Case: Ketan V. Parekh Vs. Special Director,Dir.Of Enforcement&amp;Anr

3. On an information received from the Reserve Bank of India that M/s. Classic Credit Ltd. and M/s. Panther Fincap and Management Services Ltd. had taken loan of 25 lakh shares each of DSQ Industries Ltd. on 1.3.2011 from M/s. Greenfield Investment Ltd, Mauritius and the Indus Ind Bank Ltd with whom M/s. Greenfield Investment Ltd. was maintaining NRE Account had informed that records did not indicate any such transaction, the Directorate of Enforcement, Mumbai conducted enquiries from different sources including Securities and Exchange Board of India, Shri Ketan Parekh, M/s. Integrated Enterprises (I) Ltd., Chennai and Indsec Securities and Finance Ltd. Thereafter, show cause notice dated 23.9.2004 was issued to M/s. Greenfield Investments Ltd., Mauritius, Shri Pravin Guwalewala, Mauritius, Smt. Neena Guwalewala, Mauritius, Shri A. K. Sen, Mauritius, M/s. Classic Credit Ltd., Mumbai, M/s. Panther Fincap and Management Services Ltd., Mumbai, Shri Ketan Parekh, Shri Kartik K. Parekh, Shri Kirit Kumar N. Parekh and Shri Navinchandra Parekh for taking action against them for contravention of the provisions of the Act. After hearing the noticees, the Special Director of Enforcement, Mumbai (for short, `the Special Director) passed order dated 30.1.2006 and, whereby he held that some of the noticees had violated Sections 3(d) and 6(3)(e) of the Act and imposed penalty of Rs.40 crores on M/s. Classic Credit Ltd.; Rs.40 crores on M/s. Panther Fincap and Management Services Ltd.; Rs.75 crores on M/s. Greenfield Investments Ltd.; Rs.80 crores on Shri Shri Ketan Parekh; Rs.12 crores on Shri Kartik K. Parekh; Rs.60 crores on Shri Pravin Guwalewala and Rs.20 crores on Shri A.K. Sen with a direction that they shall deposit the amount within 45 days from the date of receipt of the order.4. The appellants challenged the aforesaid order by filing appeals under Section 19 of the Act. They also filed applications under Rule 10 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 read with Section 19 (1) of the Act for dispensing with the requirement of deposit of the amount of penalty. In paragraphs 4 to 8 of the application filed by him, Shri Ketan V. Parekh made the followingThe applicant submits that no case is made out against the applicant as Section 3 (d) of the Act is only attracted in case of a transaction in a foreign currency/foreign security. The appellants case does not attract the provision of Section 3 (d) of the Act.5. That impugned order passed by Special Director is liable to be set aside in view of the grounds of appeal and the applicant has every hope of succeeding in the matter. As such the applicant has a very good prima facie case on merits and is likely to succeed in the appeal.6. That the applicant is suffering from a grave financial hardship since all his assets including, properties, movable and immovable have been attached by an order of Ld. Debt Recovery Tribunal on 11th April, 2001 (a copy of the order dated 11th April, 2001 is annexed herewith and marked as Annexure B-1). Moreover the applicant/appellant is a notified person and all his assets including, properties, movable and immovable have been attached by the Government of India pursuant to the Notification dated 6th October, 2001. A copy of the Notification dated 6th October, 2001 is attached herewith and marked as Annexure B-2.7. That the appellant is further suffering due to another order of attachment passed by the Dy. CIT, Central Cir 40 under Section 281B of the Income Tax Act dated 7th April, 2003 whereby accounts of the appellant have been attached. A copy of the order dated 07.04.2003 is attached herewith and marked as Annexure-B3.8. That by order dated 12th December, 2003 passed by SEBI, the applicant has also been prohibited from carrying out its business activity at buying selling or dealing in securities in any manner directly or indirectly and have also been debarred from associating with the Securities market for the period of Fourteen years. A copy of the SEBI order dated 12th December, 2003 is annexed herewith and marked asparagraphs 4 to 10 of his application, Kartik Parekh