Karnataka High Court

The Deputy Director vs Mr Kent Walker on 20 March, 2025

                          -1-
                MSA No. 42 of 2019 c/w MSA No. 43 of 2019,
                  MSA No. 44 of 2019 & MSA No. 45 of 2019


   IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 20TH DAY OF MARCH, 2025

                         PRESENT
      THE HON'BLE MR JUSTICE V KAMESWAR RAO
                           AND
         THE HON'BLE MR JUSTICE S RACHAIAH


                  MSA NO. 42 OF 2019
                         C/W
                  MSA NO. 43 OF 2019,
                  MSA NO. 44 OF 2019,
                  MSA NO. 45 OF 2019



IN MSA NO. 42 OF 2019:

BETWEEN:

THE DEPUTY DIRECTOR,
DIRECTORATE OF ENFORCEMENT,
BANGALORE ZONAL OFFICE,
3RD FLOOR, B BLOCK, BMTC,
SHANTHINAGAR-TTMC,
K.H. ROAD, SHANTHINAGAR,
BANGALORE-560 027.
                                              ...APPELLANT
(BY SRI. JAYAKARA SHETTY H, ADVOCATE)

AND

M/S. GOOGLE INDIA PVT. LTD.,
NO.3, RMZ INFINITY,
TOWER-E,
4TH FLOOR, OLD MADRAS ROAD,
                           -2-
                MSA No. 42 of 2019 c/w MSA No. 43 of 2019,
                  MSA No. 44 of 2019 & MSA No. 45 of 2019


BANGALORE-560 016,
KARNATAKA.
                                           ...RESPONDENT

(BY SRI. NARESH THACKER AND SRI. UDIT JAIN, ADVOCATES FOR SRI. SANDEEP HUILGOL, ADVOCATE)

THIS MSA IS FILED UNDER SEC.35 OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 11.01.2019 PASSED BY THE APPELLATE TRIBUNAL (THE FOREIGN EXCHANGE MANAGEMENT ACT), 1999 NEW DELHI IN FPA-FE-22/CHN/2018 (ANNEXURE-A) AND CONSEQUENTLY AFFIRM AND UPHOLD THE ORDER OF THE ADJUDICATING AUTHORITY PASSED ON 23.02.2018, ETC.

IN MSA NO. 43 OF 2019:

BETWEEN:

THE DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE, 3RD FLOOR, B BLOCK, BMTC, SHANTHINAGAR-TTMC, K.H. ROAD, SHANTHINAGAR, BANGALORE-560 027.

...APPELLANT (BY SRI. JAYAKARA SHETTY H, ADVOCATE)

AND

MR. KENT WALKER, DIRECTOR, M/S GOOGLE INDIA PVT. LTD., NO.3, RMZ INFINITY, TOWER-E, 4TH FLOOR, OLD MADRAS ROAD,

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

BANGALORE - 560016, KARNATAKA.

...RESPONDENT (BY SRI. NARESH THACKER AND SRI. UDIT JAIN, ADVOCATES FOR SRI. SANDEEP HUILGOL, ADVOCATE)

THIS MSA IS FILED UNDER SEC.35 OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999. PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 11.01.2019 PASSED BY THE HONBLE APPELLATE TRIBUNAL (THE FOREIGN EXCHANGE MANAGEMENT ACT), 1999 NEW DELHI IN FPA-FE-24/CHN/2018, (ANNEXURE-A) AND CONSEQUENTLY AFFIRM AND UPHOLD THE ORDER OF THE ADJUDICATING AUTHORITY PASSED ON 23.02.2018, ETC.

IN MSA NO. 44 OF 2019:

BETWEEN:

THE DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE, 3RD FLOOR, B BLOCK, BMTC, SHANTHINAGAR-TTMC, K.H. ROAD, SHANTHINAGAR, BANGALORE-560 027.

...APPELLANT (BY SRI. JAYAKARA SHETTY H, ADVOCATE)

AND

MR. HARI RAJU MAHADEVU, SINCE EXPIRED, BY SRI. VIVEK CHHABRA, S/O SUBASCHANDRA CHHABRA, AGED ABOUT 43 YEARS, FINANCE CONTROLLER, GOOGLE INDIA PVT. LTD.,

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

DIVYASREE OMEGA, BLOCK 'A', HIGH TECH CITY ROAD, KONDAPUR, HYDERABAD, TELANGANA-500 084.

