1 FERA NOS.70,71 & 72 OF 2009 lgc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION FERA APPEAL NO.70 OF 2009 WITH CIVIL APPLICATION NO.Y-68 OF 2009 Hasmukh K Rawal ] Having his address at Dharam Jyot ] Bungalow No.2, Near Kandawadi Lane ] Bandra (W), Mumbai 400 050 ]... Appellant. versus 1 Union of India ] through Joint Secretary, Ministry of ] Law and Justice, having its office at ] Aayakar Bhavan, M K Road, ] Churchgate, Mumbai 400 020 ] ] 2 The Appellate Tribunal for Foreign ] Exchange, having its office at ] Janpath Bhavan, `B’ Wing, 4th Floor, ] Janpath New Delhi-110 001 ] ] 3 The Special Director, Enforcement ] Directorate, having his office at ] 1st floor, Janmabhoomi Chambers ] Walchand Hirachand Marg, ] Bombay 400 001 ]... Respondents. WITH FERA APPEAL NO.71 OF 2009 WITH CIVIL APPLICATION NO.Y-69 OF 2009 M/s.Mandlia Developers (P) Ltd. ] Having its registered office at 44/45 ] Vinayak Complex, Residency Road, ] Bangalore ]... Appellant. versus 1 Union of India ] through Joint Secretary, Ministry of ] Law and Justice, having its office at ] Aayakar Bhavan, M K Road, ] Churchgate, Mumbai 400 020 ] 2 FERA NOS.70,71 & 72 OF 2009 ] 2 The Appellate Tribunal for Foreign ] Exchange, having its office at ] Janpath Bhavan, `B’ Wing, 4th Floor, ] Janpath New Delhi-110 001 ] ] 3 The Special Director, Enforcement ] Directorate, having his office at ] 1st floor, Janmabhoomi Chambers ] Walchand Hirachand Marg, ] Bombay 400 001 ]... Respondents. WITH FERA APPEAL NO.72 OF 2009 WITH CIVIL APPLICATION NO.Y-70 OF 2009 Pushpa H Rawal ] Having her address at Dharam Jyot ] Bungalow No.2, Near Kandawadi Lane ] Bandra (W), Mumbai 400 050 ]... Appellant. versus 1 Union of India ] through Joint Secretary, Ministry of ] Law and Justice, having its office at ] Aayakar Bhavan, M K Road, ] Churchgate, Mumbai 400 020 ] ] 2 The Appellate Tribunal for Foreign ] Exchange, having its office at ] Janpath Bhavan, `B’ Wing, 4th Floor, ] Janpath New Delhi-110 001 ] ] 3 The Special Director, Enforcement ] Directorate, having his office at ] 1st floor, Janmabhoomi Chambers ] Walchand Hirachand Marg, ] Bombay 400 001 ]... Respondents. Mr.Vikram Nankani a/w Mr. Khokawalla i/by M/s.Nankani & Associates for the Appellants. Mr.Rui Rodrigues with Mr. R V Desai, Senior Counsel with Mr. M S Bhardwaj for the Respondent Nos.1 & 3. 3 FERA NOS.70,71 & 72 OF 2009 CORAM : V.C.DAGA AND R M SAVANT, JJ Reserved for Judgment on : 6th September 2010 Pronounced Judgment on : 12th October 2010 JUDGMENT : [PER R M SAVANT, J] 1 The above Appeals are directed against the Judgment and Order dated 12.6.2009 passed by the Appellate Tribunal for Foreign Exchange, New Delhi. By the said order, the Appeals filed by the Appellants above named came to be dismissed and the penalty imposed against each of the Appellants came to be confirmed. 2 Since a preliminary issue as regards the maintainability of the above Appeals in this Court on the ground of territorial jurisdiction was raised by the Respondents, the parties were heard on the said issue. FACTUAL MATRIX 3 The factual matrix involved for adjudication of the said issue in the above Appeals can be stated thus :- The Appellant in Appeal No.71/09 i.e. M/s.Mandlia Developers (P) Ltd. (for short “the Company”) is a company incorporated at Bangalore. The Company has its registered office at Bangalore. The authorised capital of the said Company is Rs.20 lakhs divided into 20,000 equity shares of Rs.100 each. One Mrs.Pushpaben Rawal and Shri Lava Ponnappa were the first Directors of the said Company. Subsequently one Mr.Hasmukh Rawal was appointed as a Director of the said Appellant on 1.8.1992. On or about 3.2.1989 the said Company entered into an agreement with one M/s.Hemadri Associates and Association of Persons/Co-owners to construct a Hostel- cum-Shopping Complex for the consideration, that the said M/s.Hemadri Associates 4 FERA NOS.70,71 & 72 OF 2009 would sub-lease the entire building (except the shopping area in basement and ground floor and no other consideration) On 17.11.1995 Mrs.Pushpa Rawal and Mr.Lava Ponnappa the first directors of the Appellant entered into an agreement with one Mr.Jagpaul Singh Gill, a resident of Vancouver, Canada for sale of full paid up equity shares of Rs.100 each as also the entitlement of the Directors to the allotment of further shares of Rs. 41,17,000/- of the Appellant for a consideration of Rs.7,25,00,000/-. In terms of the said agreement Mrs. Pushpa Rawal received advance sum of Rs.One crore from Mr. Jagpaul Singh Gill. The balance