Fuji Bank Ltd. vs The Special Director Of ...
2014 Latest Caselaw 796 Del

$~*    IN THE HIGH COURT OF DELHI AT NEW DELHI
10.
+                               CRL.A. 611 of 2006

       FUJI BANK LTD.                                          ..... Appellant
                                Through: Mr. Sumit Bansal with Mr. Ateev
                                Mathur, Mr. Devmani Bansal and Mr. Amol
                                Sharma, Advocates.

                                versus

       THE SPECIAL DIRECTOR OF ENFORCEMENT..... Respondent
                     Through: Mr. Ashok Kumar Panda, Senior
                     Advocate with Mr. Naveen Kumar Matta,
                     Advocate.

                                          With
16.
+                               CRL.A. 666 of 2006

       M/S SAMSUNG CORPORATION                     ..... Appellant
                    Through: Mr. R.K. Handoo with Mr. Manish
                    Shukla and Mr. Aditya Chaudhary, Advocates.

                                versus

       THE SPECIAL DIRECTOR OF ENFORCEMENT..... Respondent
                     Through: Mr. Ashok Kumar Panda, Senior
                     Advocate with Mr. Naveen Kumar Matta,
                     Advocate.

                                          With
41.
+                               CRL.A. No. 820 of 2006

       UFJ BANK LTD.                                         ..... Appellant
                                Through: Mr. C.M. Oberoi with Ms. Surekha
                                Raman, Advocates.

                                versus

       DIRECTORATE OF ENFORCEMENT               ..... Respondent
                    Through: Mr. Ashok Kumar Panda, Senior
                    Advocate with Mr. Naveen Kumar Matta,
                    Advocate.
Criminal Appeal No. 611 of 2006 & batch                              Page 1 of 8
                                           With
42.
+                               CRL.A. No. 890 of 2006

       BANK OF TOKYO MITSUBISHI LTD              ..... Appellant
                   Through: Mr. C.M. Oberoi with Ms. Surekha
                   Raman, Ms. Sulekha Kaul, Mr. Gaurav Verma
                   and Mr. Karanveer Jindal, Advocates.

                                versus

       DIRECTORATE OF ENFORCEMENT               ..... Respondent
                    Through: Mr. Ashok Kumar Panda, Senior
                    Advocate with Mr. Naveen Kumar Matta,
                    Advocate.

                                AND
43.
+                               CRL.A. No. 895 of 2006

       SUMITOMO MITSUI BANKING CORPORATION
                                             ..... Appellant
                   Through: Mr. C.M. Oberoi with Ms. Surekha
                   Raman, Ms. Sulekha Kaul, Mr. Gaurav Verma
                   and Mr. Karanveer Jindal, Advocates.

                                versus

       DIRECTORATE OF ENFORCEMENT               ..... Respondent
                    Through: Mr. Ashok Kumar Panda, Senior
                    Advocate with Mr. Naveen Kumar Matta,
                    Advocate.

       CORAM: JUSTICE S. MURALIDHAR

                               ORDER

% 11.02.2014

1. These appeals are directed against the impugned orders passed by the

Foreign Exchange Appellate Tribunal ('AT') dismissing the respective

appeals of the appellants herein against the adjudication orders ('AOs')

passed by the Special Director ('SD'), Enforcement Directorate ('ED')

holding the Appellants to have contravened Section 8 (1) of the Foreign

Exchange Regulation Act, 1973 ('FERA') and imposing a penalty of

different amounts under Section 50 of FERA on them.

2. The common issue in all these cases is whether the expatriated

employees seconded by the parent corporation to its branch or liaison

office in India are required to be paid salaries by such liaison or branch

office and further whether the payment made by the parent corporation to

its expatriated employees abroad creates any liability on the liaison or

branch office to repay the said amount to the parent corporation.

3. The above question, which arises in the context of Section 8 (1) of

FERA, was answered in the negative by this Court in its judgment dated

3rd February 2014 in Criminal Appeal No. 40 of 2008 (Mitsubishi

Corporation v. Director of Enforcement) .

4. It is agreed on both sides that the facts of these present appeals are

more or less identical to the facts in Mitsubishi Corporation. In all these

cases the Appellants have in India a liaison or a branch office of the

parent corporation which is located abroad. The liaison or branch offices

are permitted to operate in India pursuant to the permission granted by the

Reserve Bank of India ('RBI') under Section 29 (2) of FERA.

5. Show cause notices ('SCNs') were issued by the ED to each of the

Appellants in May 2002 during the sunset period during which FERA was

operative in terms of Section 49 of the Foreign Exchange Management

Act 1999 ('FEMA'). The SCNs stated that the Appellants had to repay to

the parent corporation a sum equivalent to the salaries paid abroad by

such parent corporation to the expatriated employees and that such

repayment could not take place without the prior permission of the RBI.

Therefore, in all the show cause notices it was alleged that there was a

violation of Sections 8 (1) and 9 (1) (c) of FERA.