...RESPONDENT (BY SRI. NARESH THACKER AND SRI. UDIT JAIN, ADVOCATES FOR SRI. SANDEEP HUILGOL, ADVOCATE)

THIS MSA IS FILED UNDER SEC.35 OF THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999 PRAYING TO SET ASIDE THE IMPUGNED ORDER DATED 11.01.2019 PASSED BY THE HONBLE APPELLATE TRIBUNAL (THE FOREIGN EXCHANGE MANAGEMENT ACT), 1999 NEW DELHI IN FPA-FE-25/CHN/2018, (ANNEXURE-A) AND CONSEQUENTLY AFFIRM AND UPHOLD THE ORDER OF THE ADJUDICATING AUTHORITY PASSED ON 23.02.2018, ETC.

IN MSA NO. 45 OF 2019:

BETWEEN:

THE DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, BANGALORE ZONAL OFFICE, 3RD FLOOR, B BLOCK, BMTC, SHANTHINAGAR-TTMC, K.H. ROAD, SHANTHINAGAR, BANGALORE-560 027.

...APPELLANT (BY SRI. JAYAKARA SHETTY H, ADVOCATE)

AND

MR. LLOYD HARTLEY MARTIN, DIRECTOR, M/S GOOGLE INDIA PVT. LTD., NO.3, RMZ INFINITY, TOWER-E, 4TH FLOOR, OLD MADRAS ROAD,

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

BANGALORE - 560016, KARNATAKA.

...RESPONDENT (BY SRI. NARESH THACKER AND SRI. UDIT JAIN, ADVOCATES FOR SRI. SANDEEP HUILGOL, ADVOCATE)

THIS MSA IS FILED UNDER ORDER 43 RULE 1(U) OF CPC., 1908 AGAINST THE JUDGMENT DATED 11.01.2019, PASSED IN MP-FE-132/CHN/2018 ON THE FILE OF THE APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS AND PBPT ACT, NEW DELHI, SETTING ASIDE THE IMPUGNED ORDER DATED 11.01.2019 PASSED BY THE HONBLE APPELLATE TRIBUNAL (THE FOREIGN EXCHANGE MANAGEMENT ACT0, 1999, NEW DELHI IN FPA -FE- 23/CHN/2018, (ANNEXURE-A) AND CONSEQUENTLY AFFIRM AND UPHOLD THE ORDER OF THE ADJUDICATING AUTHORITY PASSED ON 23.02.2018, ETC.

THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 20.01.2025, COMING ON FOR 'PRONOUNCEMENT OF JUDGMENT' THIS DAY, V KAMESWAR RAO J., DELIVERED THE FOLLOWING:

CORAM: THE HON'BLE MR JUSTICE V KAMESWAR RAO AND THE HON'BLE MR JUSTICE S RACHAIAH

COMMON CAV JUDGMENT (PER: THE HON'BLE MR JUSTICE V KAMESWAR RAO)

This batch of appeals lays a challenge to the order

dated 11.01.2019 passed by the Appellate Tribunal for

SAFEMA, FEMA, PMLA, NDPS and PBPT Act at New Delhi,

whereby the Appellate Tribunal ('the Tribunal' for short) has

decided the applications numbered as MP-FE-131/CHN/2018

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

(Stay) in FPA-FE-22/CHN/2018, MP-FE-133/CHN/2018

(Misc.) in FPA-FE-24/CHN/2018, MP-FE-134/CHN/2018

(Misc.) in FPA-FE-25/CHN/2018, MP-FE-132/CHN/2018

(Misc.) in FPA-FE-23/CHN/2018. The Tribunal while allowing

the applications for stay, in paragraph No.30, has stated as

under:

"30. In the light of the prima facie has been made by the appellant and the appellant will suffer hardship if the appellant is asked to deposit the penalty amount. After having through the facts and material placed on record, I am of the opinion that the chances of success of appeal are more than the failure of appeal. Thus, the prayer is allowed. M.P is disposed of. There shall be a stay of operation of the impugned order till the final decision of appeals."

