1 wp3154-04 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3154 OF 2004 1. Star India Private Ltd. ] formerly known as News Television India ] Pvt. Ltd., a Company incorporated under ] The Companies Act, 1956 and having ] registered office at STAR HOUSE, C.S. ] No.2/69 of Lower Parel Division Off. Dr. ] E. Moses Road, Behind Famous Studio ] Mahalaxmi, Mumbai - 400 011. ] ] 2. Shri Ajay K. Sharma ] being the Director of the 1st ] Petitioner Company residing at B/403, ] Valencia, 4th Floor, Hiranandani Garden, ] Powai, Mumbai - 400 076. ] ..Petitioners. V/s. 1. Union of India ] through the Joint Secretary, ] Ministry of Law and Justice, ] Ayakar Bhavan, M.K. Road, ] Churchgate, Mumbai - 400 021. ] ] 2. The Assistant Director, ] Enforcement Directorate, having his ] office at the 2nd floor, Mittal Chambers ] Nariman Point, Mumbai - 400 021. ] ..Respondents 2 wp3154-04 Dr. Virendra Tulzapurkar, senior Advocate with Sanjay V. Kadam and Ms. Apeksha Sharma i/b. Kadam & Co. for petitioners. Mr. A.J.Rana, senior Advocate with Mrs. S.V.Bharucha and Rajendra Kumar for respondents. CORAM : J.P. DEVADHAR AND R.M. SAVANT, JJ. JUDGMENT RESERVED ON : 9TH DECEMBER, 2010 JUDGMENT PRONOUNCED ON : 16TH DECEMBER, 2010 JUDGMENT (PER J.P. DEVAHDAR, J.) 1. The petitioners are aggrieved by the order passed by the Assistant Director, Directorate of Enforcement on 20/08/2004, wherein he has rejected the preliminary objections raised by the petitioners and held that the show cause notice dated 31/5/2002 is valid and that the said show-cause notice does not violate the mandate of Section 49(3) of the Foreign Exchange Management Act, 1999 ('FEMA' for short). 2. Petitioner No.1 company incorporated under the Companies Act, 1956 is engaged in the business of television advertisements through the channels of 'Star TV'. Petitioner No.2 is the Director of petitioner No.1 - company. 3 wp3154-04 3. On 06/06/2002, the petitioners received a show cause notice dated 31/05/2002 whereby the Assistant Director, Enforcement Directorate called upon the petitioners to show cause in writing within 10 days as to why adjudication proceedings, as contemplated under Section 51 of the Foreign Exchange Regulation Act, 1973 (‘FERA’ for short) read with Section 49(3) and (4) of the FEMA Act should not be initiated against the petitioners. 4. The petitioners in their reply to the show cause notice raised a preliminary objection regarding the jurisdiction of the adjudicating officer to initiate adjudication proceedings after 31/05/2002, because the show-cause notice dated 31/05/2002 was dispatched on 05/06/2002 and the same was received by the petitioners on 06/06/2002 which was beyond the period of two years from the date of commencement of FEMA and therefore barred by time. 5. By the impugned order dated 20/08/2004 the Assistant Director, Enforcement Directorate held that the show cause notice was signed by the adjudicating officer on 31/05/2002 which implies that the adjudicating officer had taken notice of the alleged contravention of FERA in terms of Section 51 of FERA and since the date 31/05/2002 falls within the period of two years from the commencement of FEMA, the show cause notice signed on 31/05/2002 was valid. Accordingly, the 4 wp3154-04 preliminary objection raised by the petitioners was rejected. Challenging the aforesaid order of the Assistant Director, the present petition is filed. 6. The dispute in the present case is, whether on signing the show cause notice on 31/05/2002 can it be said that the adjudicating officer had taken notice of the alleged contravention of FERA within a period of two years from the commencement of FEMA as provided under Section 49(3) of FEMA. Section 49(1) and (3) of FEMA reads thus :- "49. Repeal and saving. - (1) The Foreign Exchange Regulation Act, 1973 (46 of 1973) is hereby repealed and the Appellate Board constituted under sub- section (1) of section 52 of the said Act (hereinafter referred to as the repealed Act) shall stand dissolved. (2) ----------- (3) Notwithstanding anything contained in any other law for the time being in force, no Court shall take cognizance of an offence under the repealed Act and no adjudicating officer shall take notice of any contravention under section 51 of the repealed Act after the expiry of a period of two years from the date of the commencement of this Act." Thus, Section 49(3) of FEMA empowers the adjudicating officer to initiate proceedings for the alleged contravention of FERA (repealed Act) provided the adjudicating officer takes notice of such 5 wp3154-04 contravention within a period of two years from the date of commencement of FEMA. FEMA came in to force with effect from 01/06/2000, therefore, as per Section 49(3) of the FEMA, the adjudicating officer is required to take notice of the alleged