Madras High Court
M/S.Calyx Chemical & Pharmaceuticals ... vs Office Of Additional Director Of ... on 23 May, 2024
Author: G.K.Ilanthiraiyan
Bench: G.K.Ilanthiraiyan
W.P.No.7950 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 03.04.2024
PRONOUNCED ON : 23.05.2024
CORAM:
THE HONOURABLE MR. JUSTICE G.K.ILANTHIRAIYAN
W.P.No.7950 of 2020
and W.M.P.No.9386 of 2020
M/s.Calyx Chemical & Pharmaceuticals Lts.,
Through its authorized signatory,
Unit No.110, Marwah's Complex,
Krishnala Marwah Marg,
Off. Saki Vihar Road,
Andheri (East),
Mumbai – 400 072,
Maharashtra, India. ... Petitioner
-Vs-
1. Office of Additional Director of Enforcement,
Directorate of Enforcement,
Southern Regional Office,
3rd Floor, Murugesan Complex,
No.84, Greams Road,
Chennai – 600 006.
2. Smitesh Shah
C/o. Vatika Business Center,
Supreme Business Park,
B- Wing, 7th Floor,
Hiranandani Gardens,
Powai – Mumbai – 400 076. ...Respondents
Page 1 of 18
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W.P.No.7950 of 2020
Prayer: Writ Petition filed under Article 226 of the Constitution of India for
issuance of a Writ of Certiorari, to call for the records of the order dated 28
February, 2020 and bearing File No.T-4/08/CEZO/SRO/2017 passed by the
Respondent No.1, and quash the same.
For Petitioner : Mr.Sathish Parasran, Senior Counsel
For Mr.M.V.Swaroop
For Respondents
For R1 : Mr.N.Ramesh
Senior Panel Counsel
For R2 : Mrs.V.Ashwini
ORDER
This writ petition has been filed challenging the order dated
28.02.2020, passed by the first respondent thereby declaring the petitioner
guilty of contravention of the provisions under Section 10(6) of the Foreign
Exchange Management Act, 1999 (hereinafter referred to as “FEMA”) read
with Regulation 6(1) of the Foreign Exchange Management (Realization,
Repatriation and Surrender of Foreign Exchange) Regulation, 2000, to the
tune of Rs.15,19,23,511/- and imposed penalty of Rs.16,72,00,000/- and it
shall be paid within a period of 45 days from the date of receipt of that order.
2. The petitioner company is engaged in the manufacturing and
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sale of essential products such as active pharmaceuticals ingredients for
multi-therapeutic segments. By an order dated 06.02.2018, the Nation
Company Law Tribunal (hereinafter referred to as “NCLT”) admitted the
petitioner company to the Corporate Insolvency Resolution Process under
the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as
“IBC”) on an application filed by the State Bank of India. One Mrs.Charu
Sandeep Desai was initially appointed as the Interim Resolution Professional
of the petitioner company and later appointed as Resolution Professional
(hereinafter referred to as “RP”). The powers as well as the management of
the petitioner company was vested with RP.
3. The RP issued public advertisement inviting prospective
resolution applicants to submit a resolution plan for resolving the insolvency
of the petitioner company. In response, two companies incorporated under
the Laws of India viz., M/s.Khilari Infrastructure Private Limited and M/s.
Topnotch Chemicals Private Limited (hereinafter referred to as “resolution
applicant”) submitted their resolution plan for revival of the petitioner
company and the resolution of its insolvency.
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4. In pursuant to the approval of the resolution plan by the
creditors of the petitioner company, an application in M.A.No.1346 of 2018
was filed by the RP before the NCLT under Section 30(6) r/w, Section 31(1)
of the IBC, for approval of the resolution plan and by an order dated
16.04.2019, the resolution plan was approved by the NCLT. It was also
approved by the National Company Law Appellate Tribunal (hereinafter
referred to as “NCLAT”) by an order dated 30.08.2019. The said order was
challenged before the Hon'ble Supreme Court of India and the same was also
dismissed by an order dated 20.02.2020, thereby confirming the order passed
by the NCLAT.
