IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE:28-1-2008 CORAM: THE HON'BLE MR.JUSTICE P.JYOTHIMANI W.P.No.36524 of 2002 and WPMP.Nos.16890 and 16891 of 2006 ..... Nadadur Varadhan ... Petitioner vs. 1. Deputy Director of Enforcement Enforcement Directorate Government of India "C" Zone, III Floor, Third Block Shastry Bhavan, Chennai 600 006. 2. Director of Enforcement Enforcement Directorate Government of India Lok Nayak Bhavan, Khan Market New Delhi 110 003. 3. The Reserve Bank of India 16 Fort Glacias, Rajajai Salai Chennai 600 001. 4. The Manager State Bank of India NRI Branch, Mount Road Chennai 600 002. .. Respondents Writ petition filed under Article 226 of the Constitution of India for the issue of a writ of Mandamus as stated therein. For petitioner : Mr. R.Yashod Vardhan,Sr.Counsel for Mr.M.Muthupandian For respondents : Mr.Patty B.Jegganthan for R.1&R.2 Mr.C.Mohan for M/s.King & Partridge for R.3 Mr.B.Giridhara Rao for R.4 .. ORDER
This writ petition is filed for direction against the respondents to de-freeze the petitioner’s N.R.I. Account maintained by the 4th respondent, State Bank of India, N.R.I. Branch, Chennai-600 002 and consequently to permit the petitioner to operate the said account.
2. The petitioner who is an Indian origin, is a citizen of U.S.A., living in the city of Santa Monica, California State for the past 20 years and he is a Management Consultant. According to him, he came to India in 1994, particularly to Chennai and during his visit he met his cousin one Sampath, a Chartered Accountant by profession, who was keen in promoting the game of Basketball in Chennai. The petitioner being interested in the said game, along with the said Sampath, floated a business by which the sponsorship of multinational companies was obtained for bringing professional teams from USA to play the game in various places in India, especially in Chennai at the newly constructed Stadium for Basket Ball at Nungambakkam and the petitioner also met one Dyaneswaran, Ex Officio President of the Madras Basket Ball Association for the promotion of the project. Since he requested the petitioner to donate some amount for construction of a new stadium, the petitioner opened an NRI Account with the 4th respondent. Thereafter, he borrowed loan to the tune of Rs.30 lakhs from the 4th respondent bank and donated the same through a non-profit Trust called, Dr.Dharmambal Nambasivam Trust by way of fixed deposits held by him. Since the petitioner was in a financial crisis, the abovesaid Sampath and the petitioner had an arrangement by which the said Sampath had advanced some loan to him and based on the said arrangement, he borrowed moneys from the said Sampath through transfer from Sampath’s account with the 4th respondent. He has made some repayments and it was by payment of cash the entire transactions were done through banking channels and there is no violation of Foreign Exchange Regulation Act,1973 (FERA) which stood in force at that time.
3. The first respondent officials, at the instance of the second respondent started investigation into the conduct of the said Sampath and Dyaneswaran for certain violations of Foreign Exchange Regulation Act and they were prosecuted in the jurisdictional Court at Chennai. By letter dated 3.2.1997, the petitioner was directed to furnish certain particulars regarding payments made by the said Sampath on the petitioner’s instructions. After the response from the petitioner, a memorandum dated 24.3.1997 was issued to the petitioner charging him under Section 9(1) and 9(d) of the Foreign Exchange Regulation Act. The matter was adjudicated and by an order dated 23.6.1997, a penalty of Rs.40,000/- was imposed on the petitioner under Section 50 of the said Act and the penalty was also paid and as on date no proceeding is pending against him. At the beginning of the year 1996, the N.R.I. Account of the petitioner with the 4th respondent was frozen by the order of the first respondent. After the abovesaid proceedings against the petitioner under the Foreign Exchange Regulation Act were completed, he made many representations requesting the 1st respondent to lift the ban order in order to maintain the account with the 4th respondent, there is no response from the respondents. However, the 1st respondent by communication dated 4.3.1998, informed the petitioner that the proceedings against Dyaneswaran and Sampath were pending and the amount blocked in the account of the petitioner being used as a material object in the said case since it had nexus and inter-link with the said proceedings and in that view of the matter, the request of the petitioner to de-freeze the account was turned down. Hence, the petitioner has filed the present writ petition.
