ABDUL SALAM KHAN AND ANOTHER V. UNION OF INDIA AND 5 OTHERS

WRIC/3541/2020

AI Insights

The case involves a writ petition filed by Abdul Salam Khan and Nurul Huda Khan challenging the recovery proceedings initiated by the Directorate of Enforcement under the Foreign Exchange Management Act, 1999 (FEMA 1999). The petitioners were partners in M/s Noor Cottage Industry, which was involved in exporting carpets to Germany. The Directorate of Enforcement imposed penalties on the petitioners for not realizing export proceeds. The petitioners contested the recovery proceedings on the grounds that the Penalty Recovery Officer was not authorized to initiate these proceedings as he was not of the rank of Assistant Director, which is a requirement under FEMA 1999 for such actions. The court examined the legality of the recovery proceedings and found them to be without jurisdiction, leading to the quashing of these proceedings.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 722142 (HC-UTTAR_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 06-02-2020
• Assessment Year: misc
• Laws Referred To: Foreign Exchange Management Act, 1999, Foreign Exchange Management (Export of Goods and Services) Regulation, 2000
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RAVI PRAKASH SRIVASTAVA
• Assessee Lawyers: MANISH SINGH
• Keywords: Certiorari; Certiorari; Export proceeds; FEMA; Jurisdiction; Quashing; Penalty recovery
• Section: 13; 14A; 7; 8; 17; 42

Judgement Text

"Court No. - 4 Case :- WRIT - C No. - 3541 of 2020 Petitioner :- Abdul Salam Khan And Another Respondent :- Union Of India And 5 Others Counsel for Petitioner :- Manish Dev Singh Counsel for Respondent :- A.S.G.I.,C.S.C.,Ravi Prakash Srivastava Hon'ble Bala Krishna Narayana,J. Hon'ble Ravi Nath Tilhari,J. Per: Hon'ble Ravi Nath Tilhari, J. 1. Heard Sri Manish Dev Singh, learned counsel for the petitioners, Sri Ravi Prakash Srivastava, learned Additional Solicitor General of India for respondents-1 to 3 and the learned Standing Counsel for respondents-4 to 6. 2. With the consent of learned counsel for the parties, the writ petition is being decided at the admission stage. 3. The present petition has been filed by the petitioners for the following prayers:- “Issue an order, direction or writ in the nature of the certiorari quashing the impugned order dated 30.12.2019, passed by the res no.5 herein i.e. Additional District Magistrate (Finance/Revenue) Bhadohi (Annexure No.3 to the writ petition) whereby and whereunder penalty in question was directed to be recovered as arrears of land revenue in as much as same being time barred. ii. Issue an order, direction, or writ in the nature of the certiorari quashing the impugned writ of demand dated 08-11-2017, issued by the res no.3 herein i.e. Penalty Recovery Officer, Directorate of Enforcement, Lucknow (Annexure No.4 to the writ petition) in as much as he was not within the purview of Assistant Director as per sec. 14A of Foreign Exchange Management Act, 1999. iii. Issue any other order, direction or writ of suitable nature, which this Hon'ble court may deem fit and proper under the circumstances of present case and iv. Award cost of the petition in favour of the petitioner.” 4. The facts of the case are that M/s. Noor Cottage Industry. Bhadohi was a registered partnership firm in which present petitioners were partners along with others. The Firm was duly incorporated and established in the year 1962 and later on by mutual consent of the partners, it was dissolved in the year 2005 and no further reconstitution or any other ancillary action ensued. In the course of its business, the firm during the period 29.6.1999 to 7.11.2003, exported carpets in Germany to its buyer, namely, M/s Kalantari [2] Gmb.H Orient Teppich Gross Haded St Annen upper-4, 20457 Ganbyrgm, Germany(hereinafter referred to as “the buyer”). An action for contravention of Sections 7, 8 and 42 of Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA 1999”) read with Regulations 8, 9 and 13 of Foreign Exchange Management (Export of goods and services) Regulation, 2000( hereinafter referred to as “the Regulation 2000”) was initiated by the Directorate of Enforcement, which was numbered as Adjudication Order No.ADJ/58/LKZO/2015/AD(ASB) and was adjudicated by the Assistant Director, Directorate of Enforcement, Zonal Office, Lucknow /respondent no.2 by order dated 6.10.2015 . 5. The operative portion of the Adjudicating Order dated 6.10.2015 reads as under:- “In exercise of powers conferred upon me under section 13 of FEMA, 1999, I impose following penalties on the Noticees for contravention of Section 7, 8 & 42 of FEMA as initiated vie Show Cause Notice issued under F. No. T-4/11-ALSZO/LZO/ 2015/AD(NKD) dated 10.03.2015 for no realization of an amount of Rs.47,19, 498.00 towards export proceeds. Id not intend to impose a separate penalty for the firm. S.No. Name of the Person Address Penalty Imposed (In Rs.) 1. M/s Noor Cottage Idustry Main Road, Maryadpatti, Bhadohi, District Sant Ravidas Nagar (U.P.)