6. The AOs in all these cases uniformly found that the ED's case of

violation of Section 9 (1) (c) FERA by the Appellants was not made out

since there was no liability owed by the Appellants to their respective

parent corporations on account of payment of salaries abroad by such

parent corporation to the expatriated employees. It was nevertheless held

that there was a violation of Section 8 (1) FERA by each Appellant.

Accordingly, a penalty under Section 50 FERA was levied on each

Appellant. The AT has upheld the said AOs and dismissed the appeals

filed by the Appellants.

7. On the question whether there was any violation of Section 8 (1)

FERA, the Appellants have contended that the judgment of this Court in

Mitsubishi Corporation covers the present appeals on all fours. When

Mitsubishi Corporation was argued before this Court, the Respondent

had submitted a written note of argument. Mr. Ashok Kumar Panda,

learned Senior counsel appearing on behalf of the Respondent in all these

appeals, was heard at length. Mr. Panda also handed over written

submissions. Mr. Panda was however unable to point out how the facts of

these cases are different from the facts in Mitsubishi Corporation.

8. The Court does not wish to repeat what has been stated in Mitsubishi

Corporation. The portions of the said judgment which would apply to the

present appeals are set out hereunder:

"17. In order to appreciate the above submissions, an analysis is proposed to be undertaken of Section 8(1) of the FERA, which reads as under:

"Except with the previous general or special permission of the Reserve Bank, no person other than an authorized dealer shall in India, and no person resident in India other than an authorized dealer shall outside India, purchase or otherwise acquire or borrow from, or sell, or otherwise transfer or lend to or exchange with, any person not being an authorized dealer, any foreign exchange....."

18. Under Section 8 (1) (b) FERA, there is a prohibition on a person "other than an authorized dealer" purchasing, acquiring or borrowing or selling or otherwise transferring or lending or exchange with any person not being an authorized dealer, any foreign exchange either in India or outside India. The question that then arises is whether on the facts of the present case, the Appellant can be said to have "purchased or otherwise acquired or borrowed" any foreign exchange in India.

19. The AT has proceeded on the basis that the employees of the parent corporation, seconded to the Appellant, are its "borrowed employees". The fact of the matter is that the expatriated employees of the HO, are posted in India with the LO, continue to be employees of the parent corporation. The salaries payable to them by the parent corporation were partly paid in India, and for that limited purpose, the funds were remitted by Mitsubishi, Japan which were then disbursed by the Appellant to such seconded employees. By no means, could it be said that the expatriated employees upon being seconded to the Appellant ceased to be the employees of the parent corporation. They were only seconded to the Appellant. They could not be termed as "borrowed employees" of the Appellant. The liability to pay their salaries continues to be that of the parent corporation. Since there was no privity of contract between the Appellant and the expatriated employees of the HO, there was no liability on the Appellant to pay their salaries. In the circumstances, the question of the Appellant "acquiring" any foreign exchange as a result of Mitsubishi Japan remitting funds to the Appellant for disbursal of the salaries of the employees seconded to it does not arise. Further, the question of the Appellant "repaying" Mitsubishi, Japan the sum paid as salaries also does not arise."

9. In all these appeals, the AOs have erroneously concluded that the

expatriate employees of the parent corporation were 'borrowed

employees' of the Appellants when there was no factual basis for such a

conclusion. With the AOs holding that the case of the ED regarding

violation of Section 9 (1) (c) FERA was not made out against any of the

Appellants, the case regarding violation of Section 8 (1) FERA was

untenable since the SCNs in all these cases set out the same allegations to

justify the case under both provisions.

10. The question of the Appellants "acquiring" or "otherwise transferring"

any foreign exchange as a result of the parent corporation remitting funds

to the Appellants for disbursal of the salaries of the employees seconded

to them did not arise. Further, the question of the Appellants having to

repay the parent corporation the sum paid abroad also did not arise.

Factually, there was no attempt made by any of the Appellants to repay

any such amount to the foreign corporation.

11. Also, no reasons have been given in any of the AOs for the penalty

imposed in terms of Section 50 FERA. Consequently, in all these cases,

the determination of the penalty amount by the AOs is also held to be

untenable in law.

12. In light of the decision in Mitsubishi Corporation and for the reasons

explained above, the impugned AOs to the extent that they hold the

Appellants to be in violation of Section 8 (1) FERA and impose penalty,

and the impugned orders of the AT upholding the said AOs, are hereby set

aside.

13. The appeals are allowed in the above terms with costs of Rs. 10,000 in

each appeal which will be paid by the Respondent to each of the

Appellants within a period of four weeks from today.

14. It is further directed that any amount deposited pursuant to the AO or

the impugned order of the AT shall be refunded to each of the Appellants,

together with interest, if any, accrued thereon, within a period of eight

weeks from today in accordance with law. Further the bank guarantees if

any furnished by the Appellants shall stands discharged.

S. MURALIDHAR, J.

FEBRUARY 11, 2014 Rk