IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22-12-2008 CORAM THE HONOURABLE MR.JUSTICE R.SUDHAKAR Civil Miscellaneous Appeal Nos.494 to 499 of 2008 C.M.A.Nos.494 and 499 of 2008:- M/s.VKC Credit & Forex Services Pvt. Ltd., 1st Floor, Aishwarya Complex, No.1, West Road, West CIT Nagar, Chennai-600 035. ... Appellant/Appellant vs. The Deputy Director, Enforcement Directorate (FEMA), DF Block, CGO Complex, 3rd MSO Building, Kolkota-700 064. ... Respondent/ Respondent C.M.A.Nos.495 and 498 of 2008:- R.Venkatasubramanian, Director, M/s.VKC Credit & Forex Services Pvt. Ltd., 1st Floor, Aishwarya Complex, No.1, West Road, West CIT Nagar, Chennai-600 035. ... Appellant/Appellant vs. The Deputy Director, Enforcement Directorate (FEMA), DF Block, CGO Complex, 3rd MSO Building, Kolkota-700 064. ... Respondent/ Respondent https://hcservices.ecourts.gov.in/hcservices/ C.M.A.Nos.496 and 497 of 2008:- N.Nageswaran, Director, M/s.VKC Credit & Forex Services Pvt. Ltd., 1st Floor, Aishwarya Complex, No.1, West Road, West CIT Nagar, Chennai-600 035. ... Appellant/Appellant vs. The Deputy Director, Enforcement Directorate (FEMA), DF Block, CGO Complex, 3rd MSO Building, Kolkota-700 064. ... Respondent/ Respondent Civil Miscellaneous Appeal No.494 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.131/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/71 as against the order dated 15.12.2005 passed in Order in Original No.25/2005/FEMA/DD/(SLH). Civil Miscellaneous Appeal No.495 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.132/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/72 as against the order dated 15.12.2005 passed in Order in Original No.25/2005/FEMA/DD/(SLH). Civil Miscellaneous Appeal No.496 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.133/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/73 as against the order dated 15.12.2005 passed in Order in Original No.25/2005/FEMA/DD/(SLH). Civil Miscellaneous Appeal No.497 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.134/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/70 as against the order dated 15.12.2005 passed in Order in Original No.24/2005/FEMA/DD/(SLH). https://hcservices.ecourts.gov.in/hcservices/ Civil Miscellaneous Appeal No.498 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.135/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/69 as against the order dated 15.12.2005 passed in Order in Original No.24/2005/FEMA/DD/(SLH). Civil Miscellaneous Appeal No.499 of 2008 is filed under Section 35 of the Foreign Exchange Management Act, 1999 against the final order dated 27.6.2007 passed in Appeal No.136/2006 on the file of the Appellate Tribunal for Foreign Exchange, New Delhi confirming the order dated 31.3.2006 passed in Appeal No.SD(A)/ KOL/2005-06/68 as against the order dated 15.12.2005 passed in Order in Original No.24/2005/FEMA/DD/(SLH). For appellant in all the appeals : Mr.B.Kumar, Senior Advocate for Mr.M.Balagopal For respondent in all the appeals : Mr.Dhandapani, Senior Central Government Standing Counsel. ----- COMMON JUDGMENT This batch of appeals arise out of the proceedings initiated by the Enforcement Directorate against the Company and Directors, who are the appellants herein. 2. The brief facts relevant for disposal of the appeals are as follows:- The appellant in C.M.A.Nos.494 and 499 of 2008 are the company M/s.VKC Credit & Forex Services Private Limited. The appellant in C.M.A.Nos.495 to 498 of 2008 are the Directors of M/s.VKC Credit & Forex Services Private Limited. It appears, on 7.9.2001, the office of the appellant was searched by the Officers of the Enforcement Directorate, Calcutta. Statements were recorded from staff and Managers of the company and documents were seized. A memorandum was issued by the Enforcement Directorate to each one of the appellant calling upon them to show-cause as to why action should not be taken against them under the provisions of Foreign Exchange Management Act, 1999, for contravention of the provisions of Section 10(4) and 10(5) read https://hcservices.ecourts.gov.in/hcservices/ with Section 42 of the Foreign Exchange Management Act, 1999. The primary contention on the part of the