2. Suffice to state, the appeals filed by the respondents

are still pending consideration before the Tribunal. The

appeals have been filed by the respondents challenging the

levy of penalties of Rs.5,00,00,000/- in the case of Google

India Pvt. Ltd. (respondent in MSA No.42/2019),

Rs.5,00,000/- in the case of Sri. Hari Raju Mahadevu (now

substituted by Sri. Vivek Chhabra) (respondent in

MSA No.44/2019), Rs.20,00,000/- in the cases of Sri. Lloyd

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

Hartley Martin (respondent in MSA No.45/2019) and

Sri. Kent Walker (respondent in MSA No.43/2019).

3. It is the case of the appellant-Directorate that, the

respondents have contravened Section 6(3)(d) of the

Foreign Exchange Management Act, 1999 ('FEMA' for short)

read with Regulation 3, 5(3), 6(3) and Schedule III of

Regulation of the Foreign Exchange Management (Borrowing

of Lending Foreign Exchange) Regulations, 2000 to the

extent of Rs.363,79,49,687/- and Rs.1,08,97,416/-

respectively.

4. The subject matter of penalties is in respect of two

current account transactions with Google Ireland and Google

USA respectively for:

(a) distributor fee, Google Ireland granted a right to the respondent to distribute/sell online ad space under the 'Ad Words Program' to advertisers in India;

     (b)    purchase of goods.

     5.    It   is     the   case     of     the     appellant        that,

Rs.363,79,49,687/- was payable to Google Ireland towards

distribution fee and the same was outstanding for more than

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

4 years as on May 2014. It is also the case of the appellant

that, during investigation, it was noticed that during the

financial year 2007-08, the respondent-Google India Pvt.

Ltd. ('GIPL' for short) purchased fixed assets from their

Holding Company Google Inc. USA for which an amount of

Rs.1,08,97,416/- remained outstanding for more than 7

years as on January 2014. According to the appellant, for

marketing 'Google Ad Words Program' of Google Ireland Ltd.

(distributor), the respondent had to pay distribution fee to

its distributor and the fee is nothing but commercial loan in

the form of supplier's credit as defined in the ECB (External

Commercial Borrowings). According to the appellant, GIPL

being a marketing service provider, is not falling under the

automatic route to raise ECB and require RBI/Government

approval. GIPL has not obtained any approval from the

RBI/Government for availing commercial loan in the form of

supplier's credit from its fellow subsidiary. It is also the

case of the appellant that, GIPL has not paid for the fixed

assets purchased from its ultimate holding company Google

Inc., USA and the said purchase of fixed assets is nothing

but commercial loan in the form of supplier's credit as

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

defined in the ECB guidelines. According to the appellant,

GIPL being a marketing service provider, is not falling under

the automatic route to raise ECB and require

RBI/Government approval. It is the case of the appellant

that, GIPL has not obtained any approval from the

RBI/Government for availing commercial loan in the form of

supplier's credit from its ultimate holding company as the

holding company is a non-resident lender. According to the

appellant, the Director of GIPL, in his statement, has agreed

that the amounts of Rs.363,79,49,687/- and

Rs.1,08,97,416/- are outstanding to the Google Ireland and

holding company Google Inc., USA for the period of between

4 to 7 years.

6. On the other hand, the case of the respondents

herein is that, both the transactions do not involve any

borrowings or lending in foreign exchange in any form under

Section 6(3)(d) of FEMA as, there is:

(a) no loan agreements stipulating a draw down and repayment schedule between the parties,

(b) no understanding, express or implied, between the parties for a deferred payment of dues,

- 10 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

(d) no pecuniary gain to the respondent(s) due to delayed repatriation.

According to the respondents, the dues were ultimately

settled as per the Master Circular on Imports for Goods and

Services dated 01.07.2014 of the RBI.

7. The present appeals have been filed on the limited

aspect of the order dated 11.01.2019, whereby the Tribunal

had stayed the impugned order of the Adjudicating Authority

imposing penalties, which in fact means, waiver of

pre-deposit.

