HC directs IOB to approach appellate tribunal in FERA violation case

CHENNAI: The Madras High Court had directed the Indian Overseas Bank to approach a competent appellate tribunal to get relief in a case filed by the Directorate of Enforcement for violating the Foreign Exchange Regulations Act (FERA).

A division bench of Justice PN Prakash and Justice N Anand Venkatesh passed the orders on disposing of a petition filed by Indian Overseas Bank and its certain employees.

The petitioner bank and its employees prayed for a direction to set aside the order of the Special Director of Enforcement in proceedings dated February 25, 2010, imposing a penalty for the contravention of Section 64 (2) of the Foreign Exchange Regulation Act.

According to the ED, M/s Trinity International Corporation's proprietors who had a current account with the IOB's Janakpuri branch and issued a cheque of Rs.1.54 crores to transfer the amount from his account to Standard Chartered Bank (SCB), Mumbai to a particular account number.

As per the direction of the IOB Delhi, IOB Mumbai transferred the amount to SCB Mumbai which was belonging to SCB London and SCB Birmingham.

Therefore, the money was transferred and it was credited to the Convertible Rupee Account of SCB, London on December 16, 1991.

Since the transaction was in violation of FERA, the special director for enforcement issued show-cause notices to the IOB and its staffers who initiated the transaction.

ED's special public prosecutor N Ramesh submitted that the writ petition is not maintainable as the HC has no jurisdiction to hear the matter and it has to be preferred before the appellate tribunal.

Meanwhile, the IOB's counsel said that the ED has no power to issue show cause notice, as the transaction was issued as per the RBI rules.

Recording the submissions, the judge held that in Section 50 of FERA, the Special Director of Enforcement had the power and jurisdiction to adjudicate for the contravention of the provisions of FERA and impose the penalty.

"There is no absolute bar in the High Court entering into disputed questions of fact and it will depend upon the facts of each case, " the judge noted, adding, "..we have to necessarily deal with a lot of documents. To avoid such a scenario, the enactment itself provides for further remedies in Section 19 of FEMA before the Appellate Tribunal."

If the tribunal's award is against the bank, it shall approach the HC under Section 35 of the FEMA, the judges added. The court also passed an interim injunction staying the orders of the ED till the filing of an appeal before the tribunal.