2008 JTR(SC) 1260
2008 69 AIC 10 ; 2009 AIR(SC) 881 ; 2009 Supp AIR(SC) 881 ; 2008 AIR(SCW) 6004 ; 2009 1 CalLT(SC) 1 ; 2008 4 CHN(SC) 211 ; 2008 87 CLA 18 ; 2008 229 ELT 492 ; 2008 11 JT 146 ; 2008 4 KLT(SN) 59 ; 2008 8 MLJ 304 ; 2008 4 RCR(Cri) 348 ; 2008 11 Scale 603 ; 2008 12 SCC 359 ; 2008 86 SCL 121 ; 2008 12 SCR 444 ; 2010 18 STR 81 ; 2009 2 WBLR 551 ; 2009 1 WLC 78 ; 2008 KHC 5242 ; 2008 6 Supreme 264
2008(6) Supreme 264
supreme court of india
(From Calcutta High Court)
Monotosh Saha — Appellant
versus
Special Director, Enforcement Directorate And Anr. — Respondents
Civil Appeal No. 5188 of 2008
(Arising out of SLP (C.) No. 1830 of 2007)
Decided on : 21-08-2008
Important Point
While dealing with the application of appeal/stay, consideration of undue hardship aspect and imposition of conditions to safeguard the realization of penalty have to be kept in view.
Act
Referred
:FOREIGN EXCHANGE ACT : S.35, S.50
FOREIGN EXCHANGE MANAGEMENT ACT : S.19
FOREIGN EXCHANGE REGULATION ACT : S.8(1)
(A) The provisions of the Foreign Exchange Management Act, 1999, specifically Section 35 read with Section 19, the Foreign Exchange Regulation Act, 1973 under Section 8(1) and Section 50, and the relevant rules framed thereunder, apply to this matter where the Adjudicating Authority has imposed a monetary penalty for alleged contravention of foreign exchange regulations. Section 19 of the Act provides the mechanism for appeal to the Appellate Tribunal, subject to a deposit of the penalty amount, while simultaneously requiring the Tribunal to balance the twin objectives of safeguarding realization of the penalty and preventing undue hardship to the appellant. The procedural framework under the Adjudication Proceedings and Appeal Rules, 1974, governs the issuance of show cause notices and adjudication of such contraventions.
(B) Key legal principles include that an appeal under Section 35 requires deposit of the penalty amount unless the Tribunal is satisfied that such deposit would cause undue hardship; the burden is on the appellant to establish hardship with specificity beyond a mere assertion; the term 'undue hardship' denotes excessive or disproportionate hardship relative to the requirement; and the Tribunal must exercise discretion judicially, considering both the hardship of the appellant and the need to secure realization of the penalty. Interim relief in the form of stay or reduction of deposit is not to be granted routinely but must be assessed against the factual matrix to prevent public mischief or grave private injury.
Facts of the case:
The Enforcement Directorate initiated action based on memoranda indicating that the appellant and his entity acquired foreign exchange in contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973. A show cause notice was issued, the appellant filed a reply, and the Special Director (Appeals) imposed a penalty of Rs. 25 lakhs. An appeal was filed before the Tribunal, which directed deposit of 60% of the penalty amount as a precondition for entertaining the appeal. Subsequent appeal to the High Court was dismissed on the ground that the appellant failed to demonstrate hardship or qualify for any relaxation. The present appeal challenges that dismissal, asserting that a case for hardship or relaxation was made out and that an amount already deposited should suffice for interim relief.
Findings of Court:
The Division Bench of the Calcutta High Court correctly applied the principles under Section 19 of the Act, holding that the appellant had not established undue hardship either before the Tribunal or before the High Court, and therefore there was no basis to interfere with the Tribunals Order. The Court emphasized that discretion to dispense with deposit is not automatic but must be exercised judicially, taking into account the factual scenario and the need to safeguard the realization of the penalty.
Issues:
Whether the appellant made out a case for undue hardship warranting relaxation of the deposit requirement; whether the Tribunal properly considered both the hardship of the appellant and the need to secure realization of the penalty; and whether the High Courts dismissal of the appeal was legally tenable.