8. According to Sri. Jayakara Shetty.H, learned counsel

for the appellant, the Tribunal has failed to appreciate that

there is no undue hardship that would be caused to the

respondents if they are ordered to make the pre-deposit

amounts which is mandatory compliance under Section 19 of

the FEMA. He also stated, the conclusion of the Tribunal

that the chances of success of the appeals are more than

the failure of the appeals, shall amount to a final conclusion

- 11 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

at the interim stage itself, which is clearly untenable. He

also stated that, the Tribunal has failed to appreciate that

the permission given by the RBI is in respect of the

Authorized Dealer Bank (ADB) and it does not regularize the

contravention by the respondents. Hence, it is his

submission that, the Tribunal has failed to appreciate the

view taken by the Supreme Court in the case of Telstar

Travels (P) Ltd. and Others -Vs.- Enforcement

Directorate [(2013) 9 SCC 549], wherein the Court has

held that, merely a delay in passing judgment will not yield

the same to be as irregular, the respondents will have to

show that certain prejudice has been caused to them due to

the said delay, which in the present case the respondents

have failed to reflect. According to Sri. Shetty, the Tribunal

has erroneously held that the appellant herein has not

denied that the dues in the present transaction were

ultimately settled as per the Master Circular on Imports.

According to him, no such admission has been made either

in the written synopsis or during oral arguments and to that

extent, the reliance placed by the Tribunal is perverse and

without application of mind. He also stated, merely writing

- 12 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

an application to RBI at a belated stage i.e., beyond the

period of six months as stipulated under the Act is in itself a

proof and evidence, that penalty will be attracted. He had

also referred to the RBI letter dated 27.05.2014, the

post-facto approval to the Authorized Dealer Bank i.e., Citi

Bank, which reads as under:

"2. In this connection we advise that you may permit the remittance of Rs.3,637,949,687/- on behalf of Google India Pvt. Ltd to M/s Google Ireland Ltd. In respect of distribution fees payable and reimbursement of expenses as per the Google Ad words program Distribution Agreement dated December 12,2005.

3. This communication is issued from the foreign exchange angle under the provisions of FEMA and should not be construed to convey the approval by any other statutory authority or Government under any other law/regulations. If further approval or permission is required from any other regulatory authority or Government under relevant laws/regulations, the applicant should take the approval of the concerned agency before affecting the transaction. Further it should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of any other laws/regulation."

- 13 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

9. It is his submission that the Tribunal has failed to

appreciate that the said permission was granted to AD Bank

and not the respondents herein. Therefore, the same does

not regularize the contravention made by the respondents

herein. That apart, it is his submission that, the Tribunal

has failed to appreciate the provisions of Section 11 of FEMA

to contend that, a reading of Section 11 would reveal that

post-facto approval was only granted to the AD Bank and

not to the respondent, only for the purpose of securing

compliance and not for regularizing the contravention.

According to him, it is the appellant-Directorate which has

been authorized by the RBI to deal with the contraventions

under FEMA, 1999.

10. According to Sri. Shetty, the following issue arises

for consideration in the appeals:

Whether the Tribunal on facts, is justified in

law in not ordering for pre-deposit of amount by

the respondent which is mandatory compliance

under Section 19 of FEMA, 1999?

- 14 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

11. Sri. Shetty, in support of his submission that there

is no undue hardship and also that the Tribunal while

considering the application for stay by the respondents, has

overlooked the required consideration to safeguard the

interest of the Revenue. In support of his submissions, he

has relied upon the following judgments:

i. Monotosh Saha -Vs.- Special Director, Enforcement Directorate and Another [(2008) 12 SCC 359];

ii. Benera Valves Ltd. and Others -Vs.-

Commissioner of Central Excise and Another [(2006) 13 SCC 347];

iii. Assistant Collector of Central Excise, Chandan Nagar, W.B. -Vs.- Dunlop India Ltd. and Others [(1985) 1 SCC 260];

iv. Siliguri Municipality and Others -Vs.- Amalendu Das and Others [(1984) 2 SCC 436];

v. S. Vasudeva -Vs.- State of Karnataka and Others [(1993) 3 SCC 467];

vi. Ram Nath Sao @ Ram Nath Sahu and Others -Vs.-

Gobardhan Sao and Others [(2002) 3 SCC 195].

