Enforcement Directorate

Karnataka High Court
Case BriefsHigh Courts

   

Karnataka High Court: S G Pandit, J. declared the present writ petition filed by XIAOMI India under Article 226 of the Constitution of India as premature as Section 37 of Foreign Exchange Management Act (‘FEMA'), 1999 provides complete mechanism to decide the alleged contravention of Section 4 of FEMA, 1999.

XIAOMI Technology India Private Limited incorporated under the provisions of the Companies Act, 2013 engaged in the trading of mobile phones, electronic gadgets and other accessories under the brand name of Xiaomi. Petitioner is a beneficiary of Qualcomm Inc. and its proprietary and licensed intellectual property, particularly Standard Essential Patents (SEPs) which are patents essential for functioning of the mobile phone that are used in the mobile phones sold by it and therefore, pays royalty for it. Enforcement Directorate (‘ED') alleged that petitioner made certain foreign remittances in the name of royalty to foreign based entities in violation of the provisions of FEMA, 1999 and initiated investigation. Pursuant to which, the Authorized Officer passed seizure order under Section 37-A(1) of FEMA, 1999 which is impugned in the present writ petition.

Additional Solicitor General submitted that since the petitioner has not used any technology or IPR of the Qualcomm or Beijing Xiaomi Mobile Software Company Limited, petitioner could not have paid any royalty, thus violating provisions of Section 4 of FEMA, 1999.

The issue under consideration before the Court is with regard to its maintainability as Section 37 FEMA, 1999 has alternate remedy regarding the alleged violation.

Placing reliance on Raj Kumar Shivhare v. Directorate of Enforcement (2010) 4 SCC 772, the Court noted that FEMA, 1999 is a complete Code in itself and is an act to consolidate and maintain law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange management in India.

The Court observed that Section 37-A FEMA, 1999 provides special mechanism to determine the violation of Section 4 of FEMA, 1999. Thus, in light of the provision the moot question that whether the payments made by the petitioner to Qualcomm and Beijing Xiaomi Mobile Software Company Limited could be considered as royalty and attract Section 4 FEMA, 1999 is a question of fact which the Competent Authority has to decide appreciating or considering material placed by the petitioner as well as respondents. Thus, the Competent Authority could determine the same while passing order under Section 37-A (3) of FEMA, 1999.

The Court stayed the impugned order subject to operation of seized bank accounts only for the purpose of meeting daily expenses and held “At this stage, examining sufficiency of reason or otherwise under Article 226 of the Constitution of India would prejudice the case of either of the parties. It is best left to the Competent Authority to examine the same when it considers the entire issue under sub-Section (3) of Section 37-A of FEMA, 1999.”

The Court further directed the Competent Authority to dispose of the same expeditiously but not later than 60 days in light of halt of day to day activities of the petitioner due to seizure order.

[Xiaomi Technology India Private Limited v. Union of India, WP No. 9182 of 2022, decided on 05-07-2022]

Advocates who appeared in this case :

Senior Advocate Sajjan Poovaiah and Adv. Vikaram Bhat, Advocates, for the Petitioner;

ASG M B Nargund and CGC Madhukar Deshpande, Advocates, for the Respondent.

*Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Delhi High Court: While expressing that a LOC is a coercive measure to make a person surrender, Chandra Dhari Singh, J., noting that the petitioner had appeared on each and every date before the Investigating Agency when summoned, quashed the LOC issued against Rana Ayyub.

Petitioner approached the Court seeking quashing of the Look Out Circular issued against her that restrained her from travelling abroad.

Counsel for the petitioner submitted that the petitioner is a globally renowned journalist and was being persecuted for speaking truth to power and being critical of the incumbent establishment.

It was stated that upon the petitioner’s arrival at the airport and after passport-visa check her travel was approved, however, at 12 noon she was detained by the Bureau of Immigration and officers told her that they have instructions from the ED to not allow her to board the flight and was conveyed that she would be receiving summons from the ED. Soon after, her immigration stamp was cancelled. The summons arrived in her email.

Analysis and Decision

High Court held that it was evident that the LOC was issued in haste and despite the absence of any pre-condition necessitating such a measure.

Bench expressed that,

An LOC is a coercive measure to make a person surrender and consequentially interferes with petitioner’s right of personal liberty and free movement. It is to be issued in cases where the accused is deliberately evading summons/arrest or where such person fails to appear in Court despite a Non-Bailable Warrant. 

It was noted that the petitioner had appeared on each and every date before the Investigating Agency when summoned, and hence there was no cogent reason for presuming that the petitioner would not appear before the Investigation Agency, therefore no case was made out for issuing the impugned LOC.

Therefore, the impugned LOC was set aside as being devoid of merits as well as infringing the Human right of the petitioner to travel abroad and to exercise her freedom of speech and expression.

