Case: Vinod M. Chitalia Vs. Union of India

2. The Special Director in the Directorate of Enforcement issued two notices to show cause on 5 August 2008. The Appellant was the Fifth Noticee in respect of both the notices to show cause. The show cause notices were also addressed inter alia to a Company by the name of Arch Pharmalabs Ltd. and to its Chairman and Managing Director, Deputy Managing Director and Executive Director among other persons. In both the notices, it is alleged inter alia that there was a violation of the provisions of Sections 3(b) and 3(d) of the FEMA. The violation in respect of the first notice was to the extent of Rs.75.39 crores while in the case of the second, of Rs.3.84 crores.3. Information was received by the Directorate of Revenue Intelligence that Arch Pharmalabs Ltd. (APL) was involved in bogus exports in which, the export documents showed that the drug Azithromycin was being exported while in actuality paracetamol which was of a negligible value was substituted. Three export consignments presented by APL for export under the DEPB Scheme under Shipping bills all dated 29 March 2005 in which goods were declared to be Azithromycin were intercepted. Though the FOB value declared was Rs.1.06 crores, on examination the consignment was found to contain Paracetamol of an actual value of Rs.3.25 lakhs. APL was alleged to have received remittances to the extent of Rs.75 crores in respect of a large number of transactions against fabricated export documents. The first show cause notice related to 261 transactions where no goods were actually exported. APL was alleged to have received an amount of Rs. 75.39 crores by way of inward remittances though no export had taken place. The second show cause notice related to a charge in respect of 14 transactions where the violation was to the tune of Rs. 3.84 crores.4. The Special Director in the Enforcement Directorate by his order dated 12 May 2009 held that the Appellant was guilty of a violation of the provisions of Section 3(b) and Section 3(d) for which a penalty of Rs.2 crores was imposed. As regards the second show cause notice, the Appellant was held to be in violation of the same provisions resulting in a penalty of Rs.3 lakhs.5. The Appellate Tribunal for Foreign Exchange by its order dated 27 April 2010 confirmed the findings of the Adjudicating Officer and the penalty which was imposed on the Appellant.

Reasoning: 17. The Settlement Commission under Section 127H of the Customs Act, 1962 has power to grant immunity to any person who has made an application to it for settlement. The immunity is from prosecution under the Customs Act, 1962 and also either wholly or in part from the imposition of a penalty or fine under the Customs Act. Therefore the immunity is only from penalty under the Customs Act and not in respect of any other Act including the FEMA. Further Section 127J of the Customs Act 1962 states that an order of the Settlement Commission shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any proceeding under this Act or any other law for the time being in force. Therefore the orders of the Settlement Commission are considered to be conclusive of the matters stated therein and cannot be challenged in any other proceeding under any other law including FEMA. In the light of the aforesaid provision the order of the Settlement Commission dated 7 June 2006 in respect of the findings of fact recorded therein is conclusive.18. In any event, the Appellant herein is barred from raising the issue of his involvement in manipulating documents to enable foreign exchange procurement to the tune of Rs.75 crores as remittances without effecting physical export. This is for the reason that the Appellant would be bound by the principle of issue estoppel. The principle ofbars a Court from exercising its jurisdiction to determine a lis, if it has attained finality between the parties. On the other hand the doctrine of issue estoppel is invoked against a party from raising an issue in a subsequent proceeding, if the same has been decided in an earlier lis by a competent court (See Bhanu Kumar Jain). (2005) 1 SCC 787.   Similarly in Ishwar Datta, (2005) 7 SCC 190     the Supreme Court held that issue of estoppel would arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided. Then in a subsequent proceeding involving a different cause of action to which the same issue is relevant it cannot be reopened. On the basis of the above decision, it is clear that even on the principle of issue estoppel, the impugned Order was correct in relying upon a finding in the order of the Settlement Commission dated 7 June 2006 which has been accepted by the Appellant and has the necessary ingredient for imposition of penalty under the FEMA.Before the Tribunal it was urged on behalf of the Appellant that the statement of Manojof APL Ltd. has been retracted and therefore, the earlier statement cannot be considered to be voluntary and true (Paragraph 20 page 269 of the Appeal Memo). It is pertinent to note that the retraction which was urged by the Appellant before the Tribunal was on the basis that different statements were given to the Enforcement Directorate on 23 and 25 November 2005 and 25 December 2005, from that given to DRI(Customs dept.) on 25 April 2005, as recorded in the order of the Tribunal in the matter of APL. (See para 16 at page 240 of the Appeal Memo) Therefore there is in fact no retraction of any particular statement by Manoj Jain. It is pertinent to note that the Appellant in his grounds of appeal before the Tribunal had not taken any specific ground with regard to retraction of statement by Manoj Jain. (Page 208 of the Appeal Memo) In the circumstances, in the present case, there is no question of retraction of the statement made by Manoj Jain Director of APL Limited to the DRI. Consequently, the question of the original statement being made to the DRI under threat cannot arise. In any event it is to be noted that in the impugned Order, (at para 21 at page 270 of the Appeal Memo) it is recorded that the changed statement was made only four months after the earlier statement made by Manoj Jain to DRI and in any event the same is corroborated by other evidence. The Tribunal has also recorded a finding of fact that there is nothing on record to indicate that any force was used to record the statements of the Appellant or Manoj JainDirector of APL Limited or other persons.20. The statements made to DRI can be used in the present proceeding as they pertain to the same transaction. It must be borne in mind that under Section 108 of the Customs Act, 1962 the statements recorded before the DRI are deemed to be in a judicial proceeding within the meaning of Section 193 and 228 of the Indian Penal Code, 1860. The solemnity and sanctity attached to the statement made in a judicial proceeding therefore attaches to the statement made under the Customs Act to the DRI. Therefore there is no prohibition in relying upon statements made under the Customs Act 1962 for the purposes of the adjudication proceeding under the FEMA, more so when reliance is placed upon documents to the complaint made to the Adjudicating Authority.Before concluding, it is necessary for us to refer to the fact that the Tribunal, in a passing reference to the earlier decision has observed that APL, its Chairman and Directors were not persons entitled to be exonerated of the charges by the Tribunal. The issue as to the complicity of APL, its Chairman and Directors stands governed by the earlier decision of the Tribunal. Surprisingly, no appeal has been filed by the Union of India or by the Enforcement Directorate against the earlier decision of the Tribunal dated 31 August 2009 and the limitation for filing such an appeal under Section 35 may perhaps have expired by now. Counsel for the Respondents also has no explanation as to why no appeal was filed in the earlier case. Be that as it may, those observations of the Tribunal cannot be construed as affecting the rights of any third parties who were not before the Court, since the Tribunal was and this Court is concerned only with the involvement of those who are parties to the appeal proceedings. Independently, the evidence against the Appellant is sufficient to sustain the finding of breach of Sections 3(b) and 3(d). The penalty is not disproportionate, but is commensurate with the gravity of the charge, the nature of the misconduct and the role attributed to the Appellant.23. For the aforesaid reasons, we are of the view that no question of law would arise in the appeal.