Delhi High Court

Nemi Chand Jain vs Enforcement Directorate on 27 November, 2008

Author: S. Muralidhar

      IN THE HIGH COURT OF DELHI AT NEW DELHI

             LPA No. 981 of 2006 & CM No. 15258 of 2008(direction)

                                         Reserved on: November 21, 2008
                                         Date of decision: November 27, 2008

      NEMI CHAND JAIN                                       ..... Appellant
                                   Through: Mr. P.N.Lekhi, Senior Advocate
                                   with Mr. Ashutosh Dubey, Advocate.

                    versus

      ENFORCEMENT DIRECTORATE                 ..... Respondent
                      Through: Mr. A.K. Vali and Mr. N.K.
                      Matta, Advocates.

                                   AND

                              LPA No. 984 of 2006

      VIKRAM SINGH                                          ..... Appellant
                                   Through: Mr. P.N.Lekhi, Senior Advocate
                                   with Mr. Ashutosh Dubey, Advocate.

                    versus

      ENFORCEMENT DIRECTORATE                   ..... Respondent
                        Through: Mr. A.K. Vali and Mr. N.K. Matia,
                        Advocates.
      CORAM:
      HON'BLE THE CHIEF JUSTICE
      HON'BLE DR. JUSTICE S.MURALIDHAR

      1. Whether Reporters of local papers may be
          allowed to see the judgment?                             Yes

      2. To be referred to the Reporter or not?                    Yes

      3. Whether the judgment should be reported in Digest?       Yes

                                   JUDGMENT

27.11.2008

S. Muralidhar,J.

1. These appeals are directed against the impugned orders dated 24th April

2006 passed by the learned Single Judge dismissing the Appellants‟ Writ

Petition (C) Nos.5613 of 2006 and 5618 of 2006. The writ petitions were filed

by the appellants challenging a common order dated 12th December 2005

passed by the Appellate Tribunal for Foreign Exchange, New Delhi (Tribunal)

in Appeal Nos. 76 and 77 of 2005, rejecting the applications made by the

Appellants for waiver of the pre-deposit of penalty as a condition for hearing

the appeals.

2. Proceedings were initiated against both Appellants by the Respondent

Directorate of Enforcement under Section 51 of the Foreign Exchange

Regulation Act, 1973 („FERA‟) for violation of Section 8(1) thereof. The

case of the Respondent against Appellant Shri Nemi Chand Jain @ Shri

Chandraswamy and Appellant Shri Vikram Singh was that a sum of US $

1,49,000 had been withdrawn by them from the non-resident external (NRE)

account in Canara Bank R.K.Puram, New Delhi of one Shri Akbar Jaffar Ali

Veerjee („Veerjee‟) a resident of Leichtenstein who stayed in India between 1st

and 3rd July 1992. Veerjee had initially deposited a sum of US $ 500

(equivalent to Rs.14,850) at the time of opening the account. Thereafter on 4th

July 1992 a sum of US $ 10,000 (equivalent to Rs.2,95,000) came deposited

in the account followed by US $ 1,39,000 (equivalent to Rs.42,29,756) by

Foreign Inward Telegraphic Transfer (FITT) from the Swiss Bank

Corporation (Jersey) Ltd. The case of the Respondent was that it was revealed

during investigation that from Veerjee‟s NRE account the following persons

withdrew various sums through cheques in their favour: Shri Prakash Chandra

Yadav withdrew Rs.30 lakhs on 17th July 1992, Appellant Shri Vikram Singh

Rs.5 lakhs on 18th July 1992 and Vishwa Dharmayatan (which has been held

by the Tribunal to be a registered Society of which Appellant Shri

Chandraswamy is a key functionary) sums of Rs. 5 lakhs each on 20th July and

12th August 1992. When questioned Veerjee denied having deposited the said

sums in his account and stated that soon after opening the account he had left

blank signed cheques at the instance of Shri Chandraswamy with Shri Vikram

Singh.

3. According to the Respondent these transactions revealed that the appellants

and Shri Prakash Chandra Yadav had acquired foreign exchange outside India

from persons other than authorised dealers without the previous general or

special permission of the Reserve Bank of India (RBI). Accordingly,

Memorandum/ Show cause notices dated 19th April 1992 followed by

Opportunity Notices dated 17th May 2002 were issued to both the appellants

and Shri Yadav. The defence of the appellants was that the sums withdrawn

were in fact Indian rupees given to the Vishwa Dharmayatan (which

according to them was a Trust) by way of donation and that the accounts of

the Trust were duly audited. The request for cross-examination of Veerjee was

declined by the Deputy Director of the Respondent on the ground that the

appellants had failed to provide cogent reasons why cross examination was

essential and also failed to show the prejudice that would be caused to them

by denial of such cross-examination.

