Dismissed

Union of India v. Manubhai D. Shah C/O. M/S. Arvind Mills Ltd.

Bombay HC23 Aug 2007FERA/21/2006

Case brief

AI extract

What is this about?

Revenue appeals against the Appellate Tribunal for Foreign Exchange setting aside penalties on mills for payments to an Indian subsidiary of a foreign entity without RBI approval. The High Court upheld the Tribunal's finding that there was no evidence payments were made on behalf of the foreign principal, dismissing the appeals.

What did the court decide?

The appeals aggrieved by the Tribunal order setting aside penalties were dismissed.

Union of India Vs Manubhai D. Shah C/O. M/S. Arvind… — Company and Corporate | Bombay HC (2007)

¶1

¶2

 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 CIVIL APPELLATE JURISDICTION

¶3

 FERA APPEAL NO.19 OF 2006

¶4

 1. Union of India through,
 Dy. Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001.

¶5

 2. The Assistant Director,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellants.

¶6

 V/s.

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 M/s.Bombay Dyeing Manufacturing
 Co. Limited, Nieville House,
 Kamani Road, Balard Estate,
 Mumbai - 400 038 .. Respondent.

¶8

 WITH
 FERA APPEAL NO.20 OF 2006

¶9

 1. Union of India through,
 Asstt. Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellant.

¶10

 V/s.

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 M/s.Arvind Mills Limited,
 Naroda Road, Ahmedabad .. Respondent.

¶12

 WITH
 FERA APPEAL NO.21 OF 2006

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 1. Union of India through,
 Asstt. Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,

¶14

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 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellant.
 V/s.
 Shri Manubhai D. Shah
 C/o.M/s.Arvind Mills Limited,
 Naroda Road, Ahmedabad .. Respondent.

¶16

 WITH
 FERA APPEAL NO.22 OF 2006
 1. Union of India through,
 Asstt.Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellants.
 V/s.

¶17

 M/s.The Standard Mills Co. Ltd.
 Mafatlal Centre, Nariman Point,
 Mumbai - 400 020 .. Respondent.

¶18

 WITH
 FERA APPEAL NO.23 OF 2006
 1. Union of India through,
 Asstt.Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellant.

¶19

 V/s.

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 Shri Arvind Narottam,
 Managing Director M/s.Arvind
 Mills Limited, Naroda Road,
 Ahmedabad .. Respondent.

¶21

 WITH
 FERA APPEAL NO.53 OF 2006

¶22

 1. Union of India through,
 Asstt.Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at

¶23

¶24

 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellant.
 V/s.
 M/s.Mafatlal Fine Spg. & Mfg.
 Co Ltd., Mafatlal Centre,
 Nariman Point,
 Mumbai - 400 023. .. Respondent.
 WITH
 FERA APPEAL NO.54 OF 2006
 1. Union of India through,
 Asstt.Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellants.
 V/s.
 M/s.Mafatlal Industries Limited
 Mafatlal Centre, Nariman Point,
 Mumbai - 400 038 .. Respondent.

¶25

 WITH
 FERA APPEAL NO.55 OF 2006
 1. Union of India through,
 Asstt.Director of Enforcement,
 Directorate of Enforcement,
 (Foreign Exchange Management
 Act) having his office at
 Janmabhoomi Chambers,
 1st floor, Walchand Hirachand
 Marg, Mumbai - 400 001. .. Appellants.
 V/s.
 M/s.Mafatlal Services Limited,
 Mafatlal Centre, Nariman Point,
 Mumbai - 400 023 .. Respondent.

¶26

 Mr.R.V.Desai, Sr.Counsel with A.S. Rao with
 S.V.Bharucha and Dr.A.H.Bhatija i/b. T.C. Kaushik
 for appellant.

¶27

 Mr.A.S.Doctor i/b. M/s.Kanga & Co. for respondents

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 in appeal Nos.19 to 23 of 2006.

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 Shri Gaurav Joshi with Mohan Salian & B.Das i/b.
 Gagrat & Co. for respondents in appeal Nos.53 to 55
 of 2006.

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CORAM : F.I. REBELLO & J.P. DEVADHAR, JJ.
 JUDGMENT RESERVED ON : 27TH JULY, 2007.

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 JUDGMENT PRONOUNCED ON : 23RD AUGUST, 2007.

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ORAL JUDGMENT : (Per J.P. Devadhar, J.)

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 1. Heard.

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 2. In all these Appeals the revenue is

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 aggrieved by the common order passed by the
 Appellate Tribunal for Foreign Exchange on 12th May,
 2003. By the said order, the Tribunal has set aside
 the penalties imposed upon the respondents under the
 provisions of FERA 1947 & FERA 1973.

¶37

 3. According to the revenue, the facts of the

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 case clearly show that the respondent/assessee had
 made payments to a foreign company through an Indian
 company in contravention of FERA and, therefore, the
 penalties levied upon the respondents ought to have
 been upheld by the Tribunal.

