Hon'ble Ravi Nath Tilhari,J.
(Delivered by Hon'ble Manoj Misra,J.)
1. By this petition the petitioner has sought quashing of a show cause notice dated 30th September 2020 issued by the Assistant Director, Directorate of Enforcement, Zonal Office, Lucknow (first respondent) thereby calling for an explanation from the noticee (the petitioner) as to why adjudication proceeding as contemplated in Section 13 of the Foreign Exchange Management Act, 1999 (for short FEMA) be not held against it in the manner as provided in Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (as amended), read with rules and regulations made thereunder and as to why penalty as provided under Section 13 (1) of FEMA be not imposed for the contraventions as brought under the complaint.
2. Before noticing and addressing the issues raised it would be apposite to briefly notice the background facts of the case, as could be elicited from the petition --
(i) The petitioner is a private limited company incorporated under the Companies Act with its registered office at NOIDA.
(ii) The company had been engaged in the business of software development and export of computer & business support services. Initially, the company was incorporated as M/s. Results India Systems Private Limited but as it was acquired by Fiserv Group (based in U.S.A.) in the year 2004, with effect from 24.11.2005, the name of the company was changed to Fiserv India Private Limited.
(iii) On 17.08.2017, under Section 37 of FEMA, 1999, read with Section 133(6) of the Income-Tax Act, 1961, a notice was issued to the petitioner requiring it to furnish information along with documentary evidence for not utilising certain export advances within the stipulated period which the petitioner received through its authorised dealer i.e. ICICI Bank Ltd. According to the petitioner, this notice was never served upon it but, subsequently, the petitioner got it as an annexure with the impugned show cause notice.
(iv) On 05.12.2017, the first respondent sent another letter to the petitioner requiring the petitioner to furnish information along with documentary evidence in respect of not utilising, within stipulated period, 16 export advances that were received by the petitioner through its authorised dealer during financial years 2003-04 and 2004-05.
(v) The petitioner acknowledged the said notice vide letter dated 19.12.2017 and sought two months time to collate relevant documents and information required by the first respondent.
(vi) On 07.03.2018, the petitioner received a reminder letter dated 26.02.2018 from the first respondent, by way of last opportunity, to submit the required information/documents to which, vide letter dated 14.03.2018, the petitioner replied by claiming that there were no export advances outstanding in the books of accounts of the petitioner at the end of financial year 2003-04 and 2004-05. However, as the documents and information sought were from a period 13 years ago, further time was sought to substantiate the defence and make further submissions.
(vii) Thereafter, on 12.04.2018, the petitioner vide letter to the first respondent reiterated its position that there were no non-utilised advances outstanding in petitioner's books of accounts. The petitioner also submitted that the details sought by the first respondent related to a very old period and as relevant employee/officers of the petitioner were no more in petitioner's employment, hence, the petitioner was handicapped in providing details/information of such old transactions. The petitioner also cited certain judicial pronouncements so as to contend that where no period of limitation is provided for initiation of proceedings, the proceedings could only be initiated within a reasonable time.
(viii) On 30.09.2020, in exercise of power under section 16(3) FEMA, a complaint was filed against the petitioner. As per paragraph 2 thereof, the basis of the complaint was a report received from ICICI Bank (authorised dealer) giving details of 10 export advances, amounting to Rs. 1,83,52,635, which were pending utilisation beyond stipulated period and with respect to which inward remittances were received into the account of the petitioner, but requisite documents were not submitted to the authorised dealer to substantiate actual export of goods/ services/ software. In paragraph 5 of the complaint it was mentioned that vide letter dated 18.10.2017 an updated list was provided by the ICICI Bank of 16 export advances (including the 10 reported initially) pending utilisation by the petitioner bringing the total amount of un-utilised advances to Rs.1,96,98,815.67. Thus, alleging that the company had contravened the provisions of FEMA and the person responsible is liable to be punished under section 7(3) of FEMA read with Regulations 10 and 16 of Foreign Exchange Management (Export of Goods and Services) Regulation, 2000, complaint was filed.
(ix) On filing of the said complaint, the first respondent issued impugned show cause notice bearing No. T-4/18/FEMA/LKZO/2020/AD(RV)/2717 dated 30.09.2020, annexing the complaint therewith and calling upon the petitioner to show cause in writing, within 30 days from the date of receipt of the notice, as to why adjudication proceedings as contemplated in Section 13 of FEMA should not be held against the petitioner, in the manner as provided in Rule (4) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (as amended) read with rules and regulations made thereunder, and as to why penalty as provided under Section 13(1) of FEMA be not imposed on him for the contraventions as set out in the complaint.