4. In the adjudication order dated 30th November 2004 the Deputy Director,

Directorate of Enforcement, returned the following findings:

"36. The details of investigations narrated in the brief facts above makes it abundantly clear that the amounts deposited in the said NRE A/c of Akbar Veerjee were not actually his. Even the initial deposit of $ 500/- at the time of opening the account appears to have been arranged by Sh. Chandraswamy, since Akbar Veerjee has totally disowned the deposits in the account and also refused to

take the final balance, even though he could draw the amount at any time he wanted. As regards the second deposit of $ 10,000/-, this was done in cash on 04.07.1992 by some one other than Sh. Akbar Veerjee because he had left India on 03.07.92 as per copy of his passport provided alongwith his reply to the department‟s directive.

37. As regards to the third deposit of US $ 1,39,000/- in the said NRE A/c of Sh. Akbar Veerjee, it is clear that the third and final deposit in the account was received by the bank in the form of an Foreign Inward Telegraphic Transfer, which along with the earlier deposits in cash works out to a total deposit of US $ 1,49,500/- into the account during a short span of period from 1st July to 17th July, 1992 and a major part of its equivalent amount in Indian Rupees to the extent of Rs.45,00,000/- was shared by S/Sh. Prakash Yadav, Vikram Singh and Chandraswamy (through his Ashram). The balance amount of Rs.43,251/- including interest but excluding bank charges, taken over by the department, is also a part of the above foreign exchange."

5. In conclusion the following order was passed by the Deputy Director:

"I hold S/Shri Chandraswamy (Shri Nemi Chand Jain) and Vikram Singh, noticee no.1 and 2, respectively, guilty of contravention of Section 8 (1) of FERA, 1973 to the tune of US $ 1,49,000/-, for its otherwise acquisition from the persons other than the authorized dealer, without special or general permission from the Reserve Bank of India and impose a penalty of Rs.10,00,000/- (Rupees Ten Lacs only) upon Shri Chandraswamy (Shri Nemi Chand Jain) and impose a penalty of Rs.10,00,000/- (Rupees Ten Lacs only) upon Shri Vikram Singh.

52. I also hold Shri Prakash Chandra Yadav, noticee no.3, guilty of contravention of Section 8 (1) FERA, 1973 to the tune of foreign exchange equivalent to Rs.30,0,000/-, for its otherwise acquisition and transfer from/to the persons other then the authorized dealer, without special or general permission from the Reserve Bank of India and impose a penalty of Rs.5,00,000/- (Rupees Five Lacs only) upon him.

53. Further, I hereby order confiscation of balance amount of Rs.43,251 that stood into the NRE A/c No. 70119 of said Shri Akbar Jaffar Ali Veerjee, with R.K.Puram Branch of Canara Bank, New Delhi, forming part of foreign exchange proceeds involved into the above said contravention, as aforesaid, along with interest accrued thereupon, into the Central Government Account, in terms of section 63 of FERA, 1973 read with Section 49(3) & (4) of FEMA, 1999."

6. Shri Nemi Chand Jain and Shri Vikram Singh filed Appeal Nos. 76 and 77

of 2006 respectively before the Tribunal and also applied for waiver of pre-

deposit of penalty. The request for waiver of pre-deposit was rejected by the

Tribunal for the following reasons:

"3. Having heard the submissions of both the parties at length and on perusal of records, we find no justifiable ground for waiver of pre-deposit of penalty. The accusation is that the foreign currency was deposited in the NRE A/c not by the account holder but by the person who used the money of this account. The appellants have not been able to establish their prima facie case. The appellants have pleaded their financial constraints and undue hardship in case if they are directed to pre-deposit the penalty. However, it has been admitted that the said

Trust is a Society registered under the Societies Registration Act, 1860 where appellant in Appeal No. 76 is an important functionary if not sole functionary in governing body. As per section 5 of the Act of 1860 all the property of the society either vests in the Trustees or in the governing body. The existence of trustees is not brought forth. Thus the appellants has not brought out any contrary facts to displace this position when such facts are in their exclusive knowledge. Under these circumstances an adverse inference is the logical result. It has prima facie been found that affairs of the Trust are managed by Chandraswami. It is contended by the Respondent that Chandraswami is solely managing the affairs of Vishwadharma Trust, hence all the benefits of Trust flow to this appellant. The appellant, Vikram Singh in whose favour a gift of Rs.5,00,000/- has been made has also not been able to prove his financial difficulty. Looking towards the situation, we direct both appellants to pre- deposit full amount of penalty within 45 days from today failing which the appeal will be dismissed on this ground alone."

