Sakina Tashrifwala
Published on: 24 November 2022 at 21:51 IST
Three show cause letters sent to First Global Stockbroking (FGSB), Shankar Sharma, and Devina Mehra in 2002 about a possible breach of the Foreign Exchange Regulation Act (FERA) of 1973 have been annulled and set aside by the Bombay High Court. The spoken verdict was delivered on November 18.
Sharma served as First Global’s vice chairman and joint managing director. The company’s managing director and chair are Mehra.
According to the court, AK Bal, special director of FEMA’s Enforcement Directorate, lacked the power to issue the show cause notices (SCNs), and as a result, no order could have been made based on the letters.
On June 1, 2000, the Foreign Exchange Management Act, 2000 (FEMA), which repealed the FERA subject to a few saving clauses, went into effect. A violation of Section 51 of FERA could be brought to the attention of an adjudicating officer between June 1, 2000, and May 31, 2002, according to Section 49(3) of FEMA.
Two SCNs were granted to FGSB, Sharma, and Mehra on May 30, 2002. On May 31, 2002, the final day of the sunset period, a new notification was published. All three SCNs claimed that the FERA’s regulations had been broken and attempted to penalise the three businesses.
The SCNs claimed that the businesses attempted to sell an additional 2,37,600 shares of HFCL (Himachal Futuristic Communications) to FIIs and their sub-accounts without the RBI’s approval while selling 5,92,950 shares of HFCL to FIIs and their sub-accounts.
Without the RBI’s permission, a payment of Rs 3.5 crore for 6,117 Buffalo Networks equity shares was made in exchange for the purchase of an amount of $800,000 outside of India. Without the central bank’s approval, $11.79 million worth of goods were purchased outside of India.
Regarding the ownership of 100% equity shares of First Global, the restrictions outlined by the RBI in the authorization dated January 3, 2000, were not followed (UK). Failure to return to India the sum of 2,54,00 pounds that First Global (UK) paid as compensation for services performed before FGSB acquired First Global (Mauritius).
Before the Bombay High Court, FGSB, Sharma, and Mehra contested the enforcement officer Bal’s power. According to the plea, Bal was appointed by notification on a deputation basis as a special director in the Enforcement Directorate under FEMA with effect from July 2, 2001.
It was contended that under the related FERA rules, officers empowered under FEMA are not automatically regarded to have any inherent capabilities. The idea that FEMA personnel have any inherent authority to issue SCNs under FERA is not supported by any other FEMA law.
The dispute over the nomination of an adjudicating authority and the ability to issue notices under FEMA has been resolved by the verdict. As a result, an adjudicating authority designated under FERA (before to FERA’s repeal) may give notice of a violation or take cognizance of one under Section 49 of FERA for a period of two years.
Utsav Trivedi, partner at TAS Law, stated that with the abolition of FERA, any appointment made under FEMA will be seen as appointing the adjudicating authority rather than an adjudicating officer under FERA.
Vishal Khanavkar and senior advocate Shiraz Rustomjee represented FGSB, Sharma, and Mehra.
Along with the Sharma and Mehra petition, Writ petitions on related grounds were filed by Raman Maroo and Audhoot Timblo. Every petition was approved.