- 221401 NIL 2. Shri Abdul Salam Khan S/o Late Abdul Aziz Khan, partner of M/s Noor Cottage Industry. Main Road, Maryadpatti, Bhadohi, District Sant Ravidas Nagar (U.P.)- 221401 10,00.000/- 3. Shri Abdul Salam Khan S/o Late Abdul Aziz Khan, partner of M/s Noor Cottage Industry. Rewara, Paraspur, Bhadohi, District Sant Ravidas Nagar(U.P.) 221401. 30.000/- 4. Smt.Qurtul Aine W/o Late Fayyaz Ahmed Khan, partner of M/s. Noor Cottage Industry. 19/20, Imlak Colony, Sadesar, Varanasi (U.P.) NIL 5. Master Ayaz Khan S/o Late Fayyaz Ahmed Khan, partner of M/s Noor Cottage Industry. 19/20,Imlak Colony,Sadesar, Varanasi (U.P.) NIL 6. Shri Anwar Salam Khan, S/o Late Nurul Ain Khan, poartner of M/s Noor Cottage Industry. Main Road, Maryadpatti, Bhadohi, District Sant Ravidas Nagar (U.P.)- 10,00,000/- [3] 221401 7. Shri Nurul Huda Khan, S/o Lae Nurul Ain Khan, partner of M/s. Noor Cottage Industry. Main Road, Maryadpatti, Bhadohi, District Sant Ravidas Nagar (U.P.)- 221401 10,00,000/- The penalty imposed should be deposited in the office of the Joint director, Directorate of Enforcement, Lucknow Zonal Office, 2nd Floor, Princeton Business Park,16, Ashok Marg, Lucknow-226001 in the form of Demand Draft in favour of “Drawing and Disbursing Officer, Directorate of Enforcement, Lucknow Zonal Office, Lucknow” within 45 days from the date of receipt of this order.” 6. The petitioners, did not challenge the order dated 6.10.2015, which as such attained finality. 7. The respondent-3/Penalty Recovery Officer, Department of Enforcement Directorate, Lucknow by official letters dated 8.11.2017 requested respondent-4/ Senior Superintendent of Police, Bhadohi, to serve notices of demand of penalty imposed upon the petitioners(and one more partner)through local police officer, which became due on 6.12.2015. In pursuance thereof respondent no.5/Additional District Magistrate (F & R), directed on 30.12.2019, respondent-6/ Tehsildar, Bhadohi to recover the penalty amount as arrears of land revenue. The concerned Tehsildar vide order dated 10.01.2020 issued writ of demand qua R.C. Form-36 against the petitioners. 8. In the present petition only the demand notice dated 8.11.2017 and the recovery proceedings have been challenged. 9. Learned counsel for the petitioners has challenged the recovery proceeding on the ground that the respondent-3/ Penalty Recovery Officer, Enforcement Directorate, Lucknow, not being an officer of a rank of Assistant Director and not being duly authorized person as per Section 14-A of the Act 1999, initiation of recovery proceeding was without jurisdiction. His submission is that there was no notification legally authorizing respondent-3 to recover the amount of penalty. [4] The recovery proceedings were not as per the procedure established by law. 10. Learned counsel for the respondent nos. 1 to 3 submits that there is no illegality in the recovery proceedings in as much as the petitioners’ have not challenged the Adjudication Order dated 06.10.2015. The learned Counsel has submitted that the present proceedings for penalty recovery relate to the adjudication order no. ADJ/58/LZO/2015/AD(ASB) dated 06.10.2015 passed by the Assistant Director, Directorate of Enforcement, Lucknow Zonal Office, Lucknow, whereby penalty of Rs. 30,30,000/- was imposed under Section 13 of the F.E.M.A. 1999, on M/s Noor Cottage Industry, Sh. Abdul Salam Khan, Sh. Abdul Kalam Khan, Sh. Anwar Salam Khan and Sh. Nurul Huda Khan for contravention of Sections 7, 8 and 42 of F.E.M.A readwith Regulations 8, 9 and 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations 2000. His submission is that the adjudication order is appeallable under Section 17 of the F.E.M.A. 1999 and the appeal lies to Special Director Appeals. As per Section 17(1), the Central Government has appointed the Commissioner of Income Tax VIII vide S.O. 44 (E) dated 08.01.2008, issue from F. No. 16.28/2006 AD.E.D. to hear appeals against the order of the Adjudicating Authority in respect of part of U.P. His submission is that the petitioners have approached this Court directly under Article 226 of the Constitution of India whereas there being equally efficacious alternative remedy of appeal, the writ petition is not maintainable. 11. The learned counsel for the respondent nos. 1 to 3 submitted that he has received written instruction/factual reply to the Writ Petition and has made the submission on the basis thereof. 