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Authority under Rule 4(3) of the FEMA Adjudication Rules should provide clear and explicit reasons to proceed with inquiry: High Court of Delhi

The Adjudicating Authority, under the Scheme of the FEMA, performs a quasi-judicial function as opposed to a purely administrative function. The requirement of giving reasons therefore cannot be undermined and must be insisted upon from the Adjudicating Authority. The reasons to be given for its opinion under Rule 4(3) of the Adjudication Rules to proceed with the inquiry though need not be as elaborate as in a Court decision or let’s say an order passed by the Adjudicating Authority under Rule 4(8) of the Adjudication Rules, but have to be adequate, proper and intelligible, sufficiently clear and explicit. This was held in J P MORGAN INDIA PRIVATE LIMITED v.  SPECIAL DIRECTOR, DIRECTORATE OF ENFORCEMENT AND ANR. [WP(C)Nos.6239 & 6240/2020] in the High Court of Delhi by a single bench consisting of JUSTICE NAVIN CHAWLA.

The facts are that petitioner herein is a private limited company incorporated under the Indian Companies Act. Relying upon a judgment and order of the Supreme Court, certain investigations were carried out and a show cause notice in terms of Rule 4(1) of the Adjudication Rules was issued to the petitioner.

The counsel for the petitioner submitted that there has been a violation of Rule 4(3) of the Adjudication Rules which requires that the Authority has to form an opinion, after considering the cause shown by the noticee, if any, as to whether the noticee is to be proceeded against in an inquiry. He submits that such opinion must necessarily be recorded in writing and, in case he seeks a copy of the same, provided to the noticee.

The  Additional Solicitor General has submitted that there was no violation of Rule 4(3) of the Adjudication Rules. The expression of the opinion as required in Rule 4(3) of the Adjudication Rules need not be in form of elaborate reasons and as an order; it is a mere formation of an opinion, and in fact, is not even appealable under Section 19 of the FEMA.

The court made reference to the judgment of Apex court in Natwar Singh v. Director of Enforcement & Anr, wherein it was observed that “In contradistinction, the opinion formed by the adjudicating authority whether an inquiry should be held into the allegations made in the complaint are not fraught with such grave consequences and therefore the minimum requirement of a show-cause notice and consideration of cause shown would meet the ends of justice. A proper hearing always include no doubt, a fair opportunity to those who are parties in the controversy for correcting or contradicting anything prejudicial to their view”.

The court also made reference to the judgment of Apex court in S.N. Mukherjee v. Union of India, wherein it was observed that “These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision, or judicial review”.

Considering the facts of the case and the legal precedents, the court held that the Impugned Order did not satisfy the test of giving reasons by the respondent for the formation of opinion to proceed with the inquiry against the petitioner. But due to the nature of allegations against the petitioner which warrant inquiry the order was sustained by the court while dismissing the petition.

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