contravention of FERA, within a period of two years, that is, on or before 31/05/2002. If the adjudicating officer fails to take notice of the alleged contravention of FERA on or before 31/05/2002, then proceedings in respect of such contravention of FERA cannot be continued under FEMA. The question in the present case is, whether, the adjudicating officer has taken notice of the alleged contravention of FERA within two years from the commencement of FEMA. 7. According to Dr. Tulzapurkar, learned Senior Advocate for the petitioners, the text contained in Section 49(3) of FEMA has to be interpreted in the context of Adjudication Proceedings and Appeal Rules, 1974 (`Appeal Rules' for short). He submits that the adjudication proceedings under the Appeal Rules is held in two stages. The first stage is when a notice is issued under Rule 3(1) of the Appeal Rules to a person to show cause within the period specified in the notice as to why adjudication proceedings should not be held against him. After the person to whom such notice is issued and cause is shown by the noticee, the adjudication officer is required to form an opinion that adjudication proceedings should be held. The second stage is when 6 wp3154-04 after forming such opinion, the adjudicating officer issues a notice (second notice) fixing a date for the appearance of the person on which date the adjudicating officer is required to explain to the noticee the violation alleged to have been committed by such person and giving an opportunity to such a person to produce documents and evidence as the adjudicating officer may consider relevant to the inquiry. According to the counsel, when the adjudicating officer forms an opinion either to proceed or not to proceed further, it can be said that he has "taken notice" of the alleged violation of FERA. In the present case, the show cause notice dated 31/05/2002 is the first stage notice under Rule 3(1) of the Appeal Rules. The said notice was issued on 05/06/2002 and served on 06/06/2002 giving the petitioners 10 days notice. The said period of 10 days expired on 16/06/2002. It is only after the expiry of the period of 10 days on 16/06/2002 the adjudicating authority could take notice by forming an opinion as to whether adjudication proceedings should be held or not. Therefore, according to the counsel, in the facts of the present case, mere signing of the first stage notice on 31/05/2002 would not amount to forming an opinion under Rule 3(3) of Appeal Rules and consequently it would not amount to "taking notice" under Section 49(3) of FEMA. 8. Relying on a decision of the learned Single Judge of the Madras High Court in the case of R. Sivarajan V/s. Dy. Director reported 7 wp3154-04 in 63 Comp. Cases 34, counsel for the petitioners submitted that the notice under Rule 3(1) of the Appeal Rules is like an office memo and it is only after an opinion is formed after 10 days of serving notice under Rule 3(1), the adjudicating officer can be said to have taken notice under Section 49(3) of FEMA. Although the decision in the case of R. Sivarajan (supra) has been overruled by a Division Bench of the Madras High Court in the case of Dy. Director V/s. Maricair reported in AIR 1990 Madras 22, learned counsel for the petitioners submitted that the said Division Bench decision does not in any manner affect the analysis of the Appeal Rules that the adjudication proceedings are held in two stages. He submitted that what was overruled by the Division Bench of the Madras High Court, was the decision of the learned Single Judge that adjudication does not commence until the second notice is issued. He submitted that the issue involved in the present case is not whether the adjudication proceedings commence with the issuance of the first notice or with the second notice, but the issue involved in the present case is as to when during the two stages of adjudication proceedings that the adjudicating officer takes notice of the alleged violation. Accordingly, counsel for the petitioners submitted that though the adjudication proceedings commence with the issuance of the notice under Rule 3(1) of the Appeal Rules, the adjudicating officer can be said to have taken notice only when he forms an opinion after 10 days of service of the notice under Rule 3(1) of the Appeal Rules. 