BY TIOL News Service
MUMBAI, JUNE 28, 2018: THE issue at hand before the bench was whether the Enforcement Directorate could be permitted to influence the judgment of the Reserve Bank of India, during the exercise of the latter's discretionary power to compound alleged offences. NO is the answer. While giving such findings, the High Court severely deprecated the act of meddling in the functions of the central bank of the nation. It also highlighted the importance of the RBI as being a pillar of democracy and thus underscored the need to shield it from unnecessary attacks, uncalled for criticism and attempts to overpower or overreach it.
Facts of the case
The petitioner company is a leading news agency engaged in operating news channels. The Enforcement Directorate (ED) served an SCN u/s 13 of the FEMA, alleging contravention of Section 3(d) of FEMA r/w Sections 6(3)(a), 6(3)(b) and 6(3)(j) r/w Regulations 6(2)(ii) & 6(2)(iv) of the FEM (Transfer or Issue of any Foreign Security) Regulations, 2004, Regulation 5(1) and 10B of FEM (Transfer or Issue of Security to Persons Resident Outside India) Regulations, 2000 and Regulation 3 of the FEM (Guarantees) Regulations, 2000. In their replies to the SCN, the petitioner and the other noticeees denied any contravention. Thereafter, so as to protect its goodwill and to avoid bad publicity and keeping in mind the interests of existing & potential investors, the petitioner sought compounding of offences. Hence it filed two applications with the Reserve Bank of India (RBI) as the jurisdiction for compouding lay with it. Pursuant to filing such applications, the petitioner requested the RBI to stay ongoing investigation proceedings. The ED stayed the investigation proceedings. Meanwhile the RBI returned the two applications on grounds that the petitioner had to complete certain administrative actions. The petitioner did so and again filed two compounding applications. Thereafter, the petitioner filed a third compounding application when it realized that certain other technical & procedural contraventions also needed compounding. Later, the RBI again returned all three applications & advised the petitioner to approach its OID and Foreign Investment Division (FID) for guidance in this regard. When the petitioner approached the OID & FID, it was advised to set forth all its transactions in a simplified manner. The petitioner set forth all transactions in a simplief manner using various charts, which it then submitted to the FID & OID - However, the petitioner received no response from either of them - Meanwhile, the ED restarted adjudication proceedings against the petitioner. When the petitioner requested the ED to stay the adjudication proceedings for a second time, such request was denied & date of hearing was fixed. Thereafter, the petitioner wrote to the FID & OID & marked a copy to the RBI's cell for effective implementation of FEMA, as reminder for seeking guidance. However, depsite such efforts, neither the FID nor the OID provided any guidance to the petitioner. Hence the petitioner is aggrived by the act of the ED in continuing proceedings against the petitioner under FEMA despite the petitioner being entitled for compounding. It also contested the RBI's inability to compound the alleged offences.
