Supreme Court clarifies appellate jurisdiction under FEMA for FERA violations: Union of India vs. Premier Limited (29 January 2019)

Date of the Judgment: 29 January 2019
Citation: (2019) INSC 49

Judges: Abhay Manohar Sapre, J., Indira Banerjee, J.

Can an appeal against an order passed under the Foreign Exchange Regulation Act, 1973 (FERA) after its repeal, be filed before the Special Director (Appeals) or the Appellate Tribunal under the Foreign Exchange Management Act, 1999 (FEMA)? The Supreme Court of India addressed this question, clarifying the appropriate appellate authority for cases initiated under FERA but adjudicated after its repeal. The Court held that the Appellate Tribunal under FEMA is the correct forum. This judgment settles the confusion regarding appellate jurisdiction in cases involving FERA violations after its repeal by FEMA.

Case Background

The case revolves around a show cause notice issued on May 1, 1991, by the Special Director to M/s Godrej Industries Ltd. and its directors for alleged violations of Sections 9(1)(a), 9(1)(c), and 16(1) of FERA. These violations pertained to import and export transactions with M/s Fingrain, S.A., Geneva, and M/s Continental Grain Export Corporation, New York, during 1977-78. While the proceedings were ongoing, FERA was repealed on June 1, 2000, and replaced by FEMA. An adjudication order was passed on December 5, 2003, by the Deputy Director of Enforcement under FEMA, read with FERA, imposing a penalty of Rs. 15,50,000 on M/s Godrej Industries Ltd. and its directors. Aggrieved by this order, the respondents filed an appeal before the Special Director (Appeals) under Section 17 of FEMA, which was dismissed on September 8, 2004, and November 8, 2004, for lack of jurisdiction. Subsequently, the respondents filed writ petitions before the High Court of Judicature at Bombay, which were allowed, setting aside the orders of the Special Director (Appeals). The High Court held that the appeals were maintainable before the Special Director (Appeals). This led to the Union of India filing an appeal before the Supreme Court.

Timeline

Course of Proceedings

The Deputy Director of Enforcement, acting as the Adjudicating Officer, passed an order on December 5, 2003, under FEMA read with FERA, imposing a penalty on M/s Godrej Industries Ltd. and its directors. Aggrieved by this order, the respondents appealed to the Special Director (Appeals) under Section 17 of FEMA. The Special Director (Appeals) dismissed the appeals, stating a lack of jurisdiction to hear appeals against orders passed under Section 51 of FERA. The High Court of Judicature at Bombay, however, allowed the writ petitions filed by the respondents, quashing the orders of the Special Director (Appeals). The High Court held that the Special Director (Appeals) did have the jurisdiction to decide the appeals on their merits. This order of the High Court was challenged before the Supreme Court by the Union of India.

Legal Framework

The Supreme Court examined several key provisions of the Foreign Exchange Regulation Act, 1973 (FERA) and the Foreign Exchange Management Act, 1999 (FEMA). These include:
✓ Section 50 of FERA: This section deals with penalties for contraventions of the Act.
✓ Section 51 of FERA: This section empowers the Adjudicating Officer to hold inquiries and impose penalties.
✓ Section 52 of FERA: This section provides for appeals to the Appellate Board against orders of the Adjudicating Officer.
✓ Section 54 of FERA: This section provides for appeal to High Court on questions of law against the order of Appellate Board.
✓ Section 81 of FERA: This section deals with the repeal and savings of the Foreign Exchange Regulation Act, 1947.
✓ Section 17 of FEMA: This section provides for appeals to the Special Director (Appeals) against orders of the Adjudicating Authorities.
✓ Section 18 of FEMA: This section defines the Appellate Tribunal.
✓ Section 19 of FEMA: This section provides for appeals to the Appellate Tribunal.
✓ Section 35 of FEMA: This section provides for appeals to the High Court against the order of the Appellate Tribunal.
✓ Section 49 of FEMA: This section deals with the repeal and savings of FERA, 1973.

The court noted that Section 50 of FERA specifies penalties for contraventions, while Section 51 outlines the process for adjudication. Section 52 of FERA established the Appellate Board to hear appeals against orders under Section 51. With the enactment of FEMA, Section 17 created the Special Director (Appeals), and Section 19 established the Appellate Tribunal. Section 49 of FEMA repealed FERA and addressed the transfer of pending appeals. The court also noted that Section 81 of FERA dealt with the repeal of Foreign Exchange Regulation Act, 1947.

Arguments

The appellant, Union of India, argued that a proper interpretation of Section 81 of FERA and Sections 17, 19, and 49 of FEMA indicates that appeals against orders passed under Section 51 of FERA should lie only before the Appellate Tribunal under Section 19 of FEMA, and not before the Special Director (Appeals) under Section 17 of FEMA. The Union of India contended that the High Court erred in holding that the Special Director (Appeals) had jurisdiction.

The respondents (M/s Godrej Industries Ltd. and its directors) supported the High Court’s view, arguing that the appeal was rightly held maintainable under Section 17 of FEMA before the Special Director (Appeals). They contended that the Special Director (Appeals) was the correct appellate authority for orders passed by the Deputy Director of Enforcement as an Adjudicating Officer.

