Calcutta High Court (Appellete Side)
Sanjay Jhunjhunwala vs Reserve Bank Of India & Ors on 1 April, 2025
Author: Amrita Sinha
Bench: Amrita Sinha
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
Present :- Hon'ble Justice Amrita Sinha
WPA 2065 of 2025
Sanjay Jhunjhunwala
Vs.
Reserve Bank of India & Ors.
For the writ petitioner :- Mr. P. Chidambaram, Sr. Adv.
Mr. Tanmay Bhatnagar, Adv.
Mr. Aditya Kanodia, Adv.
Ms. Shreya Trivedi, Adv.
Mr. Shounak Bhattacharya, Adv.
For respondent no. 1 & 2 :- Mr. Jaideep Gupta, Adv.
Mr. Prasun Ghosh, Adv.
Ms. Suchismita Chatterjee Ghosh, Adv.
Mr. Malay Kumar Seal, Adv.
For ED :- Mr. Arijit Chakraborty, Adv.
Mr. Deepak Sharma, Adv.
Ms. Swati Singh, Adv.
Hearing concluded on :- 14.02.2025
Judgment on :- 01.04.2025
Amrita Sinha, J.:-
1. Communication of the Reserve Bank of India (RBI) returning the
application made by the petitioner seeking compounding of the offence
adjudicated by the adjudicating authority under the Foreign Exchange
Management Act, 1999 (FEMA) in September, 2024 and the
subsequent demand notice issued by the Assistant Director (PRC),
Government of India are impugned in the instant writ petition.
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2. The petitioner was found to have contravened certain provisions of
FEMA. An adjudication order was passed by the adjudicating
authority. After the adjudication process was complete and an order of
penalty was passed on 27th March, 2024 the petitioner filed an
application for compounding under Rule 4 of the Foreign Exchange
(Compounding Proceedings) Rules, 2000 on 6th May, 2024.
3. RBI returned the said application in September, 2024 on the ground
that since the adjudication order was already passed by the
adjudicating authority in respect of the contraventions detected, the
compounding application cannot be processed. Subsequent thereto a
demand notice was issued on 17th January, 2025 directing the
petitioner to pay the outstanding penalty or to submit order of the
appellate authority dispensing deposit of the imposed penalty.
4. The petitioner accepted the order of adjudication and hence, not
preferred any appeal from the same. Submission of the petitioner is
that he may be allowed to avail the benefit of compounding at this
stage. According to the respondent authority, compounding of offence
is permissible prior to passing the order of adjudication. Once the
order of adjudication is passed and the adjudication proceeding is
concluded, there is no scope for entertaining the prayer for
compounding.
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5. The respondents contend that after the adjudication order is passed,
the contravener may prefer an appeal challenging the same, if
aggrieved, or else pay the penalty that has been imposed.
6. As there is no dispute with regard to the factual issues and only a
point of law is to be answered, the parties have agreed for hearing of
the writ petition without filing any affidavit. Accordingly, the writ
petition is being decided only on the legal issue as to whether a
contravener can be permitted to avail the benefit of compounding the
contravention after an order of adjudication has been passed by the
competent authority.
7. According to Section 3(a) of FEMA no person shall deal in or transfer
any Foreign Exchange or Foreign Security to any person not being an
authorised person. Section 4 of FEMA lays down that save and except
otherwise provided in the Act, no person resident in India shall
acquire, hold, own, possess or transfer in Foreign Exchange, Foreign
Security or any immovable property situated outside India. Section 11
of FEMA lays down the power of the Reserve Bank to issue directions
to authorise persons for securing compliance of the provisions of the
Act, Rules, Regulations, notifications or directions made thereunder.
8. Section 13 of FEMA deals with the penalties for contravention of the
provisions of the Act, Rules, Regulation, notification, direction or order
issued under the Act. Section 14 relates to enforcement of the orders
of the adjudicating authority. Section 15 lays down the power to
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compound contravention. Section 17 lays down the provision for
appeal to the Special Director (appeals) and Section 19 deals with the
provision of appeal before the appellate Tribunal. Section 46 lays down
the power to make rules. Section 46 (2) (b) lays down that the Rule
may provide for the manner in which the contravention may be
compounded under Section 15 (1) of the Act.
