Case Note & Summary
The case involves appeals by Trade Wings Ltd., its managing director V.S. Ubhayakar, and director Kirti T. Shah against an order of the Appellate Tribunal for Foreign Exchange dated 30 July 2008, which upheld a penalty imposed by the Special Director of Enforcement on 16 August 2002. The appellants were noticees in proceedings under the Foreign Exchange Regulation Act, 1973 (FERA). Two show cause notices were issued on 25 September 1998 alleging that during June to November 1995, the company, a Full Fledged Money Changer (FFMC) authorized by the Reserve Bank of India, released foreign exchange in the names of various persons without due verification of passports/air tickets, without the presence of travellers, without obtaining signatures on travellers cheques, and without making passport endorsements, thereby violating RBI directions. The appellants contended that the show cause notice was vague as it did not specify which particular RBI directions were violated. The court examined the notices and found that they merely referred to 'directions issued by the Reserve Bank of India' without identifying the specific direction or circular. The court held that a show cause notice must clearly specify the contravention alleged to enable the noticee to effectively respond. The failure to do so vitiated the proceedings. Consequently, the court allowed the appeals, set aside the order of the Appellate Tribunal and the Special Director, and quashed the penalty imposed. The court did not impose any costs.
Headnote
A) Foreign Exchange Regulation Act, 1973 - Show Cause Notice - Specificity - The show cause notice must clearly specify the particular direction or provision alleged to have been contravened to enable the noticee to effectively respond. A vague notice that merely refers to 'directions issued by RBI' without identifying the specific direction is bad in law and vitiates the proceedings. (Paras 1-10) B) Foreign Exchange Regulation Act, 1973 - Burden of Proof - The burden is on the enforcement authorities to establish the contravention. Mere suspicion or general allegations are insufficient to sustain a penalty. The department must prove the specific violation with clear evidence. (Paras 1-10) C) Foreign Exchange Regulation Act, 1973 - Penalty - Unsustainable - Where the show cause notice is vague and the evidence does not establish the specific contravention alleged, the penalty imposed under Section 50 of FERA, 1973 cannot be sustained and is liable to be set aside. (Paras 1-10)
Issue of Consideration
Whether the show cause notice and the subsequent adjudication proceedings under the Foreign Exchange Regulation Act, 1973 were vitiated for failure to specify the particular RBI directions allegedly violated, and whether the penalty imposed was sustainable.
Final Decision
The court allowed the appeals, set aside the order of the Appellate Tribunal for Foreign Exchange dated 30 July 2008 and the order of the Special Director dated 16 August 2002, and quashed the penalty imposed. No order as to costs.
Law Points
- Natural justice
- Show cause notice must specify contravention
- Burden of proof on department
- Penalty under FERA
- 1973
