Dmt 1 fema 1 & 2-11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION F.E.M.A. APPEAL NO. 1 OF 2011 IN APPEAL NO. 182 OF 2009 Union of India through Asst. Director Enforcement Directorate .. Appellant. versus Shri Ranesh Adani, Managing Director, M/s. Adani Exports Ltd., (Presently known as M/s. Adani Enterprises Ltd.). .. Respondents. WITH F.E.M.A. APPEAL NO. 2 OF 2011 IN APPEAL NO. 181 OF 2009 Dmt 2 fema 1 & 2-11 Union of India. .. Appellant. versus M/S. Adani Exports Ltd. .. Respondents. ..... Mr. R.V. Desai, Sr. Adv. with Mr. A.S. Rao for Appellants. Mr. Vikram Nankani with Mr. Jitendra Motwani i/by Mr. Madhur R. Boya for the Respondents. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 09 DECEMBER 2011. P.C. : These appeals are directed against an order passed by the Appellate Tribunal for Foreign Exchange on 26 October 2009 by which the Tribunal set aside a decision of the Special Director of Enforcement. The Adjudicating Officer had by an order dated 11 May 2009 found that there was a violation inter alia of the provisions of Section 6 (3) (a) of the Foreign Exchange Management Act, 1999 read with the relevant clauses Dmt 3 fema 1 & 2-11 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000. The Tribunal imposed a penalty of Rs. 4 crores on the noticee Company and of Rs. 1 crore on its Director. A separate penalty of Rs. 10 lacs and of Rs. 2,50,000/- respectively was imposed on the Company and its Director for violation of the provisions of Section 8 of the Foreign Exchange Management Act, 1999 ( the Act ) read with “ ” the Regulations. 2. The Revenue has sought to raise the following questions of law. (a) “ Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that the permission dated 7.8.1996, which was granted under FERA, 1973 would still be valid even though the said Act has been repealed in the year 1999 and a new Act i.e. FEMA, has been enacted and is in force; Dmt 4 fema 1 & 2-11 (b) Whether in the facts and circumstances of the case and in law, the permission issued by RBI under the Regulations made under FERA can be said to be valid and effective even though the said Act has been repealed and a new Act and new regulations have been enacted in its place and brought into force ; (c) Whether in the facts and circumstances of the case and in law, in view of provision of Sec. 49 of FEMA, permission issued under the erstwhile Act, is saved ; (d) Whether in the facts and circumstances of the case and in law, the Tribunal is right in holding that no repatriation is necessary ; and (e) Whether in the facts and circumstances of the case Dmt 5 fema 1 & 2-11 and in law, the Tribunal is right in holding that the adjudicating authority is wrong in rejecting the certificate issued by KPMG, only on the ground that said KPMG is a reputed Chartered Accountants’ Company ;” 3. Upon hearing the learned Counsel appearing on behalf of the Appellants and the Respondents, we have come to the conclusion that the Tribunal has in the course of its decision ex-facie failed to consider the findings that were arrived at by the Adjudicating Officer independently in respect of each of the six articles of charge. Consequently, an order of remand to the Tribunal would be warranted. In this view of the matter and for the reasons we would now indicate, it will not be appropriate or proper for this Court to render a finding on the merits of the issues which are raised by the Union of India in the appeals since as the First Appellate Authority, it was for the Tribunal to render a determination after Dmt 6 fema 1 & 2-11 exhaustively considering the findings of the Adjudicating Officer separately on each of the Articles of Charge. 4. The Reserve Bank of India had on 7 August 1996 granted permission to Adani Exports Limited (AEL) to set up a wholly owned subsidiary (WOS) in Mauritius in the field of trading in marine products, agro based products, plastics, PVC goods, shoe polish etc., involving a total investment of US$ 4 million. A Mauritian subsidiary is stated to have set up on 25 January 1997. The Mauritian subsidiary in turn set up second generation subsidiaries in Dubai in November 1997 ‘ ’ and in Singapore in April 2000. A total of US$ 10 million was remitted by AEL to the Mauritian subsidiary. A notice to show cause was issued on 16 September 2008 based on a complaint under sub-section (3) of Section 16 of the Foreign Exchange Management Act, 1999. The show cause notice contained seven articles of charge which were as follows : i) “ Sec. 6(3)(a) of FEMA r/w Regulation 5, 6 and 13(1)(a) Dmt 