Rave Global Limitedrepresented by its Director Rajesh LodhaNo.16 v. The Assistant DirectorDirectorate of EnforcementShastri BhawanIII Floor, III Blo

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 07.08.2007Coram: The Honourable Mr. Justice V. DHANAPALANW.P. Nos.17176 to 17182 of 2007 & M.P. Nos.1 & 2 in each of the writ petitionsIndo International Limitedrepresented by its DirectorUmraomal LodhaNo.16, Sunkurama Street, I FloorChennai – 600 001Petitioner in W.P. No.17176 of 2007Rave Global Limitedrepresented by its Director Rajesh LodhaNo.16, Sunkurama Street, I FloorChennai – 600 001Petitioner in W.P. No.17177 of 2007Rajesh LodhaPetitioner in W.P. No.17178 of 2007Ram Abatar JainPetitioner in W.P. No.17179 of 2007 Umraomal LodhaPetitioner in W.P. No.17180 of 2007Rajesh LodhaPetitioner in W.P. No.17181 of 2007Ashu LodhaPetitioner in W.P. No.17182 of 2007vs.1The Assistant DirectorDirectorate of EnforcementShastri BhawanIII Floor, III Block26, Haddows RoadChennai – 600 0062The Special Director of EnforcementForeign Exchange Management ActDirectorate of EnforcementGovernment of IndiaNew Delhi, Adjudicating Authority3The RegistrarAppellate Tribunal for Foreign ExchangeMinistry of Law, Justice & Company AffairsGovernment of India, Janpath BhavanNew Delhi – 110 001Respondents in all the W.Ps. https://hcservices.ecourts.gov.in/hcservices/ Writ Petitions filed under Article 226 of theConstitution of India to issue a writ of certioari seeking tocall for the entire records leading to the issue of orders inAppeal Nos.606, 609, 604, 605, 607, 608 and 610 of 2005respectively dated 14.03.2007 on the file of the thirdrespondent confirming the common order No.SDE/PKD/IV/6/2005in common File No.T-4/2-M/2004(SCN-II, IV) dated 31.01.2005on the file of the second respondent made in ComplaintNo.F.No.T-3/62//SC/C/2002(SK) dated 30.04.2004 on the file ofthe first respondent and quash the same.For petitionerMr. B. Rajendranin all W.Ps.for Mr. K. SridharFor respondentsMr. V.T. Gopalan,in all W.Ps.Addl. Solicitor General of Indiafor Mr. Patty B. JagannathanCOMMON ORDERSince the issues involved in all the seven writpetitions are identical, these writ petitions are decided bythis common order.2While the petitioners in W.P. Nos.17176 & 17177 of2007 are companies registered under the Companies Act, 1956,the petitioners in the other five writ petitions areindividuals who are none other than the Directors/officialsin these two companies.3The facts leading to the filing of these writpetitions, in short, are as under:aIndo International Limited and Rave GlobalLimited, petitioners in W.P. Nos.17176 and 17177 of 2007respectively are companies are engaged in exportbusiness of leather and other commodities. In the normalcourse of their business, their Directors and otherofficials purchased foreign exchange under LiberalizedExchange Rule Management System (in short “LERMS”) asper details below and made payment towards the same byway of crossed cheques issued from their bank accounts:Name of CompaniesTravellersChequesamounting toCurrencyamountingtoIndo InternationalLtd.US$ 22,07,850 US$ 9,450Rave GlobalLimitedUS$ 14,11,900US$ 6,000bSince the officials of the petitionerCompanies were not able to make foreign trips asplanned, the petitioner Companies surrendered theforeign exchange purchased as above through authorizedmoney changers in a day or two and also received the https://hcservices.ecourts.gov.in/hcservices/ exchange value of the foreign exchange by means ofcrossed cheques in their name and in fact, incurring acertain amount as Commission for the aforesaidtransactions.cWhile so, the petitioners received summonsfrom the first respondent asking them to appear inperson in connection with proceedings under the ForeignExchange Management Act, 1999 (in short “the Act”) andto produce the copies of the applications for purchasingthe foreign exchange under LERMS and also the details oftheir financial status. Though the summons were dulyreplied by the petitioners, the first respondentpreferred Complaints against the petitioners in F.No.T-3/62/SZC/2002 (SK) dated 30.04.2004 under Section 16(3)of the Act for the alleged contravention of theprovisions of Section 10(6) read with Sections 10(5) and42(1) of the Act before the second respondent. Adetailed reply was submitted by the petitioners statingthere has been no violation on their part in respect ofthe Sections referred to above. However, the secondrespondent, on an analysis of the facts, by his commonorder dated 31.01.2005, imposed penalties of Rs.30 lakhsand Rs.20 lakhs on the first and second petitionersrespectively .dChallenging the orders of the second respondent,the petitioners preferred appeals before the thirdrespondent together with applications to waive the pre-deposit of the penalty amounts ordered by the secondrespondent and the third respondent, by his orders dated14.03.2007 in the appeals, held that there was no