1

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

FERA APPEAL NO. 22 OF 2011

1. Mr.Prabodh G. Mehta

2. Smt. Jyotsna Prabodh Mehta

3. Shri Pravin G. Mehta

4. Smt. Chandra P. Mehta

All residing at 54,

Nagdevi Cross lane,

C/o. Mehta Bros. & Co.

Mumbai 400 003 .. Appellants v/s.

1. Union of India

through Ministry of Law & Justice

Aayakar Bhavan, Annexe Building,

Marine Lines, Mumbai 400 020

2. The Special Director of Enforcement,

Janmabhoomi Chambers,

Walchand Hirachand Marg,

Fort, Mumbai 400 001

3. The Appellate Tribunal for Foreign Exchange, Janpath Bhavan,

4th Floor, Janpath,

New Delhi ..Respondents Mr.A.J.Rana, Sr. Counsel with Mr. Madhu Patel for the Appellants. Mr. Salil Shah for the Respondents

Pps 1/23 2

CORAM : J.P.DEVADHAR &

R.Y.GANOO, JJ.

DATED : 5th JULY , 2012

JUDGMENT (PER R.Y.GANOO,J.) :

1. Heard learned Advocates on both sides, Admit.

2. Mr.Salil Shah waives service on behalf of all the respondents. By consent taken up for final hearing.

3. On hearing learned advocates on both sides, following substantial question of law is framed:

a) Whether the Tribunal was justified in affirming the imposition of penalty for the alleged contravention of Section 9(1)(f)(i) of FERA 1973 on the ground that the appellants had paid equivalent Indian currency through Mr. Niranjan Shah to a person outside India without any general or special Pps 2/23 3

exemption granted by the RBI as a consideration for acquisition of US$ 1,00,000/- ?

4. Being aggrieved by the Order dated 24.4.2011 passed by the Appellate Tribunal for Foreign Exchange (for short said Tribunal) in Review Application Nos. 43 - 46 of 2010 confirming the dated 25.3.2009 passed by said Tribunal in Appeal Nos. 253 - 256 of 2002, the present appeal is filed.

5. Few facts necessary for the disposal of this appeal are as under: Each of the appellant received US$ 25000/- in their respective saving bank account on or about 12.10.1991 as and by way of remittance. The said accounts were maintained with Bank of Baroda, Vile Parle (East) Branch, Mumbai 400 057. According to the appellants the said remittances were received by them in accordance with the scheme namely Remittances in Foreign (Immunities ) Scheme, 1991 (" For short said Scheme"). This scheme was framed in Pps 3/23 4

accordance with the provisions of Remittances of Foreign Exchange and Investment in Foreign Exchange Bonds (Immunities and Exemptions) Act, 1999 (For short "the said Act). According to the appellants on account of the provisions of the said Act and the said Scheme, each of the appellant was fully protected in as much as it was not necessary for each of the appellant to disclose what is the nature of the remittance, what is the source of remittance, who had sent the foreign exchange, how this foreign exchange has been generated or earned, whether the remittance is a gift from any person or whether the remittance is the self-earned money of the recipients which has been illegally stacked in the foreign bank, or whether this remittance is on account of Hawala transaction originated from India. It is also the case of the appellants that no action could have been initiated against each of the appellant for having received the remittance in foreign currency as it was fully protected under the said Scheme and the said Act.

6. The appellants received a show cause notice dated 12.3.1997 Pps 4/23 5

from Special Director, Enforcement Directorate (Foreign Exchange Regulation Act) being show cause notice no. T-4/33/B/SDE/PKA/97 (SCN -XV). By the said notice it was alleged that each of the appellant a person resident in India had made a payment of Rs.6,40,000/- and odd in India during September 1991 to May 1992 to Shri Niranjan Shah without any general or special exemption granted by the Reserve Bank of India as consideration for the acquisition/receipt of US $ 25,000/- outside India by said Shri Niranjan Shah and had thereby contravened the provisions of Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 (For short FERA Act) and why adjudication proceedings as per Section 51 of the FERA Act, should not be held against each of them. In the show cause notice a reference was made to payment of the sum of Rs.6,43,476/- by Mr.Prabodh G Mehta, Rs.6,44,260/- by Mrs Jyotsna P. Mehta, Rs.6,44,260/- by Mr. Pravin S. Mehta, Rs.6,43,476/- by Mrs. Chandra P. Mehta to Mr. Niranjan Shah, a person resident in India. It was also alleged in the said notice that each of the aforesaid amount was further transferred to Mr. Nilesh J. Vadhani, a resident in Pps 5/23 6