3. Sri Shashi Nandan, learned senior counsel, assisted by Sri Rahul Agarwal, appearing for the petitioner, urged that although section 7 of FEMA requires every exporter of goods to furnish certain information as specified therein and non furnishing of that information may result in a penalty under Section 13 of FEMA but for initiating proceeding for imposition of such penalty, a complaint has to be filed before the Adjudicating Authority, under Section 16(3) of FEMA, within a reasonable period of such contravention, even though no specific period of limitation for filing such complaint has been provided by FEMA. He submitted that the notice dated 17.08.2017 and the subsequent notice dated 05.12.2017 issued to the petitioner company by the first respondent does not disclose the date as to when the Directorate of Enforcement came to know of non-utilisation of export advances taken by the petitioner company. It has been urged that in absence of disclosure of the date as to when information with regard to non-utilisation of export advances taken by the petitioner company was received by the Directorate of Enforcement, the notice is defective as it fails to disclose as to when the cause of action arose to initiate the proceeding, under the circumstances, considering that the notice deals with alleged contravention that took place more than ten years ago, it is much beyond the reasonable period for commencement of the adjudication proceedings, resulting in serious prejudice to the right of the petitioner to defend itself, hence, the show cause notice, initiating penal proceeding, at such a belated stage, is liable to be quashed.
4. To support the aforesaid submissions, the learned counsel for the petitioner has placed reliance on the following decisions:-
(i) Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari : (2019) 5 SCC 90;
(ii) Joint Collector Ranga Reddy District and another v. D. Narsingh Rao and others : (2015) 3 SCC 695 (paragraph 32 thereof);
(iii) Sanghvi Reconditioners Pvt. Ltd. v. Union of India and Ors., decided on 12.12.2017 by High Court of Bombay, reported in MANU/MH/3805/2017;
(iv) Shirish Harshavadan Shah v. Deputy Director, E.D., decided on 28.01.2020 by High Court of Bombay, reported in MANU/MH/0635/2010 Equivalent to 2010 (254) ELT 259 (Bom.); and
(v) An interim order dated 20.11.2020 passed by Jaipur Bench of Rajasthan High Court in S.B. Civil Writ Petition No. 12937 of 2020 (M/s. Keshav Marble and Granites v. Union of India and another).
5. We have considered the submissions of the learned counsel for the petitioner and have perused the petition carefully.
6. Before we address the submissions advanced, it would be apposite to notice the relevant provisions of FEMA. FEMA was enacted as an Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
7. Section 3 of FEMA, 1999, inter alia, provides that save as otherwise provided in the Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall deal in or transfer any foreign exchange or foreign security to any person not being an authorised person. Clause (c) of section 3 of FEMA, 1999 further mandates that no person shall receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner.
8. Section 2 (c) defines authorised person as follows:-
"Authorised person" means an authorised dealer, money changer, off-shore banking unit or any other person for the time being authorised under sub-section (1) of section 10 to deal in foreign exchange or foreign securities."
9. Section 7 casts certain obligations on exporters of goods and services. Sub-section (3) of section 7 provides that every exporter of services shall furnish to the Reserve Bank or to such other authorities a declaration in such form and in such manner as may be specified, containing the true and correct material particulars in relation to payment for such services. Sub-section (1) of section 7 casts a similar duty on exporter of goods.
10. Section 10 of FEMA, 1999, inter alia, provides in respect of authorisation of any person to be known as authorised person to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit. Sub-section (2) of section 10 confers power on the Reserve Bank to make such authorisation subject to conditions laid down therein and sub-section (4) thereof, inter alia, casts a duty on the authorised person to comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give.
11. Sub-section (5) of section 10, inter alia, enables an authorised person, before undertaking any transaction in foreign exchange on behalf of any person, to require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder.
12. Sub-section (6) of section 10, inter alia, provides that any person, other than an authorised person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to authorised person under sub-section (5) does not use it for such purpose or does not surrender it to authorised person within the specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition of foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made thereunder shall be deemed to have committed contravention of the provisions of the Act for the purpose of this section.