5. As per the resolution plan, the resolution applicant took over the
control and management of the erstwhile corporate debtors. The shares of
the petitioner company were issued to the resolution applicant and the
existing share capital of the petitioner company was cancelled. The
management of the petitioner company was also changed as per the
resolution plan and the erstwhile promoters, including the second respondent
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are not part of the Board of Directors of the petitioner company. While being
so, the first respondent by an order dated 28.08.2020 imposed penalty of
Rs.15,20,00,000/- on the petitioner company for certain contravention that
had been alleged to have committed by the petitioner company even prior to
commencement of the corporate insolvency resolution process. Hence, the
present writ petition.
6. The learned Senior Counsel appearing for the petitioner
submitted that as per the impugned order, the petitioner had imported 23
consignments of chemical through Chennai Port in the year 2010-11,
wherein the declared value appeared to be on higher side and also the
importers had already paid the overseas suppliers but not bothered to take
clearance of the goods. Therefore, the first respondent initiated investigation
against the petitioner company under FEMA and also against the second
respondent, the then Director of the petitioner company.
6.1. During the investigation, the second respondent submitted that
payment has been made in respect of the said consignments as per the agreed
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terms and conditions and out of 23 consignments, 14 consignments were
cleared and put to use for the intended purpose. However, 9 consignments
have not been cleared and continue to be lying in the port. Therefore, the
petitioner and the second respondent served with show cause notice dated
31.03.2017, issued by the then Adjudicating Authority, for the alleged
contravention of the FEMA laws by the petitioner company in respect of the
nine consignments, which had not cleared in 2010-2011.
6.2. The enquiry was sought to be held as contemplated under
Rule 4 of the Foreign Exchange Management (Adjudication Proceedings and
Appeals) Rules, 2000, after giving opportunity of hearing to the petitioner
company and the second respondent. In fact, already resolution plan was
approved by the NCLT and the resolution applicant was in the process of
taking over the petitioner company. However, the petitioner and the second
respondent had taken adjournment and informed to Resolution Professional.
In turn, the Resolution Professional by her letter dated 16.08.2019 informed
to the first respondent about the order passed by the NCLT. She had demitted
office as RP and thus, she was no longer in charge of the affairs of the
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company.
6.3. In the meanwhile, on 28.12.2019, the President of India
promulgated the Insolvency and Bankruptcy (Amendment) Ordinance, 2019
bringing about certain amendments in the Insolvency and Bankruptcy Code,
thereby introduced Section 32A in the IBC, providing immunity to corporate
debtors resolved under the IBC for offences committed prior to corporate
insolvency resolution process. According to Section 32A of the IBC,
notwithstanding anything to the contrary contained in the IBC or any other
law for the time being in force, the liability of a corporate debtor for an
offence committed prior to the commencement of corporate insolvency
resolution process shall cease and the corporate debtor shall not be
prosecuted for such an offence from the date of the resolution plan has been
approved by the adjudicating authority under Section 31 of the IBC, if the
resolution plan results in the change in the management or control of the
corporate debtor to a person other than those specified under Section 32A.
6.4. He further submitted that the petitioner company, being a
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corporate debtor resolved under the IBC following the approval of the
resolution plan by the order dated 16.04.2019 on the file of the NCLT, is
covered by Section 32A as per the amendment ordinance. In enquiry, the
first respondent had given final opportunity of hearing on 09.01.2020, to the
petitioner as well as the second respondent. On 09.01.2020, it was informed
about the conclusion of the corporate insolvency resolution process of the
petitioner and new management has taken over the petitioner company based
on the order dated 16.04.2019, passed by the NCLT, thereby approving the
resolution plan and also requested to drop the charges. However, the
Adjudicating Authority imposed penalty of Rs.15,20,00,000/-. He further
submitted that as per the the provision 32A of IBC, the petitioner was
granted immunity in respect of past liabilities and actions of the erstwhile
management as per the order passed by the NCLT. Hence, he prayed to
quash the impugned order.