Dubai and the sum of US$ 25,000/- was received by way of foreign remittance by each of the appellant from said Nilesh Vadhani. According the the respondents and as stated in the said show cause notice, receipt of the foreign remittance by each of the appellant amounted to violation of the provisions of the FERA Act.

7. Each of the appellant had shown cause to the said show cause notice by their respective reply and had claimed immunity against any action on account of the said scheme. It was the contention of each of the appellant that each of the appellant had received foreign remittance by taking the benefit of the said scheme and as such no action should be initiated against them.

8. The cause shown by each of the appellant was considered by the Special Director. The Special Director passed an order dated 24.4.2001. By the said order he came to the conclusion that the charge under Section 9(1)(f)(i) of the FERA Act to the tune of US$ 25000/- was made out against each of the appellant. He held each of the Pps 6/23 7

appellant guilty for the said contravention and imposed penalty of Rs.1,65,000/- on each of the appellant under Section 50 of the FERA Act.

9. Being aggrieved by the aforesaid order dated 24.4.2001, each of the appellant filed appeal before the said Tribunal. The said appeals were numbered as Appeal Nos. 253 to 256 of 2002.

10. The Chairperson of the said Tribunal heard learned Advocate on behalf of the appellants as well as the representative of the respondents and by judgment and order dated 25.3.2009 dismissed the said appeals thereby confirming the order impugned in the said appeals. A perusal of the aforesaid order dated 25.3.2009 indicates that the stand taken by the appellants that they were protected by the said scheme was rejected.

11. The appellants were aggrieved by the aforesaid order dated 25.3.2009. Each of them filed review application before the said Pps 7/23 8

Tribunal being Review Application Nos. 43-46 of 2010 respectively. These review applications were decided by the chairperson of the said Tribunal by order dated 24.2.2011. In the aforesaid review applications the contention of the appellants that they were protected under the said scheme was not accepted and the review applications were rejected.

12. The appellants have therefore filed this appeal so as to challenge the orders as mentioned aforesaid, by which each of them is directed to pay penalty to the tune of Rs.1,65,000/-.

13. Learned Senior Counsel Mr. Rana, appearing on behalf of the appellants took us through the facts as well as the impugned orders. It was pointed out to us that the appellants received foreign remittance of US$ 25000/- on or about 12.10.1991 and each of the appellant had filed a declaration as required under the said scheme. He also took us through the provisions of the said Act and the scheme and pointed out that each of the appellant had complied with the provisions of the said Pps 8/23 9

scheme in as much as after receiving the foreign remittance a declaration as required under the said Scheme was filed with the concerned bank. Learned Sr. Counsel Mr. Rana had therefore pointed out that since the remittances were received during the time when the said scheme was in operation, each of the appellant was protected from any action for having received the said foreign remittance. He took us through the provisions of the immunities granted to a person who receives the remittance under the said scheme framed under the said Act being immunities prescribed under Section 3 of the said Act. He, therefore, submitted that since foreign remittance was received under the said scheme, the action initiated by the respondents in as much as issuance of show cause notice calling upon the appellants to show cause as to why action should not be initiated against them under Section 51 of the FERA Act was not maintainable.

