[Cites 6, Cited by 0]
Calcutta High Court
M/S Lords Polymer (I) Private Limited vs The Additional Directorate Of ... on 15 January, 2026
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
FEA 5 OF 2025
IA NO. GA 1 OF 2025
M/S LORDS POLYMER (I) PRIVATE LIMITED
VS
THE ADDITIONAL DIRECTORATE OF ENFORCEMENT,
DIRECTORATE OF ENFORCEMENT (FEMA) SOUTHERN REGIONAL
FEA 6 OF 2025
IA NO. GA 1 OF 2025
AMIT SAHA
VS
THE ADDITIONAL DIRECTORATE OF ENFORCEMENT,
DIRECTORATE OF ENFORCEMENT (FEMA) SOUTHERN REGIONAL
BEFORE:
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
AND
THE HON'BLE JUSTICE UDAY KUMAR
For the Appellant : Mr. Nilotpal Chowdhury, Ld. Adv.
Ms. Pallavi Roy, Ld. Adv.
For the Respondent : Mr. Arijit Chakrabarti, Ld. Adv.
Mr. Debsoumya Basak, Ld. Adv.
Ms. Swati Singh, Ld. Adv.
Hearing concluded on : 02.12.2025
Judgment on : 15.01.2026
Uday Kumar, J:-
1. At the threshold, these statutory appeals preferred by M/s Lords
Polymer (I) Private Limited (hereinafter 'the Appellant Company') and Mr.
Amit Saha (the director) under Section 35 of the Foreign Exchange
Management Act, 1999 (hereinafter 'FEMA'), compels us to revisit the
fundamental equilibrium between the State's prerogative to secure
revenue and the citizen's right to an effective appellate remedy. The lis
before us is not merely a dispute over a numerical figure; it is a
challenge to an exercise of discretion that, while adhering to the letter of
the law, arguably violates its spirit by demanding the "impossible."
2. The central grievance articulated by the appellants is directed against
the interlocutory order dated 23.04.2025 passed by the Learned
Appellate Tribunal (SAFEMA/FEMA). The pivot upon which this
controversy turns is whether a factual recording of "indigent financial
circumstances" by a Tribunal can logically coexist with a direction to
deposit a "staggering" sum of Rs. 2.20 Crore as a condition precedent to
being heard.
FACTUAL ANTECEDENTS AND THE GENESIS OF THE IMPASSE
3. The appellant-Company was formerly engaged in the export of iron ore
fines, is embroiled in proceedings rooted in shipments dating back to
2008. The Adjudicating Authority (AA) reached a finding that the
appellant failed to repatriate export proceeds totalling approximately
Rs.21.70 Crore, alleging a contravention of Sections 7 and 8 of FEMA.
This culminated in the imposition of a massive penalty of
Rs.22,00,00,000/- (Rupees Twenty-Two Crore).
4. Seeking appellate recourse, the appellant moved the Learned Tribunal
for a total waiver of pre-deposit under the Second Proviso to Section
19(1) of FEMA. To substantiate the plea of "undue hardship," the
appellants placed on record uncontroverted evidence: the Company is a
defunct entity, its bank accounts are classified as Non-Performing
Assets (NPA), and it possesses no liquid assets to satisfy a demand of
this magnitude.
THE SUBSTANTIAL QUESTION OF LAW
5. Having heard the learned counsel for the parties at length, we find that
the following substantial question of law arises for our determination:
"Whether the Appellate Tribunal, after having factually arrived at a
finding of 'undue hardship' and 'poor financial condition,' committed a
jurisdictional error by treating the 10% limit in the Third Proviso to
Section 19(1) of FEMA as a mandatory minimum deposit, thereby
rendering the statutory right of appeal illusory and the order
perverse?"
SUBMISSIONS OF THE PARTIES
6. Mr. Nilotpal Chowdhury, Learned Counsel for the appellants, mounted a
two-pronged attack on the impugned order. He contended that the
decision is hit by a "vice of internal contradiction"--once the Tribunal
accepted the "poor financial condition" as a fact, the demand for Rs.2.20
Crore became a demand for an impossibility. He invoked the
maxim Impossibilium Nulla Obligatio Est (the law compels no one to do
that which is impossible), arguing that demanding such a sum from an
indigent litigant effectively shutters the doors of justice.
7. He further argued that the Tribunal misconstrued the Third Proviso of
Section 19(1), erroneously treating a "statutory cap" (designed to protect
appellants) as a "statutory floor" or mandatory minimum.