consideration was to be received in installments on certain conditions being fulfilled on behalf of both the parties. It is the case of the Appellant that the said Jagpaul Singh Gill did not obtain the necessary permissions and discharge his part of the obligations under the said agreement and consequently no shares were transferred to him and the sub-lease rights were still with the Appellant. A show cause notice dated 22-02-2002 bearing No.T/4/12- B/SDE/AKB/2002 came to be issued to the said Company along with its Directors for alleged contravention of the provisions of section 16(1)(a) read with Section 68(1) of the Foreign Exchange Regulation Act, 1973 (for the brevities sake refers to as “ the FERA”). It was alleged in the said show cause notice that the Appellant and the other co-noticees failed to take steps to realize the said amount of Rs.7.25 crores from the said Gill. The said show cause notice was replied to by one of the Directors Hasmukh K Rawal by filing two replies dated 16.04.2002. The said show cause notice was adjudicated by the Respondent No.3 herein who by his order dated 27.12.2002 imposed a penalty amount of Rs.10,00,000/- on each of the Appellants for the contravention of section 16(1)(a) of the FERA. 5 FERA NOS.70,71 & 72 OF 2009 4 Aggrieved by the order dated 27.12.2002 the Appellants filed separate Appeals to the Respondent No.2 inter alia on the grounds mentioned in the Memorandum of Appeal. Along with the said Appeals, the Appellants also filed Applications for waiver of pre-deposit of the penalty amount. By an order dated 28.10.2002, the Tribunal was pleased to waive the pre-deposit of the amount of penalty. The Appellant also filed written submissions before the Tribunal on 15.03.2004. The said Appeals were decided by the Tribunal by the impugned order dated 12.06.2009 by which order the Tribunal rejected the Appeals and confirmed the penalty levied on each of the Appellants above named. Being aggrieved by the said order dated 12.06.2009, passed by the Tribunal that the Appellants have filed the instant Appeals in this Court. 5 In the above Appeals a preliminary objection has been taken by the Respondents i.e. the Department as regards the maintainability of the above Appeals in this Court on the ground that this Court does not have territorial jurisdiction to entertain the above Appeals. The said objection has been taken on the touchstone of Section 35 of the Foreign Exchange Management Act, 1999 (for brevities sake refers to as “the FEMA) and especially the Explanation thereto, the said Explanation is reproduced herein under :- “(a) The High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain.” Since the parties were of the view that the issue of jurisdiction goes to the root of the matter as regards maintainability of the Appeals before this Court, they were desirous of the said issue being decided at the threshold. 6 FERA NOS.70,71 & 72 OF 2009 6 We therefore heard the learned counsel Shri Nankani for the Appellants, the learned counsel Shri Rodrigues for the Respondent Nos.1 and 3. 7 The submissions made on behalf of the Respondents on the said preliminary issue as regards jurisdiction of this Court can be culled out as under :- It is submitted on behalf of the Respondents that in terms of Section 35 of the FEMA, the High Court means, the High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain. Since the Company had its business interest centred around in Bangalore as they proposed to develop a property in Bangalore in respect of which an agreement was entered into. The business activities of the Company were therefore carried out at Bangalore and therefore the High Court of Karnataka would have jurisdiction. That all the compliances of the said agreement were to be at Bangalore, including payment of taxes etc and, therefore, in the absence of any material relatable to any business activity in Mumbai, it is crystal clear that the Company has been ordinarily carrying on its business at Bangalore. That the provisions of section 20 of the Code of Civil Procedure are not applicable, in view of the unambiguous statutory provisions contained in Explanation (a) of section 35 of the FEMA. That there cannot be a distinction between the Company and the Directors more so in the instant case where the two Directors were the registered holders of the entire share capital of the Company and, therefore cannot be understood to act apart from the Company in their so called individual capacities. That the reliance placed by the Appellant on the