7 fema 1 & 2-11 of FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 10 million. ii) Sec. 6(3)(a) of FEMA r/w Regulation 5, 6 of FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 10 million. iii) Sec. 6(3)(a) of FEMA r/w Regulation 5, 6 of FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 6 million. iv) Sec. 6(3)(a) of FEMA r/w Regulation 6 of the FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 6 million. v) Sec. 6(3)(a) of FEMA r/w Regulation 13 of the FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 34,80,000. Dmt 8 fema 1 & 2-11 vi) Sec. 6(3)(a) of FEMA r/w Regulation 13 of the FEM (Transfer or Issue of any Foreign Security) Regulation 2000 to the extent of US$ 5,00,000. vii) Section 8 of FEMA r/w Regulation 3 of the FEM (Realisation, Repatriation and Surrender of Foreign Exchange) Regulation 2000 to the extent of US$ 2,71,293.” The Adjudicating Officer, by his decision, came to the conclusion that all the articles of charge, save and except for the fifth article, stood proved and imposed penalties as noted earlier (though the Adjudicating Officer has dealt with the fifth and sixth articles of charge together, the learned Counsel appearing on behalf of the Respondents fairly states that it is the sixth and seventh articles of charge which would have to be read together since they relate to the same transaction). The Tribunal, in the initial part of its decision came to the Dmt 9 fema 1 & 2-11 conclusion that all the rights which flowed from the permission of the Reserve Bank dated 7 August 1996 continued to remain alive even after the enactment of the FEMA in 1999. Though the Tribunal referred to the seven articles of charge in para 7 of its judgment, the entire discussion in paras 8 and 15 is on whether the permission of the Reserve Bank of India would continue to remain alive after the enactment of FEMA. Having held that the permission would continue to remain alive, the Tribunal thereafter has dealt only with the seventh article of charge. Ex-facie, it is evident that the Tribunal has not considered the findings which were rendered by the Adjudicating Officer on the other articles of charge. The Adjudicating Officer had rendered specific findings on all the articles of charge and had, inter alia, come to the conclusion that whereas the permission which was granted by the Reserve Bank of India was for setting up a wholly owned subsidiary for carrying on trading activities, the Mauritian subsidiary did not carry on trading activities but only investment functions. Reading the order of the Tribunal as it stands, it is evident Dmt 10 fema 1 & 2-11 that the findings of the Adjudicating Officer have not been disturbed and the reasoning of the Tribunal is completely silent on this aspect. Even on the seventh article of charge the Tribunal has merely observed that M/s. KPMG are world renowned chartered accountants and it was difficult to imagine as to why their certificate should not be accepted. We are of the view that the case has not received the kind of serious attention which was warranted particularly having regard to the detailed findings which were rendered by the Adjudicating Officer on each article of charge. The jurisdiction of this Court in a second appeal is on a question of law under Section 35 of the FEMA, 1999. We are of the view that the interference of this Court is warranted since the first appellate authority has failed to render specific findings before it overturned the view which was taken by the Adjudicating Officer. 5. That being the position, and without expressing any opinion on the correctness of the findings of the Adjudicating Officer on merits, we set aside the impugned order of the Dmt 11 fema 1 & 2-11 Tribunal dated 26 October 2009 and remit the proceedings back to the Tribunal for a fresh decision. In the view that we have taken, we have not expressed any opinion on the questions of law raised and leave open all the rights and contentions of the parties to be raised before and decided by the Appellate Tribunal. We, however, clarify, by consent, that charge no. 5 which has been dropped by the Adjudicating Officer and on which finding there was no challenge by the Union of India shall not form the subject matter of the proceedings on remand. We leave it open to the Tribunal to consider all the material that may be produced by the Respondents including on the sufficiency of the certificate of KPMG. 5. The appeal is, accordingly, disposed of. There shall be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.) Dmt 12 fema 1 & 2-11