12. Learned counsel for the respondent nos. 1 to 3 has further submitted that as per Section 14-A of F.E.M.A. 1999, a designated [5] officer of the Directorate of Enforcement, not below the rank of Assistant Director, is authorized to recover arrears of penalty, and such designated officer is empowered to exercise all like powers which are conferred on the Income Tax Authority in recovery of tax under the Income Tax Act, 1961 (43 of 1961) 13. However, the learned counsel for the respondent nos. 1 to 3 has not been able to dispute the petitioners contention that the respondent no. 3 Penalty Recovery Officer Directorate of Enforcement was not authorized to issue demand/recovery notice or that he was not a duly authorized person to recover the amount of penalty or that the Penalty Recovery Officer was not an officer, not below the rank of Assistant Director. 14. Learned Standing Counsel has submitted that the respondents-4 to 6 have only proceeded to recover the amount of penalty in view of the order/demand notice sent to those respondents by the Penalty Recovery Officer. 15. We have considered the arguments/submissions advanced by the learned counsels for the parties and have perused record. 16. To appreciate the submissions of the learned counsels for the parties, it is necessary to look into the provisions of Sections 13,14, 14A of FEMA 1999 which are reproduced as under: 13. Penalties. — (1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues. [6] (1A) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37A, he shall be liable to a penalty up to three times the sum involved in such contravention and confiscation of the value equivalent, situated in India, the Foreign exchange, foreign security or immovable property. (1B) If the Adjudicating Authority, in a proceeding under sub-section (1A) deems fits, he may, after recording the reasons in writing, recommend for the initiation of prosecution and if the Director of Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director. (1C) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggregate value exceeding the threshhold prescribed under the proviso to sub-section (1) of section 37A, he shall be, in addition to the penalty imposed under sub-section (1A), punishable with imprisonment for a term which may extend to five years and with fine. (1D) No court shall take cognizance of an offence under sub-section (1C) of section 13 except as on complaint in writing by an officer not below the rank of Assistant Director referred to in sub-section (1B). (2) Any Adjudicating Authority adjudging any contravention under sub-section (1), may, if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf. Explanation.—For the purposes of this sub-section, “property” in respect of which contravention has taken place, shall include —(a) deposits in a bank, where the said property is converted into such deposits; (b) Indian currency, where the said property is converted into that currency; and (c) any other property which has resulted out of the conversion of that property. [7] 14. Enforcement of the orders of Adjudicating Authority.— (1) Subject to the provisions of sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him under section 13 within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section. (2) No order for the arrest and detention in civil prison of a defaulter shall be made unless the Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied—(a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, c oncealed, or removed any part of his property, or (b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same. (3) Notwithstanding anything contained in sub-section (1), a warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority. (4) Where appearance is not made pursuant to a notice issued and served under sub-section (1), the Adjudicating Authority may issue a warrant for the arrest of the defaulter. (5) A warrant of arrest issued by the Adjudicating Authority under sub-section (3) or sub-section (4) may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found. ( 6) Every person arrested in pursuance of a warrant of arrest under this section shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey): Provided that, if the defaulter pays the amount entered in the warrant [8] of arrest as due and the costs of the arrest to the officer arresting him, such off icer shall at once release him. Explanation.—For the purposes of this sub-section, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter. (7) When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison. (8) Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required. (9) Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest: Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for appearance at the expiration of the specified period if the arrears are not satisfied. (10) When the Adjudicating Authority does not make an order of detention under sub-section (9), he shall, if the defaulter is under arrest, direct his release. (11) Every person detained in the civil prison in execution of the certificate may be so detained,— (a) where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and (b) in any other case, up to six months: Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison. [9] (12) A defaulter released from detention under this section shall not, merely by reason of his release, be discharged from his liability for the arrears, but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison. (13) A detention order may be executed at any place in India in the manner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973 (2 of 1974). 