minutes of the Board Meeting dated 28.08.1998 is misplaced as the resolution, passed in the said Board Meeting, only refers to the administrative office of the Company 7 FERA NOS.70,71 & 72 OF 2009 which is to be looked into from the context of the opening of the Current Account with the Bank. It is submitted that assuming that such a resolution was passed, the administrative office if situated elsewhere vis-a-vis the registered office, it will be for all practical purposes treated as a branch office and, therefore, the provisions of Section 209(2) read with sections 209 A and 228 of the Companies Act will be applicable. That the Appellant has not produced an iota of evidence to demonstrate that it has carried on any type of business in Mumbai, save and except making a vague averment in para 19 of the Appeal that it has an address in Mumbai. The expression ordinarily carries on business would mean regularly or habitually not casually. It obviously cannot mean “always”. The plain and popular meaning of the word “ordinarily” means usually, normally and exceptionally as contrasted with extraordinarily. In terms of Explanation (a) to Section 35 of the FEMA, since the registered office of the Company is in Bangalore and since the business was carried out in Bangalore, the instant Appeals would not lie in this Court and would lie in the High Court of Karnataka. The Respondents in support of their said submission have relied upon the judgment of the Apex Court in the case of Stridewell Leathers (p) Ltd and others v/s Bhankerpur Simbhaoli Beverages (P) Ltd. reported in (1994) 1 SCC 34 . 8 Submissions on behalf of the Appellants :- It is submitted that by a Board Resolution dated 20.08.1998, the company has set up an administrative office at Bombay and also opened a bank account with Indian Overseas Bank and, therefore, this Court would have jurisdiction. For the said purpose, the Appellants relied upon the judgment of the Apex Court in the case of Ambica Industries v/s. Commissioner of Central Excise reported in (2007) 6 SCC 769. It is submitted that the investigations were started at Bombay in relation 8 FERA NOS.70,71 & 72 OF 2009 to the said Agreement in the course of which, statements were recorded at Bombay; that the show cause notice dated 22.02.2002 was issued at Bombay answerable to the Special Director, Bombay; that the case was adjudicated by the Special Director, Bombay vide order dated 27.12.2002. Therefore, this Court would have jurisdiction. It is submitted that the expression “carries on business” also covers a small part of the business which may be carried on within the jurisdiction of this Court. The genesis of the cause of action is the Agreement which was entered into at Bombay for the sale of shares and the cause of action in relation to the instant case therefore arises within the jurisdiction of this Court. It is also submitted that the two directors reside at Bombay and the company maintains a bank account at Bombay. All these factors, according to the Appellants, cumulatively show beyond doubt that the company carries on business at Bombay and therefore in terms of Explanation to Section 35 of FEMA the Appellants are entitled to file the Appeals at Bombay. It is submitted that since branch office of the Appellant is situated at Bombay, it would have to be held that the company also carries on business at Bombay and therefore the Appeals are maintainable. In support of these submissions the Appellants have relied upon the judgment of the Apex Court in the case of Jindal Vijayanagar Steel v/s. Nindal Praxair Oxygen Co. Ltd. reported in (2006) 11 SCC 521, in the case of Patel Roadways Ltd. v/s. Prasad Trading Company reported in (1991) 4 SCC 270 and in the case of Ambica Industries v/s. Commissioner of Central Excise reported in (2007) 6 SCC 769. CONSIDERATION : 9 We have given our anxious consideration to the rival contentions raised by both the parties. 