averred asThe applicant submits that no case is made out against the applicant as Section 3 (d) of the Act is only attracted in case of a transaction in a foreign currency/foreign security. The appellants case does not attract the provision of Section 3 (d) of the Act.5. The applicant submits that the appellant was at a same footing as Mr. Kirit Kumar Parekh and Mr. Naveen Chandra Parekh. While the respondent has exonerated Mr. Kirit Kumar Parekh and Mr. Naveen Chandra Parekh from all offences, he has perversely held the applicant/appellant liable for the offences under the Act.6. In any event, Mr. Ketan Parekh in his letter to the adjudicating authority has admitted that the control and management of the company fully vested in him and that the applicant is not responsible for the day to day activities of the company and hence cannot be held liable for the alleged contravention of provisions of the Act. In any event, even for the sake of argument it is admitted that the appellant was an executive director of CCL and Panther, unless it can be proven beyond any scope of doubt that the appellant was managing the day to day operations of the aforesaid companies, he cannot be held liable for any offence committed by the Company. The impugned order will be set aside on this ground itself.7. That impugned order passed by Special Director is liable to be set aside in view of the grounds of appeal and the applicant has every hope of succeeding in the matter. As such the applicant has a very good prima facie case on merits and is likely to succeed in the appeal.8. That the applicant company is suffering from grave financial hardship since the assets of the applicant/appellant have been attached pursuant to the order of the Honble Debt Recovery Tribunal, Mumbai dated 11th April, 2001 confirmed on 25th September, 2001 ( a copy of the order dated 11th April, 2001 confirmed on 25th September, 2001 is annexed herewith and marked as Annexure B-1).9. That by order dated 12th December, 2003 passed by SEBI, the appellant has been prohibited from carrying out its business activity of buying, selling or dealing in securities in any manner directly or indirectly and have also been debarred from associating with the Securities market for the period of fourteen years. (A copy of the SEBI order dated 12th December, 2003 is annexed herewith and marked as Annexure- B4."10. In view of the submissions made above it is respectfully submitted that the applicant/appellant is not in a position to deposit the penalty amount of Rs.12,00,00,000 (Rupees Twelve Crores) imposed in the impugned order. The appellant/applicant has absolutely no means to pay the penalty amount as pre-deposit and such pre-deposit would cause undue hardship to thethe application filed on behalf of M/s. Panther Fincap and Management Services Limited, the following averments wereThe applicant submits that no case is made out against the applicant as Section 3 (d) of the Act is only attracted in case of a transaction in a foreign currency/foreign security. The appellants case does not attract the provision of Section 3 (d) of the Act.5. That impugned order passed by Special Director is liable to be set aside in view of the grounds of appeal and the applicant has every hope of succeeding in the matter. As such the applicant has a very good prima facie case on merits and is likely to succeed in the appeal.6. That the applicant is suffering from a grave financial hardship since the accounts of the Company have also been attached by the Income Tax Department under Section 281B of the Income Tax Act by order dated 7th April, 2003 passed by Dy. CIT, Central Cir. 40, Mumbai. Further even the Bank accounts and properties of the promoter and managing director of the Company has also been attached under Section 281B of the Income Tax Act by order dated 7th April, 2003 passed by Dy. CIT, Central Cir. 40, Mumbai ( a copy of the order dated 7th April, 2003 is annexed herewith and marked as Annexure B-1).7. That by order dated 12th December, 2003 passed by SEBI, the appellant company as well as its promoter have been prohibited from carrying out its business activity of buying, selling or dealing in