The core of the appellant’s argument was that the legislative intent was to have a single appellate forum for all appeals arising from orders under Section 51 of FERA, irrespective of when the order was passed. The appellant emphasized that Section 49(5)(b) of FEMA transferred pending appeals under Section 52(2) of FERA to the Appellate Tribunal under FEMA, indicating that all such appeals should be heard by the Appellate Tribunal.

The respondents argued that Section 49(5)(b) of FEMA only addressed pending appeals and did not cover appeals filed after the repeal of FERA. They argued that Section 17 of FEMA should be interpreted as the relevant provision for appeals against orders passed by the Deputy Director of Enforcement.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Which is the proper appellate authority for deciding appeals filed after the repeal of FERA on 01.06.2000 against the order passed under Section 51 of FERA in the proceedings initiated prior to 01.06.2000, viz., is it the “Special Director (Appeals)” under Section 17 of FEMA or is it the “Appellate Tribunal” under Section 19 of FEMA?

In other words, the question was, if the Adjudicating Officer has passed an order after the repeal of FERA in the proceedings initiated prior to 01.06.2000, whether an appeal against such order will lie before the “Special Director (Appeals)” under Section 17 of FEMA or before the “Appellate Tribunal” under Section 19 of FEMA.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following legal provisions:
✓ Sections 50, 51, 52, 54 and 81 of the Foreign Exchange Regulation Act, 1973 (FERA).
✓ Sections 17, 18, 19, and 49 of the Foreign Exchange Management Act, 1999 (FEMA).

Judgment

The Supreme Court held that the appeals filed by the respondents against the order dated December 5, 2003, passed by the Deputy Director of Enforcement under Section 51 of FERA, would lie before the Appellate Tribunal under Section 19 of FEMA. The court set aside the High Court’s order and transferred the appeals to the Appellate Tribunal for disposal on merits.

The court reasoned that the legislative intent behind FEMA was to ensure that all appeals arising from orders passed under Section 51 of FERA, whether filed before or after the repeal of FERA, should be heard by the same appellate authority, i.e., the Appellate Tribunal under FEMA. The court noted that Section 49(5)(b) of FEMA transferred pending appeals under Section 52(2) of FERA to the Appellate Tribunal, indicating a clear intention to consolidate such appeals.

The court also observed that the Special Director (Appeals) is subordinate in hierarchy to the Appellate Tribunal. It would be illogical to have appeals against similar orders being heard by two different authorities, one of which is subordinate to the other.

The court further noted that if the Special Director (Appeals) were the correct appellate authority, it would create an anomalous situation where appeals against orders of the Appellate Tribunal would lie before the High Court, while no such appeal would be available against orders of the Special Director (Appeals).

The court emphasized the principle of purposive interpretation, stating that the appellate forum for deciding appeals arising out of orders passed under Section 51 of FERA must be the same, i.e., the Appellate Tribunal under FEMA.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need for a consistent and logical interpretation of the Foreign Exchange Management Act, 1999 (FEMA) and the Foreign Exchange Regulation Act, 1973 (FERA). The Court emphasized the legislative intent to have a single appellate forum for all appeals arising from orders under Section 51 of FERA, irrespective of when the order was passed. This was evident from the transfer of pending appeals to the Appellate Tribunal under FEMA. The court also considered the hierarchical structure of the appellate authorities under FEMA, noting that the Special Director (Appeals) is subordinate to the Appellate Tribunal. It was illogical to have appeals against similar orders being heard by two different authorities, one of which is subordinate to the other. The court also aimed to avoid anomalous situations, such as one appellant having a right of appeal to the High Court while another does not.

Key Takeaways

✓ Appeals against orders passed under Section 51 of the Foreign Exchange Regulation Act, 1973 (FERA), even if passed after its repeal, should be filed before the Appellate Tribunal under Section 19 of the Foreign Exchange Management Act, 1999 (FEMA).
✓ The Special Director (Appeals) under FEMA does not have jurisdiction to hear such appeals.
✓ This judgment ensures consistency in the application of appellate procedures for cases initiated under FERA but adjudicated after its repeal.
✓ The decision clarifies the legislative intent behind FEMA to consolidate appeals related to FERA violations under a single appellate authority.

Directions

The Supreme Court directed that the appeals filed by the respondents before the Special Director (Appeals) be transferred to the concerned Appellate Tribunal constituted under Section 18 of FEMA for their disposal on merits in accordance with law.

Development of Law

The ratio decidendi of this case is that the Appellate Tribunal under Section 19 of FEMA is the correct appellate authority for orders passed under Section 51 of FERA, even if the orders were passed after the repeal of FERA. This decision clarifies the appellate jurisdiction in such cases and ensures that all appeals arising from orders under Section 51 of FERA are heard by the same authority, irrespective of when the order was passed. This is a significant development as it settles the confusion regarding the appropriate appellate forum in cases where the adjudication under FERA was completed after its repeal.

Conclusion

The Supreme Court’s judgment in Union of India vs. Premier Limited clarifies that the Appellate Tribunal under FEMA is the correct appellate authority for orders passed under Section 51 of FERA, even if the orders were passed after the repeal of FERA. This decision ensures a consistent and logical approach to handling appeals related to FERA violations and avoids any anomalous situations. The court set aside the High Court’s order and transferred the appeals to the Appellate Tribunal for disposal on merits.