Bombay High Court relief for First Global’s Shankar Sharma, Devina Mehra in FERA case | The Financial Express

Bombay High Court relief for First Global’s Shankar Sharma, Devina Mehra in FERA case

Sharma was vice chairman and joint managing director at First Global.

Bombay High Court relief for First Global’s Shankar Sharma, Devina Mehra in FERA case
The court has ruled that AK Bal, special director, FEMA, Enforcement Directorate, had no authority to issue the show cause notices (SCNs), and consequently no order based on the notices could have been passed. (IE)

The Bombay HC has quashed and set aside three show cause notices issued against First Global Stockbroking (FGSB), Shankar Sharma and Devina Mehra in 2002 in a matter pertaining to violation of the norms of the Foreign Exchange Regulation Act (FERA), 1973. The oral judgment was pronounced on November 18.

Sharma was vice chairman and joint managing director at First Global. Mehra is chairperson & managing director at the firm.

The court has ruled that AK Bal, special director, FEMA, Enforcement Directorate, had no authority to issue the show cause notices (SCNs), and consequently no order based on the notices could have been passed.

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The Foreign Exchange Management Act, 2000 (FEMA) came into force on June 1, 2000, and repealed the FERA subject to certain saving provisions. Section 49(3) of FEMA provided a sunset period of two years from June 1, 2000 to May 31, 2002 for an adjudicating officer to take notice of any contravention under Section 51 of FERA.

On May 30, 2002, two SCNs were issued to FGSB, Sharma and Mehra. Another notice was issued on May 31, 2002, the last day of the sunset period. All the three SCNs alleged violation of FERA provisions and sought to impose penalty on the three entities.

The SCNs alleged that the entities sold 5,92,950 shares of HFCL (Himachal Futuristic Communications) to FIIs and their sub-accounts, and attempted to sell a further 2,37,600 shares of HFCL to FIIs and their sub-accounts without the permission of the RBI. A payment of Rs 3.5 crore for acquisition of 6,117 equity shares of Buffalo Networks as consideration for the acquisition of an amount of $800,000 outside India was done without the exemption of the RBI. The acquisition of $11.79 million outside India was done without the permission of the central bank.

There was a failure to comply with conditions stipulated by the RBI in the permission dated January 3, 2000 with respect to holding of 100% equity shares of First Global (UK). Failure to repatriate to India an amount of 2,54,000 pound received from First Global (UK) as fees for services rendered prior to the takeover of First Global (Mauritius) by FGSB.

FGSB, Sharma and Mehra challenged the authority of Bal, the enforcement officer, before the Bombay High Court. The petition said Bal was appointed by way of a notification as a special director in the Enforcement Directorate under FEMA on a deputation basis with effect from July 2, 2001.

It was argued that officers empowered under FEMA are not by necessary implication deemed to have any inherent powers under the corresponding FERA provisions. There is no other provision in FEMA which supports the view that officers under FEMA have any inherent power to issue SCNs under FERA.

“The judgment has settled the controversy regarding the appointment of an adjudicating authority and the power to issue notices under FEMA. So, an adjudicating officer appointed under FERA (before the repeal of FERA) can issue notice/take cognizance of contravention under Section 49 of FERA for two years. After the repeal of FERA, any appointment under FEMA would consider to be appointment of the adjudicating authority and not adjudicating officer under FERA,” said Utsav Trivedi, partner, TAS Law.

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Senior advocate Shiraz Rustomjee, along with advocate Vishal Khanavkar, represented FGSB, Sharma and Mehra.

Writ petitions filed by Raman Maroo and Audhoot Timblo on similar grounds were tagged along with the petition filed by Sharma and Mehra. All the petitions were allowed.

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First published on: 23-11-2022 at 01:45:00 am
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