Proceedings u/s 56 of FERA cannot be continued in Absence of Issuance of SCN or Opportunity Notice: Delhi HC quashes Exparte Proceeding by ED [Read Order]

In a recent judgement, the Delhi High Court proceedings under section 56 of the Foreign Exchange Regulation Act, 1973 (FERA) cannot be continued in the absence of issuance of Show cause notice (SCN) or opportunity notice and quashed the exparte proceedings by Enforcement Director (ED). M/S Shilpi Modes, the petitioner challenged the impugned proceedings initiated under Section 56 of FERA by the Enforcement Directorate dated 04.04.2002. Mr. A. M. Dar, senior counsel appeared for the petitioner and on the grounds of violation of principles of natural justice submitted that the entire proceedings were vitiated. It was held that, the Supreme Court in State Bank of India and Others Vs. Rajesh Agarwal and Others and in Oil and Natural Gas Corporation Limited Vs. Western Geco International. According to senior counsel, the Adjudicating Authority has to apply its mind to the facts as obtained in a given case, provided the party affected by it has been given a chance to put across its case and in the absence whereof, the Supreme Court has held that it would amount to violation of principles of natural justice and the very order can be set aside. It was submitted that as a matter of law, the violation of principles of natural justice can and does entail setting aside any order passed by the administrative authority, including one under the FERA. Further argued that the service of notice as stipulated under proviso to Section 61 (2) of the Act is a necessary concomitant before the Adjudicating Authority comes to any conclusion for or against the petitioner. Per contra, Mr. Yogeshwaran, senior standing counsel for the respondent submitted that the proceedings under Section 56 of FERA and Section 18(2) and (3) are distinct and as such even if it is taken that the Adjudicating Authority has heard the petitioner or not, the proceedings under Section 56 FERA cannot be deemed to be violative of any law. The Court had vide the order dated 03.08.2023 dismissed the challenge to the order dated 16.04.2004 by permitting the petitioner to file an appeal thereagainst, by the provisions of section 52 of the FERA and consequently disposed of the writ petition. The issue revolves primarily around the dispute as to whether the notices under proviso to Clause (ii) of sub-section (2) of Section 61 FERA allowing showing cause was served upon the petitioner or not. It is not disputed by the Enforcement Directorate that the petitioner had, vide the letter dated 01.09.2000 conveyed/ communicated the fresh address to the Central Bank of India for future correspondences regarding the allegation of evasion of reconciliation of accounts by the Central Bank of India. A Single judge bench of Justice Tushar Rao Gedela observed that the ED did not have the fresh and correct address of the petitioner which was not disclosed by the Central Bank of India despite being fully aware of the same. Having regard to the aforesaid undisputed admission being part of the judicial record propels this Court to conclude that the notice under proviso to Clause (ii) of sub-section (2) of Section 61 FERA was never served upon the petitioner. Before initiation of proceedings under Section 56 of the FERA, an opportunity must be granted to the accused. The Court had concluded that since the respondent therein had failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court in that case had erred in taking cognizance and on that basis, quashed and set aside the impugned order on charge. Since the show cause notice or opportunity notice was never served upon the petitioner, the consequent proceedings initiated under Section 56 FERA cannot be continued. It is for violation of Section 18(2) and Section 18(3) of the FERA that would entail action under Section 56 FERA, but the intervening threshold of issuance of show cause notice/opportunity notice and hearing the notice before passing the decision upon such mandatory application of principles of natural justice alone that the action under Section 56 could, at all, have been initiated. As such the submission of Mr. Yogeshwaran on that count is found to be untenable. While allowing the petition court quashed the exparte proceedings issued by the ED. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Proceedings u/s 56 of FERA cannot be continued in Absence of Issuance of SCN or Opportunity Notice: Delhi HC quashes Exparte Proceeding by ED [Read Order]

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