CavJudgment: (Chief Justice)

This Petition under Article 226 of the Constitution of India challenges 11 Show Cause Notices all dated 25 November 2011 issued by the Special Director, Directorate of Enforcement under the Foreign Exchange Management Act, 1999 (in short the Act) to the petitioner to show cause against imposition of penalty on him in his capacity as the President of the Board of Control for Cricket in India (in short the Board) for the alleged violation of the Act, during the period 2008 to 2011. This Petition also challenges a Communication dated 6 June 2013 calling the petitioner for personal hearing before the Director of Enforcement, Directorate of Enforcement for adjudication of the impugned 11 Show Cause Notices. All the show cause notices are issued to the Board (BCCI) and to the petitioner and six other persons.

2. The challenge to the impugned 11 show cause notices by the petitioner is on the ground that the same has been issued to him without jurisdiction as under the Act, he cannot be held liable under Section 42 of the Act for the breaches, if any, committed by the Board and by other persons and even otherwise no case is made out against him for violation of the Act. While the challenge to the notice of hearing dated 6 June 2013 is that the same has been issued without complying with the requirements of Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (in short Adjudication Rules).

3. Factual Matrix

(a) During the period 2008 to 2011, the petitioner was President of the Board. In the year 2008, the Board commenced conducting a domestic Cricket tournament by the name of Indian Premier League (IPL). The first edition of the IPL in 2008 was conducted in India and it was immensely successful.

(b) The Board had declared that the second edition of the IPL for the year 2009 was proposed to be held during the period 10 April 2009 to 24 May 2009. However, the Election Commission of India announced its schedule for the general elections in the country beginning from 13 April 2009 to 16 May 2009. In view of the above, the respondent no.1 i.e. Union of India advised the Board to change its schedule for the second edition of the IPL tournament from the point of view of providing security during the matches.

(c) In the above circumstances, the Board called an Emergency Meeting of its Working Committee on 22 March 2009. At the meeting it was concluded that it was not possible to revise the schedule of the second edition of IPL tournament and, therefore, the President of the Board was authorized to explore the possibility of holding second edition of the IPL tournament abroad. At the meeting sanction/approval was also sought from the members of the Working Committee to open an account of US dollars of 10 Millions to take care of the expenses for the staging of the second edition of IPL tournament. In due course, the second edition of the IPL tournament was held in South Africa on the scheduled dates between 10 April 2009 to 24 May 2009. This edition of IPL was also a huge success.

(d) Thereafter, on 16 November 2011, the Assistant Director, Directorate of Enforcement in terms of Section 16(3) of the Act filed a complaint with the Special Director alleging violation of the Act. In the above complaint, it was alleged that the Board and its Officers had violated the provisions of the Act by receiving or remitting foreign exchange to the tune of about Rs.1314 crores without permission of Reserve Bank of India (RBI) while conducting the second edition of the IPL, thus inviting penalty under Section 13 of the Act. On the basis of the above complaint, on 25 November 2011, all the impugned 11 show cause notices were issued to the Board and its office bearers as well as Executive Officer conducting the IPL tournament. Each of these impugned notices called upon the Board to show cause in respect of a particular conduct/transaction amounting to violation of the Act and the petitioner was also called upon in each of the notices to show cause as to why penalty should not be imposed upon him in his capacity as the President of the Board in terms of Section 42 of the Act. Similar notices are issued to six other persons including Mr.N. Srinivasan, then Secretary, BCCI, Mr.Pandove, then Treasurer, BCCI, Mr.Lalit Modi, Chairman IPL Governing Council, Mr.Ratnakar Shetty, CEO IPL Governing Council, Mr.P.Kannan, Manager, Business and Commercial Services, IPL and Mr.S. Raman, COO, IPL All the impugned show cause notices specifically mentioned that the adjudication of the notices would be in terms of Rule 4 of the Adjudication Rules. Besides, a copy of the complaint dated 16 November 2011 which was the basis of all the notices were also enclosed to each of the impugned 11 notices.