Department was that the appellants have misused the Full Fledged Money Changer (i.e.) FFMC Licence by releasing foreign exchange to suspicious persons in the year 2000. In response to the memorandum, a reply was submitted by the appellants. The Deputy Director, Enforcement Directorate (Foreign Exchange Management Act), Government of India, adjudicated the case after following the formalities required under law and passed the following two separate orders dated 15.12.2005 in original in (1) Order No.25/2005/FEMA/DD(SLH) -(File No.T-4/29/Cal/2002/SCN / FEMA/DD/ADJ/6664) (subject matter of C.M.A.Nos.494 to 496 of 2008) and (2) Order No.24/2005/FEMA/DD(SLH)/6647 - (File No.T-4/28/Cal/ 2002/SCN/FEMA/DD/ADJ (subject matter of C.M.A.Nos.497 to 499 of 2008). The Adjudicating Authority found the following persons guilty of contravention of the Section 10(4) and 10(5) read with Section 42 of the Foreign Exchange Management Act, 1999 and passed the following order in Order No.25/2005/FEMA/DD(SLH), subject matter of C.M.A.Nos.494 to 496 of 2008:- "ORDER: Keeping in view of my above findings, I hold M/s.Leather Craft & Goods Export, Shri Manas Kumar Maitra and M/s.VKC Credit & Forex Services (P) Ltd., and their Directors S/Shri R.Venkatasubramanian and N.Nageswaran guilty of the charges. In exercise of powers conferred on me under Section 13(1) of the Foreign Exchange Management Act, 1999, I impose on them the following penalties to meet the ends of justice: M/s.Leather Craft & Goods Export – Rs.5,000/- (Rupees Five thousand only) Shri Manas Kumar Maitra – Rs.2,90,000/- (Rupees two lakhs ten thousand only) M/s.VKC Credit & Forex Services (P) Ltd. - Rs.2,10,000/- (Rupees two lakhs ten thousand only) https://hcservices.ecourts.gov.in/hcservices/ Shri R.Venkatasubramanian, Director – Rs.20,000/- (Rupees Twenty Thousand only) Shri N.Nageswaran, Director – Rs.20,000/- (Rupees Twenty thousand only) The penalty amounts so imposed in terms of the provisions of Section 13(1) of the said Act shall be deposited by the respective parties in the office of the Deputy Director, Directorate of Enforcement, Kolkata by cheques/demand drafts issued in favour of the Chief Enforcement Officer (Admn.), 3rd M.S.O. Building, 6th Floor, C & D Wing, Salt Lake, Kolkata-700 064 within 45 days from the date of receipt of this order." The Adjudicating Authority also passed the following order in Order No.24/2005/FEMA/DD(SLH)/6647, subject matter of C.M.A.Nos.497 to 499 of 2008:- "ORDER: Keeping in view of my above findings, I hold Shri Manas Kumar Maitra and M/s.VKC Credit & Forex Services (P) Ltd., and its Directors guilty of the charges as contained in the Show Cause Notice. In exercise of powers conferred on me under Section 13(1) of the Foreign Exchange Management Act, 1999, I impose on them the following penalties to meet the ends of justice: i) Shri Manas Kumar Maitra – Rs.3,35,000/- (Rupees Three Lakhs thirty five thousand only) ii) M/s.VKC Credit & Forex Services (P) Ltd. - Rs.2,50,000/- (Rupees Two lakhs fifty thousand only) iii) Shri R.Venkatasubramanian, Director – Rs.30,000/- (Rupees Thirty thousand only) iv) Shri N.Nageswaran, Director – Rs.30,000/- (Rupees Thirty thousand only) https://hcservices.ecourts.gov.in/hcservices/ I acquit M/s.Lamco Exports Pvt. Ltd., and its Directors S/Shri Pradip Kumar Kundu and Kamal Chaudhury from the charges framed in the subject Show Cause Notice. The penalty of amounts so imposed in terms of the provisions of Section 13(1) of the said Act shall be deposited by the respective person in the office of the Deputy Director, Directorate of Enforcement, Kolkata by cheques/demand drafts issued in favour of the Chief Enforcement Officer (Admn.), 3rd M.S.O. Building, 6th Floor, C & D Wing, Salt Lake, Kolkata-700 064 within 45 days from the date of receipt of this order." A right of appeal was provided to the parties concerned. They filed appeals to the Special Director (Appeals), FEMA, New Delhi, as follows:- (1) Appeal Nos.SD(A)/KOL/2005-06/71, SD(A)/KOL/2005-06/72, SD(A)/ KOL/2005-06/73 and SD(A)/KOL/2005-06/67 (subject matter of C.M.A.Nos.494 to 496 of 2008) and (2) Appeal Nos.SD(A)/KOL/2005-06/68, SD(A)/KOL/2005-06/69, SD(A)/ KOL/2005-06/70 and SD(A)/KOL/2005-06/66 (subject matter of C.M.A.Nos.497 to 499 of 2008. 