FPA-FE-47/AHD/2018
1. This is an appeal against the confirmation order passed by the Competent Authority (CA) under the provisions of Section 37(A)(3) of the Foreign Exchange Management Act, 1999.
2. The facts briefly are that the appellant is a company incorporated in India. The company promoted wholly owned subsidiaries and joint ventures abroad. The Managing Directors of the company are Shri Rahul Arunprasad Patel and Shri Amit Dineshchandra Patel. Inc., BVI that FPA-FE-47/AHD/2018 Page 2 of 12 during the period May, 2007 to July, 2009, the appellant i.e. M/s. Sintex Industries Limited had remitted 73.05 million Euros to M/s. Sintex Holding BV, Netherlands as overseas direct investment. M/s. Sintex Holding, Netherland had Shri Amit Dineshchandra Patel as one of its Directors. This company Sintex Holding, Netherland had created a wholly owned subsidiary namely Amarange Inc. which was incorporated in British Virgin Islands (BVI). Further, the money remitted by the Indian company to its Netherland arm were utilised by the said Netherland company for acquiring a property at Singapore in the name of M/s. Amarange Inc. BVI whose Directors were both Shri Rahul Arunprasad Patel and Shri Dineshchandra Patel who were the Directors of the Indian company M/s. Sintex Industries Ltd. also. M/s. Sintex Holdings, Netherland had initiated to sale of M/s. Amarange Inc. They were therefore charged for contravening the provisions of Section 4 of FEMA and action under Section 37-A was initiated which culminated in the impugned order. Both the parties were heard at length.
3. The appellants during the hearing stated the following: a. That they were not arguing the case on merits but were limiting themselves to only legal arguments. b. That Section 37-A was a special provision which was introduced by the Finance Act, 2015. c. That Section 37-A (1) brings out that the Section is activated upon receipt of any information or otherwise. It is an accepted fact that the whole case has originated based on an information as is brought out in the seizure FPA-FE-47/AHD/2018 Page 3 of 12 order dated 15.12.2017; that they are covered by RBI Regulations and have to mandatorily report to them whenever any investment or remittance is made/received from abroad. d. That the provisions of Section 37 and 37(A) are mutually exclusive. While Section 37 gives the power of investigation, Section 37-A does not give any power of investigation to the authorised officer. Hence, the seizure order dated 15.12.2017 is fallacious since it relies on the investigations done. e. He also pleaded that the case pertained to the year 2007- 2009 and that Section 37-A was only introduced in 2015 and therefore it cannot have retrospective effect. f. That the impugned order of the Competent Authority dated 25.05.2018 has travelled much beyond the powers given to him since he has based his order on the basis of the investigation done at the time of the seizure whereas Section 37-A (1) has only four components i.e.
i. Information
ii. Reason to believe
iii. Suspicion of the authorised officer
iv. Recording reasons in writing for the seizure. He, therefore, submitted that the order of the Competent Authority dated 25.05.2018 is bad in law, and pleaded for its quashing and setting aside. They relied on the decision of the Appellate Tribunal dated 13.04.2018 in FPA-FE-01, 03, 04 & 05/DLI/2018 dated 13.04.2018 in the FPA-FE-47/AHD/2018 Page 4 of 12 case of Shri Ashwini Kumar Mehra, Shri Deepak Mehra, Shri Naveen Mehra and Mrs. Shalini Mehra vs. ED.