primafacie case made out in the appeals and that theadjudication order of the second respondent is not ex faciebad. Having a look at the sound financial condition of thepetitioner companies, the third respondent, further holdingthat there is no need for any dispensation, rejected theapplications for waiver and granted 45 days time from thedate of his order i.e. 14.03.2007, for deposit of thepenalty amount and made clear that the appeals would standdismissed in the event of their failure to make suchdeposit. As against this, the present writ petitionsseeking judicial review of the orders of the respondents 2and 3.4The respondents, having reserved their right to file adetailed counter later, have filed their counter in the staypetitions and have contended that the petitioners had neithermade out a prima facie case nor even on the question of balanceof convenience and that both these issues have been rightlyconsidered by the third respondent while rejecting theapplications for waiver and as such, the order of the thirdrespondent, can, in no way be, found fault with.5Heard Mr. B. Rajendran, learned counsel appearing forthe petitioners and Mr. V.T. Gopalan, learned AdditionalSolicitor General of India assisted by Mr. Patty B. Jagannathan,learned counsel appearing for the respondents. https://hcservices.ecourts.gov.in/hcservices/ 6The learned counsel appearing for the petitioners hascontended that:athere has been no contravention of Section 10(6)read with Sections 10(5) and 42(1) of the Act in view ofthe reasons that it was not proved that the petitioners (i)did not use the foreign exchange for the purpose mentionedin the declaration, (ii) did not surrender it to anauthorized person within the specified period and (iii)used the foreign exchange for any other purpose for whichpurchase of foreign exchange is not permissible;bthe confessional statement given by thepetitioners cannot be accepted without corroboration andeven if the alleged contravention is technical, a hugepenalty cannot be imposed and rather a lenient view couldhave been taken by the second respondent;cthe second respondent ought not to have imposedpenalties of Rs.30 lakhs and Rs.20 lakhs particularly afterholding that (i) there was no actual loss of foreignexchange; (ii) there was only a technical contravention ofthe provisions of the Act and (iii) there was nomisutilisation of foreign exchange; anddthe third respondent has failed to see that thepetitioners had incurred huge loss in business which isreflected in their Balance Sheet and as such, they cannot makethe pre-deposit.7In support of his contentions, the learned counsel forthe petitioner has relied on a judgment of the Supreme Courtreported in 2006 (12) SCALE in the matter of Benara Valves Ltd.& Others vs. Commissioner of Central Excise and another (inshort “Benara Valves Ltd. case”) and the relevant para reads asunder:“It is true that on merely establishing aprima facie case, interim order of protectionshould not be passed. But, if on a cursoryglace, it appears that the demand raised hasno leg to stand, it would be undesirable torequire the assessee to pay full orsubstantive part of the demand. Petitions forstay should not be disposed of in a routinemanner (sic) unmindful of the consequencesflowing from the order requiring the assesseeto deposit full or part of the demand. Therecan be no rule or part of the demand. Therecan be no rule of universal application insuch matters and the order has to be passedkeeping in view the factual scenario involved.Merely because this Court has indicated theprinciples that does not give a license to theforum/authority to pass an order which cannotbe sustained on the touchstone of fairness,legality and public interest. Where denial ofinterim relief may lead to public mischief,grave irreparable private injury or shake a https://hcservices.ecourts.gov.in/hcservices/ citizen’s faith in the impartiality of publicadministration, interim relief can be given.”8The learned Additional Solicitor General of Indiaappearing for the respondents, per contra, has contended thatthe admitted statement has been taken note of by the thirdrespondent and that this statement can be made before thestatutory functionaries and such a statement is sufficient forarriving at a finding of violation of the provisions of the Act.He has further contended that from a glance of the Balance Sheetof the petitioner Companies which reflect huge investments beingmade, it cannot be said that the petitioners are put to anyundue hardship requiring dispensation of pre-deposit amount. Byrelying on paragraphs 11 and 15 of the judgment in Benara ValvesLtd. case, he has pointed out that the third respondent hasrightly borne in mind two aspects, viz., undue hardship and theneed to safeguard the interest of revenue and had accordinglyrejected the applications for waiver filed by the petitioners.In nutshell, it is his vehement contention