Dismissed

Sri D Venugopal v. the Special Director

Karnataka HC2 Sept 2021WP/6438/2019

Case brief

AI extract

What is this about?

Single Judge Bench of Karnataka High Court dismissed three identical writ petitions challenging a show cause notice under FEMA alleging contravention of FEMA provisions. The court held the notice was adequate as accompanied by a detailed 19-page complaint and denied quashment.

What did the court decide?

No relief granted; writ petitions dismissed; petitioners granted four weeks for reply.

Sri D Venugopal Vs the Special Director — Cheque Dishonour | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA, BENGALURU

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DATED THIS THE 2^ND DAY OF SEPTEMBER, 2021

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BEFORE

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THE HON'BLE MR. JUSTICE KRISHNA S.DIXIT

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WRIT PETITION NO.6431 OF 2019 (GM-FE) C/W WRIT PETITION NO. 6436 OF 2019(GM-FE), WRIT PETITION NO.6438 OF 2019(GM-FE)

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IN W.P.NO.6431/2019:

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BETWEEN:

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SRI. NATARAJ DAKSHINAMURTHY, S/O S. DAKSHINAMURTHY, AWGED ABOUT 62 YEARS, R/AT JADE NO.202, ESTEEM HERITAGE APARTMENT, ROSE GARDEN ROAD, BEHIND DOLLARS COLONY, J P NAGAR, 5^TH PHASE, BENGALURU 560 078.

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… PETITIONER

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(BY SRI. RAGHAVAN, SENIOR COUNSEL FOR SRI. RAGHURAM CADAMBI, ADVOCATE)

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AND:

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THE SPECIAL DIRECTOR, DIRECTORATE OF ENFORCEMENT DIRECTORATE OF ENFORCEMENT, SOUTHERN REGIONAL OFFICE, GOVERNMENT OF INDIA, MINISTRY OF FIANANCE, "SHASTRI BHAWAN" III BLOCK, III FLOOR 26, HADDOWS ROAD, CHENNAI 600 006.

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THE ASSISTANT DIRECTOR, DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE,

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3^RD FLOOR, B BLOCK, BMTC BUILDING, SHANTHINAGAWR-TTMC, K H ROAD, BENGALURU 560 027.

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… RESPONDENTS

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(BY SRI.M B NARAGUNDA, ASG A/W

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SRI. UNNIKRISHNAN M, CGSC)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITATED BY THE RESPONDENT UNDER FEMA ARE WITHOUT JURISDICTION AND QUASH THE PURPORTED COMPLAINT DATED 24.12.2018(ANNEXURE-B) ISSUED BY THE R-2 AND ETC.,

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IN W.P.NO.6436/2019:

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BETWEEN:

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SRI. RANGANATHAN MOHAN, S/O. LATE. D. RANGANATHAN, AGED ABOUT 65 YEARS, R/AT NO.77, MOUNT VIEW ENCLAVE, BETTAHALSOOR CROSS /POST, DAVANAHALLI MAIN ROAD, BENGALURU 562157. SENIOR CITIZEN BENEFIT NOT CLAIMED.

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…PETITIONER

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(BY SRI. RAGHURAM CADAMBI, ADVOCATE)

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AND:

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THE SPECIAL DIRECTOR, DIRECTORATE OF ENFORCEMENT DIRECTORATE OF ENFORCEMENT, SOUTHERN REGIONAL OFFICE, GOVERNMENT OF INDIA, MINISTRY OF FINANACE, SHASTRI BHAWAN, III BLOCK III FLOOR, 26, HADDOWS ROAD, CHENNAI 600 006.

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THE ASSISTANT DIRECTOR, DIRECTORATE OF ENFORCEMENT DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE, 3^RD FLOOR, B-BLOCK, BMTC BUILDING, SHANTHINAGAR, TTMC,KH ROAD, BENGALURU 560 027.

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…RESPONDENTS

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(BY SRI. M B NARAGUNDA, ASG A/W SRI. UNNIKRISHNA M, CGSC)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PARYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITIATED

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BY THE RESPONDENTS UNDER FEMA ARE WITHOUT JURISDICTION AND ETC.,

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IN W.P.NO.6438/2019:

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BETWEEN:

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SRI. D VENUGOPAL, S/O. LATE. D V PRASAD, R/AT NO. G-02, PALASHA APARTMENTS, 26, 4^TH MAIN, IX CROSS, MALLESHWARAM, BENGALURU 560 003.

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…PETITIONER

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(BY SRI. RAGHURAM CADAMBI, ADVOCATE) AND:

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THE SPECIAL DIRECTOR, DIRECTORATE OF ENFORCEMENT DIRECTORATE OF ENFORCEMENT, SOUTHERN REGIONAL OFFICE, GOVERNMENT OF INDIA, MINISTRY OF FINANACE, SHASTRI BHAWAN, III BLOCK III FLOOR, 26, HADDOWS ROAD, CHENNAI 600 006.