9. The Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000 specifies the regulations for borrower or
lender in Foreign Exchange by a resident of India, by a person residing
in India. Regulation 3 of the aforesaid Regulations prescribes that save
as otherwise provided in the Act, Rules or Regulations made
thereunder, no person resident in India shall borrow or lend in
Foreign Exchange from or to a person resident in or outside India. The
Reserve Bank may, for sufficient reasons, permit a person to borrow or
lend in Foreign Exchange from or to a person resident outside India.
10. The adjudicating authority found that the petitioner contravened
provision of Regulation 3 of the aforesaid Regulations. The petitioner
contends that he ought to be permitted to avail the benefit of
compounding the offence as adjudicated by the adjudicating authority.
According to the authority, the same is impermissible in view of the
provisions of the Foreign Exchange (Compounding Proceedings) Rules,
2000.
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11. Stress has been laid on Rule 4 (4) of the Compounding Proceedings
Rules which mentions that every application for compounding any
contravention under the Rule shall be made in Form to the Reserve
Bank of India along with the prescribed fee. Rule 6 of the
Compounding Proceedings Rules has been placed which mentions
that where any contravention is compounded before the adjudication
of any contravention under Section 16, no inquiry shall be held for
adjudication of such contravention in relation to such contravention
against the person in relation to whom the contravention is so
compounded.
12. Section 7 of the Compounding Proceedings Rules prescribes that
where the compounding of any contravention is made after making of
a complaint under Section 16 (3), such compounding shall be brought
by the specified authority in writing to the notice of the adjudicating
authority and on such notice of the compounding of the contravention
being given, the person in relation to whom the contravention is so
compounded shall be discharged.
13. Rule 11 of the Compounding Proceedings Rules stipulates that no
contravention shall be compounded if an appeal has been filed under
Section 17 or 19 of the Act. The Rule contains a prescribed format in
which the application for compounding is to be made. The form
requires disclosing the name of the adjudicating authority before
whom the case is pending.
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14. The petitioner interprets Rule 11 of the Compounding Proceedings
Rules by submitting that compounding will not be permissible if, and
only if, an appeal has been filed against the adjudication order. As the
petitioner has not preferred the appeal but has accepted the order of
the adjudicating authority, accordingly, permission ought to be given
to the petitioner to seek compounding of the contravention.
15. Master Direction of the Reserve Bank of India for compounding of
contraventions under FEMA being FED Master Direction No. 4/2015-
16 dated 1st January, 2016 published by the Chief General Manager
in-Charge, Reserve Bank of India last updated on 24th May, 2022 has
been relied upon wherein the purpose of formulating the
Compounding Rules, 2000 has been mentioned.
16. Direction 1.3 mentions that Reserve Bank of India is empowered to
compound all the contraventions of FEMA, 1999 except Section 3 (a)
with a view to provide comfort to individuals and corporate community
by minimizing transaction costs while taking view of wilful, mala fide
and fraudulent transactions. Direction 5.2 of the Master Directions
mentions that the format of the application for compounding is
appended to the Compounding Rules, 2000.
17. Direction 5.3 prescribes that along with the application in the
prescribed format, the applicant may also furnish details as per
Annexure II and the applicant is required to submit an undertaking as
per Annexure III that they are not under any enquiry/ investigation/
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adjudication by Directorate of Enforcement, as on the date of the
application and to inform to the compounding authority/ RBI
immediately, in writing, if any enquiry/ investigation/ adjudication
proceedings are initiated by the Directorate of Enforcement against the
applicant after the date of filing the compounding application, but on
or before the date of issuance of the compounding order to enable the
bank to complete the compounding process within the time frame.
18. Direction 5.4 prescribes that the application for compounding will be
treated as incomplete if the same is without all required details.