9 FERA NOS.70,71 & 72 OF 2009 10 Since a preliminary issue of jurisdiction of this Court to entertain the above Appeals has been raised on behalf of the Respondents, it would be apposite to advert to the relevant statutory provisions. In so far as FERA was concerned the relevant provision governing territorial jurisdiction is Section 54 and the same was reproduced herein under :- “Section-54 :- Appeal to High Court ------- An appeal shall lie to the High Court only on questions of law from any decision or order of the Appellate Board under sub-section (3) or sub-section (4) of Section 52. Provided that the High Court shall not entertain any appeal under this section it it is filed after the expiry of sixty days of the date of communication of the decision or order of the Appellate Board, unless the High Court is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. Explanation --- In this section and in Section 55, “High Court” means-- (i) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain; and (ii) where the Central Government is the aggrieved party, the High Court within the jurisdiction of which the respondent, or in a case where there are more than one respondent, any of the respondents ordinarily resides or carries on business or personally works for gain.” Since the said Act has been repealed and in its place FEMA has come into force. Section 35 of the FEMA is the governing section and the same is reproduced herein under :- “Section 35 :- Appeal to High Court ---- Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order. 10 FERA NOS.70,71 & 72 OF 2009 Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. Explanation-- In this section “High Court” means --- (a) the High Court within the jurisdiction of which the aggrieved party ordinarily resides or carries on business or personally works for gain; and (b) where the Central Government is the aggrieved party, the High Court within the jurisdiction of which the respondent, or in a case where there are more than one respondent, any of the respondents, ordinarily resides or carries on business or personally works for gain.” (emphasis supplied) As postulated in Explanation to Section 35 of the FEMA, “High Court” would mean, the High Court within whose jurisdiction the aggrieved party ordinarily resides or carries on business or personally works for gain. In the context of the said provision, the facts of the present case would have to be seen so as to determine the said preliminary issue. In the instant Appeal, it is an undisputed fact that, the registered office of the company is at Bangalore. On 03/02/1989 the Company entered into an agreement with one M/s.Hemadri Associates and Association of Persons/Co-owners to construct a Hostel- cum-Shopping Complex in Bangalore for a consideration that the said M/s. Hemadri Associates would sub-lease the entire building (except the shopping area in basement and ground floor and no other consideration). Under the said agreement, the Company was to fulfill its obligations in Bangalore as the site in question was situated in Bangalore and in terms of the said agreement, the Courts in Bangalore were to have exclusive jurisdiction. The agreement entered into with Jagpaul Singh Gill at Bombay for the sale of fully paid up equity shares of the said two directors of the said Company was therefore in respect of a company which had its business activities centered 11 FERA NOS.70,71 & 72 OF 2009 around in Bangalore. Under the said agreement for purchase of shares, the said Jagpaul Singh Gill was to purchase the entire share holding of the said two directors of the company. Therefore, the said Agreement for the sale of shares which is the basis on which action against the Appellants in Appeal Nos.70, 71 and 72 has been taken under the FEMA, though entered into at Bombay, would have no bearing on the issue of jurisdiction of this Court. What is to be seen is as to the fact as to where the company ordinarily carries on its business. The facts mentioned above viz. that the registered office of the company is at Bangalore; that the company was to develop a property in Bangalore, is unequivocally a pointer to the fact that the company ordinarily carries on its business in Bangalore. Though it is sought to be contended on behalf of the Appellants by relying upon the fact that by the resolution passed in the year 1998, an administrative office of the company was opened in Mumbai as also a bank account in Mumbai. In our view, the said contention has been raised by the Appellants to extricate themselves from the situation where the Appellants would have to approach the High Court of Karnataka. In our view, the fact that the administrative office was opened in Mumbai and that the company had a bank account in Mumbai would not confer jurisdiction on this Court, in the absence of any material on the basis of which it could be said that the company ordinarily carried on its business in Mumbai. 