B. Sanjay vs Special Director
2025 Latest Caselaw 6643 Tel

Telangana High Court

B. Sanjay vs Special Director on 21 November, 2025

       THE HONOURABLE SMT. JUSTICE RENUKA YARA

CIVIL MISCELLANEOUS SECOND APPEAL Nos.32 and 33 of 2014

COMMON JUDGMENT:

Heard Sri Y. Sreenivasa Reddy, learned counsel for the appellants

and Sri Anil Prasad Tiwari, learned Standing Counsel for Directorate of

Enforcement for respondent. Perused the entire record.

2. These Civil Miscellaneous Second Appeals are preferred by the

appellants aggrieved by the common order dated 20.08.2014 passed by the

Appellate Tribunal for Foreign Exchange, 15th Floor, Hindustan Times

House, K.G. Marg, New Delhi, ('Appellate Tribunal'), in Appeal Nos.132

and 133 of 2011, wherein applications filed by the appellants seeking stay

of the common adjudicating order dated 13.10.2011 in Order

No.SDE/SKS/VI/9/2011 passed by the Special Director of Enforcement,

Enforcement Directorate, Government of India, New Delhi, ('Adjudicating

Authority'), were disposed of.

3. The brief facts of the case are that the Assistant Director, Directorate

of Enforcement, Hyderabad Zonal Office, lodged a complaint under

Section 16 (3) of the Foreign Exchange Management Act, 1999 (hereinafter

referred to as 'the Act') against both the appellants herein for contravention

of provisions of the Act and Rules thereunder, more particularly, Section RY,J CMSA_32_&_33_2014

3(d) read with Section 42 of the Act. M/s. Vasavi Impex is a proprietary

concern and the appellant-B. Sanjay is the proprietor and appellant-T. V.

Madhusudhan Rao is its authorized signatory. Appellant-T.V.

Madhusudhan Rao, assured appellant-B. Sanjay that he would get 25 to

30% interest per annum on the amount of Rs. 3,00,000/- invested in stone

cutting tools business. Appellant-T.V. Madhusudhan Rao, was proprietor

of M/s. Mark Stonex, which was trading in granite cutting tools, which was

established prior to M/s.Vasavi Impex. Granite cutting tools were imported

from China and were locally sold. While so, on 17.12.2007 officials of the

Directorate of Enforcement searched the residence of appellant-T.V.

Madhusudhan Rao and on 18.12.2007 they seized a laptop, Rs.5,00,000/-

and certain documents. The statement of appellant-T.V. Madhusudhan Rao

was recorded on 18.12.2007 and again on 07.01.2008 which show that he

was importing granite cutting tools from China and selling them locally.

The said tools were purchased in the name of M/s. Vasavi Impex, which

stood in the name of appellant-B.Sanjay. Appellant-T.V. Madhusudhan

Rao being the authorized signatory looked after the entire business and the

supplier in China appointed them as sole representative in Andhra Pradesh

for importing cutting tools. The business started in the year 2007 and

granite cutting tools were imported for four to five times from

M/s.Quanzhou Zahongzhihzui Diamond Tool Co. Ltd., China, by under

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valuing the prices and the difference totally amounting to USD 4 lakhs

approximately. The amount in Indian currency was paid to one Prakash

from Begum Bazar, who used to pay the same to one Hukum in Chennai

for onward payment to the suppliers in China. An amount equivalent to

USD 80,000/- was paid to said Prakash of Begum Bazar in October, 2007

and amount equivalent to 250 USD was sent through a friend for payment

to the suppliers at China. The documents which were seized in the

premises of appellant-T.V. Madhusudhan Rao contain the actual C&F

prices quoted by the supplier. The said prices were given by the supplier's

representatives when they visited India. The said prices related to the year

2006 and they were subsequently reduced by 5% to 10% of the actual

price. While so, the value declared to the customs were 25 to 50% less

than the actual value. The amounts were paid in personal capacity of

appellant-T.V. Madhusudhan Rao as there was no segregation of the

amount between various concerns looked after by him and that the

appellant-B. Sanjay had signed the papers for opening of the concern.