14. Learned Senior Counsel Mr. Rana submitted that it was the consistent stand of the appellants before the Special Director as well as before the Chairperson of the said Tribunal that each of the appellant Pps 9/23 10

had received remittance as per the said scheme and therefore no action could have been initiated against each of the appellant. He took us through the text of the show cause notice and submitted that the respondents have admitted that each of the appellant had paid a sum of Rs.6 lakhs and odd amount to Mr. Niranjan Shah, a person resident in India. According to learned Sr. Counsel Mr. Rana, payment of sum of Rs.6 lakhs and odd amount by each of the appellant to Mr. Niranjan Shah, a person who was resident of India cannot be considered as illegal. He further pointed out that the department before passing the order dated 24.4.2001 did not provide opportunity to each of the appellant to cross examine the persons who had rendered statements in the investigation which was conducted by the respondents. He had also submitted that statements of each of the appellants were not recorded. He had submitted that the Special Director as well as the chairperson of the said tribunal gave emphasis on the record which was collected in the course of investigation namely data found in the possession of Mr. Niranjan Shah wherein it was mentioned that the sum of Rs.6 lakhs and odd amount has been paid by each of the Pps 10/23 11

appellant to Mr. Niranjan Shah between September 1991 and May 1992 and there is corresponding credit entry in favour of Nilesh J. Vadhani. Learned Senior Counsel Mr. Rana had submitted that once it is accepted that the remittance received by each of the appellant was under the said Scheme, each of the appellant enjoyed 100% immunity and no action could be initiated against each of the appellant under the said Act. Learned Senior Counsel Mr. Rana had submitted that the inference drawn by the Special Director as well as the chairperson of the said Tribunal cannot sustain and the said orders are required to be set aside. It was submitted by learned Sr. Counsel Mr. Rana that while filing the appeals before the said Tribunal, each of the appellant deposited sum of Rs.99,000/- as per directions of the said Tribunal. He therefore submitted that each of the appellant is entitled to get back Rs.99,000/- along with interest.

15. Learned Advocate Mr. Salil Shah appearing on behalf of the respondents opposed the submissions advanced on behalf of the appellants. According to learned Advocate Mr. Shah, in the course of Pps 11/23 12

investigation it was noticed that each of the appellant had paid a sum of Rs.6 lakhs and odd amount to Mr. Niranjan Shah and said Mr. Niranjan Shah had entered into an arrangement with Mr. Nilesh Vadhani, a resident of Dubai to have the benefit of the said amount deposited by each of the appellant for getting foreign remittance. Learned Advocate Mr. Shah took us through the order passed by the Special Director and submitted that the account books and the CDs seized from the possession of Niranjan Shah clearly indicate that there was a nexus between each of the appellant, Niranjan Shah and Mr. Vadhani in regard to the transaction namely receipt of Rs.6,44,000/- and odd from each of the appellant by Mr. Niranjan Shah. He also submitted that there was transfer of money by Mr. Niranjan Shah to Mr. Vadhani, and Mr. Vadhani had in turn sent US$ 25000 to each of the appellant. Learned Advocate Mr. Shah had submitted that in the records which were seized from Mr. Niranjan Shah, a list containing names of 36 persons was found, who had paid various amounts to Mr. Niranjan Shah and the name of each of the appellant is found in the said list. He further pointed out that the Special Director, on Pps 12/23 13

consideration of the entire record came to the conclusion that Mr.Vadhani had arranged to remit the said amount to each of the appellant against receipt of compensation in Indian rupees. Mr. Shah submitted that on account of the arrangement arrived at between each of the appellant, Mr. Niranjan Shah and Mr. Vadhani the immunities mentioned in the said Act were not available to the appellants. Learned Advocate Mr. Shah tried to justify the order passed by the Special Director.

16. Learned Advocate Mr. Shah had further taken us through the order passed by the said tribunal being order in appeals as well as order in review proceedings being orders dated 25.3.2009 and 24.2.2011. Learned Advocate Mr. Shah had submitted that the Chairperson of the Tribunal had recorded a finding that the monies were paid out of India without general or special permission from Reserve Bank of India. He also submitted out that though there is protection to the person depositing the foreign exchange in the banks in India, the action of paying equivalent amount in Indian currency to Pps 13/23 14

a non resident is not protected and that is how the penalty can be imposed upon a person under Section 9(1)(f)(i) of the FERA Act who paid Indian currency to a person residing out of India. Learned Advocate Mr. Shah had therefore submitted that the authorities below were right in passing the impugned orders. He therefore submitted that the appeals should be dismissed.