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THE ASSISTANT DIRECTOR, DIRECTORATE OF ENFORCEMENT DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE, 3^RD FLOOR, B-BLOCK, BMTC BUILDING, SHANTHINAGAR, TTMC,KH ROAD, BENGALURU 560 027.

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…RESPONDENTS

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(BY SRI. M B NARAGUNDA, ASG A/W SRI. UNNIKRISHNA M, CGSC)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PARYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE RESPONDENT UNDER FEMA ARE WITHOUT JURISDICTION AND ETC.,

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THESE PETITIONS COMING ON FOR FURTHER HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:-

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ORDER

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In all these cases regardless of bulky paper books, the grievance of the petitioners is against issuance of subject notice and “purported complaint” both dated 24.12.2018 asking them to show cause as to why adjudication proceedings in terms of section 16(1) r/w sec. 13 of the Foreign Exchange Management Act, 1999 (hereafter ‘FEMA’) should not be initiated against them.

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The above notice is triggered on the basis of the complaint dated 24.12.2018 filed inter alia u/s.16(3) for alleged contravention of the provisions of sections 3(b), 5, 6(2)(a) & 10(6) of FEMA r/w. Regulations 3 & 4(a) of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulation 2000 in relation to a foreign exchange equivalent to Rs.1,80,77,58,989-00 . As already mentioned above, all the petitioners seek quashment of the complaint as well.

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The essential ground of challenge to the impugned notice & complaint is that both they lack in minimum material particulars, they do not make any sense, they being as vague as can be and thus, the petitioners are in a disadvantageous position of not

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replying thereto. A plethora of rulings is pressed into

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service by their counsel in support of his submissions.

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After service of notice, the respondents having entered appearance through the Central Govt. Counsel vehemently oppose the petitions making submission in justification of the impugned notice & the complaint and in support of the reasons on which they have been constructed. A decision of a Co-ordinate Bench, affirmed by the Division Bench and later by the Apex Court in SLP is banked upon to substantiate their resistance.

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Having heard the learned counsel for the parties and having perused the petition papers, this Court declines to grant indulgence in the matter for the following reasons:

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(a) Learned Sr. Advocate Mr. K.G.Raghavan appearing for the petitioners in his usual style of vehemence submits that the impugned notice & complaint lack minimum material facts and therefore, in a serious matter like this, petitioners are put to a disadvantageous position of not being able to reply to the same; therefore, he argues for their invalidation; this is bit difficult to countenance inasmuch as, petitioners can send a reply to

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the same effect and thereby seek the dropping of proposed proceedings against them; an argument to the contrary, if accepted, would dilute the efficacy of the statutory scheme and undermine the institutional dignity of the machinery constituted by Parliamentary legislation; in fact, the ground of mala fide structured on an arbitral proceedings wherein the Central Government had suffered an award, (which is reportedly now being examined by the Hon’ble Delhi High Court) has been rightly given up after some arguments; even otherwise, no case is made out for the indulgence of this Court on the ground of mala fide, factual or legal.

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(b) Learned Sr. Advocate Mr.Raghavan in support of his submission that a show cause notice bereft of minimum material particulars is ‘no notice’ and such a notice is liable to be voided when put in challenge, banked upon the following decisions:

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(i) WALTER ANNAMUNTHODO vs. OILFIELDS WORKERS’ TRADE UNION, 1961 AC 945 (PC)

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(ii) K.K.AHUJA vs. V.K.VORA, (2009) 10 SCC 48 paragraphs 25 & 28.

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(iii) SHYLENDRA SWARUP vs. DEPUTY DIRECTIOR, ENFORCEMENT DIRECTORATE, (2020) SCC ONLINE SC 600 paragraphs 27 & 39.

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(iv) Mr.S.N.SINHA vs. STATE OF KARNATAKA, ILR 2012 KAR 448, para 4

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(v) S.N.BANGUR vs. M/S. KLEN & MARSHALLS MFRS. & EXPORTS PVT. LTD., (2002) 3 CTC 342 (Mad) paras 16 & 17

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The principles laid down in the above decisions can be summarized thus: that any proceedings taken against a person without adequate notice to him infringe norms of natural justice and therefore are invalid; notice does not mean just any kind of notice, but an adequate notice as regards the details of the case which the noticee is asked to meet; a proper notice should indicate the time & place of hearing and specific allegations which the noticee is required to defend himself against; notice should not be vague and that it should give at least required information if not more, about the matter so as to enable the noticee to prepare his defence; a notice in the bare-bones language of the legislation which merely repeats the statutory text without giving the material facts, is inadequate, subject to all just exceptions; Mr. Raghavan is right in his submission that all this is succinctly stated in Jain &

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Jain’s PRINCIPLES OF ADMINISTRATIVE LAW ,

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LexisNexis, 8^th Edn. at pages 485 & 486; learned ASG Mr. Naragund does not have quarrel with the propositions

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arguably emerging from the cited Rulings; however, he submits that these propositions are not invocable in the fact matrix of the case; what is being decided in the contemplated proceedings in terms of notice is only the ‘enquiry worthiness’ of the matter and nothing more than that; it is not that any punitive action will follow; however, this does not mean that a truncated notice can be sustained, is also true.