securities in any manner directly or indirectly and have also been debarred from associating with the Securities market for the period of fourteen years. (A copy of the SEBI order dated 12th December, 2003 is annexed herewith and marked as Annexure-B2.8. In view of the submissions made above it is respectfully submitted that the applicant/appellant is not in a position to deposit the penalty amount of Rs.40,00,00,000 (Rupees Forty Crores) imposed in the impugned order. The appellant/applicant has absolutely no means to pay the penalty amount as pre-deposit and such pre-deposit would cause undue hardship to the applicant/appellant.After hearing the counsel for the parties, the Appellate Tribunal passed order dated 2.8.2007 and directed the appellants to deposit 50% of the amount of penalty with a stipulation that if they fail to do so, the appeals will be dismissed. The relevant portion of that order is extracteddiscussing the merits of these appeals, we are of the view that the adjudication order is not ex facie bad when the price of the borrowed DSQ shares has not been discharged but is required to be paid by the appellants which normally can be at the place where creditor, i.e. GIL, resides or is engaged in business, i.e. Mauritius. Therefore, allegations of contravention of Section 3(d) cannot be termed as ex facie bad, hence the appellants have no prima facie case. They have many questions to answer. After deciding one factor included in "undue hardship", we proceed to look to the financial position of the appellants. It is the burden on the appellants to disclose correct financial position which in these appeals the appellants have totally failed to disclose. The appellants are not candid enough to bring out their correct financial status. Merely because Directorate of Enforcement has not come out forcefully against the ground of financial disability, this Tribunal cannot believe that appellants, who were roaring in crores at one time, are not in a position to make pre-deposit of the penalty, especially when this Tribunal is simultaneously duty-bound to, as provided in Second Proviso of Section 19 (1) FEM Act, 1999, to ensure recovery of penalty. However, we are conscious that this Tribunal may not unwittingly pass an order whereby injustice can possibly besupplied)6. Shri Ketan Parekh challenged the aforesaid order in Writ Petition No.8385 of 2007 filed in the Delhi High Court on 13.11.2007. The other two appellants, namely, Kartik K. Parekh and Panthar Fincap and Management Services Ltd. filed Writ Petition Nos. 8231 and 8232 of 2007 on 5.11.2007 and prayed for quashing the order of the Appellate Tribunal. After taking cognizance of the judgment of this Court in Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement (2010) 4 SCC 772 , the learned Single Judge dismissed the writ petitions vide order dated 26.7.2010, the relevant portions of which are extractedThere is a categorical pronouncement on 12th April 2010 by the Supreme Court in Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement (2010) 4 SCC 772 that even an order passed by the Appellate Tribunal in an application seeking dispensation of the pre-deposit of the penalty would be appealable under Section 35 of the Foreign Exchange Management Act 1999 (`FEMA) and that the remedy under Article 226 of the Constitution is not available against such order.2. In that view of the matter, the present petitions cannot be entertained by this Court. It is, however, open to the Petitioners to avail of the appropriate remedy in terms of para 45 of the above judgment of the Supreme Court.3. The petitions are dismissed.Thereafter, the appellants filed appeals under Section 35 of the Act before the Bombay High Court. They also filed applications for condonation of 1056 days delay. The Division Bench of the Bombay High Court dismissed the applications for condonation of delay by observing that it does not have the power to entertain an appeal filed beyond 120 days and even though in terms of the liberty given by the Delhi High Court, the appellants could have filed appeals within 30 days, but they failed to do so and, therefore, delay in filing the appeals cannot be condoned.