4. Further, on the basis of the said complaint the Adjudicating

Authority issued show cause notice No.T-4/5-Hyd/2009 (SCN-II) dated

23.11.2009 followed initiating formal proceedings against both the

appellants under the Act. In the said proceedings, both the appellants were

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given an opportunity to appear and were permitted to be defended by their

respective counsel.

5. After considering the evidence on record and the defence taken by

the appellants, the Adjudicating Authority passed the Order (Original)

No.SDE/SKS/VI/9/2011, dated 13.10.2011, holding that the appellants

indulged in use of non-banking channel for transfer of funds overseas while

conducting business of import of stone cutting tools by M/s. Vasavi Impex

and that the appellants have contravened Section 3 (d) of the Act for

entering into financial transactions in India for creation of right to acquire

foreign exchange of USD 2,77,251/- (equivalent to Rs.1,10,79,435/-) by

persons outside India. In view of the said findings, the Adjudicating

Authority imposed penalty of Rs.55,00,000/- on each of the appellants as

proprietor and authorized signatory of M/s.Vasavi Impex under Section

13(1) of the Act. Further, an amount of Rs.5,00,000/- seized at the

residence of appellant-T.V.Madhusudhan Rao being found to be involved

in contravention of Section 3 (d) of the Act was confiscated. It is further

held that Section 42 of the Act cannot be invoked and the penalty amount

was directed to be deposited within 45 days from the date of receipt copy

of the said order.

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6. Aggrieved by the said order, the appellants filed appeals in Appeal

Nos.132 and 133 of 2011 before the Appellate Tribunal along with

applications seeking to waive the pre-deposit. The Appellate Tribunal after

considering the case of the appellants ordered to pay 30% of the penalty

amount in cash and to furnish bank guarantee for remaining 70% by each

of them individually to stay the recovery of penalty till disposal of the

appeal within one month from the date of receipt of copy of such order.

Aggrieved by the same, the present Civil Miscellaneous Second Appeals

are preferred.

7. In the grounds of appeal, the case of the appellant-B.Sanjay is that

except for lending his name and investing Rs.3,00,000/- he was never

involved in any transaction of M/s.Vasavi Impex and therefore, Sections 3

(d) and 42 of the Act are not applicable to him. More-so, M/s.Vasavi

Impex is not a company registered under Companies Act, 1956. Further,

the appellants pleaded that the values of the imports were correctly stated

before the customs and the same was not verified by the customs. The

value of imported goods was compared with the value of the other

importers and no evidence is produced to said effect. No opportunity was

given to appellant-B.Sanjay to cross-examine the other appellant-T.V.

Madhusudhan Rao and therefore, there was no opportunity to establish that

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the appellant-B. Sanjay was not involved in activities associated with trade

in M/s. Vasavi Impex. While the Appellate Tribunal has prima facie

concluded that the business was closed and Income Tax Returns filed

indicate that the appellants would suffer financial hardship in case waiver is

not granted, the Appellate Tribunal directed the appellants to pay 30% of

penalty in cash and furnish Bank Guarantee for the rest of the 70% within

one month. It is contended that the Appellate Tribunal on one hand arrived

at conclusion that directing to pay penalty would cause financial hardship

on the other hand directed for payment of 30% in cash and 70% through

Bank Guarantee. The appellants pleaded that no opportunity was given to

them for conducting personal hearing and therefore, there is violation of

principles of natural justice. On the aforementioned grounds, the

appellants prayed that the order of the Appellate Tribunal be set aside and

grant 100% waiver of the pre-deposit of penalty and direct the Appellate

Tribunal to hear the appeal without insisting on pre-deposit of penalty.