4. The legal ground on which the writ petition is laid is that the petitioner is not concerned with any activity which is referable to Foreign Exchange Regulation Act and the only action taken against the petitioner under sections 9(1) and 9(d) of the Foreign Exchange Regulation Act has come to an end on the petitioner paying the penalty of Rs.40,000/- imposed under section 50 of the said Act, by order dated 23.6.1997. Under the Foreign Exchange Regulation Act, it is only the third respondent, Reserve Bank of India, which has the powers to freeze the account of any individual and in the present case, there is no order passed by the third respondent. The petitioner has the right to continue to operate the account and simply because the said account was required as a material object in the proceedings initiated against the said Sampath and Dyaneswaran, it cannot be the basis for withholding the account of the petitioner and the petitioner has been operating the account for six years before the same was frozen.
5. In the counter affidavit filed by the first and second respondents, viz., Deputy Director of Enforcement, it is stated that the subject matter of the writ petition relates to the freezing of Rs.34,49,068/- being NRE term deposit of the petitioner with the 4th respondent Bank, under section 73(3) of the Foreign Exchange Regulations Act,1973 by the third respondent. During the course of investigation by the second respondent, viz., the Enforcement Directorate, Government of India, with Sampathkumar, Chartered Accountant and A.N.Dyaneswaran, an Officer belonging to Indian Administrative Service, it was revealed that that the said two persons utilised the N.R.E. Term Deposit of the petitioner for availing loans and transferred the funds to Dr.Dharmambal Nambasivam Trust, which was under the control of the said A.N.Dyaneswaran. Though the NRE term deposit was to the tune of Rs.34,49,068/-, the said Sampathkumar and A.N. Dyaneswaran had availed loans on various dates to the extent of Rs.1,23,70,000/- which was in violation of Section 9(1)(a), 9(1)(b) and 9(1)(d) of the Foreign Exchange Regulation Act, 1973. It is also the specific case of the first and second respondents that the 4th respondent bank has also violated the provisions of section 6(4) & (5) read with sections 73(3) and 68(1) of the Act. It is stated that out of the total amount of loans availed as stated above, the amount of Rs.30 lakhs availed on 20.12.1995 is still outstanding while other loans were repaid by the said Sampathkumar.
6. On the request from the petitioner, it was informed by the respondents 1 and 2 that the said NRE Term Deposit is a material evidence in the prosecution proceedings that were initiated against Sampathkumar and Dyaneswaran under section 53 of the Foreign Exchange Regulation Act, 1973, which is still pending in the Court of Chief Metropolitan Magistrate (E.O.I), Chennai in C.C.Nos.251 to 254 of 1997. According to the respondents 1 and 2, the competent authority to request the 4th respondent to block the account in case of violation of Foreign Exchange Regulation Act is the first respondent and inasmuch as the prosecution against Sampathkumar and Dyaneswaran are still pending, there is no question of releasing the account at this stage. It is the further case of the respondents 1 and 2 that the third respondent, Reserve Bank of India has blocked the abovesaid account by communication dated 15.2.1996 on the request of the first respondent. It is further stated that the said NRE Special Term Deposit standing in the name of the petitioner is a material evidence in the proceedings initiated against Sampathkumar and Dyaneswaran and the said account was, with the consent of the petitioner, utilised for transferring a sum of Rs.1,23,70,000/- to Dr.Dharmambal Nambasivam Trust controlled by A.N.Dyaneswaran. Therefore, according to the first and second respondents, the parties against whom the prosecution proceedings are pending are directly connected with the petitioner in monetary transactions through the special term deposit and it was because of the link of the said deposit with the offence under the Foreign Exchange Regulation Act, as per the judgement of the Supreme Court, the first respondent has requested the 4th respondent to block the petitioner’s bank account.