13. Section 11 of FEMA, 1999, inter alia, empowers the Reserve Bank to issue directions to authorised person for the purpose of securing compliance with the provisions of the Act and of any rules, regulations, notifications or directions made thereunder. Sub-section (2) of section 11 empowers the Reserve Bank to direct any authorised person to furnish such information, in such manner, as it deems fit for the purpose of ensuring compliance of the provisions of the Act or of any rule, regulation, notification, direction or order made thereunder. Sub-section (3) of section 11 confers power on Reserve Bank of India to impose penalty on the authorised person in the event of contravention of any such direction. Section 12 empowers Reserve Bank of India to inspect the authorised person.
14. Section 13 of FEMA, 1999 provides for the penalties. It, inter alia, provides that if any person contravenes any provision of the Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under the Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to penalty.
15. Section 16 of the Act deals with appointment of Adjudicating Authority and the process of adjudication on any complaint in writing made by any officer authorised by a general or special order by the Central Government.
16. We have neither been taken through nor we could find any provision in FEMA which may provide a limitation for initiation of the adjudicatory proceeding for imposition of penalty. No doubt, where no provision of limitation is provided then the action is to be taken within a reasonable period. But as to what would be the reasonable period is to depend upon the facts and circumstances of each case, the nature of the Statute, prejudice caused and whether third party rights have been created, etc.
17. In the instant case, the proceedings are against a company. Section 42 of FEMA specifically provides that where a person committing a contravention of any of the provisions of the Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Provided that nothing contained in that section would render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
18. From the averments made in the petition, it does not appear that erstwhile company, namely, M/s. Results India Systems Pvt. Ltd., stood liquidated or dissolved though it appears from the pleadings that the control of the company was taken over by a different group and consequent thereto its name was changed. As the company is a body corporate notwithstanding change of its management its existence continues. Thus, in the eyes of law, the legal person that committed contravention of the provisions of the FEMA continues to exist albeit with a changed name. As to who had been responsible for the affairs of the company at the given time is a matter of evidence and that issue can be raised and even set up as a defence in the proceedings pursuant to the complaint.
19. The proceedings against the petitioner company have been initiated in respect of not utilising, within stipulated period, certain export advances. As utilisation of those advances might have to be proved by submitting information and documents to the authorised dealer i.e the Bank, whether any export advance has been utilised or not, within the prescribed period, might not, on expiry of the stipulated period, automatically come in the knowledge of the enforcement directorate or the prosecuting agency as it would depend on the mode and the manner in which the information is shared with the relevant authorities. Thus, whether the prosecuting agency or the enforcement directorate had been unduly lethargic in prosecuting the defaulter is a pure question of fact which cannot be made basis to quash a show-cause notice at the threshold, which, otherwise, coupled with the complaint, discloses all the necessary ingredients with regard to contravention of the provisions of FEMA warranting adjudicatory proceedings. More so, when the primary duty of furnishing information is on the person who takes export advance and secondary duty, might perhaps be, of the authorised dealer to share the information with the relevant authorities. Only when information is received by the prosecuting agency, which in the present case would be the Directorate of Enforcement, that proceedings for penalty might be initiated.
20. The contention of the learned counsel for the petitioner that neither in the investigation process nor in the show cause notice, the date of receipt of information with regard to contravention of the provisions of FEMA has been mentioned, therefore, the show cause notice is liable to be quashed because it fails to disclose a jurisdictional fact, cannot be accepted because FEMA and the Rules and Regulations framed thereunder do not fix a time limit within which the proceeding is to be initiated. Under the circumstances, it cannot be said that the show cause notice fails to disclose a jurisdictional fact necessary to commence adjudicatory proceeding. Rather, the jurisdictional facts necessary to bring adjudicatory proceedings under FEMA, for imposition of penalty, have been adequately disclosed in the impugned notice coupled with the complaint by alleging that the fact of utilisation of specified export advances within the specified period was not provided by the noticee by furnishing requisite information within the stipulated period. Hence, in our considered view, the notice does not suffer from any such fundamental defect which may warrant its quashment at the threshold.
21. Now, we shall examine the decisions cited by the learned counsel for the petitioner. In Sanghvi Reconditioners Pvt. Ltd.(supra), in a matter arising out of Customs Act, the Bombay High Court had closed the proceedings by taking notice of the fact that the Revenue/Department was not able to justify its failure to adjudicate upon a show cause notice for more than 15 years. In that case, a show cause notice was issued on 28th March 2002. The same was replied by the petitioner on 14th September 2002. The petitioner was called for personal hearing in the year 2004 but, thereafter, there was no communication from the respondents. As the respondents had slept over their right and took no steps for as long as 15 years, despite submission of reply, the proceedings were closed.