7. The Appellants then filed W.P. (C) No. 5613 of 2006 and W.P. (C) No.

5618 of 2006 in this Court challenging the aforementioned order of the

Tribunal. By separate but identical orders dated 24th April 2006 the learned

Single Judge has dismissed the writ petitions for the following reasons:

"In order to be eligible for exemption from pre-deposit of the penalty, the petitioner must succeed before the Tribunal in establishing a strong prima facie case. In this context, the Tribunal has come to the conclusion that the petitioners are linked with the transaction and have benefited to the extent indicated in the impugned order. Having heard to the learned Counsel for the petitioner, I

am satisfied that there is a strong case showing linkage between the petitioners and the withdrawals of the respective amounts from the sum of US $ 1,49,000.

The second consideration for granting exemption from pre- deposit, assuming the existence of a prima facie case in favour of the petitioner, is the likelihood of financial hardships faced by the petitioner/Appellants. As before the Tribunal, nothing has been shown to me which would disclose that extreme financial hardship would be caused to the petitioner if exemption from pre-deposit is not granted leading to the remedy of an appeal being rendered nugatory."

8. We have heard the submissions of Mr. P.N. Lekhi learned Senior counsel

appearing for the Appellants and Mr. A.K. Vali, learned counsel appearing for

the Enforcement Directorate.

9. Mr. Lekhi took us through the relevant documents as well as the orders of

the Enforcement Directorate and the Appellate Tribunal to contend that the

Appellants had a strong prima facie case for waiver of pre-deposit. Referring

to the RBI Notification dated 1st January 1974 issued in terms of Section 9 (1)

(d) FERA, Mr.Lekhi contended that no foreign exchange had been received

by either appellant and that Indian rupees received from Veerjee had been

duly accounted for by showing that these were donations made to the Trust.

Mr.Lekhi then submitted that there was grave infraction of the principles of

natural justice in that the appellants were denied the right to cross examine the

witnesses relied upon by the Respondent. In particular he referred to the

decisions of the Supreme Court in State of Orissa v. Binapani Dei AIR 1967

SC 1269, Canara Bank v. V.K.Awasthy (2005) 6 SCC 321, Escorts Farms

Ltd. v. Commissioner, Kumaon Division (2004) 4 SCC 281, K.Shamrao v.

Charity Commissioner (2003) 3 SCC 563 and Indian National Congress v.

Institute of Social Welfare AIR 2002 SC 2158. Adverting to the aspect of

financial hardship, Mr.Lekhi submitted that the learned Single Judge had not

noticed the affidavit dated 23rd November 2005 filed by each of the

Appellants enclosing the respective copies of their income tax returns which

showed their income to be „nil‟. As far as Shri Chandraswamy was concerned

in certain other appeals filed by him in 1996, the Tribunal had granted him

exemption from making any pre-deposit and since there was no change in his

status since then, the same order ought to have been passed in the present case

as well. Mr.Lekhi added that as a sanyasi Shri Chandraswamy had already

suffered a "civil death" and had no resources whatsoever to be able to make

the pre-deposit as ordered by the Tribunal.

10. Mr.Vali for the Respondent drew our attention to the specific findings in

the adjudication order of the Deputy Director and submitted that no prima

facie case from grant of any exemption had been made out. He referred to the

decision of the Supreme Court in Monotosh Saha v. Special Director,

Enforcement Directorate 2008 (11) SCALE 603 and an order dated 22nd July

2005 in S.L.P. (C) No. 12728 of 2005 (Rajiv Narendra Khanna v. Union of

India) and submitted that no case of genuine financial hardship had been

made out by either appellant.

11. Having considered the submissions and examined the records, we are not

persuaded to take a view different from the concurrent orders of the Tribunal

and the learned Single Judge. At the present stage, a detailed examination of

the case on merits is not warranted. What has to be seen is whether the

appellants have made out a prima facie case for the grant of waiver of pre-

deposit. In our considered view, they have not. Cogent reasons have been

given by both the Tribunal as well as the learned Single Judge on this aspect.

We concur with those reasons.

12. As regards the aspect of financial hardship we are required to examine if

the hardship to either appellant has been shown to be "undue" or "excessive."

The Supreme Court has in Monotosh Saha v. Special Director, Enforcement

Directorate (supra) explained the legal requirement in paras 13 and 14 as

under:

"13. For a hardship to be "undue" it must be shown that the particular burden to have to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.