Direction 5.6 indicates that if an application for compounding is not
submitted in the prescribed format or is found incomplete due to the
absence of any mandatory details, declarations, documents or the
directives as prescribed, the application will not be taken up for
processing and shall be liable to be returned to the applicant.
19. Direction 6.4 mentions that any case where adjudication has been
done by the Directorate of Enforcement and an appeal has been filed
under Section 17 or 19 of FEMA, no contravention can be
compounded in terms of Rule 11 of the Compounding Proceedings
Rules, 2000. The applicant shall conform in the undertaking required
to be furnished as per Annexure III along with the compounding
application that they have not filed any appeal under Section 17 or
Section 19 of FEMA.
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20. Direction 7 lays down the detailed scope and procedure for
compounding. For effective implementation of the compounding
process under FEMA, the Reserve Bank of India has framed the
procedure for compounding on contravention in details. The same has
been published by the Reserve Bank of India in A.P. (DIR Series)
Circular 31 dated 1st February, 2005.
21. Clause 6 of the compounding process dated 1st February, 2005 lays
down that application for compounding contravention may be filed
with the compounding authority, including those which are under
adjudication process and have not been disposed of. No contravention
would be compounded which has been finally adjudicated and
disposed of by the adjudicating authority. The prescribed format in
which the application for compounding is to be filed requires
disclosing the name of the adjudicating authority before whom the
case is pending.
22. The idea of compounding an offence is to get the issue settled without
the parties going for regular trial/ adjudication upon payment of
compensation or fine, as applicable. In case there is a provision for
compounding, the parties seek to avail the said remedy only to get the
issue settled by way of negotiation without undergoing the legal
intricacies of a regular adjudication process. By this manner the usual
lengthy process of adjudicating the offence can be avoided and
valuable time can be saved.
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23. Compounding cannot be claimed as a matter of right but it is always
subject to the legal provisions. Once the offender/contravener agrees
to avail the benefit of compounding, the same implies that the party is
agreeable for a settlement and there is no requirement of the issue
being taken up for adjudication. The very object of compounding an
offence will be frustrated if prayer for compounding is made after the
adjudication process is concluded.
24. From the chronological sequence of events in this case it appears that
the subject transactions took place between 31st February, 2011 and
8th February, 2013. Show cause notice was issued by the adjudicating
authority being the Special Director (Enforcement Directorate) on 18th
November, 2022. Application for compounding was filed by the
petitioner on 20th January, 2023 but the same was returned on 8th
January, 2024 on the ground that the application lacked clarity and
all facts and figures were not mentioned therein. The petitioner was
given liberty to file fresh compounding application.
25. The learned senior counsel of the petitioner submits that, as per legal
advice, the petitioner did not file any further application for
compounding the contraventions. The adjudicating authority
proceeded with the adjudication proceeding and passed final order on
28th March, 2024 imposing penalty of rupees ten crore. After the
adjudication order was passed, application for compounding was filed
by the petitioner.
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26. It has been submitted by the petitioner that the petitioner is not
aggrieved by the order passed by the adjudicating authority and
hence, did not choose to prefer appeal against the said order. The
petitioner, at this stage, seeks compounding of the offence. The prayer
of the petitioner seeking compounding stood rejected and returned as
not maintainable on 11th September, 2024. Writ petition was filed by
the petitioner challenging the same being WPA 30030 of 2024.
27. During the pendency of the said writ petition demand notice was
served upon the petitioner seeking recovery of the penalty amount.
Challenging the same the instant writ petition has been filed. As all
issues agitated in the earlier writ petition has been made a subject
matter of dispute in the instant writ petition also, accordingly, the
earlier writ petition filed by the petitioner being WPA 30030 of 2024
stood dismissed.
28. In the instant case the offence of the petitioner was a compoundable
one. The petitioner, though applied for compounding at the initial
stage, but did not proceed with the same after the application of the
petitioner was returned for want of proper details. The petitioner,
without raising any objection, participated in the adjudication
proceeding. The participation of the petitioner implies that the
petitioner did not want to compound the offence and, accordingly,
proceeded for adjudication of the same. After the adjudication order
was passed and the petitioner has been found guilty of the offences,
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now prayer has been made to permit the petitioner to proceed with the
compounding.