that there is noillegality or unconstitutionality with the order of the thirdrespondent.9I have given due consideration to the rivalcontentions of the learned counsel on either side.10Before proceeding to decide the issue on hand, itwould be useful to refer to sub-sections (5) and (6) of Section10 of the Act which read as under:“An authorized person shall, beforeundertaking any transaction in foreignexchange on behalf of any person, require thatperson to make such declaration and to givesuch information as will reasonably satisfyhim that the transaction will not involve, andis not designed for the purpose of anycontravention or evasion of the provisions ofthis Act or of any rule, regulation,notification, direction or order madethereunder, and where the said person refusesto comply with any such requirement or makesonly unsatisfactory compliance therewith, theauthorized person shall refuse in writing toundertake the transaction and shall, if he hasreason to believe that any such contraventionor evasion as aforesaid is contemplated by theperson, report the matter to Reserve Bank.Any person, other than an authorizedperson, who has acquired or purchased foreignexchange for any purpose mentioned in thedeclaration made by him to authorized personunder sub-section (5) does not use it for suchpurpose or does not surrender it to authorizedperson within the specified period or uses theforeign exchange so acquired or purchased forany other purpose for which purchase oracquisition of foreign exchange is notpermissible under the provisions of the Act orthe rules or regulations or direction or order https://hcservices.ecourts.gov.in/hcservices/ made thereunder shall be deemed to havecommitted contravention of the provisions ofthe Act for the purpose of this Section.”11From a perusal of the impugned order of the thirdrespondent, it can be seen that only the petitioners’applications for waiver of pre-deposit have been rejected andthe petitioners have been given a time-frame of 45 days from14.03.2007 to make the deposit and admittedly, the appeals areyet to be decided on merits during the hearing by the thirdrespondent on 07.08.2007. The questions raised in this batch ofwrit petitions can very well be agitated before the thirdrespondent who, in turn, can very well go into the merits of thecase and decide the same. For the sake of better comprehension,the observations made by the third respondent in the impugnedorders may be divided into two parts and they run as under:Part IAfter hearing both sides with deepconsideration, we feel that the appellants donot have a prima facie case. The adjudicationorder is not ex facie bad, especially whenthis is more or less admitted in theadmissional statement that the foreignexchange is taken for running the business butlater resold to another authorized dealer,though purpose of taking foreign exchange isshown as visits abroad.Part IIThe financial condition as shown in thebalance sheet also does not permit anydispensation, especially when substantialamount of loan and investment is shown.Therefore, following the judgment of theSupreme Court in M/s. Benara Valves Ltd. vs.CCE 2006 (12) Scale 15, we reject theapplication for dispensation of the pre-deposit in these appeals and direct theappellant to make pre-deposit of theirrespective penalties within a period of 45days from today failing which these appealswill be dismissed on this ground alone. Theseappeals are fixed for hearing on 7th August2007.12A cursory reading of the above would make it clearthat the pre-deposit for considering the appeal has beenconsidered before taking up the appeals on merits. For arrivingat a conclusion that there is no undue hardship for thepetitioners, the third respondent has taken note of thefinancial condition as shown in the Balance Sheet of thepetitioner companies reflecting huge loans and investments andhas rejected the applications for dispensation of pre-deposit.In order to decide whether the third respondent is correct inrejecting the applications of dispensation of pre-deposit, itwould be useful to refer to the judgment of the Supreme Court inBenara Valves Ltd. case: (paras 11, 12, 13 and 15) https://hcservices.ecourts.gov.in/hcservices/ “Two significant expressions used in theprovisions are “undue hardship to such person”and “safeguard the interests of revenue”.Therefore, while dealing with the application,twin requirements of considerations i.e.consideration of undue hardship aspect andimposition of conditions to safeguard theinterest of Revenue have to be kept in view.As noted above there are two importantexpressions in Section 35(F). One is unduehardship. This is a matter within the specialknowledge of the applicant for waiver and hasto be established by him. A mere assertionabout undue hardship would not be sufficient.It was noted by this Court in S. Vasudeva v.State of Karnataka and others (AIR 1994 SC923) that under Indian