11 We are also not impressed by the submission made on behalf of the Appellants that as the said directors had entered into an agreement for sale of their share holdings in their individual capacity and since the said directors reside in Mumbai, this Court would have jurisdiction notwithstanding the fact that the company had its registered office in Bangalore. It is required to be noted that the said two 12 FERA NOS.70,71 & 72 OF 2009 directors Mrs. Pushpa Rawal and Mr. Lava Ponnappa are first two directors of the company and the agreement was in respect of the sale of the shares of the company which as indicated above can be said to ordinarily carry out its business in Bangalore at the relevant time. Therefore, there can be no splitting of the cause of action between the company and the appellant in FERA Appeal No.71 of 2009 and the other appellants. 12 Since the agreement which has given cause for action under the FEMA was in respect of shares of the company which has its business activities centered around in Bangalore and since the Company has its registered office in Bangalore, in our view, the whole intrinsic cause of action can also be said to have arisen in Bangalore and therefore the Company’s Appeal would lie before the High Court of Karnataka. Since the Company’s Appeal would lie before the High Court of Karnataka, the Appeal Nos.72/09 and 73/09 filed by the Appellants, who are the directors of the said company, cannot be segregated on the ground that the directors reside in Mumbai and, therefore, the said Appeals would also lie before the High Court of Karnataka. 13 In so far as the judgments cited on behalf of the Appellants are concerned, the said judgments are all based on the different facets of Section 20 of the Code of Civil Procedure. In the judgment in Patel Roadways Limited (supra), the Apex Court has held that where the company has its principal office at one place and the subordinate office at another place and the cause of action arises at the place where the subordinate office is located, the suit would have to be filed only in the court within 13 FERA NOS.70,71 & 72 OF 2009 whose jurisdiction the company/corporation has its subordinate office and not in court within whose jurisdiction it has its principal office. The next judgment on which the reliance was placed by the learned counsel for the Appellants is the case of Jindal Vijayanagar Steel Ltd (Supra). The facts in the said case were that the Agreement under which dispute arose was approved, reviewed and discussed by Board of Directors of the Appellant in Bombay. At the time of filing of the Petition under Section 9 of the Arbitration and Conciliation Act, 1996, the Appellant was having its corporate office at Bombay from where it was carrying on its business. The Appellant’s entire senior management and Directors was stationed at Bombay and during pendency of the said Appeal, the Appellant had shifted its registered office at Bombay. In the said context, the Apex Court has held that this Court would have jurisdiction to entertain the Appeal filed by the Respondents. The said decision was rendered by the Apex Court considering Clause 12 of the Latters Patent and Section 20 of the Code of Civil Procedure. The last judgment relied upon by the Appellant is in the case of Ambica Industries (supra). The Apex Court has held that even if a small fraction of the cause of action accrues within the jurisdiction of a Court, the said Court will have jurisdiction in the matter though the doctrine of forum conveniens may also have to be considered. 14 As indicated above, the said Judgments were rendered by the Apex Court on the touch stone of Section 20 of the Civil Procedure Code. The efficacy of the said Judgements would have to be considered in the context of Section 35 of the FEMA which inter alia governs the aspect of the jurisdiction of the High Courts in so far as proceedings under the said Act are concerned. In our view, the principles underlying Section 20 of the Civil Procedure Code therefore cannot be directly imported in so far 14 FERA NOS.70,71 & 72 OF 2009 as the jurisdiction clause under FEMA is concerned. The said Judgments therefore can be of no assistance to the Appellants. 15 On behalf of the Respondents reliance is placed upon the Judgment of the Apex Court in the case of Stridewell Leathers (P) Ltd v/s. Bhankerpur Simbhaoli Beverages (P) Ltd. (supra). Though in the said judgment the Apex Court was concerned with Section 10-F which is a jurisdiction clause in so far as Companies Act is concerned. The Apex Court in construing the said provision had referred to the provisions of Section 54 of the FERA Act 1973 and especially Explanation thereto. The Apex Court whilst considering the