8. Learned counsel for the appellants argued that the provisions of

Section 3 (d) of the Act are not applicable to the appellant-B.Sanjay as he

was not involved in any of the activities of M/s.Vasavi Impex. The

statement of appellant-T.V. Madhusudhan Rao does not disclose about the

involvement of appellant-B. Sanjay in the transactions of M/s.Vasavi

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Impex. The appellant-B.Sanjay is not aware of any payments in

contravention of provisions of the Act. While so, the Directorate of

Enforcement relied upon the documents relating to the year 2006, when

M/s.Vasavi Impex was established in the year 2007. The contemporaneous

imports were made at lower prices than those declared by M/s.Vasavi

Impex. Even the domestic sale price of M/s.Vasavi Impex was more than

the prices at which the other importers sold the identical goods. The

allegations made by the Directorate of Enforcement are not corroborated

with material evidence to bring home culpability with respect to allegation

of undervaluation of imports or payment through illegal channels. The

document dated 01.09.2007 which contains actual prices available in the

files recovered from the appellant-T.V. Madhusudhan Rao was ignored. It

is further argued that the Enforcement Directorate alleges payment of

Indian currency by the appellants to one Prakash of Begum Bazar for

onward payment to one Hukum at Chennai for onward payment to the

China suppliers through hawala means. However, there is no evidence on

record to establish the transaction of money from Prakash to Hukum to

China suppliers. It is argued that only when there is evidence to show

payment to China suppliers through hawala means, the allegation against

the appellants can be proven. Since there is no evidence on record, it is

argued that the penalty ordered by the Adjudicating Authority and

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directions of the Appellate Tribunal to deposit 30% of the same in cash and

providing Bank Guarantee for rest of the 70% is unsustainable.

9. In support of their case, learned counsel for the appellants relied

upon the judgment of Bombay High Court in Vaseem Iqbal Kapadia v.

Union of India 1 , wherein it is held that the direction to deposit total

amount of penalty and to furnish bank guarantee for the balance of the sum

adjudicated and demanded, in effect and in substance means denial of stay.

10. Further, in Virender Kumar Yadav v. Union of India 2, the Delhi

High Court held that the Tribunal while considering any application for

waiver of deposit is to take into account firstly the existence of prima facie

case. It is further held that the Court can exercise its jurisdiction to grant

waiver when the pre-deposit can cause undue hardship and therefore,

directed for complete dispense with from pre-deposit of any amount of

penalty for hearing of the appeal.

11. Reliance is placed by the learned counsel for the appellants in the

case between ND Investments v. Union of India 3 of Bombay High Court,

wherein it is held that imposition of a condition and of cash deposit of 40%

of the amount awarded and imposed as penalty and giving Bank Guarantee

2015 (7) TMI 301- BHC

2009 (8) TMI 622 - DHC

2015 (8) TMI 236- BHC

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of 60% for the balance, in the given facts and circumstances and peculiar to

these cases, does not meet the ends of justice.

12. In M/s. Union Enterprises v. Union of India 4, the Calcutta High

Court held that if sustainability of the adjudicating order is itself in doubt

then dispensation, on ground of undue hardship should be granted.

Likewise, in Priya Shah v. Enforcement Directorate 5 , High Court of

Delhi held that when no material is placed to establish that the appellant

actually operated the account in question, as such the matter was remanded

back to the Tribunal to hear the appeal without insistence of the deposit of

penalty.

13. Further, reliance is placed on Mohinder Kakar v. Assistant

Director of Enforcement 6, the said judgment is not applicable to the facts

of the present appeals as in the said matter the subject matter is whether

where charge is based on valuation of any imported item, that valuation has

to be based on competent evidence so as to substantiate charge and it

cannot be a matter of statement of person proceeded against or of any other

person. Reliance is also placed on the judgment in the case of Union of

India v. Adani Exports 7, the same is also not applicable because the said

2014 (5) TMI 93- CHC

MANU/DE/1235/2009

[2000] 112 TAXMAN 602 (FERAB)

2007 (11) TMI 18 - SC

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matter is about refund of confiscated amount and the present appeals are

filed seeking waiver of the pre-deposit. The judgment in Mohtesham

Mohd. Ismail v. Special Director, Enforcement Directorate 8 , relied

upon by the learned counsel for the appellants is also not applicable as the

issue dealt with therein is about Special Director appointed under the Act

can himself prefer appeal before the High Court against the order passed by

the Tribunal/Board.