29. It appears that the petitioner simply tried to test the waters and see as
to whether the adjudication order comes in his favour or not. After the
adjudication order went against him and penalty amount has been
quantified, the petitioner seeks to proceed with the compounding. Had
the petitioner been aggrieved he would have been required to prefer an
appeal, and for doing so, the petitioner had to deposit the entire
amount of penalty. The petitioner is trying his level best not to pay the
penalty that has been imposed and delay the proceeding for an
indefinite period on the plea of compounding.
30. Proceedings under FEMA are required to be initiated and concluded in
a time bound manner. Separate timelines are mentioned in respect of
the steps that are to be taken either for adjudication or filing or
disposal of proceeding. The contravention which took place in the
years 2011 to 2013 was detected by the authority and show cause
notice was issued in the year 2022. After the offence of the petitioner
has been adjudicated and penalty imposed, the petitioner would be
bound to pay the amount of penalty quantified.
31. Permitting the contravener to avail the benefit of compounding at this
stage would require the entire issue to be reopened all over again. The
same will frustrate the whole adjudication rendering the adjudication
proceeding nugatory and the entire time period consumed in the
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process of adjudication gets wasted. It is only for the purpose of
avoiding the rigmarole of the adjudication process that the provision
for compounding has been incorporated in the Act. The moment the
contravener foregoes the benefit of compounding the offence, the next
step forward is to reach the adjudication proceeding to its finality.
32. The order which is executable at present is the order of the
adjudicating authority. Not more than one order on the same set of
facts, between the same parties, can be permitted to be executed is
one of the cardinal principles of jurisprudence. If the prayer of the
petitioner for compounding the offence after conclusion of the
adjudication process is allowed, then there will be two orders; first, the
order of the adjudicating authority and second, the order of the
compounding authority. In respect of a contravention two orders
cannot survive at the same time.
33. The compounding authority does not have the determination or the
jurisdiction to cancel/overrule or set at naught the order passed by
the adjudicating authority. It is only one order that survives and that
is the order of the adjudicating authority. The petitioner took the risk
and did not proceed with his application for compounding prior to
conclusion of the adjudication proceeding. The petitioner could have
pressed the application for compounding any time prior to conclusion
of the adjudication. The FED Master Direction number 4/2015-16
permits compounding even when the adjudication proceeding is
ongoing. After the adjudication is complete and offence has been
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established, the contravener would be bound to comply with the
direction passed by the adjudicating authority.
34. The Act is in place since 1999 and the relevant Rules, Regulations,
Circulars are also existing for quite some time. The petitioner has not
been able to show a single instance when the authority permitted
compounding after conclusion of the adjudication process. The
interpretation of the petitioner, if accepted, will lead to an uncertain
situation and reaching finality to the proceeding will be a never-ending
process.
35. As the said situation is not contemplated in the Act, there is no time
limit prescribed within which an application of compounding can be
filed after the order of adjudication has been passed. It will be an open
ended process and any person found guilty in the adjudication
proceeding, can seek to file an application for compounding any time
he chooses. Penal provision of the Act cannot be taken so lightly
leaving it in such an indecisive state. By this way the contravener will
remain scot-free and the penal provision of the Act cannot be
implemented. The Act will be rendered completely toothless. The same
will also give out a very wrong message to the society at large.
Tendency to circumvent the law will increase. To avoid such a
situation, the legislature has consciously not provided the provision to
compound an offence after conclusion of the adjudication process.
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36. The Court is of the opinion that the application made by the petitioner
seeking compounding of the offence on conclusion of the adjudication
proceeding cannot be allowed and the authority rightly rejected the
application filed by the petitioner.
37. The Court is not inclined to exercise jurisdiction in the matter.
38. The writ petition fails and is hereby dismissed. The interim order
stands vacated.
39. No costs.
40. Urgent certified photocopy of this judgment, if applied for, be supplied
to the parties or their advocates on record expeditiously on compliance
of usual legal formalities.
(Amrita Sinha, J.)
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