3. The Special Director (Appeals) by order dated 31.3.2006 passed the following order in paragraph 9.2 in Appeal Nos.SD(A)/KOL/2005-06/71, SD(A)/KOL/2005-06/72, SD(A)/KOL/2005- 06/73 and SD(A)/KOL/2005-06/67 (subject matter of C.M.A.Nos.494 to 496 of 2008):- "9.2. As far as the appellant No.1, a FFMC and its two directors are concerned, it is an admitted fact that the foreign exchange was delivered at the residence and business premises of Sh.Mahas Kumar Moitra by the FFMC allegedly to three persons but it remained unverifiable whether the three persons namely, Shri Kumaresh Poddar, Shri Bishwanath Roy and Shri Abdul Haque were present at the premises at the time of delivery or not. The FFMC did not verify that when the applications were made for and on behalf of M/s.Leather Crafts and Goods Exports, the payment for the exchange was made by Sh.Moitra from his bank https://hcservices.ecourts.gov.in/hcservices/ account. The FFMC failed to verify whether M/s.Leather Crafts and Goods Exports in fact submitted any such applications. It is not necessary that each and every procedure is outlined by the RBI. The foreign exchange is released for utilisation as per the provisions of FEMA and not for any misutilisation in contravention of provisions of FEMA. If the foreign exchange is released by the FFMC without care and inadequate verification and is found misutilised, the FFMC is equally responsible for its misutilisation. In the present case, in spite of overwhelming evidence, the FFMC did not make any verification and instead delivered the currency at the residence and business premises outside the authorised premises. Therefore, the AA was justified in holding that the appellant company violated provisions of FEMA. The penalty imposed at Rs.2,10,000/- is very reasonable and is confirmed. The two directors of the company are equally responsible for the conduct of the business premises and for contravention of the provisions of FEMA. They are under obligation to see that the provisions of FEMA and guidelines of the RBI are properly applied so that there is no violation. The penalty imposed on these two directors at Rs.20,000/- each is reasonable and is confirmed The three appeals filed by the appellant No.1, 2 & 3 are dismissed." Thereafter, the Special Director (Appeals), passed a further order in paragraph 10 which reads as follows:- "10. While going through these appellate proceedings, following issues were noticed which need further enquiries at the level of the AA. (i) The applications submitted to the FFMC by Mr.Moitra on behalf of Shri Kumaresh Poddar, Shri Bishwanath Roy and Shri Abdul Haque contained particulars of the passport issued to these three persons. Certain photocopies of the travellers cheque were https://hcservices.ecourts.gov.in/hcservices/ forwarded by the American Express Bank which may reveal the foreign visit of these persons. If a proper passport was issued to Shri Bishwanath Roy and Shri Abdul Haque, it is difficult to accept that they were untraceable. Shri Kumaresh Poddar admitted that his passport was lost but the fact remains that the foreign exchange was released on this passport. Enquiries are necessary from the passport office, immigration office and other authorities to verify the existence of these two person, the genuineness of the three passports as claimed in the application forms. Necessary action against them for violation of provisions of FEMA may be required. (ii) Sh.Manas Kumar Moitra admitted that he purchased foreign exchange from the FFMC for his own behalf vide application dt.22.8.2000 and 9.9.2000 in the name of his company M/s.Shree Exports Ltd./M/s.S.G. International and paid through pay orders on its bank account. If the pay orders so issued were utilised for purchasing the foreign exchange on the applications of M/s.Shree Exports Ltd./M/s.S.G. International, company owned by Sh.Moitra, it is necessary to examine as to which pay orders were received/encashed from Bharat Overseas Bank which were received by the FFMC while releasing the foreign exchange to the extent of US$1,25,000 to these three persons. Necessary verification