17. We have considered the entire record and the rival submissions advanced across the bar. A perusal of the said scheme framed under the said Act gives various immunities which are listed in Section 3 of the said Act. A perusal of the said Scheme and the said Act would go to show that if monies are received in foreign currency during the time when the said scheme was in progress, no action can be initiated against a person who has received the foreign exchange. So far as the present appellants are concerned, it is common ground that the foreign exchange was received by each of the appellant namely US$ 25000/- in October 1991 i.e. during the period when said scheme was in operation. Once it is held that each of the appellant had received Pps 14/23 15

foreign currency during the time when the said scheme was in operation, it was not open for the Enforcement Directorate to initiate action against each of the appellant under the said Act by alleging that each of the appellant has violated the provisions of Section 9(1)(f)(i) of the FERA Act.

18. We have perused the text of the show cause notice issued by the Special Director. In the said show cause notice it is stated that a sum of Rs.6,40,000/- and odd was paid by each of the appellant to Mr. Niranjan Shah, a person resident in India. From the show cause notice it is apparent that each of the appellant had paid a sum of Rs.6,40,000/- and odd amount to Mr. Niranjan Shah. It is common ground that each of the appellant has received US$ 25000 from Bank of Baroda, Vile Parle (East), Mumbai 400 057. Each of the appellant had furnished declaration under the said scheme. If these are the facts, merely because each of the appellant had paid a sum of Rs.6,40,000/- and odd to Mr. Niranjan Shah, a resident of India, would not be in violation of provisions of the said Act and in particular Section 9(1)(f) Pps 15/23 16

(i) of the FERA Act.

19. We have gone through the order passed by the Special Director. It is the stand of the respondents that investigations were carried out and record was seized in the raid conducted by the Income Tax Department and on investigation it was found by the respondents that the name of each of the appellant was found in the list maintained by Mr. Niranjan Shah. It was also seen in the said record that each of the appellant is said to have paid Mr. Niranjan Shah Rs.6,40,000/- and odd and the said amount is said to have been transferred to Mr.Nilesh Vadhani, a resident of Dubai and in lieu of the said adjustment between Mr. Niranjan Shah and Mr. Nilesh Vadhani each of the appellant received US$ 25000.

20. It is noticed that before passing the order against each of the appellant, the Special Director had not provided the relevant material to each of the appellant. Though each of the appellant had sought an opportunity to cross examine Mr. Niranjan Shah, the said opportunity Pps 16/23 17

was not granted by the Special Director and that the order imposing penalty passed by the Special Director was passed in violation of the principles of natural justice. Ofcourse, we are not inclined to dwell more about it as we are inclined to look to the entire matter from the point of submissions advanced by learned Sr. Counsel Mr. Rana as regards protection granted to each of the appellant by the said Scheme framed under the said Act.

21. After having read the provisions of the said Scheme, and the said Act, we hold that in terms of the said Scheme each of the appellant was fully protected and the Enforcement Directorate could not have initiated action against each of the appellant. The overt act of each of the appellant in receiving US$ 25000 in October 1991 was well within the provisions of the said Scheme. It is noticed that the Special Director for Enforcement Directorate held that since each of the appellant had made payment to Shri Niranjan Shah for being transmitted to Shri Nilesh Vadhani outside India in consideration of remitting foreign currency was in violation of Section 9(1)(f)(i) of the Pps 17/23 18

FERA Act.

22. The stand of the respondents that the receipt of Rs.6,40,000/- by Niranjan Shah from each of the appellant as compensation for remittance of US$ 25000/- each by the appellant could not have been considered by the Special Director as violation of the provisions of Section 9(1)(f)(i) of the FERA Act as each of the appellant was fully protected under the said Scheme. In fact, the stand taken by the respondents that monies were received by Mr. Niranjan Shah for onward dealing with Mr.Nilesh Vadhani and Mr. Nilesh Vadhani sending dollars to each of the appellant clearly indicates that the transaction was arrived for the purpose of acquiring US$ 25000/- each for which immunity was granted as per the scheme.

