Case Note & Summary
The petitioner, a public limited news broadcasting company, filed a writ petition under Article 226 of the Constitution of India challenging the actions of the Reserve Bank of India (RBI) and the Directorate of Enforcement (ED) concerning compounding applications under the Foreign Exchange Management Act, 1999 (FEMA). The company sought a mandamus directing RBI to guide it in making a compounding application and to determine the application within the timeframe of the Foreign Exchange (Compounding Proceedings) Rules, 2000. It also sought prohibition against ED from proceeding with adjudication until the compounding application was decided, and alternatively, certiorari to quash various orders including RBI's letters returning the applications, ED's directions to RBI, and the order sheet of the ED. The petitioner also challenged the proviso inserted in Rule 8(2) of the Compounding Rules by a 2017 amendment as ultra vires Article 14.
The background involved a show cause notice issued by ED on 13 November 2015 alleging contraventions of FEMA sections 3(d), 6(3)(a), 6(3)(b), 6(3)(j) and various regulations. The petitioner, while maintaining there was no contravention, filed compounding applications with RBI on 7 May 2016 to avoid adverse publicity and protracted litigation. RBI initially returned the applications on 5 and 12 August 2016 for completion of administrative actions; the petitioner complied and refiled on 19 August 2016, and later filed a third application on 24 October 2016. RBI again returned all three applications on 24 January 2017, advising the petitioner to approach the Overseas Investment Division and Foreign Investment Division for guidance. The petitioner then sought guidance and submitted simplified transaction details, but later challenged the returns, ED's letter to RBI not to compound till adjudication was complete, and the adjudication hearing note which allegedly pre-judged the issue. The writ petition was admitted, rule issued, and the dispute centered on whether the RBI was obliged to accept and process the applications, the validity of the bar on compounding when section 37A proceedings were contemplated, and the interplay between adjudication and compounding.
Issue of Consideration
Whether the Reserve Bank of India could return compounding applications on the ground that guidance is required; whether the proviso to Rule 8(2) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 is ultra vires the Foreign Exchange Management Act, 1999; and whether the petitioner was entitled to any relief in respect of the adjudication proceedings
Law Points
- compounding is a negotiated settlement
- no inherent right to compounding
- Rule 8(2) proviso is intra vires
- no statutory duty to guide
- 180-day timeline in Rule 8 is directory
- compounding not permissible if section 37A proceedings contemplated
- adjudication proceedings can continue despite compounding application
Case Details
2018 LawText (BOM) (06) 100
Writ Petition No. 2026 of 2017
S. C. Dharmadhikari, Smt. Bharati H. Dangre
Janak Dwarkadas, Fereshte Sethna, Pawan Sharma, Sumit Garg, Shreema Doshi, Lokesh Aidasani, Venkatesh Dhond, Prasad Shenoy, Mansi Mahida, Parag Sharma, Hiten Venegaonkar, D. P. Singh, Priya Singhania, Satya Prakash, Anjan Chanda, Praful Wable, S. P. Singh, Dona Datta
New Delhi Television Limited
Reserve Bank of India & Ors.
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging the actions of the Reserve Bank of India and the Directorate of Enforcement regarding the return of compounding applications and seeking directions to process the applications, quash orders, and declare a rule provision ultra vires.
Remedy Sought
The petitioner sought a writ of mandamus against RBI to guide it in filing a compounding application and to determine the application within the time prescribed; a writ of prohibition against ED from proceeding with adjudication until the compounding decision; alternatively, certiorari to quash RBI's letter dated 24 January 2017, ED's letter dated 6 March 2017, the order sheet dated 20 April 2017, and the amendment to Rule 8(2); and a declaration that the proviso to Rule 8(2) is ultra vires Article 14.
Filing Reason
RBI returned the compounding applications on the ground that the petitioner needed guidance from its Overseas Investment Division and Foreign Investment Division, and later, the 2017 amendment to Rule 8(2) barred compounding when proceedings under section 37A were contemplated; the petitioner challenged these actions as arbitrary and without legal authority.
Previous Decisions
ED issued show cause notice dated 13 November 2015 for alleged FEMA contraventions; RBI returned initial compounding applications on 5 and 12 August 2016 for administrative actions; after refiling, RBI again returned the applications on 24 January 2017; ED wrote to RBI on 6 March 2017 not to compound till adjudication concluded; ED held an adjudication hearing on 20 April 2017 and rejected the plea to keep proceedings in abeyance.
Issues
Whether the Reserve Bank of India has a statutory duty to provide guidance to an applicant prior to filing a compounding application under the Foreign Exchange (Compounding Proceedings) Rules, 2000.
Whether the proviso inserted in Rule 8(2) of the Compounding Rules by the 2017 amendment, which bars compounding if proceedings under section 37A are contemplated, is ultra vires the Foreign Exchange Management Act, 1999 and violative of Article 14.
Whether the 180-day time limit in Rule 8 of the Compounding Rules for deciding a compounding application is mandatory or directory.
Whether the Directorate of Enforcement can continue adjudication proceedings while a compounding application is pending or being filed.
Whether the letters dated 24 January 2017, 6 March 2017, and the order sheet dated 20 April 2017 are liable to be quashed.
Judgment Excerpts
The petitioner carries on business of operating news channels.
The alleged FEMA violations cited in the show cause notice related to section 3(d), read with sections 6(3)(a), 6(3)(b) and 6(3)(j) of the FEMA, read with Regulations 6(2)(ii) and (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.
Procedural History
On 13 November 2015, the Directorate of Enforcement issued show cause notice No. F.No.T-4/2-D/2015 to the petitioner and its directors alleging contraventions under FEMA. The petitioner filed replies on 30 March 2016 and 18 April 2016 denying the contraventions. On 7 May 2016, the petitioner filed two compounding applications with RBI (C.A.No.3998/2016 and 3999/2016) in respect of the alleged violations. RBI returned these applications on 5 and 12 August 2016 for completion of administrative actions; the petitioner complied and refiled on 19 August 2016 (CA Nos. 4113/2016 and 4114/2016). A third compounding application (CA No. 4195/2016) was filed on 24 October 2016. RBI returned all three applications on 24 January 2017 advising the petitioner to approach the Overseas Investment Division and Foreign Investment Division for guidance. The petitioner sought guidance and met officers, and on 11 April 2017 submitted simplified transaction details. The petitioner then filed the present writ petition challenging the return and other actions, amending it to seek further reliefs. The petition was admitted, rule issued, and by consent finally disposed of on 26 June 2018.
Acts & Sections
- Foreign Exchange Management Act, 1999: 3(d), 6(3)(a), 6(3)(b), 6(3)(j), 13, 15(1), 36, 46
- Foreign Exchange (Compounding Proceedings) Rules, 2000: Rule 8(2) proviso (as amended in 2017)
- Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004: Regulation 6(2)(ii), (iv)
- Foreign Exchange Management (Transfer or Issue of Security to Persons Resident Outside India) Regulations, 2000: Regulation 5(1), 10B
- Foreign Exchange Management (Guarantees) Regulations, 2000: Regulation 3
- Constitution of India: Article 14, Article 226