7. The third respondent in the counter affidavit has stated that the writ petition is misconceived and not maintainable since it is the interdepartmental action, the third respondent, Reserve Bank of India ordered freezing of deposits by virtue of statutory powers conferred under section 73(3) of the Foreign Exchange Regulation Act, 1973. It is also stated that several disputed questions of fact are involved and therefore, the writ petition is not maintainable. The Reserve Bank of India is vested with the powers under the Foreign Exchange Regulation Act to issue various directions with regard to making of payment and doing of other acts by Bankers, authorised dealers, money changers, stock brokers and others. The Foreign Exchange Regulation Act has been replaced by Foreign Exchange Management Act,2000 (FEMA) and the new Act also provides such powers to the Reserve Bank of India. It is the case of the third respondent that the Assistant Director of Enforcement Directorate, Chennai, by communication dated 13.2.1996 addressed to the third respondent, informed that investigation under Foreign Exchange Regulation Act, 1973 was pending and in those circumstances, necessary directions were to be issued to the 4th respondent to block the said deposit till the investigation and the proceedings in the criminal case are completed. The said directions were issued to the 4th respondent by the third respondent as per the powers under section 73 of the Foreign Exchange Regulations Act, 1973.
8. It is the case of the 4th respondent in the counter affidavit that on 3.11.1995, the petitioner made a Special Term Deposit for a sum of Rs.38,84,210/- which was repayable on 26.4.1996 and subsequently, the petitioner approached the 4th respondent for loan on the security of the said deposit and a sum of Rs.30 lakhs was sanctioned as demand loan on 20.12.1995. The 4th respondent has stated that it has received a letter from the 3rd respondent, Reserve Bank of India on 15.2.1996 directing the 4th respondent to block the Special Term Deposit of the petitioner for violation of Foreign Exchange Regulation Act. Since the third respondent is the regulatory body, the 4th respondent is bound to follow the direction of the third respondent. It is the further case of the 4th respondent that the petitioner had not repaid the loan amount and since the loan was getting time barred, the 4th respondent has approached the Debts Recovery Tribunal by filing O.A.2051 of 1998 for recovery of Rs.48,24,630/- and the original documents have also been filed before the Tribunal and the petitioner did not appear before the Tribunal and he has been set ex parte and a decree for a sum of Rs.48,24,630/- with future interest at 16% p.a. from the date of filing the application has been granted. The petitioner has not paid the amount and as on 31.3.2006, a sum of Rs.89,92,380/- was due to the bank. It is also stated by the 4th respondent that the 4th respondent has acted only on the direction of the 3rd respondent, Reserve Bank of India.
9. Mr.R.Yashod Varadhan, learned senior counsel appearing for the petitioner would strenuously contended that admittedly the adjudication or prosecution under the Foreign Exchange Regulation Act is not against the petitioner and the non-payment by the petitioner to the 4th respondent itself is not a ground for the purpose of raising adjudication under the Foreign Exchange Regulation Act. The learned senior counsel would rely upon the judgement of this Court in Nagoor Meera vs. Union of India 1991 L.W.(Crl.) 487 to substantiate his contention that when an NRE Account is not involved in any adjudicatory process under the Foreign Exchange Regulation Act, there is no purpose in freezing the said Account. He would also submit that there are various provisions in the Foreign Exchange Regulation Act, 1973 (since repealed), especially section 38 which provides the power for seizure of documents, apart from section 51 which relates to offences and prosecution and inasmuch as none of the proceedings have been initiated against the petitioner, the freezing of the Account is outside the scope of the Foreign Exchange Regulation Act. He would submit that by allowing the petitioner to operate Account, the amount would not be going out of the State Bank of India and therefore, no loss would be caused to anyone.