12. On the other hand, Sri. Naresh Thacker, learned

counsel for the respondents would justify the order passed

- 15 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

by the Tribunal by stating that once permission has been

granted by the RBI, the delay stood regularized and there is

no violation of the provisions of FEMA. According to him,

presumption is in favour of the appellant that RBI must have

been satisfied while condoning the delay. In this regard, he

has referred to paragraph No.17 of the impugned order

dated 11.01.2019. That apart, it is his submission that the

respondent-GIPL has prima facie demonstrated that there

have been no violations of the provisions of FEMA

Regulations and the Master Circular on Imports. Without

prejudice, he would state that, assuming without admitting

that there was a violation, even then the RBI regularized the

same by granting the permission to settle the dues

specifically from FEMA angle. The respondent-GIPL has also

demonstrated factual conditions which led to the delay in

settlement of import dues. It was his submission that the

RBI's letter expressly states that, the permission was issued

from foreign exchange angle under FEMA. The limitation of

the permission was only in respect of any other applicable

laws other than FEMA. The appellant, admittedly is not

seeking to impose penalty for alleged violation of any other

- 16 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

law. It was his submission that, prima facie, the department

has no jurisdiction to reinterpret the terms of the agreement

between Google Ireland and GIPL. He stated that, it is

settled law that Court should proceed on the basis that the

apparent tenor of the agreement reflects the real state of

affairs. In this regard, he has referred to the judgment of

the Supreme Court in the case of Union of India -Vs.-

Mahindra and Mahindra Ltd. [1995 Supp (2) SCC 372].

13. He also stated, all the circumstances show that,

undue hardship will be caused to the respondents if they are

made to make a deposit of any part of their respective

penalty, which has no basis in law and in any event, highly

disproportionate to the bonafide action of the respondents.

That apart, there are no valid reasons given about the

passing of the orders after such a huge delay. When it was

pointed to the counsel for the appellant, he except stating

that the matter be remanded back for fresh hearing, did not

justify the delay. He also stated, the RBI has specifically

allowed the settlement of dues from FEMA angle which was

not the case in Telstar Travels (supra). He stated, it is

- 17 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

evident that the appellant in Telstar Travels (supra) never

raised the issue of delay before either the Tribunal or the

High Court. Thus, there were no findings on the aforesaid

aspect in lower Courts prior to the same being considered by

the Supreme Court. Hence, it was his submission that the

judgment of Telstar Travels (supra) as relied upon by Sri.

Shetty has no applicability in the present case. That apart,

he also stated that, in the light of prima facie case has been

made by the respondents that they will suffer hardship if

they are asked to deposit the penalty amounts, that the

Tribunal has granted the interim relief in favour of the

respondents and hence, the said order need not be

interfered with. Even on merits, it is his submission that the

transactions under which remittance in question are made,

were to the current accounts. The two current account

transactions are with regard to (a) for a distributor's fee to

Google Ireland and (b) for purchase of goods from the

Google Inc., USA. According to him, both the above

transactions are necessary for the respondent's business.

These transactions do not involve any borrowings or

lendings as defined under Section 6(3)(d) of FEMA for the

- 18 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

reasons already stated by the Tribunal in as much there is

no loan agreement between the parties; no understanding

expressed or implied between the parties for deferred

payments of dues; interest was neither charged nor paid by

the respondent in both the cases; no pecuniary gain to the

respondent due to delay repatriation. That apart, as stated

above, his case is that, the dues in the present transactions

were settled as per the Master Circular on Imports. He

stated that, the provisions of FEMA prohibit transfer of

foreign exchange to any person other than the authorized

person unless provided for under FEMA or with the general

or special permission of the RBI. In this regard, he has

relied upon Section 3(a) read with Section 3(b) of FEMA. It

was his submission that, the RBI alone has jurisdiction to

direct AD Bank to do or desist from doing any act in relation

to remittances in foreign exchange to be made under

Section 11(1) of FEMA. That apart, even the Master Circular

on Imports of goods and services dated 01.07.2014 provides

for permitting remittances in foreign exchange by AD Banks.

The AD Banks themselves are empowered to permit

settlement of import dues beyond six months and upto three

- 19 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

years from the date of shipment due to disputes, financial

difficulties, etc. Since dues to Google Ireland and Google

USA were beyond period of six months, permission of the AD

Bank was sought vide letters dated 28/29.03.2012 and

01.03.2011 respectively explaining the reasons for delay.

The AD Bank, out of abundant caution, sought permission of

RBI vide letters dated 05.02.2013 for allowing the

remittances in question. The RBI permitted the AD Bank

vide letters dated 27.05.2014 and 27.08.2014. The said

permissions were granted from the foreign exchange angle

under the provisions of FEMA and as such, there are no

violations of the provisions of FEMA or the regulations.

14. He laid stress on the fact that, the permissions

were granted by the RBI only after following:

(a) expressly requiring the AD Bank to verify the genuineness of the reasons for delay;

(b) expressly requiring the AD Bank to verify whether there was any pecuniary gain to the respondent;

(c) specific confirmation by the respondent that there was no pecuniary gain to it;

- 20 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

(d) confirmation by the respondent that the amounts to be paid were not utilized for any other purpose and that there was no interest paid on the same.