On hearing the matter, the High Court held that,
++ we need not refer to all these details simply because the petitioner has not been made an accused in the 2G scam case. The investigations in that case are over long time back. Those who had to be tried as accused have been put to trial already. The trial has already ended, as is very widely reported. It is in these circumstances and when the petitioner was not an accused at all in a case which was investigated, tried and concluded, it is futile now to point out, based on the allegations in the same, that the Enforcement Directorate can take a view that the petitioner's compounding proceedings should not be proceeded further because the compounding proceedings relate to serious contravention suspected of money laundering. Therefore, this note and the material referred therein is of absolutely no assistance in forming a view and communicating it to the RBI. It is clear from the plain language of the proviso that it comes into play when with respect to any proceeding initiated under Rule 4 of the Compounding Rules, if the Enforcement Directorate is of the view that the said proceeding relates to a serious contravention suspected of money laundering, then, the Compounding Authority shall not proceed in the matter and shall remit the case to the appropriate adjudicating authority for adjudicating contravention under section 13 of the FEMA. It is, therefore, the relation with the compounding proceedings and the applicant initiating the compounding proceedings, which is the most vital and crucial factor. Absent the relation of the compounding proceedings as also of the applicant therein with a serious contravention suspected of money laundering, it would not be permissible for the Enforcement Directorate to take any view and communicate the same to the RBI by invoking this proviso. If such a interpretation is not placed on the priviso, there is a likelihood of the RBI being informed by a vague and general communication as in the present case not to go ahead and compound the contravention. If such communication is upheld, that would put an end to the compounding proceedings, though the view of the Enforcement Directorate is general in nature and based on no material or on such material which has no relation with the compounding proceedings. The compounding proceedings pertain to a contravention of the provisions of the FEMA. It is the FEMA which permits a compounding application to be considered by the RBI and confers specific power in that behalf in the RBI by section 15. If the RBI is not allowed to proceed and exercise its statutory power, which is also is discretionary, only because the Enforcement Directorate has communicated a view in general and vague terms, then, as is rightly urged before us, the Enforcement Directorate would on every occasion intervene and interfere with the RBI's powers and take it over. It would then be possible for the Enforcement Directorate to control the exercise of the power vesting in the RBI and this would totally defeat the object and purpose of the FEMA. Secondly, the RBI being the apex bank, its authority and position in terms of the FEMA and the RBI Act, 1934 will be undermined completely. Bearing in mind its position as an apex bank and the trust and confidence reposed in it by the public and the Parliament, as is apparent from at-least two parliamentary statutes, diluting its statutory authority or undermining its position would not be conducive and proper management of foreign exchange. We cannot presume that the RBI, unmindful of its role and the trust and confidence reposed in it under the two parliamentary statutes, will compound every contravention of the FEMA very lightly and casually. It would definitely exercise its discretionary power bearing in mind the expectations of the general public, particularly as a guardian of the foreign exchange. It will appropriately advise the applicants seeking contravention and if compounding of contravention is not in larger public interest, then, definitely the RBI will refuse to grant the compounding application. Thus, on such a vague and general materials, as are contained in the original record, we do not find that we should allow the Enforcement Directorate to interdict the compounding proceedings in the present case. Most of the materials in the record pertain to the Aircel Maxis case, the result of which, as observed above, known to all;
++ as a result of the above discussion, we hold that the view communicated by the impugned communication/letter dated 1st December, 2017 could not brought any compounding proceedings an end. The RBI was not bound to act in accordance with such general and vague communication;
++ w e are concerned in this petition with the actions of the RBI and the Enforcement Directorate, both of whom refer to the criminal proceedings launched by the CBI. Those in-charge of their affairs and those in power giving them directions ought to realise that nothing would be achieved if foundations and base of these institutions is shaken and if they allegedly obey every command of the political masters. The political parties and outfits in power, in opposition ought to know that just as Defence Forces, Police and the Judiciary, it is important that these institutions do not betray public trust and confidence. By its very name, it is the Directorate of Enforcement and it enforces stringent laws like the FEMA and the PMLA. Such institutions are the custodians of our foreign exchange resources, they safeguard and protect them by properly managing and administering them. They ensure that there is balance, much less in payment. If they are looked upon as guardians of citizens' rights, then, it is time that those in power and opposition realise that they should not act in a manner which gives the public at large an impression that these vital institutions are but puppets in the hands of politicians.
++ these institutions protect our constitutional framework. Every law, which is made and the authority therefrom is but a product of our constitution and the entries in the fields of legislation (Schedule 7 Lists I, II and III) have given us the CBI, the RBI and the Enforcement Directorate together with an independent and impartial judiciary, free-press. The agencies like RBI are also pillars of our democracy. The earlier we realise that in their meaningful existence lies our safety and of our legal rights the better it would be. We pray that hereinafter we do not have to observe anything like this and everybody will leave out these institutions from unnecessary attacks, uncalled for criticism and do not try to overpower or overreach them.
(See 2018-TIOL-1201-HC-MUM-FEMA)