22. In the instant case, information was sought from the petitioner in the year 2017 and when, despite letters, information was not provided and a prima facie case with regard to contravention of the provisions of FEMA, 1999 was made out, a complaint was filed in the year 2020 on which the impugned notice has been issued. The facts of the present case are therefore totally distinguishable from those which were there before the Bombay High Court in the case of Sanghvi Reconditioners Pvt. Ltd. (supra).
23. Similarly, in the case of Shirish Harshavadan Shah (supra), which arose out of Foreign Exchange Regulation Act, 1947 and FEMA, 1999, the facts before the Bombay High Court were that consequent to search operations in the month of March, 1990, a memorandum dated 18th March 1991 relating to acts and omission chargeable under the Acts was drawn arising out of certain work carried out by the company in the year, 1982, whereas, notice for hearing on the memorandum was issued to the company and its Director in the month of January, 2004. In those facts, the Bombay High Court took the view that as for a period of 12 years no steps were taken by the respondent to proceed with the adjudication, such a belated proceeding was liable to be quashed.
24. The facts of the instant case are clearly distinguishable from that case inasmuch as here, after receipt of information in respect of contravention of the provisions of FEMA, 1999, notice was issued calling for information and, thereafter, within 3 years, a complaint was filed and impugned notice was issued soon thereafter.
25. In Adjudicating Officer, Securities and Exchange Board of India (supra), the apex court in paragraph 35 of its judgment had not taken any specific decision to close the proceeding on the ground of delay but it only reiterated the general legal principle that when for taking certain action the period of limitation is not prescribed, then such action must be taken within a reasonable time. As to what would be the reasonable time would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third party rights had been created, etc.
26. In the instant case, as we have already noticed, the information in respect of default by the petitioner company cannot be deemed to be with the Directorate of Enforcement, that is the prosecuting agency, therefore, the reasonable period to commence the adjudicatory proceeding would be counted from the date when that information was received by the prosecuting agency. As this is a pure question of fact and it is not shown to us that the default had been in the knowledge of the prosecuting agency far in excess of the reasonable period, the issue whether there had been an unreasonable delay in drawing adjudicatory proceeding would have to be raised and dealt with at the appropriate stage of the adjudicatory proceeding and not at this stage, while addressing a challenge to the show cause notice because the show cause notice, by disclosing the institution of the complaint and specifying the contravention of the provisions of FEMA, discloses all the necessary requirements to warrant initiation of adjudicatory proceeding against the petitioner.
27. Another submission of the learned counsel for the petitioner is that in Joint Collector Ranga Reddy District and another (supra), the apex court in paragraph 32 of its judgment had observed that the notice to initiate proceeding for correction of fraudulent entries ought to have disclosed as to when the alleged fraud was discovered by the State therefore, applying that principle, the impugned show cause notice, which fails to disclose the date of receipt of information with regard to contravention of the provisions of FEMA, 1999, is liable to be quashed.
28. Upon a careful perusal of the judgment of the apex court in Joint Collector Ranga Reddy District and another (supra), it appears that the apex court in that case was dealing with a case where the entries in revenue records were long standing and in public domain and made by Government employees therefore it could be presumed that the entries were made in ordinary course of official business. But, by exercising revisional power suo-motu, long standing entries were sought to be corrected. In that fact scenerio, the Apex Court finding the delay inordinate, in absence of any explanation in the notice, held the delay fatal to the proceeding. In our view, the decision of the apex court in Joint Collector Ranga Reddy District and another (supra) is on entirely different set of facts because there the information of incorrect entries was in public domain and with the authorities, as custodian of the records, who sought their correction, whereas in the instant case the information with regard to non-reconciliation of the export advances was either with the authorised dealer or with the noticee itself and not with the Enforcement Directorate or the complainant, therefore the principle of law laid down by the apex court in Joint Collector Ranga Reddy District and another (supra) would not come to the aid of the petitioner in maintaining a challenge to the show cause notice.
29. In view of the discussion made above, as we find that the complaint discloses all the necessary ingredients to make out a prima facie case with regard to contravention of the provisions of FEMA, the impugned show cause notice issued for adjudication of that complaint does not suffer from any legal infirmity which may justify its quashing, as has been prayed for. The petition is dismissed.
30. It is made clear that dismissal of this petition and any observation made in this order will not prejudice the right of the petitioner to set up its defence, as may be advised, to the notice and in the adjudicatory proceeding.
Order Date :- 05.02.2021 Sunil Kr Tiwari