Reasoning:
A careful reading of the above reproduced averments shows that there was not even a whisper in the applications field by the appellants that they had been prosecuting remedy before a wrong forum, i.e. the Delhi High Court with due diligence and in good faith. Not only this, the prayer made in the applications was for condonation of 1056 days delay and not for exclusion of the time spent in prosecuting the writ petitions before the Delhi High Court. This shows that the appellants were seeking to invoke Section 5 of the Limitation Act, which, as mentioned above, cannot be pressed into service in view of the language of Section 35 of the Act and interpretation of similar provisions by this Court.23. There is another reason why the benefit of Section 14 of the Limitation Act cannot be extended to the appellants. All of them are well conversant with various statutory provisions including FEMA. One of them was declared a notified person under Section 3(2) of the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992 and several civil and criminal cases are pending against him. The very fact that they had engaged a group of eminent Advocates to present their cause before the Delhi and the Bombay High Courts shows that they have the assistance of legal experts and this seems to the reason why they invoked the jurisdiction of the Delhi High Court and not of the Bombay High Court despite the fact that they are residents of Bombay and have been contesting other matters including the proceedings pending before the Special Court at Bombay. It also appears that the appellants were sure that keeping in view their past conduct, the Bombay High Court may not interfere with the order of the Appellate Tribunal. Therefore, they took a chance before the Delhi High Court and succeeded in persuading learned Single Judge of the Court to entertain their prayer for stay of further proceedings before the Appellate Tribunal. The promptness with which the learned senior counsel appearing for appellant - Kartik K. Parekh made a statement before the Delhi High Court on 7.11.2007 that the writ petition may be converted into an appeal and considered on merits is a clear indication of the appellants unwillingness to avail remedy before the High Court, i.e. the Bombay High Court which had the exclusive jurisdiction to entertain an appeal under Section 35 of the Act. It is not possible to believe that as on 7.11.2007, the appellants and their Advocates were not aware of the judgment of this Court in Ambica Industries v. Commissioner of Central Excise (2007) 6 SCC 769 whereby dismissal of the writ petition by the Delhi High Court on the ground of lack of territorial jurisdiction was confirmed and it was observed that the parties cannot be allowed to indulge in forum shopping. It has not at all surprised us that after having made a prayer that the writ petitions filed by them be treated as appeals under Section 35, two of the appellants filed applications for recall of that order. No doubt, the learned Single Judge accepted their prayer and the Division Bench confirmed the order of the learned Single Judge but the manner in which the appellants prosecuted the writ petitions before the Delhi High Court leaves no room for doubt that they had done so with the sole object of delaying compliance of the direction given by the Appellate Tribunal and, by no stretch of imagination, it can be said that they were bona fide prosecuting remedy before a wrong forum. Rather, there was total absence of good faith, which is sine qua non for invoking Section 14 of the Limitation Act.24. The issue deserves to be considered from another angle. By taking advantage of the liberty given by the learned Single Judge of the Delhi High Court, the appellants invoked the jurisdiction of the Bombay High Court under Section 35 of the Act. However, while doing so, they violated the time limit specified in order dated 26.7.2010 which, in turn, is based on paragraph 45 of the judgment of this Court in Raj Kumar Shivhare v. Assistant Director, Directorate of Enforcement (supra). Indeed, it is not even the case of the appellants that they had filed appeals under Section 35 of the Act within 30 days computed from 26.7.2010. Therefore, the Division Bench of the Bombay High Court rightly observed that even though the issue relating to jurisdiction of the Delhi High Court to grant time to the appellants to file appeals is highly debatable, the time specified in the order passed by the Delhi High Court cannot be extended.25. In view of the above discussion, we hold that the impugned order does not suffer from any legal infirmity.26. Notwithstanding the above conclusion, we have considered the submission of Shri Ranjit Kumar that the appellants are facing huge financial crises and the Appellate Tribunal committed serious error by not entertaining their prayer to dispense with the requirement of deposit of the amount of penalty in its entirety, but have not felt convinced. In our considered view, the appellants miserably failed to make out a case, which could justify an order by the Appellate Tribunal to relieve them of the statutory obligation to deposit the amount of penalty. The appellants have the exclusive knowledge of their financial condition/status and it was their duty to candidly disclose all their assets, movable and immovable including those in respect of which orders of attachment may have been passed by the judicial and quasi judicial forums. However, instead of coming clean, they tried to paint a gloomy picture about their financial position, which the Appellate Tribunal rightly refused to accept. If what was stated in the applications filed by the appellants and affidavit dated 10.10.2008 is correct, then the appellants must be in a state of begging which not even a man of ordinary prudence will be prepared to accept. To us, it is clear that the appellants deliberately concealed the facts relating to their financial condition. Therefore, the Appellate Tribunal did not commit any error by refusing to entertain their prayer for total exemption.