Bombay High Court
Bungalow No.2 vs Directorate on 12 October, 2010
Bench: V.C. Daga, R. M. Savant
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
ig ]
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."
ig (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 said Explanation has observed that addition of
explanation in Section 54 of the FERA appears to have been considered necessary to
remove any possible ambiguity. The Apex Court further observed that other provisions
in the Companies Act, 1956 and the historical background did not require any such
explanation in section 10-F. The learned counsel for the Respondents therefore
contended that in view of the Explanation to section 54 which is para meteria to the
Explanation in section 35 of the FEMA, there is no scope for ambiguity and since in the
instant Appeals it can be said that the Company ordinarily carried out its business in
Bangalore, in terms of the said Explanation, therefore the High Court of Karnataka
would have jurisdiction.
The submission of the learned counsel for the Appellants that the Company is
not doing any business now, and in view of the fact that the Directors are residing in
Mumbai, therefore the Appeals filed in this Court are maintainable on the application
of the doctrine of forum conveniens. The said submission does not commend to us.
Assuming that the Company is not doing any business now, the question will have to
be considered as on the date of the alleged contravention and not as of today. On
15 FERA NOS.70,71 & 72 OF 2009
the date of the contravention, the company was having its whole business interests in
Bangalore, its registered office was at Bangalore and, therefore, in our view, it would
have to be held that in terms of Section 35 of the FEMA, the Appeals would lie before
the High Court of Karnataka.
16 In that view of the matter, we have to uphold the preliminary objection of
the Respondents by holding that the Appeals filed in this Court are not maintainable
and the Appellants would have to file the Appeals in the High Court of Karnataka. The
above Appeals are accordingly disposed of with liberty to the Appellants to file Appeals
before the High Court of Karnataka. No order as to costs.
17 In view of disposal of the above Appeals, the Civil Application Nos.Y-68 of
2009, Y-69 of 2009 and Y-70 of 2009, which are filed by the Appellants for stay, do not
survive and the same are accordingly disposed of, with liberty to the Appellants to file
the said Applications in the High Court of Karnataka.
[R.M.SAVANT, J] [V C DAGA, J]