10. On the other hand, Mr.Patti B.Jegannathan, learned counsel appearing for the respondents 1 and 2 would submit that it is admitted by the petitioner in the petition itself that the petitioner was actively involved in floating the business along with the said Sampath and in such circumstances, he borrowed loan to the tune of Rs.30 lakhs from the 4th respondent and made donations through Dr.Dharmambal Nambasivam Trust and therefore, it cannot be said that the petitioner was not aware of anyone of the transactions at all. It is also his submission that the petitioner himself has admitted in the affidavit that the first respondent has passed an order on 4.3.1998 freezing the Account and he has not chosen to challenge the said order. His further contention is that if really it is the case of the petitioner that by de-freezing the Account the petitioner is not going to get any benefit, then, there is no purpose in filing the writ petition. That apart, he would submit that if the petitioner is really aggrieved, he can approach the criminal Court wherein the Account is required as a material object. He would further submit that section 73 (3) of the Foreign Exchange Regulation Act empowers the Reserve Bank of India to freeze the Account with the 4th respondent and once the enforcement agency under the Foreign Exchange Regulation Act informed for the same to the third respondent, it is the duty of the third respondent to freeze the account since the same is required as a material object in a criminal case.
11. By order dated 15.2.1996 addressed to the 4th respondent, the third respondent, Reserve Bank of India, by exercising its powers under section 73(3) of the Foreign Exchange Regulations Act, issued direction to secure an amount of Rs.38,84,210/- by blocking the said deposit and that the deposit should not be closed or transferred to any other office or branch till the investigation/proceedings are completed. He would rely upon the judgement in M.A.Nachiyar vs. Enforcement Directorate (Mad.) (1976) 46 Comp. Cases 653 to substantiate his contention that under the Foreign Exchange Regulation Act it is the right and jurisdiction of the Reserve Bank of India to give such direction. He would further rely upon an unreported judgement of this Court dated 17.10.2003 in W.P.Nos.1296 to 1298 of 1997, wherein the judgement in the abovesaid case (1976 Comp. Cases Vol.46, p.653) was followed. According to the learned counsel, it is only by the exercise of the statutory powers, the freezing of the Account was made.
12. I have heard the learned counsel for the petitioner as well as the respondents and perused the entire records.
13. It is seen that originally the writ petition was filed for direction against the respondents to de-freeze the petitioner’s NRI Account maintained in the 4th respondent bank. It was, subsequently M.P.No.16890 of 2006 was filed by the petitioner seeking for amendment of the prayer to challenge the order of the 3rd respondent, Reserve Bank of India dated 15.2.1996 and also for the consequential direction to de-freeze the Special Term Deposit dated 3.11.1995 of the petitioner maintained in the 4th respondent bank and also for inclusion of certain grounds including the one that the 4th respondent has no power or jurisdiction to block the Account of the petitioner under the Foreign Exchange Regulation Act when there is no provision for the same under the said Act. The said application is also posted along with the present writ petition.
14. It is seen that the Reserve Bank of India, viz., third respondent, by its communication dated 15.2.1996 addressed to the 4th respondent, State Bank of India, directed the 4th respondent to freeze the Account by virtue of its powers under section 73(3) of the Foreign Exchange Regulation Act, 1973 as it stood then. The said communication is as follows:
“Violation of Foreign Exchange Regulation Act,1973 – Blocking of Rs.38,84,210/- lying in the Special Term Deposit NRE No.101392/011085/01 dt.3.11.1995 standing in the name of Shri Nadadur Varadan.
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Whereas the Reserve Bank of India considers it necessary and expedient for the purpose of securing compliance with the provisions of the Foreign Exchange Regulation Act,1973 and the rules, orders and directions made thereunder to give the direction hereinafter contained.
Now, therefore, in exercise of powers conferred by sub section 3 of Section 73 of the said Act the Reserve Bank of India hereby directs that until and unless you are directed otherwise by Reserve Bank of India, you shall secure a sum of Rs.38,84,210/- be blocked from the said deposit and that the deposit is not closed or transferred to any other office/branch till the investigations/proceedings are completed.