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(c) This Court is broadly in agreement with the contention of learned ASG that the arguable infirmities in the subject notice pale into insignificance when one looks at the contents of the complaint, a copy whereof admittedly accompanied it; FEMA and the Rules promulgated thereunder do not prescribe the notice format as such; whether a notice is adequate or not, has to be adjudged not just confining the focus only to its contents when it refers to other accompaniments i.e., the complaint herein; the ‘standing’ of the noticee is also one of the relevant factors in adjudging such adequacy; petitioners are not peasants; they are highly educated; it is not their case that they lack exposure to the outer world, transactions of mammoth value with the foreign companies having been done by the noticee company i.e., M/s.Devas Multimedia

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Pvt. Ltd.; there is enough material on record to gather an impression that they were associated with the business of said company; the very Foreign Direct Investment itself is quantified at Rs.579 crore of which Rs.175.87 crore (as mentioned in para 2 of the impugned complaint) is allegedly FEMA-tainted.

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(d) It is not that a bare notice of the kind has fallen on the petitioners as a bolt from the blue; the subject complaint, a copy whereof accompanied the impugned notice gives sufficient particulars making out a specific case which they are asked to meet; as already mentioned above, they were associated with the affairs of the noticee company which too was earlier issued a show cause notice dated 06.06.2016 in connection with the business transaction in question, of course from the PMLA angle; the impugned notice & the complaint are cognate proceedings of the same.

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(e) It is also open to the petitioners even now to solicit information from the said company or persons associated with the same or from the answering respondents who being the instrumentality of State under Article 12 of the Constitution of India would conduct

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themselves as ‘virtuous litigants’ and tall & fair qua the citizens; the respondents would positively respond to such solicitation so that whatever arguable vagueness in the subject notice/complaint would evaporate in thin air; all this has to be done without consuming much time is ideal; thus the argument of the petitioners that the statutory scheme does not provide for the same, does not merit countenance.

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(f) The impugned notice mentions about the petitioners being the persons in charge of and responsible for the conduct of the business of the noticee company during the relevant period; it mentions about their consent, connivance & neglect; it specifies the sum of Rs.180,77,58,989/- as being the equivalent of foreign exchange that is tainted because of alleged violation inter alia of sections 3(b), 5, 6(2)(a) & 10(6) of FEMA r/w. Regulations 3 & 4(a) of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulation 2000; it also mentions of section 42(1) but does not much say about section 42(2), is true; that per se makes no difference to the otherwise validity of impugned notice & the complaint; to an utter stranger, the language & text of the notice may not make much sense, is arguable; but

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petitioners do not claim to be such strangers; they have already participated in the cognate PMLA proceedings and their statements too have been recorded; the complaint made u/s 16(3) of the FEMA that accompanied the notice itself runs into 19 pages that are closely printed; the role of each of the petitioners is specifically and distinctively assigned; ideally speaking, both the notice & the complaint could have been more concrete & articulated, is true; “ There is scope for improvement even in heaven ” said Oscar Wilde (an Irish Playwright 1854-1900 AD); much deliberation in the matter is desirable, lest it should prejudice case of the petitioners before the authorities.

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(g) The decision of a Co-ordinate Bench in

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W.P.No.35188/2016 & connected matters disposed off on 6.10.2017 also to some extent comes to the rescue of respondents; the noticee company and two of its directors had laid a challenge to the show cause notice dated 31.05.2016 that was founded on complaint evenly dated; they were issued under section 16(3) of FEMA proposing to hold adjudication proceedings in terms of section 16(3) and Rule 4 of Rules of 2000; this was substantially on the same fact matrix; the learned Co-ordinate Judge declined to grant indulgence in the matter; one of the petitioners

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therein had carried the matter in W.A.No.6484/2017 that was negatived by the Division Bench vide order dated

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5.7.2019; further challenge thereto in

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S.L.P.No.18534/2019 also failed at the hands of the Apex Court on 9.7.2021; the fact matrix on which the said legal battle was fought arguably fell under section 42(1) of FEMA, does not add any merits to the case of petitioners herein, said difference being not much relevant for consideration, as rightly contended by learned ASG.

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In the above circumstances, these Writ Petitions being devoid of merits, are liable to be dismissed and accordingly, they are, all contentions having been kept open.

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Petitioners are granted a period of four weeks for submitting their reply to the subject notice; discretion lies with the answering respondents to grant some more time as well if a case is made out therefor; it is also open to the petitioners to seek reasonable clarifications from the quarters concerned, if need be.

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The observations herein above made being confined to disposal of these Writ Petitions, shall not shade the reply to be submitted by the petitioners and influence the

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formation of the opinion by the answering respondents as

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to enquiry-worthiness of the matter.

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Costs made easy.

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Sd/JUDGE

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Snb/