Petition was allowed in view of the following conditions:

(a) The petitioner shall intimate her travel dates and detailed itinerary to the Investigation Agency forthwith along with the address of the places that the petitioner shall be visiting;

(b)The petitioner shall deposit an FDR to the tune of Rs. 1 lakh before the Enforcement Directorate at Mumbai;

(c)The petitioner shall not attempt to tamper with the evidence or influence the witnesses in any manner;

(d) The petitioner shall return to India on the date specified i.e. 11th April 2022; and

(e)The petitioner shall give an undertaking to appear before the Investigation Agency immediately on her return and on dates that might be fixed by the Investigation Agency for interrogation, if any, after the travel period.

[Rana Ayyub v. Union of India, 2022 SCC OnLine Del 961, decided on 4-4-2022]

Advocates before the Court:

For the Petitioner:

Ms. Vrinda Grover, Mr. Soutik Banerjee, Ms. Mannat Tipnis and Ms. Devika Tulsiani, Advocates

For the Respondent:

Mr. Mukul Singh, CGSC with Mr. Devesh Dubey, GP and Mr. Bharat Singh, Advocates for R-1/UOI.

Mr. S.V. Raju, ASG with Mr. Amit Mahajan, CGSC, Mr. Nitesh Rana, SPP, Mr. Dhruv Pande, Mr. Ali Khan and Mr. Imon Bhattacharya, Advocates for R-2.

Hot Off The PressNews

Editors Guild of India statement on ED raids at the office of NewsClick.in, and residences of its senior journalists and officials

The Editors Guild of India is deeply concerned about the raids by the Enforcement Directorate (ED), at the office of the independent news website NewsClick.in, the residences of its editor-in-chief and promoter, the editor, as well as some of its senior management officials.

In the recent past the website has been at the frontline of reporting on the farmers agitation, the anti-CAA protests, and has been critical of various government policies and of a few powerful corporates houses.

EGI is concerned that raids by government agencies are not used as coercive measures to suppress free and independent journalism. The Guild demands that care be taken to not undermine the news operations of NewsClick and that it’s journalists and stakeholders are not harassed under the garb of such measures.

Editors Guild of India

[Press Statement dt. 10-02-2021]

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: V. G. Arun, J., dismissed the instant petition filed by the petitioner, the Additional Private Secretary to the Chief Minister of Kerala, seeking to restrain the Enforcement Directorate (ED) from detaining the petitioner beyond reasonable time and to permit the presence of a legal practitioner during questioning.

The petitioner contended that are such that, repeated summons were issued to him in spite of his ailments and weak physical condition, which speaks volumes about the arbitrariness and mala fides behind the actions of ED. The petitioner apprehends that he will be detained for long hours and made to give statements against his will. It was submitted that having recently recovered from Covid-19 the continuous interrogation for long hours would have an adverse impact on the already weak health condition of the petitioner. The counsel for the petitioner further submitted that the petition is not against the power of ED to issue the summons, but against the injudicious manner in which the power is being exercised.

Additional Solicitor General, S.V. Raju, on behalf of respondent questioned the maintainability of the petition. It was contended that the writ petition is liable to be dismissed as premature since, the mere issuance of summons under Section 50 of the Prevention of Money Laundering Act, 2002 does not give rise to any cause of action. The respondent relied on Commissioner of Customs, Calcutta v. M.M.Exports, (2010) 15 SCC 647, wherein the Supreme Court had cautioned that, as far as possible, High Courts should not interfere at the stage when the Department has issued the summons.

The Court disposed of the petition, reiterating the Supreme Court’s decision in Kirit Shrimankar v. Union of India, 2014 SCC OnLine SC 1614, that no cause of action arises merely for the reason of a person being called upon to state the truth or to make statements and produce documents. The Court further relied on Dukhishyam Benupani, Assistant Director, Enforcement Directorate v. Arun Kumar Bajoria, (1998)1 SCC 52, where the Supreme Court held that it is not for this Court to monitor the investigation and to decide the venue, the timings, the questions and the manner of questioning. [C.M.Raveendran v. Union of India, WP(C) No. 28049 of 2020(E), decided on 17-02-020]

Hot Off The PressNews

As per the media reports, The Special PMLA Court declared Nirav Modi a fugitive economic offender on a plea of the Enforcement Directorate.

Nirav Modi and his uncle Mehul Choksi are the main accused in the PNB Scam.

Background of the scam:

As reported by Hindustan Times, Two PNB employees sent unauthorised letters of undertakings (LoUs), essentially bank guarantees, to foreign branches of Indian lenders, on behalf of firms related to Nirav Modi and the Gitanjali Group. The LoUs basically told these other lenders: Lend money to Nirav Modi firms so that they can pay for their imports. If they don’t pay up, we will make good this payment.