23. The Chairperson of the said Tribunal while considering Appeals Nos.253-256 of 2010 and the learned Chairperson of the said Tribunal while considering Review Application Nos.43- 46 of 2010 erred in not giving benefit of the said Scheme to each of the appellant. The said Pps 18/23 19

chairperson was wrong in accepting the stand taken by the Special Director while passing the order of penalty. It appears that the said chairperson was impressed by the fact that between the appellants, Niranjan Shah and Mr. Nilesh Vadhani an arrangement was arrived at ultimately to get US dollars as has happened in the present case. In our view, the said chairperson did not take into consideration the effect of the said Scheme. In our view, the conclusions drawn by the said chairperson in ultimately confirming the order passed by the Special Director were wrong.

24. A special reference will have to be made to the finding recorded by the learned Chairperson of the said Tribunal in paragraph 7 of the order dated 24.2.2011 in Review Applications. While deciding the review applications the learned Chairperson in paragraph 7 has held that each of the appellant had paid Indian Ruppees out of India. This finding recorded in paragraph 7 of the said order dated 24.2.2011 is contrary to the record inasmuch as it is the case of the Enforcement Directorate itself that each of the appellant had paid Rs.6,44,000/- and Pps 19/23 20

odd amount to Mr. Niranjan Shah, a person resident in India. It appears that on account of the said finding at paragraph 7 the learned Chairperson had rejected the review applications.

25. For the reasons mentioned aforesaid, we hold that the payments made to Shri Niranjan Shah for being remitted outside India with a view to acquire US$ 25000/- by such appellant would not be in violation of Section 9(1)(f)(i) of the FERA Act in view of the fact that the amount of US$ 25,000/- has been declared as having been received under the said Scheme. Consequently no action could have been initiated against appellants under Section 9(1)(f)(i) of the FERA Act. Consequently, the order passed by the Special Directorate dated 24.4.2001, the order passed by the Chairperson of the said Tribunal in appeal Nos.253 -256 of 2002, and the order passed by the Chair person in Review Application Nos.43 -46 of 2010 cannot sustain and the said orders are required to be set aside.

26. Learned Advocate Mr. Shah appearing on behalf of the Pps 20/23 21

respondents had submitted that each of the appellant had not complied with the order of deposit passed by the said Tribunal as regards deposit of 60% of the amount of penalty in connection with Appeal Nos.253- 256 of 2002. From the record he pointed out that a part of the amount was deposited prior to 25.3.2009 and rest of the amount was deposited after passing of the order by the said Tribunal on 25.3.2009. Learned Advocate Mr. Shah wanted to submit that on this ground this appeal should be dismissed. We are not inclined to accept this submission as the chairperson of the said Tribunal had decided the said appeals on merits.

27. It is noticed that each of the appellant had deposited Rs.99000/- in connection with Appeal nos.253-256 of 2002. Since the orders passed against each of the appellant are being set aside, each of the appellant would be entitled to get back the said amount of Rs.99,000/-. Some time will have to be given to the respondents to pay off the said amount and if the said amount is not paid within the time stipulated, each of the appellant will be entitled to receive interest. In our view, it Pps 21/23 22

would be proper to direct the respondents to pay interest at the rate of 10% per annum.

28. For the reasons mentioned aforesaid following order is passed to dispose off the appeal.

ORDER

i) Order dated 24.4.2001 passed by the Special Director in show cause notice proceeding No.T-4/33-B/SDE/PKA/97(SCN)-XV dated 12.3.1997 is set aside.

ii) Order dated 25.3.2009 passed by the Chairperson of the Appellate Tribunal for Foreign Exchange in Appeal Nos.253-256 of 2002 is set aside.

iii) Order dated 24.2.2011 passed by the Chairperson for the Appellate Tribunal in Review Application Nos.43 - 46 of 2010 is set aside.

Pps 22/23 23

iv) Each of the appellant is entitled to receive from the respondents Rs.99,000/-. Accordingly, respondent nos.1 and 2 are directed to pay Rs.99,000/- to each of the appellant on or before 16.8.2012. If the aforesaid direction is not complied with, respondent nos.1 and 2 shall pay to each of the appellant interest at the rate of 10% per annum on Rs.99,000/- w.e.f. 17.8.2012 till actual payment. v) There shall be no order as to costs.

vi) In view of the disposal of appeal, civil application No.24 of 2011 stands disposed off accordingly.

[R.Y.GANOO, J.] [J.P.DEVADHAR, J.] Pps 23/23