ED empowered to Dispose of Objections for want of detailed consideration: Delhi HC refuses to quash SCN against J.P Morgan

ED - Delhi High Court - SCN - J.P Morgan - Taxscan

The Delhi High Court while refusing to quash the Show Cause notice (SCN) ruled that the Enforcement Directorate (ED) is empowered to Dispose of Objections for the want of detailed consideration.

The petitioner, J.P.Morgan India Pvt. Ltd. challenged the Show Cause Notice and the consequent Order and the Communication of the ED, proceeding with the inquiry against the petitioner under the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 on the alleged violation of Section 6(6) of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 3 of the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2000.

The petitioner is a private limited company incorporated under the Indian Companies Act, 1956. It is a subsidiary of JP Morgan India Securities Holding Limited, Mauritius (JPMISHL).

Complaint in relation to Rs. 85 crores invested by JP Morgan India Property Mauritius Company in M/s Amrapali Zodiac Developers Pvt. Ltd Complaint in relation to investment of Rs. 140 crores approximately by IPFII-S Singapore PTE Ltd. in M/s Amrapali Silicon City Pvt. Ltd. The allegations against the petitioner are, however, common in both the complaints.

The respondent took cognizance of the above complaints and issued the impugned notice in terms of Rule 4(1) of the Adjudication Rules to the petitioner, inter alia calling upon the petitioner to show cause as to why an inquiry should not be held against it. The petitioner was also called for a personal hearing by the notice.

Mr.Siddharth Agarwal, the counsel for the petitioner submits that there has been a violation of Rule 4(3) of the Adjudication Rules thereby vitiating the entire proceedings against the petitioner. He submits that Rule 4(3) of the Adjudication Rules requires a two-stage inquiry process. At the first stage, the Adjudicating Authority has to form an opinion, after considering the cause shown by the noticee, if any, as to whether the noticee is to be proceeded against in an inquiry. He submits that such opinion must necessarily be recorded in writing and, in case he seeks a copy of the same, provided to the noticee. The opinion must show application of mind to the objections raised by the noticee and give reasons for the opinion to proceed. Though such reasons need not be elaborate, they must be clear and explicit. They must show application of mind on the representation/objections advanced by the noticee. Such reasons cannot be later supplanted/supplemented by fresh reasons given in the affidavit.

The single bench of Justice Navin Chawla held that in case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order.

“In the peculiar facts of the present case, even though the Impugned Opinion of the Adjudicating Authority does not record any reasons for the same, the same is sustained. This shall, however, not be considered as an affirmation of this Court to the manner in which such opinion is to be recorded. It is also made clear that this Court has not expressed any opinion on the merit of the allegations made against the petitioner in the Show Cause Notice or the inquiry,” the court added.

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