14. Learned counsel for the appellants lastly relied upon the judgment in

M/s. Bathina Technologies (India) Ltd., v. Special Director of

Enforcement 9, wherein the High Court of Andhra Pradesh at Amaravati,

held that a reading of Section 19 of the FEMA shows that the

considerations for dispensing with pre-deposit under this provision is

different from the similar relief under the other enactments. It is further

held that it would be competent for the Court in exercise of its jurisdiction

to grant waiver of pre-deposit since in such a case requiring a pre-deposit

itself would amount to undue hardship. Having regard to the facts of the

said case, pre-deposit was dispensed with subject to execution of

undertaking before the appellate authority within eight weeks from date of

the order.

2007 (10) TMI 273- SC

C.M.S.A.No.7 of 2015, decided on 07.05.2025.

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15. Learned counsel for the respondent argued that the Adjudicating

Authority has considered case of both the parties by giving opportunity to

both the appellants to put-forth their respective defence and only thereafter,

passed the order imposing penalty. Similarly, the Appellate Tribunal

considered the contentions of the appellants and passed the impugned order

directing the appellants to deposit 30% cash and to furnish Bank Guarantee

of rest of 70% penalty amount respectively. Hence, interference by this

Court is unwarranted.

16. In support of his contentions learned counsel for the respondent

relied upon the judgment of High Court of Delhi in Special Director of

Enforcement v. Anil Agarwal 10, wherein it is held that the question which

Court has to consider is the correctness and propriety of the Tribunal's

impugned order granting complete exemption from the requirement of pre-

deposit which is otherwise mandatory. In the said judgment, reference is

made to the judgment of the Hon'ble Supreme Court of India in Benara

Valves Ltd. v. CCE 11, Monotosh Saha v. Special Director, Enforcement

Directorate12 and Union of India v. Adani Exports Ltd. 13, wherein it is

held that importance of respecting the legislative mandate of pre-deposit, of

WP (C)No.17467 of 2006 and batch, decided on 31.03.2009

(2006) 13 SCC 347

2008 (11) SCALE 603

2007 (13) SCC 207

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assessed, or penal amounts, wherever prescribed, as preconditions for

appellate remedies. Further, it is held that the structure of several statues

granting discretion to the tribunal or appellate bodies, in such instances

appears to be driven by the logic of existence of undue hardship.

17. Further reliance is placed on the judgment of Bombay High Court in

Rajkumar Shivhare v. Union of India 14, wherein it is held that ordinarily

a writ petition against the order of the Tribunal on an application for waiver

of pre-deposit would not be maintainable. Further, reference is made to the

judgment of the Hon'ble Supreme Court of India in Ketan V. Parekh 15,

wherein it is held as follows:

"27. In this context, reference can usefully be made to the judgment of this Court in Benara Values Ltd. v. Commissioner of Central Excise (2006) 13 SCC 347. In that case, a two Judge Bench interpreted Section 35-F of the Central Excise Act, 1944, which is pari materia to Section 19(1) of the Act, referred to the judgments in Siliguri Municipality v.

Amalendu Das (1984) 2 SCC 436, Samarias Trading Co. (P) Ltd. v. S. Samuel (1984) 4 SCC 666, Commissioner of Central Excise v. Dunlop India Ltd. (1985) 1 SCC 260 and observed:

"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. 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

FERA Appeal No.18 of 2012, decided on

Civil Appeal No.10301 of 2011, dated 29.11.2011

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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 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.

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

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. The entire gamut of facts of the case show that the appellant-

B.Sanjay is proprietor of M/s.Vasavi Impex and he has given authorization

to appellant-T.V.Madhusudhan Rao to run day to day activities of the

proprietorship concern i.e., appellant-T.V.Madhusudhan Rao is the

authorized signatory of M/s.Vasavi Impex. Both the appellants have not

disputed with the aforementioned stand taken by them respectively.