4. In response, the learned counsel for the respondent stated: a. That Section 37-A and Section 37 are not mutually exclusive. They form part of the same Chapter i.e. Chapter VI of FEMA, 1999. Section 37-A nowhere mentions that the provisions of Section 37 will not be applicable to this Section. b. That recording the reasons in writing as stipulated in Section 37-A (1) has to be based on reason to believe. The whole Section 37-A (1) has to be read harmoniously. c. The reasons why the seizing officers has come to the conclusion for seizing has been clearly mentioned both in the seizure memo as well as in the order of the Competent Authority. He relied on para A-4 of the Reserve Bank of India Circular RBI/FED/2015-16/10, FED Master Direction No. 15/2015-16 dated January 1, 2016 updated as on January 4, 2018 which prohibits making investment or financial commitment in foreign entity engaged in real estate.. In the present case, the impugned order has clearly brought out that the step down subsidiary set up by the Indian company (the appellant) were meant only to buy and sell property abroad. d. On the question of retrospectivity, he relied on the judgement of the Supreme Court in the case of Gokak Patel Volkart Limited vs. Dundayya Gurushiddaiah Hiremath dated FPA-FE-47/AHD/2018 Page 5 of 12 14.02.1991 wherein it was stated the question whether a particular offence is a continuing offence or not must therefore necessarily depend upon the language of the statute which creates that offence, the nature of offence and the purpose intended to be achieved by constituting the particular Act. Applying the law enunciated above to the provisions of Section
630 of the Companies Act, we are of the view that the offence under this section is not such as can be said to have consummated once for all. Wrongful withholding, or wrongfully obtaining possession and wrongful application of the company's property, that is, for purposes other than those expressed or directed in the articles of the company and authorised by the Companies Act, cannot be said to be terminated by a single act or fact but would subsist for the period until the property in the offender's possession is delivered up or refunded. It is an offence committed over a span of time and the last act of the offence will control the commencement of the period of limitation and need be alleged. The offence consists of a course of conduct arising from a singleness of thought, purpose of refusal to deliver up or refund which may be deemed a single impulse. Considered from another angle, it consists of a continuous series of acts which endures after the period of consummation on refusal to deliver up or refund the property. It is not an instantaneous offence and limitation begins with the cessation of the criminal act, i.e. with the delivering up or refund of the property It will be a recurring or continuing offence until the FPA-FE-47/AHD/2018 Page 6 of 12 wrongful possession, wrongful withholding or wrongful application is vacated or put an end to. The offence continues until the property wrongfully obtained or wrongfully withheld or knowingly mis-applied is delivered up or refunded to the company. For failure to do so sub-section (2) prescribes the punishment. This, in our view, is sufficient ground for holding that the offence under section 630 of the Companies Act is not one time but a continuing offence.
5. I have carefully examined the case and also heard the parties in detail. Since the appellant have not pleaded on the merits of the case I will limit to the legal issues only. The pleading of the appellant is that the order by the CA under Section 37-A (3) should be set aside and quashed, meaning thereby that the order of seizure should be quashed and the seizure vacated. In this context, it is necessary to go through the relevant provisions of Section 37-A to appreciate the law. Section 37-A (3) reads as under: The Competent Authority shall dispose of the petition within a period of one hundred eighty days from the date of seizure by either confirming or by setting aside such order, after giving an opportunity of being heard to the representatives of the Directorate of Enforcement and the aggrieved person Section 37-A (4) reads as under: The order of the Competent Authority confirming seizure of equivalent asset shall continue till the FPA-FE-47/AHD/2018 Page 7 of 12 disposal of adjudication proceedings and thereafter, the Adjudicating Authority shall pass appropriate directions in the adjudication order with regard to further action as regards the seizure (emphasis added) made under sub-Section 1..
6. From the above, what is clear from a simple reading which is plain and unambiguous is that the order of the Competent Authority confirming seizure attains finality only when the adjudicating authority disposes of the adjudication proceedings and passes appropriate directions with regard to the seizure. In case, the seized goods are not available or the seizure is quashed, as submitted by the appellant, the provision of Section 37-A (4) will become redundant. The Supreme Court in the case of Union of India & Ors. Vs. Filip Tiago De Gama of Vedem, Vasco De Gama (AIR 1990 SC 981) has laid down the principle that the court cannot read anything into the statutory provision which is plain and unambiguous. The court has to find out legislative intent only from the language employed in the statutes. Surmises and conjectures cannot be for interpretation of the statutes. There is a provision in Section 37-A (5) which states any person aggrieved by any order passed by the Competent Authority may prefer an appeal to the Appellate Tribunal. The powers of the Appellate Tribunal are stipulated in Section 19(3) of FEMA, 1999 which states .. the Appellate Tribunal may after giving the parties to the appeal an opportunity of being heard pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. FPA-FE-47/AHD/2018 Page 8 of 12
7. The powers of the Appellate Tribunal are general in nature and does not have any specific powers. Whereas Section 37-A (4) is a specific provision. In a clash between a general provision and a specific provision, the specific provision would prevail. The decision of the Supreme Court of India in the case of Suresh Nanda vs. CBI dated 24.01.2008 dealt with the issue of a special Act with the specific subject and a general Act. It laid down where there is a special Act dealing with specific subject, resort should be had to that Act instead of general Act providing for the matter connected with the specific Act. The golden rule of interpretation of statues stipulates that no law or any part thereof can be so interpreted to make the other part redundant. The appellants plea of setting aside the seizure would tantamount to that.
