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Judgment
T.S. Sivagnanam, J.—The petitioners have filed this Writ Petition praying for issuance of a writ of certiorari to quash the proceedings issued by the respondent dated 15.7.2010.
The impugned proceedings is an interlocutory order passed by the respondent in and by which the respondent rejected the application made by the petitioner for cross examination of the witnesses to the magazer, officers who carried out investigation and recorded statements, the General Manager and Export Manager of the 6th petitioner Company and the officers of customs who assessed the export establishments of the notices. The request for seeking copies of the shipping bills and invoices which have been tendered to the customs officers were also rejected by same order.
The petitioners are manufacturers and exporters of lunghies to Srilankas and Dubai. Investigation was commenced with regard to the allegation of under invoicing of their export and receipt of differential amount through illegal channel. On completion of investigation, show cause notices were issued to the petitioners on the basis of complaint filed under section 16(3) of the Foreign Exchange Management Act, 1999 (FEMA). The petitioners submitted their representation through their counsel on 15.7.2010, for cross examination of the witnesses to the magazer, the officers who carried out investigation, the General Manager and Export Manager of the Company as well as the officers of Customs who assessed the shipping bills. The petitioners also sought for copies of the shipping bills and invoices which had been tendered by them to the customers authorities. Adjudicating authority by the impugned proceedings rejected the request of the petitioners.
Mr.B.Kumar, learned Senior Counsel appearing for the petitioner after elaborately referring to the statutory provisions and the scheme of ''FEMA'' submitted that the entire adjudication proceedings right from the stage of commencement is vitiated for not following the procedure under FEMA. It is submitted that the manner in which the adjudication has to be done is stipulated under the provisions of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 and Rule 4 prescribes the procedure for holding of enquiry. It is submitted that the adjudication proceedings under the Act is differently structured and for which purposes, reference was made under Rule 4 of the Rules. It is submitted that as per Rules, the complaint is given by the Enforcement Officers to the Special-Director who issues the show cause notice. On reply being given by the noticee, the adjudicating authority in terms of Sub Rule 3 of Rule 4 of the Rules has to form an opinion whether the enquiry should be held or not, he may also accept the reply and drop the proceedings. Further such opinion must be in writing and without recording opinion, the adjudicating authority is not entitled to proceed to the next stage.
Further it is submitted that in terms of the decision of the Bombay High Court in the case of Shashank Vyankatesh Manohar Vs. Union of India and The Directorate of Enforcement, , if the noticee wants to be informed of the reasons to be recorded, it should be furnished and the next stage of the proceedings to hold an enquiry can be done only after fifteen days, after communicating the reasons for forming such opinion.
The learned counsel submitted that in the instant case, the adjudicating authority has not adhered to the two tyre procedure contemplated under the Rules and therefore the entire adjudication proceedings commencing from the show cause notice is vitiated. Further, by referring to Sub Rule (6) of Rule 4, it is submitted that right of leading evidence is indispensable part of natural justice and the power to summon and to enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence is an untrammelled right of the noticee. Further, it is submitted that in terms of section 16(1) of the Act, the noticee is entitled to be heard in the matter which includes the right of cross examination and to lead rebutted evidence. Further, it is submitted that right of cross examination have to be granted as it is part of principles of natural justice. It is further submitted that power conferred on the respondent, the Special Director is a quasi judicial power to be exercised in accordance with the Statute and principles of natural justice must be followed since any order passed will affect the personal liberty under section 14 of FEMA, as he can be sent to prison for non-payment of penalty and such/any order to be passed by the adjudicating authority would result in grave prejudice to the noticee. Therefore, it is submitted that the while passing the impugned proceedings this has not considered and the valuable right of the petitioner under Sub Rule (6) of Rule 4 of the Rules has been given a goby, therefore it is liable to be set aside. In the alternate, it is submitted that unless the right of cross examination is granted, the entire proceedings will become a farce.
Reliance was placed on the decisions of this Court in the case of V.BHASKARAN AND OTHERS v. THE SPECIAL DIRECTOR,ENFORCEMEN DIRECTOR [in W.P.No. 18918 of 2000 etc. batch Dated 24.6.2005] and in particular paragraph Nos. 33,37 and 38 of the Judgment, which deals with the right of cross examination. Reliance was placed on the decision of the Hon''ble Supreme Court in the case of Kanwar Natwar Singh Vs. Director of Enforcement and Another, , wherein it has been held that the adjudicating authority is bound to follow the prescribed procedure under the Statute and the Rules and is not free and entitled to device its own procedure for making enquiry while adjudicating under section 13 of the Act. Since it is under legislative mandate the to take adjudication and hold enquiry in the prescribed manner after giving the person alleged to have committed the contravention, against whom a complaint has been made, a reasonable opportunity of being heard for the purpose of imposing penalty. Further, it is submitted that the Hon''ble Supreme Court pointed out that the Rules do not provide and empower the adjudicating authority to straight away make any enquiry into the allegations of contravention against any person against whom a complaint has been received.
