M/S Lords Polymer (I) Private Limited vs The Additional Directorate Of Enforcement, Directorate Of Enforcement (Fema) Southern Regional

1. At the threshold, these statutory appeals preferred by M/s Lords

Polymer (I) Private Limited (hereinafter 'the Appellant Company') and Mr. 2

Amit Saha (the director) under Section 35 of the Foreign Exchange

Management Act, 1999 (hereinafter 'FEMA'), compels us to revisit the

fundamental equilibrium between the State's prerogative to secure

revenue and the citizen's right to an effective appellate remedy. The lis

before us is not merely a dispute over a numerical figure; it is a

challenge to an exercise of discretion that, while adhering to the letter of

the law, arguably violates its spirit by demanding the "impossible."

2. The central grievance articulated by the appellants is directed against

the interlocutory order dated 23.04.2025 passed by the Learned

Appellate Tribunal (SAFEMA/FEMA). The pivot upon which this

controversy turns is whether a factual recording of "indigent financial

circumstances" by a Tribunal can logically coexist with a direction to

deposit a "staggering" sum of Rs. 2.20 Crore as a condition precedent to

being heard.

FACTUAL ANTECEDENTS AND THE GENESIS OF THE IMPASSE

3. The appellant-Company was formerly engaged in the export of iron ore

fines, is embroiled in proceedings rooted in shipments dating back to

2008. The Adjudicating Authority (AA) reached a finding that the

appellant failed to repatriate export proceeds totalling approximately

Rs.21.70 Crore, alleging a contravention of Sections 7 and 8 of FEMA.

This culminated in the imposition of a massive penalty of

Rs.22,00,00,000/- (Rupees Twenty-Two Crore).

4. Seeking appellate recourse, the appellant moved the Learned Tribunal

for a total waiver of pre-deposit under the Second Proviso to Section 3 19(1) of FEMA. To substantiate the plea of "undue hardship," the

appellants placed on record uncontroverted evidence: the Company is a

defunct entity, its bank accounts are classified as Non-Performing

Assets (NPA), and it possesses no liquid assets to satisfy a demand of

this magnitude.

THE SUBSTANTIAL QUESTION OF LAW

5. Having heard the learned counsel for the parties at length, we find that

the following substantial question of law arises for our determination:

"Whether the Appellate Tribunal, after having factually arrived at a finding of 'undue hardship' and 'poor financial condition,' committed a jurisdictional error by treating the 10% limit in the Third Proviso to Section 19(1) of FEMA as a mandatory minimum deposit, thereby rendering the statutory right of appeal illusory and the order perverse?"

SUBMISSIONS OF THE PARTIES

6. Mr. Nilotpal Chowdhury, Learned Counsel for the appellants, mounted a

two-pronged attack on the impugned order. He contended that the

decision is hit by a "vice of internal contradiction"--once the Tribunal

accepted the "poor financial condition" as a fact, the demand for Rs.2.20

Crore became a demand for an impossibility. He invoked the

maxim Impossibilium Nulla Obligatio Est (the law compels no one to do

that which is impossible), arguing that demanding such a sum from an

indigent litigant effectively shutters the doors of justice. 4

7. He further argued that the Tribunal misconstrued the Third Proviso of

Section 19(1), erroneously treating a "statutory cap" (designed to protect

appellants) as a "statutory floor" or mandatory minimum.

8. Mr. Arijit Chakrabarti, Learned Counsel for the respondent, forcefully

defended the impugned order. He submitted that the Right to Appeal is a

statutory creation, not a fundamental one, and is thus subject to

legislative conditions.

9. He further argued that the Tribunal exercised significant leniency by

waiving 90% of the penalty and emphasized that the Second Proviso

mandates the Tribunal to "safeguard the realization of penalty." A total

waiver, in his view, would invite frivolous litigation and compromise

Revenue interests. Therefore, the 10% deposit is a reasonable "stake in

the outcomes" of the appeal.

STATUTORY ARCHITECTURE AND JUDICIAL EXEGESIS

10. The resolution of this controversy necessitates a forensic examination of

Section 19(1) of the Foreign Exchange Management Act (FEMA), 1999.

The statute creates a tiered structure for pre-deposits, intended to

balance Revenue interests with the rights of the aggrieved. The Second

Proviso of this section acts as a "remedial valve," granting the Tribunal

the power to "dispense with such deposit" if it is of the opinion that the

requirement would cause "undue hardship." This power to dispense is

an absolute discretionary power to waive, contingent upon the 5

Tribunal's satisfaction regarding the appellant's hardship. It provides as

follows-

"Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of the penalty amount shall cause undue hardship to the person aggrieved, it may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty."

11. The expression "undue hardship" is not merely "hardship," but a

burden "out of proportion to the nature of the requirement itself" (Bank

of Baroda vs. Appellate Tribunal [121 (2005) DLT 424). For an NPA-

declared entity with no liquid assets, a multi-million-rupee deposit

is, prima facie, an undue hardship. As the Hon'ble Supreme Court

cautioned in Monotosh Saha vs. Special Director, ED [(2008) 12 SCC 359],

the Tribunal must ensure that the remedy of appeal is not

rendered "illusory." If a condition for appeal is impossible to fulfil, the

right to appeal is effectively snatched away.

12. Third Proviso of section 19 (1) limits the deposit amount: "...such person

shall not be required to deposit more than ten per cent of the penalty

amount." This sets the maximum demand.

ANALYSIS AND FINDINGS: THE VICE OF INTERNAL

CONTRADICTION

13. Applying these principles, we find that the impugned order suffers from

a profound logical fallacy. By acknowledging "poor financial condition"

while simultaneously demanding Rs.2.20 Crore from an NPA-classified

entity, the Tribunal "took away with the left hand what it gave with the 6

right." By treating the 10% ceiling as a mandatory minimum despite a

finding of hardship, the Tribunal failed to exercise its jurisdiction

meaningfully.

14. We are of the firm opinion that when a Tribunal finds an appellant is

indigent, it must explore the "Middle Path."Safeguarding Revenue does

not always necessitate a liquid cash deposit. The Second Proviso allows

the Tribunal to impose "such conditions as it may deem fit," which

includes alternative securities like Indemnity Bonds or Corporate

Guarantees. These mechanisms secure the interest of the State without

choking the Appellant's access to justice.

CONCLUSION AND OPERATIVE DIRECTIONS

15. In view of the above discussions, we find that the substantial question of

law is answered in the affirmative, in favor of the appellant. Accordingly,

the appeals (F.E.A. 5 of 2025 and F.E.A 6 of 2025) are partially allowed

with the following directions:

i. The direction of pre-deposit of Rs.2,20,00,000/- imposed vide

the impugned order dated 23.04.2025, is hereby set aside.

ii. To demonstrate bona fides, the Appellant Company shall

deposit Rs.2,00,000/- (Rupees Two Lakhs) ) and Mr. Amit Saha

(Appellant No. 2) shall deposit Rs.50,000/- (Rupees Fifty

Thousand) before the Tribunal within six weeks.

iii. Upon compliance with the above, the statutory requirement

under Section 19(1) of FEMA shall be treated as fully complied 7

with. The main appeal and the dismissal order dated

28.08.2025 shall stand disposed.

iv. The Tribunal shall proceed to hear the main Appeal on its

merits expeditiously.

v. GA 1 of 2025 is also disposed of accordingly.

vi. There shall be no order as to costs.

16. Urgent photostat certified copy of this order, if applied for, be given to

the parties upon compliance of all necessary formalities.

I AGREE

(RAJARSHI BHARADWAJ, J.) (UDAY KUMAR, J.)