Ratio Decidendi:
The appellate court affirmed that the Tribunals requirement of deposit, modified by an extended timeline, was valid because the appellant failed to demonstrate undue hardship as required under Section 19. The discretion to waive or reduce deposit exists only where the burden is disproportionate and not merited, and must be balanced against the public interest in securing penalty realization. Mere assertion of hardship is insufficient without specific evidence.
Result:
The appeal is dismissed, the Order of the High Court dismissing the appeal is upheld, and the appellant is directed to comply with the deposit conditions as stipulated by the Tribunal, subject to the balance amount being secured as further required for the appeal to proceed.
(A) The provisions of the Foreign Exchange Management Act, 1999, specifically Section 35 read with Section 19, the Foreign Exchange Regulation Act, 1973 under Section 8(1) and Section 50, and the relevant rules framed thereunder, apply to this matter where the Adjudicating Authority has imposed a monetary penalty for alleged contravention of foreign exchange regulations. Section 19 of the Act provides the mechanism for appeal to the Appellate Tribunal, subject to a deposit of the penalty amount, while simultaneously requiring the Tribunal to balance the twin objectives of safeguarding realization of the penalty and preventing undue hardship to the appellant. The procedural framework under the Adjudication Proceedings and Appeal Rules, 1974, governs the issuance of show cause notices and adjudication of such contraventions.
(B) Key legal principles include that an appeal under Section 35 requires deposit of the penalty amount unless the Tribunal is satisfied that such deposit would cause undue hardship; the burden is on the appellant to establish hardship with specificity beyond a mere assertion; the term 'undue hardship' denotes excessive or disproportionate hardship relative to the requirement; and the Tribunal must exercise discretion judicially, considering both the hardship of the appellant and the need to secure realization of the penalty. Interim relief in the form of stay or reduction of deposit is not to be granted routinely but must be assessed against the factual matrix to prevent public mischief or grave private injury.
Facts of the case:
The Enforcement Directorate initiated action based on memoranda indicating that the appellant and his entity acquired foreign exchange in contravention of Section 8(1) of the Foreign Exchange Regulation Act, 1973. A show cause notice was issued, the appellant filed a reply, and the Special Director (Appeals) imposed a penalty of Rs. 25 lakhs. An appeal was filed before the Tribunal, which directed deposit of 60% of the penalty amount as a precondition for entertaining the appeal. Subsequent appeal to the High Court was dismissed on the ground that the appellant failed to demonstrate hardship or qualify for any relaxation. The present appeal challenges that dismissal, asserting that a case for hardship or relaxation was made out and that an amount already deposited should suffice for interim relief.
Findings of Court:
The Division Bench of the Calcutta High Court correctly applied the principles under Section 19 of the Act, holding that the appellant had not established undue hardship either before the Tribunal or before the High Court, and therefore there was no basis to interfere with the Tribunals Order. The Court emphasized that discretion to dispense with deposit is not automatic but must be exercised judicially, taking into account the factual scenario and the need to safeguard the realization of the penalty.
Issues:
Whether the appellant made out a case for undue hardship warranting relaxation of the deposit requirement; whether the Tribunal properly considered both the hardship of the appellant and the need to secure realization of the penalty; and whether the High Courts dismissal of the appeal was legally tenable.
Ratio Decidendi:
The appellate court affirmed that the Tribunals requirement of deposit, modified by an extended timeline, was valid because the appellant failed to demonstrate undue hardship as required under Section 19. The discretion to waive or reduce deposit exists only where the burden is disproportionate and not merited, and must be balanced against the public interest in securing penalty realization. Mere assertion of hardship is insufficient without specific evidence.
Result:
The appeal is dismissed, the Order of the High Court dismissing the appeal is upheld, and the appellant is directed to comply with the deposit conditions as stipulated by the Tribunal, subject to the balance amount being secured as further required for the appeal to proceed.
Judgment
Dr. Arijit Pasayat, J —
1.Leave granted.
2.Challenge in this appeal is to the Order passed by a Division Bench of the Calcutta High Court dismissing the appeal filed by the appellant under Section 35 of Foreign Exchange Management Act, 1999 (in short the ‘Act’).