Further, the concept of fairness may require the adjudicating authority to furnish the copies of those documents upon which reliance has been placed by him to issue show cause notice requiring the noticee to explain as to why an enquiry under section 16 of FEMA should not be initiated. Further, the principles of natural justice and concept of fairness are required to be read in accordance with Rule 4(1) of the Rules and fair procedure and principles of natural justice are inbuilt into the Rules. Therefore, it is submitted that the impugned proceedings are illegal and liable to be set aside.
Mr.M.Dhandani, learned counsel for the respondent submitted that the Writ Petition is premature as the same has been filed at the show cause notice stage and the petitioners have not given final reply to the show cause notice instead they have chosen to question the legality of the interlocutory order. In this regard, reliance has been placed on the decision in the case of The Special Director and Another Vs. Mohd. Ghulam Ghouse and Another, . Further, it is submitted that the show cause notice is based on documents and statement recorded is with reference to the documents and the contentions raised by the petitioners are wholly untenable. Further, the learned counsel referred to the factual averments in the counter affidavit to justify the stand taken in the impugned proceedings.
It is further submitted that the request made by the petitioner for cross examination even prior to submitting their reply to the show cause notice is misconceived at the present stage contemplated under Rule 4 (1) of the Rules. Therefore, the petitioners should be directed to submit their reply to the show cause notice and thereafter to participate in the proceedings. In support of his contention, the learned counsel placed reliance on the decision of this Court in W.P.No. 18096 of 2013 dated 30.8.2013, W.P.No. 20592 of 2014 dated 25.8.2014 and W.P.No. 14639 of 2014 dated 6.6.2014.
Heard the learned Senior counsel appearing for the petitioners and the learned counsel for the respondents and carefully perused the materials placed on record.
Though the learned Senior counsel for the petitioners made elaborate submissions on the scheme of FEMA and as to how the procedure under Rule 4 of the Rules have to be followed, to decide the controversy involved in this Writ Petition, it may not be necessary to refer to the manner in which the adjudicating authority has commenced the proceedings, since the challenge is only to an interlocutory order passed by the respondent. In W.P.No. 18096 of 2013, somewhat identical prayer was made by the petitioner therein. The said Writ Petition was filed challenging the order passed by the respondents, rejecting the request for cross examination. In fact identical submission was made as in this Writ Petition and this Court after taking note of the procedure contemplated under Rule 4 of the Rules and the decision of the Hon''ble Supreme Court in the case of Surjeet Singh Chhabra Vs. Union of India and others, and Kanungo and Company Vs. Collector of Customs and Others, . , held as follows:
"14. The Foreign Exchange Management Act is a special statute enacted for promoting the orderly development and maintenance of foreign exchange market in India. The Act contains detailed provisions with regard to machinery for contravention of the provisions of the Act, the enforcement of the orders passed by the adjudicating authority and the manner in which the proceedings should be conducted by the adjudicating authority. The Act is a self contained code dealing with all the aspects of the matter. While interpreting a provision of a special statute like FEMA, the nature of proceedings should also be taken into account by the Court.
The complaint produced certain materials before the adjudicating authority to initiate adjudication proceeding. The adjudicating authority has in turn provided all such materials to the petitioner to submit his explanation. It is for the petitioner to submit his explanation with regard to the circumstances pointed out against him. The attempt of the petitioner appears to be to collect materials after cross examining the witnesses and to file an additional reply to escape from the clutches of law. The petitioner has denied the allegations in a vague manner. The intention of the petitioner is very clear. He is not prepared to disclose his defence and he wanted to make out a case after cross examination. The materials now produced by the second respondent before the first respondent does not require cross examination of the persons who have given statement. It is for the petitioner to produce primary materials and to show that there were no valid materials before the first respondent to render a finding against him. In case the first respondent rejects such contention, the petitioner is having a right of appeal under section 17 of the FEMA Act. Therefore, it cannot be said that denial of cross examination would amount to violation of the principles of natural justice.
In the result, the writ petition is dismissed. No costs. Consequently, connected Miscellaneous Petition is closed."
In W.P.No. 20592 of 2014, a prayer was made to forbear the respondents from holding adjudicating proceedings pursuant to the show cause notice without first complying with Rule 4(3) of the Rules and communicate the reasons, this Court by order dated 25.8.2014, dismissed the Writ Petition. While doing so, reference was made to Rule 4 of the Rules and it was observed as follows:
"9. A careful look at the provisions of sub-rules (1) to (12) of Rule 4 would show that the enquiry by the respondent, comprises of five stages, which are as follows:-
The issue of show cause notice of a duration of not less than ten days, calling upon the person to show cause as to why an enquiry should not be held, for any contravention.
