Dismissed

FPA-FE-168/DLI/2005 of Shri Vikram Singh v. The Special Director, Directorate of Enforcement, Delhi

ATFP24 Jul 2024FPA-FE-168/DLI/2005

Case brief

AI extract

What is this about?

Appeals challenging penalty orders under FERA were dismissed. The Tribunal upheld that Income Tax documents are admissible under Section 72 FERA. It found the transfer of funds from a US citizen was an unapproved loan contravening Section 9(1)(c), and arrangements by the appellant to hide sources contravened Section 8(1).

What did the court decide?

The Appeals filed by the Appellants are dismissed; the penalties imposed under FERA are upheld.

FPA-FE-168/DLI/2005 of Shri Vikram Singh Vs. The Special Director, Directorate of Enforcement, Delhi — ATFP (2024) — LawSathi Research

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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1. FPA-FE-167/DLI/2005

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M/s. Ambassador Construction (P) Ltd.	…	Appellant
2. FPA-FE-168/DLI/2005
Shri Vikram Singh	…	Appellant
3. FPA-FE-169/DLI/2005
Shri R. C. Jain	…	Appellant
Versus
The Special Director, Directorate of Enforcement, Delhi	…	Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellants : Mr. Santosh Chaurihaa Mr. Suman Mishra, Advocates For the Respondent : Mr. Vivek Gurnani Mr. Kanishk Maurya, Advocates

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CORAM

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JUSTICE MUNISHWAR NATH BHANDARI : CHAIRMAN SHRI BALESH KUMAR : MEMBER

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ORDER

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24.07.2024

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This Order disposes of the Appeals Nos. FPA-FE167/DLI/2005, FPA-FE-168/DLI/2005 and FPA-FE169/DLI/2005 filed by M/s. Ambassador Construction (P) Ltd., Shri Vikram Singh and Shri R. C. Jain respectively, against the Order No. SDE(SKP)III/273/2004 dated 21.12.2004 passed by the Special Director, Enforcement Directorate, New Delhi. Penalty of Rs. 30 lakhs has been imposed for the contravention of Section 9(1)(c) of Foreign Exchange Regulation Act, 1973 (FERA) upon the Appellant Company M/s. Ambassador Construction (P) Ltd. Penalty of Rs. 2 Lakhs each has been

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FPA-FE- 167-168-169/DLI/2005

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imposed upon Shri Vikram Singh and on Shri R. C. Jain for contravention of Section 9 (1)(c) of FERA read with Section 68(1) ibid. Further, imposition of penalty of Rs. 5 lakhs was made on Shri Vikram Singh for contravention of Section 8(1) of FERA.

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The Appellants challenged the Order dated 05.02.2007 of this Tribunal rejecting the applications for the waiver of predeposit of penalties before the Hon‟ble Delhi High Court. On rejection of their challenge by the Hon‟ble Delhi High Court, the Appellants moved the Hon‟ble Supreme Court where too the challenge was rejected. Consequently, the penalties were paid by the Appellants in 2011 and 2012. 3. The Learned Counsel for the Appellant argued that the case has been made out on the basis of the documents received from the Income Tax Department which are not admissible as evidence for the proceedings under FERA. He stated that the judgment of the Hon‟ble Supreme Court in the case of KTMS Mohammad has held that FERA is a special law which prescribes a special procedure for investigation of violation of FERA, hence, the evidence obtained during the investigation under the Income Tax Act could not have been used for the proceedings under FERA. The Ld. Adjudicating Authority has ignored the decision of the Hon‟ble Supreme Court in the case of S P Jain where FERA is held as quasi criminal in character and hence the respondent should have made out the case beyond reasonable doubt. Since, the Ld. Adjudicating Authority relied

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upon the statement of one Shri J L Kothari who was not subjected to cross-examination, there were violations of principles of natural justice. He cited the judgements of Karan Vir Mehta [1998(97) ELT 42] and Bareily Electrical Supply Co. v/s The Workman [AIR 1972 SC 330].