from the Bharat Overseas Bank Ltd., shall be necessary. It may involve unexplained and unaccounted payment for purchase of the foreign exchange. This may require a reference to the Income Tax Authorities. In view of the above, the AA is directed to make further enquiries on these issues and other connected issues afresh for taking further necessary action as considered necessary. For this purpose, the order passed by the AA is remitted back to the AA to this extent only." https://hcservices.ecourts.gov.in/hcservices/ The Special Director (Appeals) by order dated 31.3.2006 passed the following order in paragraph 9.2 in Appeal Nos.SD(A)/KOL/2005- 06/68, SD(A)/KOL/2005-06/69, SD(A)/KOL/2005-06/70 and SD(A)/ KOL/2005-06/66 (subject matter of C.M.A.Nos.497 to 499 of 2008):- "9.2. As far as the appellant No.1, a FFMC and its two directors are concerned, it is an admitted fact that the foreign exchange was delivered at the residence and business premises of Sh.Mahas Kumar Moitra by the FFMC allegedly to three persons but it remained unverifiable whether the other two persons, Sh.Nirpen Biswas and Sh.Swpapan Krishnan Paul were present at the premises at the time of delivery or not. The FFMC did not verify that when the applications were made for and on behalf of M/s.Lamco Exports Pvt. Ltd., the payment for the exchange was made by Sh.Moitra from his bank account. The FFMC failed to verify whether M/s.Lamco Exports Pvt. Ltd., in fact submitted any such applications. It is not necessary that each and every procedure is outlined by the RBI. The foreign exchange is released for utilisation as per the provisions of FEMA and not for any misutilisation in contravention of provisions of FEMA. If the foreign exchange is released by the FFMC without care and inadequate verification and is found misutilised, the FFMC is equally responsible for its misutilisation. In the present case, in spite of overwhelming evidence, the FFMC did not make any verification and instead delivered the currency at the residence and business premises outside the authorised premises. Therefore, the AA was justified in holding that the appellant company violated provisions of FEMA. The penalty imposed at Rs.2,50,000/- is very reasonable and is confirmed. The two directors of the company are equally responsible for the conduct of the business premises and for contravention of the provisions of FEMA. They are under obligation to see that the provisions of FEMA and guidelines of the RBI are properly applied so that there is no violation. The penalty imposed on these two directors at Rs.30,000/- https://hcservices.ecourts.gov.in/hcservices/ each is reasonable and is confirmed The three appeals filed by the appellant No.1, 2 & 3 are dismissed." Thereafter, the Special Director (Appeals), passed a further order in paragraph 10 which reads as follows:- "10. While going through these appellate proceedings, following issues were noticed which need further enquiries at the level of the AA. (i) M/s.Lamco Exports Pvt. Ltd., and its two Directors, Sh.Pradeep Kumar Kundu and Sh.Kamal Choudhary were acquitted, perhaps on the ground that they did not have any connection with Sh.Manas Kumar Moitra or the applications filed by him. However, it is an undisputed fact that the applications were submitted on the letter head of M/s.Lamco Exports Pvt. Ltd. It is also a fact that Mr.Kamal Choudhary in his submissions, admitted that Sh.Manas Kumar Moitra had connection with M/s.Lamco Exports Ltd., as he resigned from the company on this issue alone. Sh.Manas Kumar Moitra also admitted in his statement that he was connected with M/s.Lamco Exports Pvt. Ltd. It is therefore, necessary to examine whether M/s.Lamco Exports Pvt. Ltd., and its directors are responsible for any violation of provisions of FEMA. (ii) The applications submitted to the FFMC by Mr.Moitra on behalf of Shri Nirpen Biswas and Sh.Swpapan Krishnan Paul contained particulars of the passport issued to these three persons. Certain photocopies of the travellers cheque were forwarded by the American Express Bank which may reveal the foreign visit of these two persons. If a proper passport was issued to these two persons, it is difficult to accept