The issue of a notice fixing the date for the appearance of the person, if after considering the cause shown by the person to the show cause notice, the adjudicating authority is of the opinion that an enquiry should be held.
The explanation by the adjudicating authority in person, either to the noticee or to his authorised representative, the contravention committed by the noticee with reference to the provisions of the Act or the Rules or the Regulations.
Giving of an opportunity to the noticee to produce such documents or evidence, and the summoning and enforcing of the attendance of any person.
Passing of the orders.
Therefore, the scheme of Section 4 actually provides opportunities at the every stage to the noticee. The forming of an opinion at the stage of show cause notice and receipt of reply, as provided in sub-rule (3) of Rule 4, is almost akin to the forming of an opinion by a disciplinary authority to hold or not an enquiry, upon receipt of a reply to a charge memo in a disciplinary proceeding. Therefore, I do not think that there is any scope for expanding Rule 4(3) to mean that the forming of the opinion as required in Rule 4(3) has to be reflected by an order in writing containing reasons. The interpretation given by the Division Bench of the Bombay High Court to the expression opinion appears to be very elastic.
The learned counsel appearing for the respondent submitted that the petitioner has approached this Court as the very threshold and the proceedings are still in the stage of Rule 4(1) of the Rules. In terms of Rule 4 (1) of the Rules, for the purpose of adjudicating under section 13 of the Act, whether any person has committed any contravention as specified in section 13 of 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, why an enquiry should not be held against him. Though the petitioner would state that they have given a reply to the show cause notice, but it is only a request for cross examination and for furnishing certain details, which the authority has rejected.
As pointed by the Hon''ble Supreme Court in the case of NATWARSINGH, (supra), the statute and the Rules prescribe procedure and the adjudicating authority is bound to follow such procedure and is not entitled to device its own procedure for making enquiry while adjudicating under Section 13 of the Act. Further, it was pointed out that the discretion of the authority is so well structured by the Statute and the Rules. In such circumstances, the prayer sought for by the petitioner for cross examination and to supply copies of documents are wholly pre-mature. The matter is still in the show cause notice stage issued under Rule 4(1) of the Rules. Therefore, the petitioners are bound to submit their reply to the show cause notice and the representation made by them dated 12.7.2010 is misconceived and the respondents rightly rejected the same. The petitioners cannot device their own procedure as per their whims and fancies and they are bound to follow the procedure contemplated under the Act and Rules. Hence, no grounds are made out to interfere with the impugned order.
Learned Senior counsel for the petitioners submitted that the show cause notice itself is vitiated on account of failure to follow the procedure under Rule 4 of the Rules and it is submitted that the adjudicating authority has straight away proceeded to the stage of Rule 4(4) of the Rules.
Though the show cause notice is not the subject matter of challenge in this Writ Petition, nevertheless, since arguments were advanced on behalf of the petitioner, the contentions raised are also considered.
On a bare reading of the show cause notice it is seen that a complaint was made under section 16(3) of FEMA for contravention of the provisions of FEMA. The adjudicating authority on a perusal of the complaint and after considering the cause assigned by the complainant in the said complaint, stated that it appears that there is contravention in the said complaint against the petitioners of the provisions of section 3(c) read with section 42(1) of FEMA, as mentioned in the complaint. Therefore, the petitioner was required to submit reply to the show cause notice in writing within thirty days from the date of notice as to why the adjudicating proceedings as contemplated under section 13 of FEMA should not be held against them for contravention of the provisions of section 3(c) of FEMA as mentioned in the complaint, which was enclosed along with the show cause notice. The attention of the petitioners was invited to Rule 4 of the Rules. Further, the petitioners were directed to appear either in person or through their Legal Practitioners/Chartered Accountants duly authorised by them to explain and produce such documents as may be useful or relevant to the subject matter of enquiry. There is nothing to indicate that the adjudicating authority has straight away proceeded to the stage contemplated under sub rule (4) of Rule 4. The show cause notice does not indicate any such conclusion nor it may be stated that the respondent has violated the procedure under Rule 4 of the Rules. In fact, the attention of the petitioners has been drawn to Rule 4 of the Rules. Therefore, the plea raised by the petitioner that the show cause notice is vitiated for having not following the procedure under Rule 4 of the Rules, deserves to be rejected.
In the result, the Writ Petition fails and it is dismissed. Petitioners are directed to submit their reply to the show cause notice dated 28.5.2009, within a period of thirty days from the date of receipt of a copy of this order. No costs. Miscellaneous Petitions are closed.