14A.Power to recover arrears of penalty.— (1) Save as otherwise provided in this Act, the Adjudicating Authority may, by order in writing, authorise an officer of Enforcement not below the rank of Assistant Director to recover any arrears of penalty from any person who fails to make full payment of penalty imposed on him under section 13 within the period of ninety days from the date on which the notice for payment of such penalty is served on him. (2) The officer referred to in sub-section (1) shall exercise all the like powers which are conferred on the income -tax authority in relation to recovery of tax under the Income -tax Act, 1961(43 of 1961)and the procedure laid down under the Second Schedule to the said Act shall mutatis mutandis apply in relation to recovery of arrears of penalty under this Act. 17. A bare perusal of Section 14-A of F.E.M.A., 1999, which was inserted w.e.f. 22.11.2006 in the statute shows that the adjudicating authority may by order in writing authorize an officer of enforcement not below the rank of Assistant Director to recover any arrears of penalty from any person who fails to make full payment of penalty under Section 13 within a period of 90 days from the date on which the notice of payment of such penalty is served on him. Sub Section (2) of Section 14-A provides that the officer referred to in sub Section (1) shall exercise all the like powers which are conferred on the Income Tax Authority in relation to recovery of tax under the Income Tax Act, 1961 and the procedure laid down under the second schedule to the Income Tax Act shall mutatis mutandis apply to the arrears of penalty under the FEMA. As per Section 14-A, the Adjudicating [10] Authority may by order authorize an Officer of Enforcement to recover the arrears of penalty which has fallen due. The authorization must be in favour of an Officer of Enforcement not below the rank of Assistant Director. Such authorization is required to be in writing of the Adjudicating Authority. 18. In the present case, the submission of learned counsel for the petitioners is that the Adjudicating Authority did not authorize the Penalty Recovery Officer by order in writing and such an Officer is also not of the rank of Assistant Director in the Directorate of Enforcement. Any order in writing of the Adjudicating Authority authorizing the Penalty Recovery Officer to recover the arrears of penalty imposed by the Adjudicating Order, has not been placed before us nor any order or letter that the Penalty Recovery Officer is not below the rank of the Assistant Director. 19. The only submission advanced by the learned counsel for the respondent nos. 1 to 3 is that the petitioner has equally efficacious alternative remedy to file appeal under Section 17(1) of F.E.M.A. 1999. His submission is that such appeal lies against the Adjudication Order. This submission is beyond the controversy, as in the present petition, the petitioners have not challenged the adjudication order dated 06.10.2015. The challenge is to the recovery proceedings to recover the penalty amount imposed by the Adjudication Order dated 06.10.2015. The appeal may be maintainable against the order dated 06.10.2015 under Section 17(1) but as the Adjudication Order is not under challenge, the question of existence of alternative statutory remedy and consequently the maintainability of the petition on this ground does not arise at all. 20. In view of the above, we are of the considered view that the recovery proceedings to recover the impugned penalty from the petitioners is without jurisdiction and the proceedings have no [11] sanction of law under Section 14-A of F.EM.A. 1999. Such proceedings are liable to be quashed. 21. We further find that as per the Adjudication Order, the amount of penalty to be recovered from M/s Noor Cottage Industry is 30,30,000/- (Thirty lakhs and thirty thousand only). The liability of the petitioners as mentioned in the Adjudicating Order and the demand notice is for Rs. 20 lacs i.e. Rs.10 lacs each for petitioner nos. 1 and 2. The other partners/persons upon whom also liability has been fixed and recovery proceedings have been instituted, have not challenged the same, by the present writ petition. 22. Writ petition is, therefore, allowed and the recovery proceedings against the petitioners, namely, Abdul Salam Khan and Nurul Huda Khan are quashed. However, it is left open to the respondents to proceed against the petitioners to recover the amount for which these petitioners are liable under the Adjudication Order dated 06.10.2015, in accordance with law. 23. No order as to costs Order Dated:06.02.2020 mt "