union of India and Anr. v. Citibank (supra), it was submitted by the learned counsel for the respondent that that the appellant‟s reliance on the said case is misplaced as the decision of the Hon‟ble Supreme Court in that case was in light of the fact that the noticees in the said case were banks and under the relevant rules applicable to the banks, they were required to retain records only for five/eight years. The same yardstick cannot be applied to the present appellant who is an individual Chartered Accountant.

¶139

Having considered the above contentions of the respondent, I am not persuaded by the argument. The relevant paragraphs of the order of the Hon‟ble Supreme Court read as below:

¶140

23. Admittedly, in the present cases, the alleged transactions had taken place during the financial years 1992 and 1993. Show cause notices for the said transactions were issued in the year 2002 and that too just before the sunset period of FERA was to expire, i.e., on 1st June 2002. We are therefore of the considered view that show cause notices and the proceedings continued thereunder are liable to be set aside on this short ground.

¶141

24. It will also be relevant to refer to the relevant provisions of Rules 2, 3 and 4 of the said Rules, which read thus:

¶142

2. Every banking company shall preserve, in good order, its books, accounts and other documents mentioned below, relating to a period of not less than five years immediately preceding the current calendar year. Ledgers and Registers: (1) Cheque Book Registers xxx xxx xxx xxx xxx xxx (6) Vault Registers. Records other than Registers: (1) Telegraphic Transfer Confirmations (2) Telegrams and Telegram Confirmations

¶143

FPA-FE-06/DLI/2016

¶144

Page 21 of 27

¶145

3. Every banking company shall preserve, in good order, its books, accounts and other documents mentioned below, relating to a period of not less than eight years immediately preceding the current calendar year. Ledgers and registers: (1) All personal ledgers xxx xxx xxx (24) Clean cash books Records other than registers: (I) Bank cash scrolls xxx xxx xxx (II) Press-copy books 4. Notwithstanding anything contained in Rules 2 and 3, the Reserve Bank may, having regard to the factors specified in Sub-section (1) of Section 35A, by an 12-11-2024 (Page 6 of 7) www.manupatra.com Appellate Tribunal (PMLA, PBPTA, FEMA, NDPSA, SAFEMA) order in writing, direct any banking company to preserve any of the books, accounts or other documents mentioned in these rules, for a period longer than the period specified for their preservation, in the said rules.

¶146

" 25. It can thus clearly be seen that the said Rules require every Banking Company to preserve records stated in Rule 2 for five years and eight years for records mentioned in Rule 3 respectively. No doubt that Under Rule 4 of the said Rules, the RBI, having regard to the factors specified in Sub-section (1) of Section 35-A, by an order in writing, is empowered to direct any banking company to preserve any of the books, accounts or other documents, etc. for a period longer than the period specified under the said Rules.

¶147

26. Undisputedly, no such order has been placed on record which required the Respondents-Banks to preserve records concerning the transactions in question for a period longer than eight years.

¶148

¶149

34. As has also been pointed out by the learned counsel for the appellant, it is evident that in para 23 itself, based on the facts that the alleged transactions had taken place in the financial years 1992 and 1993 and the show cause notices had been issued in 2002, and

¶150

FPA-FE-06/DLI/2016

¶151

Page 22 of 27

¶152

that too, just before the sunset period of FERA, 1973 was to expire on 1^st June, 2002, the Hon‟ble Supreme Court had already concluded the SCN and the proceedings continued thereunder are liable to be set aside on the said short ground alone. The further discussions on the rules applicable to banks was only an additional fact considered by the Hon‟ble Supreme Court as is clear from the language of para-27 wherein they have observed that, “ On this ground also , permitting the show cause notices and the proceedings to be continued thereunder of the transactions which have taken place much prior to the eight years would be unfair and unreasonable.” (Emphasis added).

¶153

35. The reasons cited on behalf of the respondent in the present case, namely, that a statement of the appellant was recorded in 1993, statements of certain other persons were recorded in 1995 and 1996 and certain call letters were issued in 2000-2002 cannot, in my view, justify the long delay of ten years in issue of the SCN and issue of the same just before the expiry of the sunset period. Recording one or two statements once every few years cannot be regarded as diligent pursuit of an investigation. As such, I am of the view that the ratio laid down the Hon‟ble Supreme Court in the case of Citibank is squarely applicable to the present case.

¶154

36. The next contention of the appellant is that he was not supplied with a copy of the Relied Upon Documents (RUDs). The impugned Memorandum/Show Cause Notice was issued on 23.05.2002. Vide letters dated 23.06.2002 and 18.01.2005, the appellant requested for copies of the RUDs. However, even copies of the same were not supplied to the appellant, let alone inspection of the original RUDs. The decision of the Hon'ble Supreme Court in T

¶155

FPA-FE-06/DLI/2016

¶156

Page 23 of 27

¶157

Takano vs. Securities and Exchange Board of India and Another (2022) 8 SCC162 is relied upon by the appellant.