8 wp3154-04 9. Counsel for the petitioners further submitted that the legislative mandate is that the adjudicating officer must form an opinion only after the first notice is issued and the period prescribed in the notice to show cause has expired and that requirement of forming an opinion is not a mere formality, but a condition precedent to proceed in a particular way. It is at that stage the adjudicating officer applies his mind to the materials placed before him. He submitted that the adjudicating officer is required to take notice at a stage prior to the issue of the second notice and not when the first notice is issued. The legislature mandates the adjudicating officer not to form an opinion without issuing the first notice and giving an opportunity to show cause for which the period is specified in the notice and which is not less than 10 days. In the present case the notice dated 31/05/2002 being the first notice, the adjudicating officer could not take notice or form an opinion on 3105/2002 and, therefore, the adjudicating officer had no jurisdiction to proceed further since he did not take notice within the period of two years from the repeal of FERA i.e. before 01/06/2002. 10. In the alternative to the above submissions, counsel for the petitioners submitted that the words "take notice" has to be interpreted ejusdem generis to the words "take cognizance" appearing in Section 49(3) of FEMA. The words 'take cognizance' has been judicially 9 wp3154-04 interpreted in a number of cases. For example, in the case of Superintendent and legal Remembrancer V/s. Abani Kumar (AIR 1950 Cal 437), the Calcutta High Court has held (see para 7) thus :- "before it can be said that any magistrate has taken cognizance of any offence under Section 190(1)(a), Criminal P.C., he must not only have applied his mind to the contents of the petition, but he must have done so far the purpose of proceeding in a particular way indicated in the subsequent provisions ........ S.200 & ......... S.202". The above observation of the Calcutta High Court have been quoted with approval by the Apex Court in the case of R.R. Chari V/s. State of Uttar Pradesh (AIR 1951 S.C. 207) and in the case of Gopal Das V/s. State of Assam (AIR 1961 S.C. 986). Similar view has been taken in the case of Narsinh Das V/s. Goverdhan Das (2000) 7 SCC 183. Thus, it is submitted that it is only when the adjudicating officer applies his mind to take action in a particular manner, he can be said to have taken notice under Section 49(3) of FEMA. 11. Counsel for the petitioners referred to the decision in the case of S.K. Sinha V/s. Videocon International Limited (AIR 2008 S.C. 1213), wherein the Apex Court has construed the expression 'cognizance' in Section 49(3) of FEMA and held thus :- 10 wp3154-04 " 12. The expression 'cognizance' has not been defined in the Code. But the word (cognizance) is of indefinite import. It has not esoteric or mystic significance in criminal law. It merely means 'become aware of and when used with reference to a Court or a Judge, it connotes 'to take notice of judicially.' It indicates the point when a Court or a Magistrate takes judicial notice of an offence with a view to initiating proceedings in respect of such offence said to have been committed by someone. 'Taking cognizance' does not involve any formal action of any kind. It occurs as soon as a Magistrate applies his mind to the suspected commission of offence. Cognizance is taken prior to commencement of criminal proceedings. Taking of cognizance is thus a sine qua non or condition precedent for holding a valid trial. Cognizance is taken of an offence and not of an offender. Whether or not a Magistrate has taken cognizance of an offence depends on the facts and circumstances of each case and no rule of universal application can be laid down as to when a Magistrate can be said to have taken cognizance. Chapter XIV (Sections 190-199) of the Code deals with 'conditions requisite for initiation of proceedings'. 13. ............ 14. ............ 15. From the above scheme of the Code, in our judgment, it is clear that 'Initiation of proceedings,' dealt with in Chapter XIV, is different from 'commencement of proceedings' covered by Chapter XVI. For commencement 11 wp3154-04 of proceedings, there must be initiation of proceedings. In other words, initiation of proceedings must precede commencement of proceedings. Without initiation of proceedings under Chapter XIV, there cannot be commencement of proceedings before a Magistrate under Chapter XVI. The High Court, in our considered view, was not right in equating initiation of proceedings under Chapter XIV with commencement of proceedings, under Chapter XVI." 12. Counsel for the petitioners further submitted that issuance of first notice is like or equivalent to passing an order for further investigation by the Magistrate exercising powers under Section 156(3) of the Code of Criminal Procedure. When the enforcement officer brings to the notice of the adjudicating officer about the alleged violation of FERA, the adjudicating officer is required to investigate further by issuing first notice and thereafter form an opinion as to whether adjudication proceedings should continue or should be dropped. For the purpose of forming such opinion in terms