8. Mr. Arijit Chakrabarti, Learned Counsel for the respondent, forcefully
defended the impugned order. He submitted that the Right to Appeal is a
statutory creation, not a fundamental one, and is thus subject to
legislative conditions.
9. He further argued that the Tribunal exercised significant leniency by
waiving 90% of the penalty and emphasized that the Second Proviso
mandates the Tribunal to "safeguard the realization of penalty." A total
waiver, in his view, would invite frivolous litigation and compromise
Revenue interests. Therefore, the 10% deposit is a reasonable "stake in
the outcomes" of the appeal.
STATUTORY ARCHITECTURE AND JUDICIAL EXEGESIS
10. The resolution of this controversy necessitates a forensic examination of
Section 19(1) of the Foreign Exchange Management Act (FEMA), 1999.
The statute creates a tiered structure for pre-deposits, intended to
balance Revenue interests with the rights of the aggrieved. The Second
Proviso of this section acts as a "remedial valve," granting the Tribunal
the power to "dispense with such deposit" if it is of the opinion that the
requirement would cause "undue hardship." This power to dispense is
an absolute discretionary power to waive, contingent upon the
Tribunal's satisfaction regarding the appellant's hardship. It provides as
follows-
"Provided further that where in any particular case, the Appellate
Tribunal is of the opinion that the deposit of the penalty amount
shall cause undue hardship to the person aggrieved, it may
dispense with such deposit subject to such conditions as it may
deem fit to impose so as to safeguard the realisation of penalty."
11. The expression "undue hardship" is not merely "hardship," but a
burden "out of proportion to the nature of the requirement itself" (Bank
of Baroda vs. Appellate Tribunal [121 (2005) DLT 424). For an NPA-
declared entity with no liquid assets, a multi-million-rupee deposit
is, prima facie, an undue hardship. As the Hon'ble Supreme Court
cautioned in Monotosh Saha vs. Special Director, ED [(2008) 12 SCC 359],
the Tribunal must ensure that the remedy of appeal is not
rendered "illusory." If a condition for appeal is impossible to fulfil, the
right to appeal is effectively snatched away.
12. Third Proviso of section 19 (1) limits the deposit amount: "...such person
shall not be required to deposit more than ten per cent of the penalty
amount." This sets the maximum demand.
ANALYSIS AND FINDINGS: THE VICE OF INTERNAL
CONTRADICTION
13. Applying these principles, we find that the impugned order suffers from
a profound logical fallacy. By acknowledging "poor financial condition"
while simultaneously demanding Rs.2.20 Crore from an NPA-classified
entity, the Tribunal "took away with the left hand what it gave with the
right." By treating the 10% ceiling as a mandatory minimum despite a
finding of hardship, the Tribunal failed to exercise its jurisdiction
meaningfully.
14. We are of the firm opinion that when a Tribunal finds an appellant is
indigent, it must explore the "Middle Path."Safeguarding Revenue does
not always necessitate a liquid cash deposit. The Second Proviso allows
the Tribunal to impose "such conditions as it may deem fit," which
includes alternative securities like Indemnity Bonds or Corporate
Guarantees. These mechanisms secure the interest of the State without
choking the Appellant's access to justice.
CONCLUSION AND OPERATIVE DIRECTIONS
15. In view of the above discussions, we find that the substantial question of
law is answered in the affirmative, in favor of the appellant. Accordingly,
the appeals (F.E.A. 5 of 2025 and F.E.A 6 of 2025) are partially allowed
with the following directions:
i. The direction of pre-deposit of Rs.2,20,00,000/- imposed vide
the impugned order dated 23.04.2025, is hereby set aside.
ii. To demonstrate bona fides, the Appellant Company shall
deposit Rs.2,00,000/- (Rupees Two Lakhs) ) and Mr. Amit Saha
(Appellant No. 2) shall deposit Rs.50,000/- (Rupees Fifty
Thousand) before the Tribunal within six weeks.
iii. Upon compliance with the above, the statutory requirement
under Section 19(1) of FEMA shall be treated as fully complied
with. The main appeal and the dismissal order dated
28.08.2025 shall stand disposed.
iv. The Tribunal shall proceed to hear the main Appeal on its
merits expeditiously.
v. GA 1 of 2025 is also disposed of accordingly.
vi. There shall be no order as to costs.
16. Urgent photostat certified copy of this order, if applied for, be given to
the parties upon compliance of all necessary formalities.
I AGREE
(RAJARSHI BHARADWAJ, J.) (UDAY KUMAR, J.)