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The Ld. Counsel for the Appellants argued that Para 10 C.13 of Reserve Bank of India (RBI) Manual on Foreign Investment in India in Housing and Real Estate Development permitted NRIs/ OCBs to invest upto 100% in the new issue of equity shares/ convertible debentures of Indian companies engaged in real estate development which covered their case. The transfer of US $ 5 lakhs from Shri J L Kothari, a resident abroad, was in the equity capital of the Appellant Company. The amount was transferred thereafter to the account of another company M/s Neptune Estate Pvt. Ltd. on the explicit instructions of Shri Kothari vide letter dated 15.12.1995. He contended that the nature and purpose of the investment remained unchanged despite the transfer. Since the declaration for direct investment by NRI in Indian company was submitted to RBI for issuance of shares to Shri Kothari the receipt of money from Shri Kothari was in the form of investment. He also stated that the MoU dated 05.12.1995 signed between the Appellant Company and Shri Kothari substantiates this nature of transfer of funds. Therefore, the finding of contravention of

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Section 9(1)(c) of FERA by Ld. Adjudicating Authority does not hold good.

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The Ld. Counsel for the Appellants further argued that since the identity of Shri Rakesh Saxena has not been established and no other witness has been examined, the finding of contravention of Section 8(1) of FERA for an amount of US $ 1 lakh against the Appellant Shri Vikram Singh cannot be sustained.

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The Ld. Counsel for the Appellants stated that the Ld. Additional Chief Metropolitan Magistrate (ACMM), Patiala House Courts, New Delhi has held on 04.02.2019 that the pre-charge evidence and the documents placed on record are not sufficient to show that there is prima-facie evidence to frame charges against the accused persons. Therefore, the court discharged the three Appellants herein, in the Prosecution Complaint filed by the Respondent Directorate under FERA. Accordingly, he prayed that the three Appeals filed before the Tribunal may be allowed. 7. The Ld. Counsel for the Respondent argued that the Appellants challenge before the Hon‟ble Supreme Court with respect to their applications for waiver of pre-deposit of penalty was rejected. It therefore appears that they failed to convince their case for undue hardship either on the basis of financial difficulty or on the basis of there being no prima-facie case against them. He further argued that in the present proceeding unlike those before the Ld. ACMM the matter is being

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adjudicated for the civil liability for which the standard of proof is that of pre-ponderance of probability and not that of proof beyond reasonable doubt. He relied upon the judgments of the Hon‟ble Supreme Court in the cases of Standard Chartered Bank & Ors. v/s Directorate of Enforcement & Ors. [(2006) 4 SCC 278] and Radheshyam Kejriwal v/s State of West Bengal & Anr. [(2011) 2 SCC 581] to state that the proceedings of adjudication and the prosecution are independent of each other. 8. The Ld. Counsel for the Respondent invoked Section 72 of FERA and stated that the documents seized by the Income Tax authorities are admissible. He further contended that in view of the judgements of the Hon‟ble Supreme Court in the cases of Kanungo & Company v/s Collector of Customs & Ors. [(1973) 2 SCC 238] and Telstar Travels Pvt. Ltd. & Ors. v/s Enforcement Directorate [(2013) 9 SCC 549] the denial of cross-examination by the Ld. Adjudicating Authority cannot vitiate the impugned order.

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The Ld. Counsel for the Respondent contended that Para 10 C.13 of RBI Manual on Foreign Investment in India in Housing and Real Estate Development permitted NRIs/ OCBs to invest upto 100% in the new issue of equity shares/ convertible debentures of Indian companies engaged in real estate development. However, Shri J L Kothari is a US citizen and not NRI which therefore made the cited Para inapplicable to him. The Appellants failed to show any permission from RBI for such