of of Rule 3(3) of the Appeal Rules, the legislature has mandated the adjudicating officer to issue the first show cause notice with a view to make further investigation which is similar to the exercise of powers by the Magistrate under Section 156(3) of the Code of Criminal Procedure. While the Magistrate has an option whether to order further investigation or not, the adjudicating officer is bound to make further investigation before forming an opinion as to 12 wp3154-04 decide whether to continue further adjudication or not. The adjudicating officer being an executive officer and not a judicial officer, is required by law not to take notice of the alleged violation on placing of material before him by the enforcement officer forthwith but to await reply from the noticee, deal with the reply and thereafter form an opinion whether to proceed further or not. Therefore, issuance of the first notice on perusal of the materials placed by the enforcement officer would not amount to taking notice by the adjudicating officer of the alleged violation of FERA. The action of the enforcement officer submitting facts and circumstances to the adjudicating officer to enable the adjudicating officer to issue the first notice is equivalent to filing of a complaint before the Magistrate and, therefore, issuance of first notice or what precedes before first notice is issued cannot be regarded as taking notice equivalent to taking cognizance of an offence by the adjudicating officer. 13. Counsel for the petitioners further submitted that if the words 'take notice' is not construed to be equivalent to 'take cognizance, anomalous situations would arise and result in hostile discrimination. The anomalous situation would be that in a given case, for the same violation the Magistrate would cease to have jurisdiction to take cognizance of the offence after 31/05/2002 where as the adjudicating officer would be entitled to take notice of the alleged violation after 31/052002. Such an interpretation which renders the provisions of 13 wp3154-04 statute unconstitutional should be avoided and the words "take notice" should be interpreted as ejusdem generis to the words "take cognizance". 14. Lastly, counsel for the petitioners submitted that assuming that the issuance of first notice constitutes "taking notice" under Section 49(3), then, in view of Section 49(5)(a) of FEMA the first notice must be served before 31/05/2002. In support of the above submission, counsel for the petitioners relied upon the decision of the Apex Court in the case of K. Narasimhiah V/s. H.C. Singri Gowda [AIR 1966 S.C.330], C.W.T. V/s. Kundan Lal [AIR 1976 S.C. 1150], decision of the Gujarat High Court in the case of Ambalal Soni V/s. Union of India [AIR 1972 Guj. 126), decision of the Rajasthan High Court in the case of Mool Chand V/s. Union of India (AIR 1990 Raj. 24) and the decision of Calcutta High Court in the case of Supdt. & Legal Remembrancer (supra). Accordingly, counsel for the petitioners submitted that the words 'made' or 'issued' in Section 49(5)(a) of FEMA should be strictly construed to mean that notice must be served before 31/05/2002 so as to keep the action alive and operative notwithstanding the repeal of FERA. In the present case, the notice dated 31/05/2002 was served on 06/06/2002, that is after the expiry of the period of two years from the repeal of FERA on 31/05/2002 and, therefore, the adjudicating officer had no jurisdiction to proceed further and consequently, the impugned notice and the order are liable to 14 wp3154-04 be quashed and set aside. 15. Mr. Rana, learned senior Advocate appearing on behalf of the respondents on the other hand submitted that Rule 3(1) is an integral part of Adjudication Proceedings. It requires the adjudicating officer to issue 'notice to show cause' as distinguished from mere 'notice' as to why adjudication proceedings should not be held against the noticee. Rule 3(2) of the Appellate Rules mandates that the notice under Rule 3(1) should indicate the nature of offence alleged to have been committed by the noticee. Counsel for the respondents submitted that notice under Rule 3(3) is a mere intimation of the date of hearing fixed. As held by the Division Bench of the Madras High Court in the case of Dy. Director V/s. Naina Maricair (supra) the adjudication proceedings under Section 51 of FERA commences with the issuance of notice under Rule 3(1) of the Appellate Rules and, therefore, prior to the issuance of show cause notice under Rule 3(1), the adjudicating officer has to take notice of the contravention under Section 51 of FERA. Unless the adjudicating officer takes notice of the alleged contravention of FERA, he cannot issue show cause notice. 