Please acknowledge receipt and confirm your compliance.”
15. Even though subsequently the said Act has been repealed and replaced by the Foreign Exchange Management Act, 2000, the proceedings in this matter initiated under the old Act of the year 1973 are pending. It remains a fact that the first respondent on 4.3.1998 communicated to the petitioner that the Account is a material object in the prosecution proceedings pending against Sampath and Dyaneswaran and the amount blocked is inter-related to the prosecution launched against them and therefore, the request of the petitioner to release the Account would be considered at the appropriate time. The said letter of the first respondent addressed to the petitioner dated 4.3.1998 is as follows:
“Sir,
Please refer to your letter dated 11.12.97.
2. In regard to your request to de-freeze the amount held by you with the State Bank of India, NRI Branch, Madras-2, we would like to state that the Department has launched prosecution proceedings against Shri A.N.Dyaneswaran and Shri C.Sampath Kumar for the violation of Sections 9(1)(b), 9(1)(d) and 9(1)(a) of Foreign Exchange Regulation Act,1973. You are aware that you have raised personal loans against the said F.C.N.R. Deposit held by you with State Bank of India and gave the amounts to Dharmambal Namasivayam Trust and after repayment of the loans taken by you by Shri C.Sampath Kumar into your loan account in Indian currency, you have been taking further loans repeatedly after return of your loan again and again and sending the amount to Dharmambal Namasivayam Trust. As there is a nexus between F.C.N,R. Deposits and the amounts given to Dharmambal Trust as well as the repayment of loan by Shri Sampath Kumar, the amount blocked by the Department with State Bank of India, NRI Branch, Madras-2, is a material object in the prosecution proceedings launched against Shri Dyaneswaran and Shri Sampath Kumar and during the course of tendering evidence, the Manager, State Bank of India, NRI Branch has to depose about the F.C.N.R. Accounts held by you. Since the amount blocked is inter-related with the prosecution launched against Shri Dyaneswaran and Shri Sampath Kumar, de-freezing of your account will be considered by the Competent Authority at the appropriate time after considering the aspect of repayment of loans by Shri Sampath Kumar, a person resident in India and at this stage, it is not possible for this Department to de-freeze the said F.C. Account.
3. We would like to clarify you further if you require anything in this matter.”
16. It remains a fact that the letter of the first respondent is not under challenge. In any event, a reading of the entire pleadings and the letter as a whole shows that undisputably the Account which is the subject matter of issue before this Court is required as a material object in a criminal case initiated under the Foreign Exchange Regulation Act, 1973 and the same is pending and therefore, it cannot be said at this stage that before the completion of the criminal case, the petitioner should be permitted to operate the Account in which event, the prosecution launched under the Foreign Exchange Regulation Act itself will in effect become ineffective.
17. The reliance placed by the learned senior counsel on the judgement of the Division Bench of this Court in Nagoor Meera vs. Union of India (1991 L.W. (Crl.) 487) has no relevance to the facts of the case. That was a case relating to the retention of passport and the contention raised there was that the same was taken at the time of search of premises and after perusal of the passport, the same was returned, and it was, in those circumstances, on the basis that other remedy is available to the authorities under the Foreign Exchange Regulation Act to compel the presence of the petitioner for enquiry in connection with the investigation or to lawfully prevent the petitioner from going abroad without completing the enquiry, the Division Bench has held that the retention of the passport is not justified. It was specifically found by the Division Bench that if really the passport was required for investigation, the same would not have been returned after perusal on one occasion, as found in the affidavit filed in the said case.
18. Section 73 of the Foreign Exchange Regulation Act,1973 empowers the Reserve Bank of India to issue direction as it is necessary and expedient for the purpose of securing compliance of the provisions of the Act. The said provision is as follows:
” Section 73(3) The Reserve Bank may give directions in regard to the making of payment and the doing of other acts by bankers, authorized dealers, money-changers, stock brokers or other persons, who are authorised by the Reserve Bank to do anything in pursuance of this Act in the course of their business, as appear to it to be necessary or expedient for the purpose of securing compliance with the provisions of this Act and of any rules, directions or orders made thereunder.”