(e) On 23 February 2012, the petitioner filed his individual common reply to the 11 impugned show cause notices dated 25 November 2011. In his reply, the petitioner contended that notices issued to him are without jurisdiction as Section 42 of the Act would have no application in his case. This is for the reason that the Board is not Association of individuals but an Association of other Associations which are individually either registered as Societies or Trusts. Moreover, the Board is not a body corporate nor is it a firm. Therefore, the Board not being covered by explanation to Section 42 of the Act, no occasion to apply the same for imposition of penalty upon the petitioner can arise. Besides, on merits it was contended that the petitioner was only an honorary President of the Board and that he had no role in conducting the second edition of the IPL in South Africa during the period 10 April 2009 to 24 May 2009. In the reply, it was pointed out that there was an independent sub-committee of the Board to conduct the IPL tournament called Governing Council for IPL of which one Mr.Lalit Modi was the Chairman and all decisions with regard to the conduct of the second edition of IPL were taken by that sub-committee. It also contended that nothing has been pointed out either in the impugned show cause notices or in the complaint to even remotely suggest that the petitioner had any role in the violation of the Act while conducting the second edition of IPL. The petitioner also requested for personal hearing on the above preliminary issue.

(f) On 6 June 2013, the Special Director, Directorate of Enforcement issued communications to the Board, petitioner and six other persons calling them for a personal hearing on 19 June 2013 for adjudication of all 11 impugned notices dated 25 November 2011. In the communication addressed to the petitioner, the petitioner was informed that this hearing notice is issued after the Special Director of Enforcement considered the cause shown by the petitioner and is of the opinion that adjudication proceedings as contemplated under Section 13 of the Act should be proceeded with further in accordance with procedure laid down in Rule 4 of the Adjudication Rules.

(g) The learned Counsel for the parties inform us that at the request of the petitioner, the personal hearing has been adjourned for a period of 12 weeks from 19 June 2013. In the meantime, this petition has been filed.

4. Mr. T. N. Subramanian, learned Senior Counsel appearing for the Petitioner challenges impugned 11 show cause notices issued to the petitioner and the communication for personal hearing on the following grounds:-

(a) The impugned notices issued to the petitioner under Section 42 of the Act are completely without jurisdiction as Section 42 of the Act has no application. This is for the reason that the Board is not a company nor a firm nor an association of individuals. It is, in fact, an association of societies and/or trusts. Therefore, the Board itself not being covered by Section 42 of the Act, the petitioner being the President of the said Board is not covered by the provisions of Section 42 of the Act.

(b) On merits, neither the complaint dated 17 November 2011 filed with the Special Director, Directorate of Enforcement read with the statements referred to therein nor the impugned 11 notices demonstrate even prima facie, that the petitioner had any role with regard to the remittances and receipts of foreign exchange in the conduct of second edition of IPL in the year 2009 in South Africa.

On the contrary:

(i) BCCI had constituted a separate Committee to administer IPL under the Chairmanship of Mr.Lalit Modi with a separate bank account to be operated by Treasurer, BCCI.

(ii) At the BCCI meeting held on 22 March 2009, after deliberations the only role assigned to the petitioner was to choose the venue of Second IPL, 2009 between United Kingdom and South Africa, and nothing more.

(iii) At the said meeting attended by Secretary, BCCI and Treasurer, BCCI, the petitioner had specifically stated that the bank account for Second IPL 2009 at South Africa should be opened after seeking clearance of RBI and the bank account would be operated by Hon. Treasurer Mr.M.P. Pandove. The members agreed with the said observations and appropriate resolution in this regard was to be framed by Mr.N. Srinivasan, Secretary of BCCI.

(iv) Opening and operating bank accounts of BCCI were operational matters entirely within the domain of Secretary and Treasurer of BCCI and Chief Executive Officer of Governing Council for IPL. As President, BCCI, the petitioner was not at all concerned with these operational matters.

(v) The very fact that the petitioner had not even visited South Africa during IPL 2009 should be sufficient to prove the petitioners case that he was not concerned with the operational matters.