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investments. Since the amount of US $ 5 lakhs was transferred to M/s Neptune Estate Pvt. Ltd., no share was in fact issued to Shri J L Kothari by the Appellant Company. There was no amendment made in the MoU to this effect, hence, the MoU became irrelevant and non-est. The Appellants failed to furnish any document to reflect that the purported investment was made on either repatriation or non-repatriation basis. The Appellant Shri Vikram Singh failed to disclose the claim of issuance of shares even as late as 18.02.1997 when his statement was recorded. The statement dated 01.03.1997 of Shri J L Kothari recorded u/s 40 of FERA stated that the remittance of US $ 5 lakhs was made by him to the Appellant Company in the form of loan which was agreed to and remitted as per the request from Shri Vikram Singh. Shri Kothari reiterated the same stand during the course of the adjudication proceedings. The claim made by the Appellants that they had filed a declaration for direct investment is of no significance since it was merely an application and not a permission from the RBI. He therefore contended that the transfer of funds though through the banking channels was a debt from a foreign citizen to the Appellant Company and is hit by the mischief of Section 9(1)(c) of FERA. The finding of the contravention of Section 9(1)(c) of FERA is therefore established. He pointed out that the Explanation to Section 8 (1) of FERA also indicates that the

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FPA-FE- 167-168-169/DLI/2005

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transfer in such manner is deemed to be as lending of foreign

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exchange. He reproduced the provision as follows:

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“ Explanation- for the purposes of this sub-section, a person, who deposits foreign exchange with another person or opens an account in foreign exchange with another person, shall be deemed to lend foreign exchange to such other person .”

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The Ld. Counsel for the Respondent stated that the overseas enquiry revealed that the premises in Hong Kong which was claimed to be of M/s Real Fact Enterprises was in fact occupied by another group of companies and there was no person by name of Shri Rakesh Saxena. The Appellant Shri Vikram Singh admitted the receipt of US $ 1 lakh from one Shri Rakesh Saxena who was non-existent hence it appeared that the Appellant had himself organized the remittance from his own sources and contravened the provisions of Section 8(1) of FERA. With regard to his directorship of the Appellant Company, even if his contention of having become Director of the Appellant Company on 01.01.1996 is accepted, it is an admitted case of the Appellant that he knew Shri Kothari and he was involved in receipt of amount of US $ 5 lakh to the Appellant Company. The Ld. Counsel prayed for dismissing the Appeals.

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We have considered the rival submissions and scrutinized the material on record. It is not disputed that there was a transfer of funds amounting to US $ 5 lakhs from Shri J L Kothari, a resident of Bangkok, to the Appellant Company. It is

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FPA-FE- 167-168-169/DLI/2005

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also not disputed that US $ 1 lakh was received by the Appellant Company from one Shri Rakesh Saxena, a resident in Hong Kong. The moot question before us is to determine the nature of the two receipts from abroad as to whether the receipts are in contravention of the provisions of FERA.

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It is true that certain documents recovered during the proceedings of the Income Tax were referred to the Respondent Directorate for investigations under FERA. Section 72 of FERA provides for the following:

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“ Presumption as to documents in certain cases. - Where any document,-

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(i) is produced or furnished by any person or has been seized from the custody or control of any person, in either case, under this Act or under any other law, or

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(ii) has been received from any place outside India( duly authenticated by such authority or person and in such manner as may be prescribed) in the course of investigation or any offence under this Act alleged to have been committed by any person, and such document is tendered in any proceedings under this Act in evidence against him, or against him and any other person who is proceeded against jointly with him, the Court or the adjudicating officer, as the case may be, shall-

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(a) presume, unless the contrary is proved, that the signature and every other part of such document which purports to be in the handwriting of any particular person or which the Court may reasonably assume to have been signed by, or to be in the handwriting of, any particular person, is in that person’s

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handwriting, and in the case of a document executed or attested, that it was executed or attested by the person by whom it purports to have been so executed or attested;

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(b) admit the document in evidence notwithstanding that it is not duly stamped, if such document is otherwise admissible in evidence;

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(c) in a case falling under clause (i), also presume, unless the contrary is proved, the truth of the contents of such document.”

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In view of the aforementioned statutory provision for allowing the use of the documents recovered during the proceedings under any other law, the objection against the use of the documents in the present case since these were recovered during the proceedings under the Income Tax Act, cannot be accepted. In this regard, the Hon‟ble Supreme Court in the judgement dated 08.04.1992 in the case of KTMS Mohd. & Anr. v/s Union of India [1992 AIR 1831] held that the statements recorded under FERA could not be used for the proceedings under the Income Tax Act and not the other way round as is provided u/s 72 of FERA. The focus of the Hon‟ble Supreme Court in the case supra was on the necessity to examine the statements so as to determine whether it was tendered voluntarily or not. In the present case, the Respondent Directorate has undertaken investigations under FERA, after the initial reference from the Income Tax Department.