As it is narrated above, factually, the Reserve Bank of India, third respondent, has issued an order dated 15.2.1996 for freezing the Account on the ground that the said Account is required as a material object in a criminal case launched for violation of the provisions of Foreign Exchange Regulation Act.
19. In a similar case which arose under the Foreign Exchange Regulation Act, 1947, namely, section 20(3) of the said Act, the contention raised was that the Reserve Bank of India is a separate and distinct authority different from the Directorate of Enforcement and on the basis of the direction given by the Directorate of Enforcement, the Account cannot be blocked and in fact, such powers available under section 20(3) of the Act are violative of Articles 14, 19(1)(f) and (g) of the Constitution of India. That was a case referred in Mohammed Ayisha Nachiyar vs. Deputy Director, Enforcement Directorate and others in [(1976) 46 Comp. Cases 653]. There also a similar order of the Reserve Bank of India, as it is passed in the present case, was passed under section 73(3) of the Act. The argument that before issuing such notice, the Reserve bank of India should conduct an enquiry was rejected in the following terms:
” The contention of the learned counsel for the petitioner that before issuing the direction under that section there should be a notice and an enquiry following it cannot be accepted. For one thing the section does not contemplate the issue of such a prior notice or enquiry. For another, the issue of such a notice and the holding of an enquiry would virtually defeat the object with which the direction has to be issued. In this case, if a notice is issued and an enquiry is conducted by the Reserve Bank before a direction is issued, the amounts in question would have been withdrawn from the bank account making it practically unnecessary for the Reserve Bank to issue any such direction.
As regards the contention that the second respondent did not apply its own mind before the impugned direction was issued, it is seen from the impugned order extracted above that the second respondent felt it necessary to issue a direction in the circumstances of this case. The counter-affidavit filed by the second respondent also indicates that the direction has not been issued automatically on the basis of the request made by the first respondent without looking into the materials and without an independent application of its mind. Thus, all the contentions raised by the petitioner fail.”
The said judgement was followed by F.M.Ibrahim Kalifulla,J. in R.Susila v. Enforcement Officer, Enforcement Department, Chennai and 3 others in W.P.Nos.1296 to 1298 of 1997 by order dated 17.10.2003.
20. Therefore, it is clear that the order of the Reserve Bank of India, viz., third respondent dated 15.2.1996 is perfectly in order and cannot be held to be either against the provisions of the Foreign Exchange Regulation Act or against the law. A reading of the entire Foreign Exchange Regulation Act shows that the Reserve Bank of India is entitled to issue such directions, especially when criminal case involving the Account in dispute is pending on the competent Court as per the provisions of the Foreign Exchange Regulation Act. Merely because in respect of the same Account the petitioner was prosecuted for violation of section 9(1) and 9(d) of the Foreign Exchange Regulation Act and paid the penalty of Rs.40,000/-, itself is not a ground for the purpose of de-freezing the Account, which has been kept frozen as per the decision of the Reserve Bank of India and which is required by the first respondent being the enforcement authority as a material object in a criminal case. Further, it is always open to the petitioner to work out his remedy after the criminal case is completed. In view of the same, the petitioner is not entitled to any relief as claimed in the writ petition.
The writ petition fails and the same is dismissed. Connected M.Ps. are closed. No costs.
kh
To
1. Deputy Director of Enforcement
Enforcement Directorate
Government of India
“C” Zone, III Floor, Third Block
Shastry Bhavan, Chennai 600 006.
2. Director of Enforcement
Enforcement Directorate
Government of India
Lok Nayak Bhavan, Khan Market
New Delhi 110 003.
3. The Reserve Bank of India
16 Fort Glacias, Rajajai Salai
Chennai 600 001.
4. The Manager
State Bank of India
NRI Branch, Mount Road
Chennai 600 002.