15. According to Sri. Thacker, there was no pecuniary

benefit accruing to the respondent due to the delay in the

form of any interest in as much as the amounts were part of

the current accounts of the respondent. It was also his

submission that, the RBI's permission referred to above was,

therefore pursuant to exercise of its jurisdictional discretion

after application of mind. The RBI has not treated the two

transactions as ECB/deferred payment arrangements. He

stated, it is settled law that the appellant-Directorate does

not have jurisdiction to reinterpret the permissions granted

by the RBI in exercise of jurisdiction under Section 3 read

with Section 11 of FEMA. In support of his submission, he

has relied upon the judgment of the Supreme Court in the

case of Life Insurance Corporation of India -Vs.-

Escorts Ltd. and Others [(1986) 1 SCC 264]. According

to Sri. Thacker, once the permission has been granted by

the RBI, the delay stood regularized and there are no

violations of the provisions of FEMA. As more particularly

- 21 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

stated, the provisions of FEMA does not require prior

approval, but merely permission/approval. Once the

permission has been obtained, albeit post-facto it has the

effect of regularizing any default. He also stated that, the

appellant-Directorate has no jurisdiction to reinterpret the

terms of the agreement between Google Ireland and GIPL.

It is settled law that, the Court should proceed on the basis

that the apparent tenor of the agreement reflects the real

state of affairs. He also stated, the delay in remitting the

amounts beyond six months does not convert a current

account transaction into a capital account transaction. The

reliance placed by the appellant on paragraph A.12(i) of AP

(Dir) Circular 9 of 2000 dated 24.08.2000 to hold that

amounts due for more than six months automatically makes

the same a deferred payment arrangement/ECB, is

incorrect. The applicable law is the Master Circular on

imports where there is no such condition mandated.

Moreover, paragraph B.5.1(ii) expressly provides for

settlement of dues by the AD Banks beyond a period of six

months. Without prejudice, it is his submission that, the

circular 9 of 2000 provides for settlement of dues beyond a

- 22 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

period of six months by the AD Bank in case of dispute,

financial difficulties, etc., just as paragraph B.5.1(ii) of the

Master Circular on imports. He has also relied upon

Regulation 3 of the Foreign Exchange Management

(Borrowing or Lending in Foreign Exchange) Regulations,

2000 to contend that Regulation 3 mandates permission and

not prior permission. According to him, it is settled law that

a permission/approval, unlike prior permission/prior

approval, can also be obtained post-facto. He has relied

upon the judgment of the Allahabad High Court in the case

of Shakir Husain -Vs.- Chandu Lal [1931 SCC OnLine

All 77] and the judgment of the Supreme Court in the case

of Escorts Ltd. (supra).

16. Having heard the learned counsel for the parties,

to answer the issue which arises for consideration in these

appeals is to by reproducing Section 19 of the FEMA as

under:

"19. Appeal to Appellate Tribunal-- (1) Save as provided in sub-section (2), the Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to in sub-section (1) of section 17, or the Special Director

- 23 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

(Appeals), may prefer an appeal to the Appellate Tribunal:

Provided that any person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government:

Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.

(2) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties

- 24 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(4) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals), as the case may be.

(5) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal:

Provided that where any appeal could not be disposed of within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period.

(6) The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the Adjudicating Authority under section 16 in relation to any proceeding, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit."

17. The scope and intent of Section 19 has been well

settled by the Supreme Court in the case of Benera Valves

Ltd. (supra) as followed in Monotosh Saha (supra). The

- 25 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

Supreme Court while considering the case of Benera

Valves Ltd. (supra), which was in the context of Central

Excise, more specifically Section 35(f), which relates to

deposit, pending appeal, the Supreme Court has, in

paragraphs No.11 to 15 of the judgment, held as under:

"11. Two significant expressions used in the provisions are "undue hardship to such person" and "safeguard the interests of the Revenue". Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interests of the Revenue have to be kept in view.

12. As noted above there are two important expressions in Section 35-F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka [(1993) 3 SCC 467 :

AIR 1994 SC 923] that under Indian conditions expression "undue hardship" is normally related to economic hardship. "Undue" which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.