16. Counsel for the revenue further submitted that when the enforcement officer places the materials relating to the alleged contravention of FERA, it may be treated as filing complaint before a 15 wp3154-04 Magistrate in the criminal proceedings and on the adjudicating officer issuing a show cause notice under Rule 3(1) it can be said that the adjudicating officer had taken cognizance of the alleged contravention of FERA and issued the show cause notice. Counsel for the revenue submitted that there is no provision similar to Section 156(3) of Cr. P.C. in FERA vis a vis adjudication proceedings. As such, according to the counsel for the revenue show cause notice under Rule 3(1) of the Appellate Rules constitutes taking notice of the alleged contravention of FERA. In support of the above contention, he relied upon the decision of the Apex Court in the case of S.K. Sinha (supra) . 17. Relying on the decision of the Apex Court in the case of Director of Enforcement V/s. M.C.T.M. Corporation Pvt. Ltd. reported in (1996) 2 SCC 471, counsel for the revenue submitted that adjudicating proceedings and criminal proceedings are quite distinct and separate. It is for this reason that the statements made by a person under the relevant statutes can be used against that person in adjudication proceedings but not in criminal proceedings. Similarly, Article 20(2) of the Constitution is not invoked when a person penalized in the adjudication proceedings is sought to be prosecuted. Therefore, rule of ejusdem generis cannot be applied in interpreting Section 49(3). Assuming that the rule of ejusdem generis applies, even then the show cause notice under Rule 3(1) of the Appellate Rules can be compared to 16 wp3154-04 issuance of the process which is done only after the Magistrate has taken cognizance. 18. Dealing with the alternative submission of the counsel for the petitioners that the words "take notice" must be construed to means 'service of notice', Counsel for the revenue submitted that the legislature in its wisdom has not used the words 'issue notice' or 'give notice'. Therefore, counsel for the revenue submitted that by adopting the rule of purposive interpretation it must be held that the notice signed on 31/05/2002 constitutes 'taking notice' under Section 49(3) of FEMA and since the notice of the alleged contravention of FERA is taken within the period of two years from the commencement of FEMA, the preliminary objection raised by the petitioners has been rightly rejected by the adjudicating officer. 19. We have carefully considered the rival submissions. 20. The question that is to be considered in the present case is, whether the adjudicating officer has taken notice of the alleged contravention of FERA within the period of two years from the commencement of FEMA so as to adjudicate upon such contravention of FERA under the provisions of FEMA. 17 wp3154-04 21. Since FERA is repealed with affect from 01/06/2000, no proceedings under FERA can be initiated for the alleged contravention of FERA after 01/06/2000. However, Section 49(3) of FEMA provides that the adjudicating officer can initiate proceedings under FEMA in respect of the alleged contravention of FERA provided the adjudicating officer takes notice of the said contravention on or before 31/05/2002. 22. In the present case, on the basis of the materials placed by the enforcement officer, the adjudicating officer formed a prima facie opinion that the petitioners have contravened the provisions of FERA and decided to issue a show-cause notice to the petitioners under Rule 3(1) of the Appeal Rules. It is not in dispute that the show-cause notice was in fact prepared and signed by the adjudicating officer on 31-5-2002. The question is, whether signing of the show-cause notice amounts to taking notice under Section 49(3) of FEMA ? 23. The adjudication proceedings under Section 51 of FERA read with Rule 3 of the Appeal Rules framed under FERA consists of two stages. First stage is, when the adjudicating officer forms a prima facie opinion the basis of the materials placed before him, that a person has contravened the provisions of FERA and accordingly issues a notice (first notice) calling upon that person to show cause within such period as may be specified (being not less than ten days from the date of 18 wp3154-04 service thereof) as to why adjudication proceedings should not be held against him. The second stage is, when the adjudicating officer after considering the cause if any shown by such person forms an opinion that the adjudication proceedings should be continued and accordingly issues a notice (second notice) in respect of the alleged contravention of FERA by fixing a date for the appearance of that person either personally or through his representative. In the present case, the show- cause notice dated 31-5-2002 is the first stage notice. The question is, whether