that they were untraceable. Enquiries are necessary from the passport office, immigration office and other authorities to verify the existence of these two person, the genuineness of the https://hcservices.ecourts.gov.in/hcservices/ two passports as claimed in the application forms. Necessary action against them for violation of provisions of FEMA may be required. (iii) Sh.Manas Kumar Moitra admitted that he purchased foreign exchange from the FFMC for his own behalf vide application dt.22.8.2000 and 9.9.2000 in the name of his company M/s.Shree Exports Ltd., and paid through pay orders on its bank account. If the pay orders so issued were utilised for purchasing the foreign exchange on the applications of M/s.Shree Exports Ltd., a company owned by Sh.Moitra, it is necessary to examine as to which pay orders were received/encashed from Bharat Overseas Bank which were received by the FFMC while releasing the foreign exchange to the extent of US$1,50,000 to these three persons. Necessary verification from the Overseas Bank Ltd., shall be necessary. It may involve unexplained and unaccounted payment for purchase of the foreign exchange. This may require a reference to the Income Tax Authorities. In view of the above, the AA is directed to make further enquiries on these issues and other connected issues afresh for taking further necessary action as considered necessary. For this purpose, the order passed by the AA is remitted back to the AA to this extent only." Aggrieved by the dismissal of the appeals as above, further appeals were filed to the Appellate Tribunal for Foreign Exchange, New Delhi by all the appellants herein. 4. The appeals were finally disposed off by the Appellate Tribunal by two separate similar orders dated 6.7.2007 with the observation which reads as follows:- https://hcservices.ecourts.gov.in/hcservices/ "3.......... The Special Director (Appeal) has brought out certain issues in paragraph 10 of the impugned order dated 31.3.2006 for reconsideration by adjudication authority. 4. Though learned counsel Shri Balgopal has vehemently challenged the remand made by Special Director (Appeals) FEMA but we do not see any reason not to permit Adjudicating Authority to reconsider the matter when issues outlined in para 10 of the impugned orders are quite relevant to be considered. Therefore, we feel that the impugned orders are correctly passed and required to sustained. The Adjudicating Authority may decide afresh after conducting adjudication proceedings in the manner described in para 10 of the impugned orders. Therefore, these appeals are liable to be dismissed having no merits. An order is passed accordingly." 5. Aggrieved against the above orders passed by the Appellate Tribunal, the appellants filed these Civil Miscellaneous Appeals before this Court. 6. According to the appellants, the order of the Special Director in paragraph 10 has nothing to do with the merit of the case which has already been decided by the Authority against the appellants. All that the Special Director (Appeals) indicated was that further enquiry at the level of Adjudicating Authority was required to be done on certain aspects. In appeals, it was contended that since the Special Director (Appeals) has confirmed the penalty imposed and dismissed the appeals, the appellants are entitled to be heard on merits as against the original adjudication orders and the order in appeals. The appellants contended that except dealing with paragraph 10 of the Special Director’s order, the Appellate Tribunal failed to advert to the various legal and factual issues on merits. The Appellate Tribunal failed to exercise its jurisdiction as the final arbiter on facts. https://hcservices.ecourts.gov.in/hcservices/ 7. The appeals before this court have been filed challenging the entire proceedings starting from the Adjudication proceedings, whereas, the Appellate Tribunal summarily dismissed the appeals in terms of paragraph 10 of the order of the Special Director (Appeals) without going into the merits of the appellants' case. 8. Learned counsel for the appellants contended that the directions given in paragraph 10 as above have nothing to do with the earlier adjudication order in which penalty has been imposed on the appellants and confirmed by the Special Director (Appeals). Therefore, the dismissal of the appeals by the Appellate Tribunal without going into the entire issue raised in appeals has caused prejudice and is a violation on principles of natural justice, besides, being arbitrary. On this premise, the appeals are canvassed before this court. 