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The Hon‟ble Supreme Court has held in the cases of Standard Chartered Bank & Ors. V.s Directorate of Enforcement & Ors. [(2006) 4 SCC 278] and Radheshyam Kejriwal vs. State of West Bengal & Anr., [(2011) 2 SCC 581] that the scheme of FERA make its clear that the adjudication by the concerned authorities and the prosecution are distinct and separate. The Hon‟ble Court has held that the two proceedings are independent of each other and the finding on the adjudication is not conclusive on the prosecution under the Act. In view of the ratios in the two judgements supra coupled with the fact that presently the impugned order which is under examination has arisen out of the adjudication proceedings, we are unable to persuade ourselves that the outcome of the prosecution proceedings should have a binding effect in the present proceedings.

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The MoU dated 05.12.1995, a copy of which is on record, was signed between the Appellant Company and Shri J L Kothari, a resident of Bangkok. Shri R C Jain, the Director of the Appellant Company had signed MoU on behalf of the Appellant Company. The purpose of the MoU as revealed on its perusal, was to have collaboration between the two parties for purchase of 100 acres of land, at Tughlakabad, New Delhi to develop a residential complex. For the said purpose, equal amount of capital had to be contributed by the two parties so as to share profit/ loss in equal proportion. Both the parties were to execute

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FPA-FE- 167-168-169/DLI/2005

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a formal agreement for smoothly carrying out the project reserving the right to withdraw from entering into formal agreement. It is not disputed that the fund of US $ 5 lakhs received from Shri J L Kothari into the accounts of the Appellant Company was transferred to the account of M/s Neptune Estate Pvt. Ltd. on the basis of letter dated 15.12.1995 issued by Shri J L Kothari. It is therefore obvious that within ten days the MoU became infructuous. There is nothing on record to show that further funds flowed in pursuance of the MoU. There is also nothing on record to show that the parties entered into formal agreement with respect to the MoU dated 05.12.1995.

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The question that arises for consideration is about the nature of the transfer of amount US $ 5 Lakhs from Shri J L Kothari to the Appellant Company in view of the circumstances afore. The Appellants have contended that the funds were in the nature of investments for which they submitted a copy of Form No. 2 under the Companies Act, 1956 to show issuance of equity shares on 27.06.1996. Another argument taken by the Appellants is that the MoU was in conformity with Para 10.C.13 of Reserve Bank of India (RBI) Manual on Foreign Investment in India in Housing and Real Estate Development which permitted NRIs/ OCBs to invest upto 100% in the new issue of equity shares/ convertible debentures of Indian companies engaged in real estate development. On perusal of the said para, it is clear that it is applicable to non-resident Indian and to Overseas

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Corporate Bodies. Shri J L Kothari is a US citizen has been

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clearly brought out in the impugned order as follows:

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“ During the course of the proceedings, Sh. Ved Prakash, Advocate of Sh. Kothari emphasized that Sh. J L Kothari is a US citizen and had been engaged in business activities abroad and he had no business interests in India. This being so, the provisions of the FERA, 1973 were not appliable to him. Vide letters dated 18.12.2004, 20.12.2004 Sh. Kothari submitted copy of his US passport in confirmation of the submissions. Considering all the materials as discussed hereinbefore, I find that the charge against Sh. Jhanwar Lal Kothari in the SCN under consideration has not been proved.”

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The nationality of Shri J. L. Kothari as US citizen has not been challenged by the Appellants. We also fail to appreciate that how issuance of shares, if any, by M/s Neptune Estate Pvt. Ltd. can fulfill and substitute the obligation of the Appellant Company to issue shares against the receipt of funds from Shri J L Kothari. While the aforementioned Form 2 claims to have issued shares on 27.06.1996 by M/s Neptune Estate Pvt. Ltd. of which Shri Vikram Singh was a Director yet in his statement recorded subsequently on 18.02.1997 there is not even a whisper about the claimed issuance of shares. Therefore, we cannot agree with the contention that the said remittance of US $ 5 Lakhs was an investment into the Appellant Company.