3.Background facts in a nutshell are as follows :
Memorandum was issued by the Enforcement Directorate, Ministry of Finance. On the basis of certain statements recorded it was indicated therein that M/s Godsons (India) and its proprietor, the present appellant had acquired foreign exchange contravening the provisions of Section 8(1) of the Foreign Exchange Regulation Act, 1973 (in short the ‘Foreign Exchange Act’) thereby rendering him liable to be proceeded under Section 50 of the Foreign Exchange Act. The memorandum was issued under Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974 (in short ‘Adjudication Rules’). The reply to the show cause notice was filed by the appellant. The Special Director, of Foreign Exchange Act passed an Order on 13th May, 2005 imposing penalty of Rs.25 lakhs on the appellant. The appellant preferred an appeal before the Appellate Tribunal (Foreign Exchange) (in short the ‘Tribunal’) and filed an application for dispensing with the requirement of pre-deposit. By Order dated 7.3.2006 the Tribunal passed an Order directing deposit of 60% of the penalty amount for the purpose of entertaining the appeal. An appeal was filed under Section 35 of the Act which came to be dismissed by the High Court holding that no case for hardship was made out either before the Tribunal or before it and, therefore, there was no scope of interference with the Order of the Tribunal. However, time permitting the deposit was extended.
4.In support of the appeal, learned counsel for the appellant submitted that a case for dispensing with pre-deposit was made out. In any event, in compliance with this Court’s interim Order dated 5.2.2007 the amount of Rs.10,00,000/- has been deposited with the concerned Directorate.
5.Learned counsel for the respondents on the other hand submitted that the appellant did not make out a case for dispensing with pre-deposit and, therefore, the Order of the Tribunal as affirmed by the High Court does not suffer from any infirmity.
6.Principles relating to grant of stay pending disposal of the matters before the concerned forums have been considered in several cases. It is to be noted that in such matters though discretion is available, the same has to be exercised judicially.
7.The applicable principles have been set out succinctly in Silliguri Municipality and Ors. v. Amalendu Das and Ors.,1 (AIR 1984 SC 653) and M/s Samarias Trading Co. Pvt. Ltd. v. S. Samuel and Ors.,2 (AIR 1985 SC 61) and Assistant Collector of Central Excise v. Dunlop India Ltd.,3 (AIR 1985 SC 330).
8.It is true that on merely establishing a prima facie case, interim Order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay should not be disposed of in a routine matter unmindful of the consequences flowing from the Order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the Order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an Order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake citizens’ faith in the impartiality of public administration, interim relief can be given.
9.It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality and Dunlop India cases (supra) without analysing factual scenario involved in a particular case.
10.Section 19 of the Act reads as follows :
“19(1). Save as provided in sub-section (2), the Central Government or any person aggrieved by an Order made by an Adjudicating Authority, other than those referred to in sub- section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal :
Provided that any person appealing against the Order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government :
Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.”
11.Two significant expressions used in the provisions are “undue hardship to such person” and “safeguard the realization of penalty”. Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the realization of penalty have to be kept in view.
12.As noted above there are two important expressions in Section 19(1). One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka and Ors.,4 (AIR 1994 SC 923) that under Indian conditions expression “Undue hardship” is normally related to economic hardship. “Undue” which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances.
13.For a hardship to be ‘undue’ it must be shown that the particular burden to have to observe or perform the requirement is out of proportion to the nature of the requirement itself, and the benefit which the applicant would derive from compliance with it.
14.The word “undue” adds something more than just hardship. It means an excessive hardship or a hardship greater than the circumstances warrant.
15.The other aspect relates to imposition of condition to safeguard the realization of penalty. This is an aspect which the Tribunal has to bring into focus. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the realization of penalty. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate condition as required to safeguard the realization of penalty.
16.The above position was highlighted in Benara Valves Ltd. and Ors. v. Commissioner of Central Excise and Anr.,5 (2006 (13) SCC 347). The decision was rendered in relation to Section 35F of the Central Excise Act, 1944 where also identical stipulations exist.
17.In the instant case Tribunal has rightly observed that the rival stands have to be examined in detail with reference to material on record.
18.The only other question that needs to be examined is whether any reduction of the amounts to be deposited as directed by the Tribunal is called for.
19.Undisputedly the appellant had deposited the amount which was directed to be deposited. However, for the balance amount demanded with a view to safeguard the realization of penalty the appellant shall furnish such security as may be stipulated by the Tribunal. On that being done, the appeal shall be heard without requiring further deposit if the appeal is otherwise free from defect.
20.The appeal is disposed of accordingly.
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