However, on the basis of the complaint of the Assistant Director,

Directorate of Enforcement, Hyderabad Zonal Office, show-cause notice

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dated 23.11.2009 in File No.T-4/5-HYD/2009 (SCN-II) was issued to both

the appellants. Thereafter, proceedings were initiated before the

Adjudicating Authority and opportunity was given to both the appellants to

appear before the Adjudicating Authority to put-forth their respective

defence. On the basis of the statements given by appellant-

T.V.Madhusudhan Rao coupled with documents seized during the search in

the residential premises of appellant-T.V.Madhusudhan Rao, the

Adjudicating Authority held that both the appellants have indulged in under

valuation of import goods i.e., stone cutting tools by showing 10% to 25%

less of the actual value. It is held that the said findings is not based on the

statement of appellant-T.V.Madhusudhan Rao, but is based on the

statement which is inconformity with the documents at page 5 and 15 of the

file marked 'b' seized from residence of appellant-T.V.Madhusudhan Rao.

The facts revealed by the appellant-T.V.Madhusudhan Rao corresponded

with the contents of the documents seized during search.

19. The missing links are that the person named Prakash, who was in

Begum Bazar and who was in contact with one Hukum in Chennai were

not identified. Further, there is no evidence on behalf of the overseas

supplier about actual prices of the stone cutting tools. However, on the

basis of the statement of the appellant-T.V.Madhusudhan Rao and the

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documents seized, it is held that the appellants herein have indulged in

under valuation of imported goods and transfer of amounts through non-

banking channels. Therefore, were found to have contravened provisions

of the Act and as such penalty of Rs.55,00,000/- each was imposed and

amount of Rs.5,00,000/- seized at the residence of appellant-

T.V.Madhusudhan Rao was confiscated.

20. When an appeal was preferred along with stay petition before the

Appellate Tribunal, the Appellate Tribunal considered whether there is

prima facie case and undue hardship. Irrespective of the arguments made,

according to the Appellate Tribunal, there was a question whether

photocopies of the documents seized showing calculations which is at

internal page 15 onwards can be relied upon for establishing as to whether

the appellants indulged in use of non-banking channels for transfer of funds

overseas in the conduct of business of import of stone cutting tools by M/s.

Vasavi Impex and whether without arraying the company as a party, the

appellants can be held liable for the alleged contravention of the provisions

of the Act. On the basis of the aforementioned grounds, it is held that there

is prima facie case. However, with respect to financial status to make prior

deposit, it is stated that copies of Income Tax Returns filed show that the

business of the company was closed in the year 2008 and therefore, the

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appellants may suffer great hardship if they are not granted waiver to

limited extent and therefore, the impugned order dated 20.08.2014 is

passed.

21. The facts considered by the Appellate Tribunal while adjudicating

stay petition are that there is prima facie case on behalf of the appellants

and that M/s.Vasavi Impex was closed in the year 2008. When the

proprietary concern is closed in the year 2008 and the business is no longer

functional directing the appellants to make pre-deposit of penalty in their

individual capacity would definitely cause undue hardship. However, as

per guidelines laid down by the Hon'ble Supreme Court, undue hardship of

the individuals has to be considered, but vis-à-vis recovery of penalty as

and when the appeal is disposed of and the appellants are found liable to

pay the penalty.

22. In the circumstances, since the proprietary concern i.e., M/s.Vasavi

Impex has been closed down considering the individual risk of the

appellants modifying the orders passed by the Appellate Tribunal would

meet the ends of the justice. Considering the facts and circumstances of

this case, this Court is of the considered opinion that directing the

appellants to furnish Bank Guarantee towards 50% of the penalty amount

and waiving deposit of rest of the 50% would meet the ends of justice.

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23. In the result, the Civil Miscellaneous Second Appeals are partly

allowed by setting aside the order dated 20.08.2014 passed by the

Appellate Tribunal by waving of pre-deposit of 50% of the penalty amount

and directing the appellants to furnish Bank Guarantee for remaining 50%

of the penalty amount each within one month from the date of receipt of

copy of this order. Consequently, the recovery of penalty amount against

the appellants shall remain stayed till disposal of the appeals before the

Appellate Tribunal. There shall be no order as to costs. Miscellaneous

applications, if any, pending shall stand closed.

_________________ RENUKA YARA, J Date: 21.11.2025 GVR