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The receipt of US $ 5 Lakhs into the accounts of the Appellant Company for a few days could only have been a temporary loan and that too from a US citizen, resident in Bangkok. The Appellant Company transferred the funds to

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another company within a short period on the instructions of the person who remitted the funds from abroad. Such transfer jeopardized the MoU dated 05.12.1995, yet it was made which corroborates the absolute control on the funds by its remitter. It is therefore implied that the remitted funds could have only been in the nature of temporary loan to the Appellant Company by a foreign citizen resident abroad, without any general or special exemption of the RBI. Under the circumstances of the present case the acknowledgment of the debt arose from the ready willingness of the Appellant Company to move the funds from its account on the instructions of the remitter abroad, within a short period of its receipt without bothering about the implications on the signed MoU. The company to which the funds were moved was wherein Shri Vikram Singh was a Director. Thus, the Appellant Company became a temporary parking place for the remitted funds. An arrangement which was willingly entered into and therefore indulged in accepting and acknowledging a debt. We therefore find that the Appellant Company has indulged in the contravention of Section 9(1)(c) of FERA, for an amount of US $ 5 lakhs.

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Shri R C Jain was the Director of the Appellant Company at the relevant time and was responsible for the conduct of its affairs as is obvious from his signature on the said MoU. From the statement of Shri Vikram Singh recorded u/s 40 of FERA, it is obvious that Shri Vikram Singh was the person who knew Shri

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J L Kothari since 1993. He was also aware of remittance of US $

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5 lakh and of US $ 1 lakh received by the Appellant Company. In view of remittance of funds to the Appellant Company and thereafter to M/s Neptune Estate Pvt. Ltd., his role in the transactions cannot be denied. Therefore, the contraventions of Section 9(1)(c) read with Section 68(1) of FERA against the two individual Appellants stand proved.

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Shri Vikram Singh has also been charged for the contravention of Section 8(1) as US $ 1 lakh was said to have been remitted by Shri Rakesh Saxena of M/s Real Fact Enterprises, Hong Kong. During the course of overseas enquiries, the Counsel General of India, Hong Kong informed that at the given address of M/s Real Fact Enterprises at 901-903, K.Centre, 88, Queens Road, Central Hong Kong, no such company was functioning and the premises was occupied by M/s Yuen Chow Group of Companies and there was no person by name Shri Rakesh Saxena in the said company/ premises. In view of the aforementioned findings, the Ld. Adjudicating Authority has inferred that the remittance was arranged by Shri Vikram Singh himself. While dropping the charge of Section 9(1)(c) of FERA against the Appellant Company for the said remittance of US $ 1 lakh, the Ld. Adjudicating Authority has held the charge of contravention of Section 8(1) of FERA proved against the individual Appellant, Shri Vikram Singh. We have not found anything contrary produced by the Appellant to refute the

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findings made in the overseas enquiry. Hence, we hold contravention of Section 8(1) by the individual Appellant Shri Vikram Singh. The Ld. Adjudicating Authority has also confiscated US $ 1 lakh under Section 63 of FERA since the amount remained unexplained and tainted.

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In view of the aforementioned discussions, we are refrained to cause intervention in the impugned order. The Appeals No. FPA-FE-167/DLI/2005, FPA-FE-168/DLI/2005 and FPA-FE169/DLI/2005 filed by M/s. Ambassador Construction (P) Ltd., Shri Vikram Singh and Shri R. C. Jain respectively are accordingly dismissed.

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(Justice Munishwar Nath Bhandari) Chairman

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(Balesh Kumar) Member

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New Delhi, 24th July, 2024 „KA‟

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FPA-FE-168/DLI/2005 of Shri Vikram Singh v. The Special Director, Directorate of Enforcement, Delhi

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FPA-FE-168/DLI/2005 of Shri Vikram Singh v. The Special Director, Directorate of Enforcement, Delhi

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