¶158

37. I have perused the said judgment of the Hon‟ble Supreme Court. The ratio laid down by the Apex Court after review of the existing judicial precedent on the subject is that the appellant has a right to disclosure of the material relevant to the proceedings. It was also noted that a deviation from the general rule of disclosure of relevant information was made based on the stage of the proceedings in the case of Natwar Singh v. Director of Enforcement (2010) 13 SCC 255 . The issue before the Hon‟ble Supreme Court in that case was whether a noticee who is served with a show cause notice under Rule 4(1) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules 2000, is entitled to demand all the documents in the possession of the adjudicating authority including those documents upon which no reliance has been placed while issuing a notice to show cause as to why an enquiry should not be initiated against him. It was held that it is sufficient to disclose the materials relied on if it is for the purpose of issuing a show cause notice for deciding whether to initiate an inquiry. However, all information that is relevant to the proceedings must be disclosed in adjudication proceedings.

¶159

38. In the present case, needless to say, a show cause notice was issued to the appellant and subsequently, adjudication proceedings were also held and penalty was imposed upon the appellant. Both parties are in agreement that in the present case, the documents relied upon by the respondents are the following:

FPA-FE-06/DLI/2016

Page 24 of 27

“Annexure-C

Copies of cash deposits slips dt. 27.4.92, 13.5.92, 14.5.92,15.5.92,18.5.92,.18.5.92,21.5.92,22.5.92,29.5.92,30. 5.92,2.6.92,13.06.92,04.007.92,16.07.92, and 30.05.92.

¶164

Copies of Statement of NRE Account No. : 5043291019 maintained with Citi Bank, New Delhi in the name of Sh. Shankar Lal Jangid.

¶165

Copy of a letter directive dt. 14.09.2000 (along with enclosures) issued to Sh. Shankar Lal Jangid issued u/s 33(2) of FERA, 1973.

¶166

Reply dated nil received from Sh. Shankar Lal Jangid.

¶167

Statement of Sh. S.K. Mittal dt. 13.10.93 & 18.10.93.

¶168

Statement of Sh. Umesh Mendiratta dt. 05.04.1995 & 06.04.1995.

¶169

Statement of Sh. M.K. Jain dt. 05.01.1996, 12.01.1996.

¶170

39. It is the case of the appellant that the above RUDs were never

¶171

supplied to the appellant at any stage. A copy of the appellant‟s reply to the SCN which is dated 23.06.2002, is on record. It was pointed out by the learned counsel for the appellant during the course of hearing that vide the said letter, the appellant had clearly requested for cross-examination of the witnesses whose statements have been relied upon as well as copies of the RUDs. Upon perusal, the relevant paragraph reads as below:

¶172

“I also request your good office to allow me to cross-examine the concerned banks, N.R.Is. and other co-accused on the basis of principles of natural justice. Your good office is also requested to give me a chance to plead my defense by giving a hearing in this case after furnishing to me all the necessary papers/documents relied upon by your good office in this regard.”

¶173

FPA-FE-06/DLI/2016

¶174

Page 25 of 27

¶175

40. There is nothing on the file, nor the learned counsel for the respondent could point out any material to indicate that the copies of the relied upon documents were supplied to the appellant at any time during the proceedings. A statement of the appellant himself, recorded on 30.09.94, is no doubt on record and also available with the appellant. However, both sides agreed that the said statement does not pertain to the present case and was recorded in the course of another case against the same appellant. None of the other relied upon documents are available even on the court record. Under the circumstances, I have no hesitation in agreeing with the submission of the appellant that the same were never supplied to the appellant, in violation of the clear legal position as discussed in para-37 above.

¶176

41. In view of the above discussions, and having considered the facts on record in light of the legal position emerging from authoritative judicial pronouncements discussed in detail above, I am of the view that the proceedings held against the present appellant lacked legal validity and cannot stand the test of judicial scrutiny.

¶177

42. As discussed in paragraphs 9 to 15 (supra), the appellant has also raised certain other factual and legal issues challenging the impugned order, including the alleged failure of the respondents to comply with the Rule 4(3) of Foreign Exchange Management (Adjudicating Proceedings and Appeal) Rules, 2000 in light of the decision of the Hon‟ble Bombay High Court in Shashank Vyankatesh Manohar vs. Union of India" 2014(1) Mh.L.J) which was subsequently upheld by the Hon‟ble Supreme Court, consequent to which Technical Circular 11/2014 was also issued by the respondent directorate; alleged failure to serve a call notice on the

¶178

FPA-FE-06/DLI/2016

¶179

Page 26 of 27

¶180

appellant and to inform him of the dates of hearing; reliance placed on exculpatory statement of co-noticees contrary to the legal position upheld by the Hon‟ble Supreme Court; whether or not there was any bar on making deposits in the foreign currency in the NRE accounts before 31.07.1995, etc. Having held that the order passed by the learned adjudicating authority in this case is not sustainable on preliminary legal grounds, I am of the view that the other issues raised by the appellant need not be gone into.

¶181

43. In light of the above discussions, the appeal is allowed and the impugned order passed by the learned adjudicating authority is hereby set aside.

¶182

44. Resultantly, this appeal is allowed. Pending applications, if any, would also stand disposed of.

¶183

45. In the facts and circumstances of the case, there would be no order as to costs.

¶184

(V. Anandarajan)

¶185

Member

¶186

New Delhi 13th,November, 2024

¶187

„ST‟