8. With regard to the issue whether Section 37-A will have retrospective effect or not, there are decisions of the Supreme Court and other courts on the issue whether a law can have retrospective effect. In the case of CIT vs. Vatika Township (P) Ltd., (2015) 1 SCC 1 pg. 21, the Supreme Court has observed as under:
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrows backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lexprospicit non respicit: law looks forward not backward. FPA-FE-47/AHD/2018 Page 9 of 12
29. The obvious basis of the principle against retrospectivity is the principle of fairness, which must be the basis of every legal rule as was observed in LOfficeCherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective.
30. ....................It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature.
35. We would also like to reproduce hereunder the following observations made by this Court in Govind Das
v. ITO.
11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure......................all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation. From the above decision of the Supreme Court, the following can be concluded: a. Law passed today cannot apply to the events of the past. b. The principle of fairness which must be the basis of every legal rules stipulates that legislation should not modify accrued rights or impose obligations or impose new duties or attach new disabilities. FPA-FE-47/AHD/2018 Page 10 of 12 c. Where a law is enacted for the benefit of community as a whole even in the absence of a provision the statute may be held to be retrospective in nature. In determining the nature of the legislation/Act whether it can have retrospective effect or not regard must be had to the substance rather than to the form. d. Retrospective operation should not be given to a statute so as to take away or impair an existing right or create any obligation or impose a new liability. The following can be concluded from an analysis of the above principles and examination of Section 37-A introduced in FEMA by the Finance Act, 2015: That the offence or the contraventions to which this Section applies is Section 4 which is already existing in the statute. However earlier to its introduction the law laid down was more terse in as much as, in such cases of contraventions it would go through the general procedure of adjudication as laid down in Section 13 of FEMA. Section 13 inter alia in addition to penalty, initiation of prosecution, gave the powers to the Adjudicating Authority to confiscate the said property/security/currency etc. which has contravened the provision of law in this case Section 4. There was no provision of seizure or adjudication of the seizure earlier till the incorporation of Section 37-A which has now given an additional channel of grievance redressal/adjudication to the parties contravening the law. Moreover, seizure and confiscation differ considerably in their meaning and impact. The Oxford English dictionary defines seizure to take hold of suddenly and forcibly while it defines confiscation as appropriate (property) to the FPA-FE-47/AHD/2018 Page 11 of 12 public treasury as a penalty. Hence, while seizure is a measure which is taken as an immediate action it does not bestow the power of appropriation until and unless it is confiscated. The law, before Section 37-A came into being did not give any right to the parties to get their property seized and thereafter agitate as provided under Section 37-A(3) and Section 37-A (4) before the concerned authorities but was more draconian in the sense that they were straightaway confiscated. Section 37-A has in fact enlarged the rights of the parties with regard to the properties etc. which has supposedly contravened the provisions of law, in the present case Section 4. It is nobodys case that Section 4 did not exist prior to the introduction of Section 37-A and there is no dispute on that. Section 37-A has therefore given more rights to the parties and more channels for them to agitate their case. It has mellowed down the impact of Section 13(2), as presently, there would be a separate procedure involving two different stages of adjudication as stipulated under Section 37-A (3) and 37-A (4). The provisions are beneficial to the parties and has extended their rights further than that was provided in law earlier.
9. The decision of this Tribunal dated 13.04.2018 in the case of Shri Ashwini Kumar & Ors. is not relevant as the issue as discussed above has neither been discussed nor dealt with at all. Even on retrospectivity except for quoting the Supreme Courts judgement it has not gone into any details as to how it is relevant in the present case. In Supreme Court in Bharat Petroleum Corporation Ltd. & Anr. vs. N.R. Vairamani & Anr., AIR 2004 SC 778 had observed:- Court should not place reliance on decisions without discussing as to how the factual situation fits in with the FPA-FE-47/AHD/2018 Page 12 of 12 fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclids theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. In Ambica Quarry Works v. State of Gujarat and Ors. MANU/SC/0049/1986 the Supreme Court observed:- The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it.
10. In this background, as the adjudication proceedings under Section 37-A (4) are yet to be finalised and the law stipulates that the seizure shall continue till the disposal of the adjudication proceedings and because of the issue of retrospectivity will not remain, I do not see any legal ground to interfere with the orders of the Competent Authority at this stage. In any case, the appellants will have the liberty to file appeal against the adjudication order as and when passed, under Section 19 of FEMA, when it would be open to them to agitate all the issues raised before the adjudicating authority, if they are aggrieved. I, therefore, dismiss the appeal as rejected. (Ananya Ray) Member New Delhi, 11th December, 2018
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