- 26 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

13. For a hardship to be "undue" it must be shown that the particular burden 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.

14. The word "undue" adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.

15. The other aspect relates to imposition of condition to safeguard the interests of the Revenue.

This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue."

18. Similarly, in the case of Monotosh Saha (supra),

the Supreme Court reiterated its earlier decision in Benera

Valves Ltd. (supra) by stating in paragraph No.10 as

under:

"10. "11. Two significant expressions used in the provisions are 'undue hardship to such person' and ['safeguard the realisation of penalty']. Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue

- 27 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

hardship aspect and imposition of conditions to safeguard the [realisation of penalty] have to be kept in view.

12. As noted above there are two important expressions in [Section 19(1)]. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka [(1993) 3 SCC 467 : AIR 1994 SC 923] that under Indian conditions the expression 'undue hardship' is normally related to economic hardship. 'Undue' which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.

13. For a hardship to be 'undue' it must be shown that the particular burden 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.

14. The word 'undue' adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.

15. The other aspect relates to imposition of conditions to [safeguard the realisation of penalty]. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the [realisation of penalty]. Therefore, the

- 28 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the [realisation of penalty]."

The above position was highlighted in Benara Valves Ltd. v. CCE [(2006) 13 SCC 347] , at SCC pp. 351-52, paras 11-15. The decision was rendered in relation to Section 35-F of the Central Excise Act, 1944 where also identical stipulations exist."

19. On the other hand, Sri. Thacker has relied upon the

judgment of this Court in the case of United Telecom Ltd.

-Vs.- Commissioner of Cus., Bangalore [2010 SCC

OnLine Kar 5349], judgments of the Bombay High Court in

the cases of EMCO Ltd. -Vs.- Union of India [2014 SCC

OnLine Bom 4962] and Ceat Ltd. -Vs.- Union of India

and Others [2009 SCC OnLine Bom 2311], judgment of

Allahabad High Court in the case of I.T.C. Ltd. -Vs.-

Commissioner (Appeals), Cus. & C. Ex., Meerut-I

[2003 SCC OnLine All 2224].

20. Suffice to state, the judgment referred by

Sri. Thacker in the case of I.T.C. Ltd. (supra) is of the year

2003, i.e., prior to the Judgment in the case Benera Valves

- 29 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

Ltd. (supra) and Monotosh Saha (supra) and as such, does

not have precedential value on the issue in question. The

judgment of this Court in the case of United Telecom Ltd.

(supra) though is of the year 2010, it also does not consider

the above judgments of the Supreme Court. Hence, the

same would not help the case of the respondents. Insofar

as the judgment in the case of Ceat Ltd. (supra) is

concerned, the Bombay High Court has referred to the

judgment in the case of Monotosh Saha (supra) apart from

other judgments. It has, in paragraphs No.13 to 18, held as

under:

"13. While considering undue hardship, the balance-sheet of a company or of an individual may be one of the relevant factors. However, at the same time, the courts cannot be oblivious of the state of economy and the need for companies to have sufficient liquidity to proceed with the business on industrial activity. Any burden by way of deposit of resources required to keep the business running may have an effect on productivity as also on employment. No doubt, these are matters which a party approaching a Tribunal must be in a position to establish and cannot be based merely on whims or fancies. The economy therefore is another indicator which could be considered while applying the test of undue hardship.

- 30 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

14. Considering the law as stated above, a duty is cast on the Tribunal after it has considered whether the prima facie case has been made out while considering the issue of balance of convenience and irreparable loss and injury to examine the undue hardship as now understood and explained by the Supreme Court in Benara Valves Ltd. (2006) 204 ELT 513 and B. M. Malani [2008] 306 ITR 196. It is no doubt true that while considering the issue of pre-deposit, the Tribunal has a discretion. The application of discretion cannot be subject to any standards. It would be within the jurisdiction of the Tribunal considering the facts of each case by applying the law as declared by the Supreme Court and this court. If the party has made out a strong prima facie case, that by itself would be a strong ground in the matter of exercise of discretion as calling on the party to deposit the amount which prima facie is not liable to deposit or which demand has no legs to stand upon, by itself would result in undue hardship if the party is called upon to deposit the amount.

