Case Note & Summary
The High Court of Judicature at Bombay heard three appeals under the Foreign Exchange Regulation Act, 1973 (FERA) filed by Hasmukh K Rawal, M/s. Mandlia Developers (P) Ltd., and Pushpa H Rawal. The appeals challenged an order dated 12 June 2009 passed by the Appellate Tribunal for Foreign Exchange, New Delhi, which had dismissed the appellants' appeals and confirmed penalties of Rs.10,00,000 each for contravention of Section 16(1)(a) of FERA. The penalties arose from a show cause notice alleging failure to realize Rs.7.25 crores from a Canadian resident, Jagpaul Singh Gill, under an agreement for sale of shares and sublease rights in a property in Bangalore. M/s. Mandlia Developers (P) Ltd., incorporated in Bangalore with its registered office there, had entered into an agreement with Gill in 1995. The two individual appellants were directors. The Special Director, Enforcement Directorate, Mumbai adjudicated the matter and imposed penalties on 27 December 2002. The appellants filed separate appeals before the Appellate Tribunal, which waived pre-deposit and later, by the impugned order, confirmed the penalties. The appellants then approached the Bombay High Court. At the admission stage, the respondents raised a preliminary objection to territorial jurisdiction, contending that under Section 35 of the Foreign Exchange Management Act, 1999 (FEMA), read with its Explanation, the High Court having jurisdiction is the one where the aggrieved party ordinarily resides or carries on business or personally works for gain. Since the company's registered office and business were in Bangalore, only the Karnataka High Court could entertain the appeals. The respondents argued that the company had no regular business in Mumbai, and an administrative office opened in 1998 for a bank account did not constitute 'ordinarily carrying on business'. The appellants countered that the company had set up an administrative office in Bombay, opened a bank account, and the directors resided in Bombay; additionally, the show cause notice was issued and adjudicated in Bombay, and investigations occurred there, making Bombay the place where part of the cause of action arose. They relied on decisions interpreting 'carries on business' to include any part of the business. The court examined the statutory framework, including FERA Section 54 and FEMA Section 35, and considered the meaning of 'ordinarily' and the impact of a branch office under Companies Act provisions. The arguments and precedents were noted, but the text excerpt ends before the court's analysis and final decision are recorded. Therefore, the final holding on jurisdiction and the outcome of the appeals remain unavailable in the provided judgment text.
Headnote
A) Foreign Exchange Management - Territorial Jurisdiction - Section 35, Explanation (a) of the Foreign Exchange Management Act, 1999 - The Explanation defines the High Court having jurisdiction as the one where the aggrieved party ordinarily resides or carries on business or personally works for gain. The Court considered whether the Bombay High Court had jurisdiction over appeals arising from an order of the Appellate Tribunal for Foreign Exchange where the appellant company's registered office and principal business were in Bangalore, while the directors resided in Mumbai and the company had an administrative office in Mumbai. Held, [Not available in the provided text] (Paras 5-10). B) Interpretation - 'Ordinarily carries on business' - Section 35, FEMA - The expression 'ordinarily' means usually, normally, and not casually; carrying on business requires habitual activity, not mere incidental or occasional presence. The Respondents argued that the company's business was centred in Bangalore as the agreement pertained to property development there, and all compliances were to be performed at Bangalore. The Appellants argued that the administrative office in Bombay and bank account there amounted to carrying on business. Held, [Not available] (Paras 7-8). C) Company Law - Branch Office - Sections 209(2), 209A, 228 of the Companies Act, 1956 - An administrative office may be treated as a branch office for compliance purposes, which does not alter the principal place of business for jurisdiction under FEMA. The Court noted the requirement to maintain books of account at the registered office and the effect of having a branch office. (Paras 7). D) Civil Procedure - Cause of Action - Section 20, Code of Civil Procedure, 1908 - The Appellants contended that because the show cause notice was issued in Bombay, investigations were conducted in Bombay, and adjudication took place in Bombay, the cause of action arose in Bombay, conferring jurisdiction. The Respondents argued that Section 35 of FEMA provides an exclusive mechanism and overrides CPC provisions. Held, [Not available] (Paras 7-8). E) Precedents - Territorial Jurisdiction - The Court referred to Stridewell Leathers (P) Ltd. v. Bhankerpur Simbhaoli Beverages (P) Ltd., (1994) 1 SCC 34, Ambica Industries v. Commissioner of Central Excise, (2007) 6 SCC 769, Jindal Vijayanagar Steel v. Nindal Praxair Oxygen Co. Ltd., (2006) 11 SCC 521, and Patel Roadways Ltd. v. Prasad Trading Company, (1991) 4 SCC 270, to determine the interpretation of 'carries on business'. However, the Court's application of these precedents is not set out in the excerpt. (Paras 7-8).
Issue of Consideration
Whether the Bombay High Court has territorial jurisdiction to entertain appeals under Section 35 of the Foreign Exchange Management Act, 1999, given that the appellant company's registered office is in Bangalore and its business is carried on there, while the directors reside in Mumbai and the company maintains an administrative office and bank account in Mumbai.
Law Points
- Interpretation of 'ordinarily carries on business' under Section 35 of FEMA
- territorial jurisdiction based on registered office and principal place of business
- the expression 'ordinarily' means usually
- normally
- habitually
- Explanation to Section 35 defines High Court jurisdiction
- where cause of action arises is not conclusive under FEMA Section 35
- administrative office treated as branch office under Companies Act provisions
- Code of Civil Procedure Section 20 not applicable due to specific statutory provision