7. The first respondent filed counter and the learned Senior Panel
Counsel appearing for the first respondent submitted that the writ petition
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itself is neither maintainable in law nor on fact, since there is alternative
remedy provided under Section 16(1), 19(1) and 35 of the FEMA. The
petitioner had imparted 23 consignments of chemicals wherein the declared
value appeared to be on higher side and the importers had already paid the
overseas suppliers but not bothered to take clearance of the goods.
Therefore, the first respondent had initiated investigation against the
petitioner and the second respondent herein.
7.1. He further submitted that a statement was recorded from the
second respondent, who was the founder of the petitioner company, under
Section 37 of FEMA. He had admitted that the petitioner company had
imported 23 consignments of chemical during the year 2010-2011 through
Chennai port and they imported various chemicals from M/s. Victory
Mercantile Corporation, Singapore. However, in these 23 consignments
there were no imports. The reason for not clearing the consignments, he
stated that the material was sold on high seas sales to Avon Organics and
Apex Drugs & Intermediates in Hyderabad and their clearing agent wrongly
filed the Bill of Entry which was later amended for high seas and in the
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entire process took four to six months and the customers cancelled the order
and the Bill of Entry had to be refiled. Therefore, it was ascertained that the
petitioner had cleared only 13 consignments and failed to clear eight
consignments and there is no Bill of Entry in respect of two consignments.
The second respondent further stated that the petitioner did not have any
finances and as such, they could not be cleared the consignments. They
unable to sell the material due to drastic change in the price of the said
material. Therefore, nine consignments have not been cleared and continue
to be lying in the port.
7.2. From the statements recorded from other Directors of
proposed purchaser, the first respondent found that though the petitioner
company made payments to the overseas suppliers for the goods imported
by them, they have not bothered to clear the goods insofar as nine
consignments. Therefore, the petitioner company had intentionally imported
goods not for the purpose of clearing, but to send foreign exchange out of
the country under the guise of importing and trading the goods locally.
Therefore, the petitioner had just for the purpose of sending outward
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remittances, adopted modus operandi of importing goods of unknown
chemicals with over valuation purportedly for selling them on high seas
basis, with malafide intention of not to clear the same, thereby the petitioner
company contravened the provisions of Section 10(6) of FEMA r/w
Regulation 6(1) of Foreign Exchange Management (Realization,
Repatriation and Surrender of Foreign Exchange) Regulation, 2000 and
liable for penal action in terms of Section 13(1) r/w. Section 42(1) of FEMA.
7.3. Therefore, the Adjudicating Authority had issued show cause
notice to the petitioner and the second respondent to show cause as to why
adjudication proceedings as contemplated under Section 16 of FEMA,
should not be held against them in the manner as provided under Rule 4 of
the Foreign Exchange Management (Adjudication Proceedings and Appeal)
Rules, 2000 for the above contravention committed by the petitioner and the
second respondent. After conducting due enquiry, the impugned order has
been passed.
8. Heard the learned counsel appearing on either side and perused
the materials placed before this Court.
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9. In respect of preliminary objection as to the maintainability of
the writ petition, the learned Senior Panel Counsel appearing for the first
respondent relied upon the judgment of the Hon'ble Supreme Court of India
reported in (2010) 4 SCC 722 in the case of Raj Kumar Shivhare Vs.
Assistant Director which held as follows :-
“31.When a statutory forum is created by law for
redressal of grievance and that too in a fiscal statute, a writ
petition should not be entertained ignoring the statutory
dispensation. In this case, the High Court is a statutory
forum of appeal on a question of law. That should not be
abdicated and given a go-by a litigant for invoking the
forum of judicial review of the High Court under writ
jurisdiction. The High Court, with great respect, fell into a
manifest error by not appreciating this aspect of the matter.
It has however dismissed the writ petition on the ground of
lack of territorial jurisdiction.
32. No reason could be assigned by the appellant's
counsel to demonstrate why the appellate jurisdiction of the
High Court under Section 35 of FEMA does not provide an
efficacious remedy. In fact, there could hardly be any
reason since the High Court itself is the appellate forum.”