9. Learned counsel for the respondent/Department though filed a common counter-affidavit restricted his contention to the submission that the appeals are premature and they should have waited for the enquiry as ordered by the Special Director (Appeals) to be completed before approaching this Hon’ble Court for remedy. 10. The other plea taken by the counsel for the respondent is that the appeals are not maintainable as the proceedings were initiated at Calcutta. This plea is, however, not canvassed seriously when the respondent's counsel attention was drawn to the address of the appellant's corporate office at Chennai. The place of usual course of business of the appellant is at Chennai is not disputed and the action is taken at one branch. Further, the Directors against whom action was taken, ordinarily reside and conduct business at Chennai. The Original order refers to the Chennai address and the same is the case of the order of the Special Director (Appeals). Therefore, the said contention does not require any further consideration. 11. The respondent’s counsel laid emphasis on the Department’s stand that it is a case for deciding the issue afresh after conducting the enquiry as stated in paragraph 10 of the Special Director’s order. According to the respondent/Department, the original adjudicating order is not in https://hcservices.ecourts.gov.in/hcservices/ existence now. On this premise, the respondent sought for dismissing of the appeals stating that the Adjudicating Authority should decide the matters afresh. 12. As far as factual issue is concerned, though certain plea has been raised by the learned counsel for the appellant on merit, the counsel for respondent stated that since the matters were remanded for adjudication afresh, it need not be dealt upon and will affect one or other party. No other point was canvassed by the respondent. 13. Having considered the rival submissions, the following factors arise for consideration. Admittedly, there was an enquiry, search, seizure of records and recording of statements. A memorandum of show-cause was issued which culminated in passing of the adjudicating order imposing penalty as set out earlier. Such order has been confirmed by the Special Director (Appeals). In the order in appeal confirming the original order of the Adjudicating Authority as has been extracted above, a further direction has been issued in paragraph 10 by the Special Director (Appeals). This direction is, besides, the order confirming the order of the Adjudicating Authority and the penalty imposed by him. It is, therefore, clear that paragraph 10 of the Special Director’s order is a direction to the Adjudicating Authority to go into the issue further by way of enquiry. It is left to the Adjudicating Authority to decide as to what he will do thereafter. 14. The Appellate Tribunal has not heard the appeals on merits. The contention in appeals is on the ground of violation or alleged misuse of the scheme while releasing of Foreign Exchange and that has to be gone into on merits based on statements, records, etc. Without going into the merits of the contention in appeals, the Appellate Tribunal has merely referred to paragraph 10 of the order of the Special Director (Appeals) and stated that they do not find any reason not to permit the Adjudicating Authority to reconsider the matter in terms of paragraph 10 of the Special Director’s order. They approved paragraph 10 of the Special Director’s order and dismissed the appeals, whereas the entire gamut of the appeals was left out and should have been discussed as to whether the appellants in this case have been found to have contravened the provisions of the Foreign Exchange Management Act. If the order of remand is accepted as contended, then the entire adjudicating order should have been set