conditions expression“undue hardship” is normally related toeconomic hardship. “Undue” which meanssomething which is not merited by the conductof the claimant, or is very muchdisproportionate to it. Undue hardship iscaused when the hardship is not warranted bythe circumstances.For a hardship to be “undue”, it must beshown that the particular burden to have toobserve or perform the requirement is out ofproportion to the nature of the requirementitself and the benefit which the applicantwould derive from compliance with it. The other aspect relates to imposition ofcondition to safeguard the interest ofrevenue. This is an aspect which the Tribunalhas to bring into focus. It is for theTribunal to impose such conditions as aredeemed proper to safeguard the interest ofrevenue. Therefore, the Tribunal while dealingwith the application has to consider materialsto be placed by the assessee relating to unduehardship and also to stipulate condition asrequired to safeguard the interest ofrevenue.”13After giving due consideration to the case of theparties and the ruling of the Supreme Court in Benara ValvesLtd. case, I am of the considered view that as far as thefirst part of the observation made by the Tribunal in theimpugned orders is concerned, such an observation could onlybe made only after the petitioners make the pre-deposit andas such, the third respondent ought not to have given such anobservation, particularly when the appeals are to be taken upon the 7th instant for hearing. In other words, the thirdrespondent, keeping the appeals pending, cannot come to sucha conclusion that the petitioners herein do not have a primafacie case and that the adjudication order passed by thesecond respondent is not ex facie bad. Even assuming that the https://hcservices.ecourts.gov.in/hcservices/ petitioners were prepared to comply with the condition ofmaking the pre-deposit, the appeals will have to be decidedon merits, thereafter. Thus, looked at from any angle, thefirst part of the observation made by the third respondentcannot be sustained and is accordingly set aside.14Coming to the second part of the observation of thethird respondent, from the proposition of laid down by theSupreme Court in the judgment referred to above, it is clearthat the twin aspects of undue hardship and the need tosafeguard the interest of revenue are the important criteriato waive the pre-deposit. In the instant case, the power ofthe third respondent to waive the pre-deposit is mainly basedon four aspects, viz., prima facie case, balance ofconvenience, undue hardship and the need to safeguard theinterest of revenue. On a careful perusal of the materialsavailable on record, it is seen that the petitioners have notsubstantiated their case that they are inflicted with anyundue hardship. The term “undue hardship” is normallyattributed to economic hardship and for hardship to be“undue”, it must be shown that the particular burden toobserve or perform the requirement is out of proportion tothe nature of the requirement itself and the benefit whichthe applicant would derive from compliance with it.Undoubtedly, undue hardship is something more than justhardship. In the case on hand, the third respondent hastaken note of this aspect and also the aspects of balance ofconvenience and the need to safeguard the interest of revenueand has rightly rejected the applications for waiver of pre-deposit and this finding of the third respondent is totallyin conformity with the settled proposition of law laid downby the Supreme Court in Benara Valves Ltd. case. As such,the second part of the observation made by the thirdrespondent is upheld15For all the foregoing reasons, the matter is remittedto the third respondent for consideration afresh upon thepetitioners complying with the condition of making the pre-deposit of Rs.30 lakhs and Rs.20 lakhs respectively within aperiod of two weeks from today and the third respondent isfurther directed to dispose of the appeals on meritsindependently and pass appropriate orders thereon asexpeditiously as possible. https://hcservices.ecourts.gov.in/hcservices/ In the result, the writ petitions are dismissed exceptsetting aside a portion of the observation made by the thirdrespondent in the impugned orders dated 14.03.2007 as indicatedabove. No costs. Consequently, connected MiscellaneousPetitions are closed.CadSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1The Assistant DirectorDirectorate of EnforcementShastri BhawanIII Floor, III Block26, Haddows RoadChennai – 600 0062The Special Director of EnforcementForeign Exchange Management ActDirectorate of EnforcementGovernment of IndiaNew Delhi, Adjudicating Authority3The RegistrarAppellate Tribunal for Foreign ExchangeMinistry of Law, Justice & Company AffairsGovernment of India, Janpath BhavanNew Delhi – 110 001+ 7cc to Mr. K. Sridhar, Advocate sr no. 49120nsm(co)nm(07.08.07)W.P. Nos.17176 to 17182 of 2007