Monotosh Saha vs Enforcement Directorate

Directorate, Ministry of Finance. On the basis of certain

statements recorded it was indicated therein that M/s

Godsons (India) and its proprietor, the present appellant

had acquired foreign exchange contravening the provisions of

Section 8(1) of the Foreign Exchange Regulation Act, 1973 (in

short the `Foreign Exchange Act') thereby rendering him liable

to be proceeded under Section 50 of the Foreign Exchange

Act. The memorandum was issued under Rule 3 of the

Adjudication Proceedings and Appeal Rules, 1974 (in short

`Adjudication Rules'). The reply to the show cause notice was

filed by the appellant. The Special Director, of Foreign

Exchange Act passed an order on 13th May, 2005 imposing

penalty of Rs.25 lakhs on the appellant. The appellant

preferred an appeal before the Appellate Tribunal (Foreign

Exchange) (in short the `Tribunal') and filed an application for

dispensing with the requirement of pre-deposit. By order

dated 7.3.2006 the Tribunal passed an order directing deposit

of 60% of the penalty amount for the purpose of entertaining

2 the appeal. An appeal was filed under Section 35 of the Act

which came to be dismissed by the High Court holding that no

case for hardship was made out either before the Tribunal or

before it and, therefore, there was no scope of interference

with the order of the Tribunal. However, time permitting the

deposit was extended.

4. In support of the appeal, learned counsel for the

appellant submitted that a case for dispensing with pre-

deposit was made out. In any event, in compliance with this

Court's interim order dated 5.2.2007 the amount of

Rs.10,00,000/- has been deposited with the concerned

Directorate.

5. Learned counsel for the respondents on the other hand

submitted that the appellant did not make out a case for

dispensing with pre-deposit and, therefore, the order of the

Tribunal as affirmed by the High Court does not suffer from

any infirmity.

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6. Principles relating to grant of stay pending disposal of

the matters before the concerned forums have been

considered in several cases. It is to be noted that in such

matters though discretion is available, the same has to be

exercised judicially.

7. The applicable principles have been set out succinctly in

Silliguri Municipality and Ors. v. Amalendu Das and Ors. (AIR

1984 SC 653) and M/s Samarias Trading Co. Pvt. Ltd. v. S.

Samuel and Ors. (AIR 1985 SC 61) and Assistant Collector of

Central Excise v. Dunlop India Ltd. (AIR 1985 SC 330).

8. It is true that on merely establishing a prima facie case,

interim order of protection should not be passed. But if on a

cursory glance it appears that the demand raised has no leg to

stand, it would be undesirable to require the assessee to pay

full or substantive part of the demand. Petitions for stay

should not be disposed of in a routine matter unmindful of the

consequences flowing from the order requiring the assessee to

deposit full or part of the demand. There can be no rule of

4 universal application in such matters and the order has to be

passed keeping in view the factual scenario involved. Merely

because this Court has indicated the principles that does not

give a license to the forum/authority to pass an order which

cannot be sustained on the touchstone of fairness, legality

and public interest. Where denial of interim relief may lead to

public mischief, grave irreparable private injury or shake

citizens' faith in the impartiality of public administration,

interim relief can be given.

9. It has become an unfortunate trend to casually dispose

of stay applications by referring to decisions in Siliguri

Municipality and Dunlop India cases (supra) without

analysing factual scenario involved in a particular case.

10. Section 19 of the Act reads as follows:

"19(1). Save as provided in sub-section (2), the Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to in sub- section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal :

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Provided that any person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government:

Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal 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. Two significant expressions used in the provisions are

"undue hardship to such person" and "safeguard the

realization of penalty". Therefore, while dealing with the

application twin requirements of considerations i.e.

consideration of undue hardship aspect and imposition of

conditions to safeguard the realization of penalty have to be

kept in view.

12. As noted above there are two important expressions in

Section 19(1). One is undue hardship. This is a matter within

6 the special knowledge of the applicant for waiver and has to be

established by him. A mere assertion about undue hardship

would not be sufficient. It was noted by this Court in S.

Vasudeva v. State of Karnataka and Ors. (AIR 1994 SC 923)

that under Indian conditions expression "Undue hardship" is

normally related to economic hardship. "Undue" which means

something which is not merited by the conduct of the

claimant, or is very much disproportionate to it. Undue

hardship is caused when the hardship is not warranted by the

circumstances.

13. For a hardship to be `undue' it must be shown that the

particular burden to have to observe or perform the

requirement is out of proportion to the nature of the

requirement itself, and the benefit which the applicant would

derive from compliance with it.

14. The word "undue" adds something more than just

hardship. It means an excessive hardship or a hardship

greater than the circumstances warrant.

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15. The other aspect relates to imposition of condition to

safeguard the realization of penalty. This is an aspect which

the Tribunal has to bring into focus. It is for the Tribunal to

impose such conditions as are deemed proper to safeguard the

realization of penalty. Therefore, the Tribunal while dealing

with the application has to consider materials to be placed by

the assessee relating to undue hardship and also to stipulate

condition as required to safeguard the realization of penalty.

16. The above position was highlighted in Benara Valves Ltd.

and Ors. v. Commissioner of Central Excise and Anr. (2006

(13) SCC 347). The decision was rendered in relation to

Section 35F of the Central Excise Act, 1944 where also

identical stipulations exist.

17. In the instant case Tribunal has rightly observed that the

rival stands have to be examined in detail with reference to

material on record.

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18. The only other question that needs to be examined is

whether any reduction of the amounts to be deposited as

directed by the Tribunal is called for.

19. Undisputedly the appellant had deposited the amount

which was directed to be deposited. However, for the balance

amount demanded with a view to safeguard the realization of

penalty the appellant shall furnish such security as may be

stipulated by the Tribunal. On that being done, the appeal

shall be heard without requiring further deposit if the appeal

is otherwise free from defect.

20. The appeal is disposed of accordingly.

..........................................J. (Dr. ARIJIT PASAYAT)

...........................................J. (Dr. MUKUNDAKAM SHARMA) New Delhi, August 21, 2008

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