15. We may now set out a few relevant facts. There is a dispute as to whether the petitioner was entitled to credit for duty paid along with the interest. The petitioner had lost before this court. Ultimately the matter was taken to the Supreme Court. The Supreme Court allowed the appeal filed by the petitioner herein. As there was no stay granted by the Supreme Court against the order of this court, the petitioner had

- 31 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

deposited with the authority the amount of duty as referred to earlier. On the petitioner succeeding before the Supreme Court, they called on the respondents to adjust the credit and refund the amount. The respondents took no action. The petitioner then suo motu took credit of that amount. This was the subject- matter of the show-cause notice.

16. When the matter reached the Tribunal, the matter was remanded back with a direction to the authority to consider the petitioner's application for refund as also the show-cause notice. Learned counsel for the petitioner points out that instead of one authority hearing both the issues, the matter pertaining to unjust enrichment was heard by the Assistant Commissioner who rejected the claim of the petitioner. The issue pertaining to the show- cause notice was heard by the Commissioner who by his order directed payment of duty along with interest and penalty. Ultimately, the matter has reached the Tribunal where the petitioner applied for stay in which the impugned order came to be passed directing the petitioner to deposit.

17. In the instant case, considering the provisions earlier referred to, it would be clear that the doctrine of unjust enrichment would not be applicable. Prima facie, it is a case of refund of duty. Similarly in so far as the interest is concerned, looking at the language of section 11B proviso, interest paid by the petitioner could not be the subject-matter of unjust enrichment.

- 32 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

18. In these circumstances, in our opinion, the petitioner having made out a strong prima facie case, calling upon the petitioner to deposit would occasion undue hardship. The application for waiver of pre- deposit ought to have been considered on that test."

21. From the above, it is clear that, the Court held that

it would be within the jurisdiction of the Tribunal considering

the facts of each case by applying the law as declared by the

Supreme Court and decide the issue of pre-deposit. It may

be stated here, in the facts of the above case, the Court held

calling upon to deposit would occasion undue hardship.

22. Though Sri. Thacker has referred to other

judgments, we are of the view, the issue in hand is covered

by the judgments of the Supreme Court in the cases of

Benera Valves Ltd. (supra) and Monotosh Saha (supra).

The Supreme Court has interpreted the words 'undue

hardship' and 'safeguarding the interest of the Revenue'. In

this case, it is seen, the foundational facts imposing penalty

are, primarily in respect of not paying the amount of

Rs.363,79,49,687/- as distribution fee to Google Ireland and

Rs.1,08,97,416/- to Google Inc., USA for purchasing assets

- 33 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

by GIPL. The aforesaid amounts are substantial. The

amounts according to the appellant, remained outstanding

for more than four years (as on May 2014) and more than

seven years (as on January 2014). The defence of the

respondents in these appeals is that, the dues were

ultimately settled in terms of Master Circular dated

01.07.2014 of the RBI. Whereas, the case of the appellant

is that, the permission granted by the RBI is in respect of

ADB and it does not regularize the contravention by the

respondents. On the other hand, the case of the

respondents is, once permission has been obtained, albeit

post-facto, it has the effect of regularizing the default. The

stand taken by the parties need to be decided by the

Tribunal finally. The impugned order of the Tribunal is only

a prima facie view. It is not the final view. The issue is,

whether the Tribunal is justified in staying the penalties?

Undue hardship has been decided by the Supreme Court to

mean hardship greater than the circumstances warrant.

Though the Courts have also interpreted that if the party has

an excellent case on merit, the pre-deposit insisted would

cause undue hardship, at the same time the Supreme Court

- 34 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

has also referred to safeguarding the interest of the

Revenue. In paragraph No.15 of the judgment in the case

of Benera Valves Ltd. (supra), the Supreme Court has held

as under:

"15. The other aspect relates to imposition of condition to safeguard the interests of the Revenue. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue."

23. The Tribunal has not considered the ratio of the

judgments in the case of Benera Valves Ltd. (supra) and

Monotosh Saha (supra). The complete stay of the

penalties shall not safeguard the interest of the appellant, if

the appellant finally succeeds in the appeal. So it follows,

that Tribunal even if dispenses with the pre-deposit, it shall

impose such condition to safeguard the realization.

24. Surely, it can be argued, if the penalty is upheld,

the realization from the GIPL shall not be difficult. But, that

- 35 -

MSA No. 42 of 2019 c/w MSA No. 43 of 2019, MSA No. 44 of 2019 & MSA No. 45 of 2019

cannot be the consideration for the Tribunal to stay the