In the PNB fraud case, the bank employees had sent these guarantees in the absence of credit limits and collateral security (in Modi’s case). Secondly, they didn’t make an entry in the bank’s core banking system – the software used to support a bank’s most common transactions, which also acts as a record keeper.

[Source: Media Reports]

Hot Off The PressNews

Supreme Court: The Bench comprising of  R Banumathi, A S Bopanna and Hrishikesh Roy, JJ., granted bail to P. Chidambaram in INX money Laundering Case registered by the Enforcement directorate.

Pointers to be noted:

  • P Chidambaram will not leave the country without prior permission of the court
  • He has been released on a personal bond of Rs 2 lakh with two surety of like amount
  • Delhi High Court’s November 15 verdict dismissing bail plea of P Chidambaram has been set aside.
  • Court has also restrained Chidambaram from giving any press interviews or making statements in the media

Background:

Chidambaram sought bail in a case pertaining to the Foreign Investment Promotion Board (FIPB) clearance given to INX Media to the tune of Rs 305 crore in 2007 by Chidambaram when he was the Finance Minister. He was arrested by the ED on October 16 and is currently in judicial custody. Denying bail to Chidambaram in the case, the High Court had stated that prima facie allegations against him are “serious in nature” and he played an “active and key role” in the offence.

Senior advocates Kapil Sibal and Abhishek Manu Singhvi, appearing on behalf of Chidambaram today, submitted before the top court that their client has been in jail for over 90 days and has cleared the triple test criterion to avail the bail. Chidambaram had sought bail on the health grounds. The Congress leader also asserted that no part of the triple test, which includes flight risk, influencing witnesses and tampering with evidence, has been made out against him. He stated that there was no allegation that he was a flight risk following the issuance of a Look out Circular (LOC).

On October 22, 2019, the bench had granted bail to former Finance Minister and senior Congress leader P Chidambaram in connection with the INX Media case registered by the Central Bureau of Investigation (CBI).

The Court noticed that Chidambaram was neither a “flight risk” nor there was possibility of his abscondence and said that Chidambaram

“being the Member of Parliament and a Senior Member of the Bar has strong roots in society and his passport having been surrendered and “look out notice” issued against him, there is no likelihood of his fleeing away from the country or his abscondence from the trial.”

[Detailed Judgment to be Updated] Stay tuned in!

Case BriefsTribunals/Commissions/Regulatory Bodies

Appellate Tribunal for SAFEMA, FEMA, PMLA, NDPS & PBPT Act: Manmohan Singh, J. set aside Enforcement Directorate’s order imposing a penalty on a company for contravention of provisions of Foreign Exchange Management Act, 1999.

Appellant company which was engaged in the manufacturing of graphite electrodes, received an order from a company Padmaja Impex Ltd. for supply of carbon bricks On appellant’s insistence for full payment before delivery of carbon bricks, Padmaja got an overseas buyer to open a letter of credit (LC) in the appellant’s name, whereafter appellant delivered the bricks to Padmaja. The LC was encashed later on by the appellant. ED initiated investigation against certain exporters including Padmaja, and notice was issued to appellant alleging contravention of Section 3(a) for receiving USD 256,604 through encashing LC, from the overseas buyer; and subsequent to a hearing penalty was imposed on it. Thus, the present appeal.

Appellant submitted that Regulation 12 of the Foreign Exchange Management (Export of Goods & Services) Regulation, 2000 allows a person other than exporter to receive a foreign exchange, subject to fulfillment of certain conditions by the Authorized Dealer of the constituent. It was submitted that ED’s sole reason for dismissing Regulation 12 was the presumption that Padmaja had not furnished any proof of filing declaration (SDF). However, mere failure to submit proof of filing of SDF by Padmaja could not lead to a conclusion that no such SDF was filed by Padmaja at the time of export of goods. No enquiry was conducted to ascertain factual position with respect to filing of SDF.

The Tribunal noted that it was a matter of fact that LC opened by the overseas buyer was negotiated by the Authorised Dealer against a shipping bill. Therefore, the presumption must be that all conditions prescribed under Regulation 12 had duly complied including the condition with respect to SDF. In absence of any evidence, it could not be assumed that Authorised Dealer had accepted shipping documents without SDF. It was observed that the onus was on the ED to prove that Padmaja was allowed export without filing of SDF, and also that the documents were negotiated by the Authorised Dealer without SDF.

In view of the above, the appeal was allowed.[Graphite India Ltd. v. Joint Director, Directorate of Enforcement, Chennai, FPA-FE-12-13/CHN/2016, decided on 26-03-2019]