Therefore, the writ petition itself is not maintainable since, there is
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alternativeremedy provided under Section 16(1), 19(1) and 35 of the FEMA.
10. That apart, the petitioner was not granted any immunity from
the adjudication proceedings initiated under the provisions of FEMA.
Whereas as per the order passed by the NCLT, the company had immunity
from regulatory or administrative proceedings but not adjudicating
proceedings as per Section 43 of FEMA. Further the proceedings arising in
relation to the provisions of Section 13 of FEMA shall not abate by the
reason of insolvency of the person liable under that Section. Further, the
adjudication proceedings were initiated by way of issuing show cause notice
dated 31.03.2017. It is much before the corporate insolvency resolution
process.
11. It is relevant to extract the relevant portion of the order passed
by the NCLT dated 16.04.2019, under the head of “All other liabilities and
debts” as follows:-
“Notwithstanding anything else contained herein, all
claims on the Company by ANY Governmental Authority for
payment of ANY statutory dues or tax, and all liabilities of
the Company towards such Governmental Authority, for the
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period prior to the NCLT Approval Date (including in
respect of proceedings referred above), shall stand
extinguished pursuant to the payments to be made as set out
above. The Resolution Applicant or the Company shall not,
in any manner whatsoever, at present or in future, be
directly or indirectly responsible or liable for any additional
statutory claims/liabilities. It is hereby clarified that all
claims or liabilities towards Governmental Authorities shall
stand extinguished even if no payment is made towards
Income Tax liability as stipulated in the table set out in this
Clause 5.1, on account of non-submission of claims by the
NCLT Approval Date.
Consequently, the aforesaid proceedings
pertaining to the said years and any other proceedings
(ongoing or future) pending before any Governmental
Authority shall stand withdrawn, dismissed and disposed of
without any consequences and/or liability (tax, interest,
fine, penalty, etc.) to the Company or the Resolution
Applicant.”
12. Though the learned Senior Counsel appearing for the petitioner
relied upon the judgment of the Hon'ble Supreme Court of India made in
Civil Appeal No.5121 of 2021 dated 03.09.2021, in the case of The
Assistant Commissioner of State Tax & ors Vs. M/s. Commercial Steel
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Limited, in respect of maintainability of the writ petition, which held that
when the existence of an alternate remedy is not an absolute bar to the
maintainability of a writ petition under Article 226 of the Constitution of
India. But the writ petition can be entertained in exceptional circumstances
where there is a breach of fundamental rights, a violation of principles of
natural justice, an excess of jurisdiction or a challenge to the vires of the
statute of delegated legislation. But none of the exceptions as stated above is
applicable to the petitioner herein, since there is no breach of fundamental
right and the petitioner was duly served with show cause notice and given
opportunity of hearing. Further the first respondent has power to impose the
penalty.
13. The learned counsel appearing for the second respondent
submitted that the recovery of penalty amount of Rs.1,52,00,000/- by the
proceeding dated 28.02.2020 was challenged before this Court in
W.P.No.9058 of 2020. Subsequently, the recovery of penalty proceeding was
withdrawn and therefore, the writ petition was also dismissed as withdrawn
by this Court, by an order dated 24.01.2024. However, insofar as the penalty
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imposed on the petitioner has not been withdrawn so far. Therefore, this
Court finds no infirmity or illegality in the order passed by the first
respondent. This writ petition is devoid of merits and liable to be dismissed.
14. Accordingly, the Writ Petition stands dismissed. Consequently,
connected miscellaneous petition is closed. There shall be no order as to
costs.
23.05.2024
Index : Yes/No
Speaking/Non Speaking order
Neutral Citation : Yes/No
rts
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To
1. The Additional Director of Enforcement,
Office of Additional Director of Enforcement,
Directorate of Enforcement,
Southern Regional Office,
3rd Floor, Murugesan Complex,
No.84, Greams Road,
Chennai – 600 006.
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G.K.ILANTHIRAIYAN. J,
rts
ORDER IN
23.05.2024
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