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 4. The controversy in all these appeals being
 common, all these appeals are heard and disposed of
 by this common order. Although facts in all these

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 cases are not in dispute, for easy understanding of
 the dispute between the parties, we may note few
 facts set out in FERA Appeal No.19 of 2006.

¶42

 5. The respondent / assessee in FERA Appeal
 No.19 of 2006 is a Textile Mill. M/s.Tootals
 Broadhurst lee co. Limited, Manchester, London
 (hereinafter to be referred as "Tootals")
 incorporated in London are world renowned

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 manufacturers of textiles. Tootals were originators
 and inventors of the world famous crease resisting
 process known as "tebilized" process having
 registered trade mark. The assessee desirous of
 acquiring technical know how relating to the
 manufacture and treatment of textile materials by

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 the above method entered into a collaboration
 agreement with Tootals on 10th April, 1961
 whereunder Tootals agreed to supply technical know
 how of tebilized process on the conditions set out
 in the said agreement. Consideration for supply of
 technique and services to be rendered by Tootals was
 termed as royalty.

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 6. On 7th November, 1960, the Government of

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 India approved the above agreement only for the
 period from 10th April, 1961 to 10th August, 1969.
 Accordingly, the aforesaid collaboration agreement
 came to an end on 10th April, 1969. The assessee

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 applied for renewal of the agreement and pending
 decision of the renewal, Tootals continued to render
 services as per the agreement.

¶49

 7. M/s.Mettur Beardsel Limited (hereinafter to
 be referred to as "MBL"), an Indian company was
 registered in the year 1926. Tootals at the
 relevant time had 48% share holding in MBL.

¶50

 8. It is the case of the assessee that MBL was
 in possession of the technical know-how relating to
 tabilized process from Tootals and accordingly the
 assessee entered into an agreement with MBL on 29th
 December, 1970 and on receipt of the technical
 know-how made payments to MBL as per the agreement
 dated 29th December, 1970.

¶51

 9. According to the revenue the payments made
 by the respondent to MBL were in fact payments made
 to Tootals for rendering the services without the
 approval of RBI. Accordingly, show cause notices
 were issued and penalty was imposed upon the
 assessee and its directors. On appeal, the Tribunal
 set aside the penalty. Hence, these appeals.

¶52

 10. Mr.Desai, learned Senior Advocate strongly
 urged before us that in the present case, instead of
 making payments to Tootals, a foreign company, the

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 assessee had made payments to MBL which is an Indian
 subsidiary of Tootals. Such payment was not
 approved by R.B.I. Therefore, there was clear
 violation of the provisions of FERA. Under Section
 5 of FERA, any payment made to an Indian party for
 and on behalf of a foreign party without the general
 or special permission of the R.B.I. is punishable.
 In the present case, the Tribunal without giving any
 reasons has set aside the adjudication order.
 Accordingly, Mr.Desai submitted that the order of
 the Tribunal suffers from serious infirmities and
 the said order is liable to be quashed and set
 aside.

¶55

 11. Mr.Dada, learned Senior Advocate, appearing
 on behalf of the assessee, took us through the
 reasoning given by the Tribunal for setting aside
 the penalty and submitted that in view of the
 overwhelming evidence on record the Tribunal was
 justified in deleting the penalty.

¶56

 12. We have carefully considered the rival
 submissions. In the present case, on consideration
 of incriminating letters and documents provided by
 MBL, the Tribunal held that there is strong
 indication that Tootals had some interest in the
 transaction with MBL but it is not clear that
 Tootals were the ultimate beneficiaries. In the

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 absence of any direct or indirect evidence in that
 regard, the Tribunal held that the inference drawn
 by the Special Director is based on suspicion and
 not on a positive material.

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 13. The further finding of fact recorded by the
 Tribunal is that the agreement between the assessee
 and MBL was valid and legal agreement and the
 payments made by the assessee in Indian rupee to MBL
 did not require approval of R.B.I. The Tribunal has
 recorded a finding that Tootals had only 48% share
 in MBL and not control over MBL. The fact that the
 Tootals permitted MBL to render technical services
 and advertise the trade mark in India and charge
 service fee etc. cannot be construed to mean that
 MBL received payment for and on behalf of the
 Tootals. The Tribunal had recorded a finding that
 there is no evidence or any finding that any
 dividend was received by Tootals from MBL.

¶60

 14. All the above findings recorded by the
 Tribunal are findings of facts and those findings do
 not give rise to any question of law much less a
 substantial question of law.

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 15. Accordingly, we do not find any merit in
 these appeals and the same are hereby dismissed.

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¶63

 (F.I. REBELLO, J.)

¶64

 (J.P. DEVADHAR, J.)

Union of India v. Manubhai D. Shah C/O. M/S. Arvind Mills Ltd.

Case brief

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What did the court decide?

Union of India v. Manubhai D. Shah C/O. M/S. Arvind Mills Ltd.

Case brief

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