(vi) All IPL Franchisees were Indian entities and therefore, payment to all of them was to be made in Indian currency and, therefore, also the petitioner was not concerned with foreign exchange receipts and remittances.

(vii) Allowing the proceedings to continue against the petitioner along with others would amount to treating unequals as equals.

Consequently, on the above grounds, the impugned 11 show cause notices be set aside; and

(c) In the alternative and without prejudice to the above, the impugned communication for personal hearing has been issued in contravention of Rule 4 of the Adjudication Rules and in breach of natural justice. Thus, the condition precedent to proceed further with the notices not being satisfied, this Court should direct the Special Director, Directorate of Enforcement to comply with the Adjudication Rules before proceeding further with the impugned 11 notices.

5. As against the above, Mr. Kevic Setalwad, learned Additional Solicitor General in support of the impugned 11 show cause notices dated 25 November 2011 and the communication dated 6 June 2013 for personal hearing submits as under:-

(a) This Petition ought not to be entertained as the adjudication proceedings are still in progress and from an order to be passed by the Adjudicating Authority, there is an alternative remedy available to the petitioner in the form of an appeal to the Appellate Tribunal for Foreign Exchange. All the issues raised by the petitioner could be agitated before the authority constituted under the Act which also provides for a statutory appeal to this Court from the orders of the Appellate Tribunal for Foreign Exchange. Consequently, there is no reason to entertain this Petition; and

(b) The impugned communication for personal hearing has been issued only after complying with the provisions of the Adjudication Rules and there is no breach of natural justice as personal hearing has been offered. Thereafter, a speaking order either dropping or confirming the notices will be passed, which in turn would be an appealable order.

6. We have considered the rival submissions.

7. As regards the first contention advanced on behalf of the petitioner, it would be too much to say that complaint against BCCI is not maintainable as it is not a company or a firm or an association of persons, but it is an association of societies. The definition of person in Section 2(u) of the Act reads as under:-

(u) person includes

(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not,

(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and

(vii) any agency, office or branch owned or controlled by such person.

It is clear that the definition is an inclusive one and, therefore, BCCI as well as Governing Council for IPL are persons within the definition of Section 2(u) of the Act.

8. As regards the second contention of the petitioner regarding the specific role of the petitioner, the learned Counsel for the petitioner has addressed us at length and submitted that the petitioner was in no way in charge of, or was responsible for, opening or operating the bank account of the Governing Council of IPL. It was as far back as on 13 September 2007 that at the meeting of Working Committee of BCCI, BCCI had set up the Governing Council for IPL with Mr.Lalit Modi as the Chairman and a Chief Executive Officer and other staff separately engaged to attend to day to day affairs of IPL and that it was specifically resolved that Indian Premier League will have a separate bank account to be opened by the Treasurer, BCCI, Mr.N. Srinivasan and IPL Governing Council shall have a separate office. The said decision was reiterated at the meeting held on 16 December 2007 by approving the amendment to the Rules and Regulations of BCCI. At the meeting of BCCI held on 22 March 2009, when the decision was taken to shift the venue of Second IPL outside India, the only role assigned by BCCI to the petitioner was to select the venue for IPL II (2009), whether it should be United Kingdom or South Africa. The petitioner had not even visited South Africa during the IPL 2009 tournament in South Africa. When Mr.Lalit Modi, Chairman of Governing Council of IPL requested members of BCCI to approve the opening the account of US dollars for expenses for the IPL abroad, the petitioner specifically stated that the account should be opened after seeking clearance from RBI and that the account would be operated by Honorary Treasurer Mr.M.P. Pandove. The members also accepted the above observations of the petitioner. It is, therefore, vehemently submitted by learned Counsel for the petitioner that the petitioner can in no way be held to be incharge of or responsible for any alleged violations of FEMA on the ground that RBI permissions/clearances were not obtained as required under FEMA.

9. On the other hand, Mr.Kevic Setalwad, learned Additional Solicitor General, has submitted that since the petitioner was at the relevant time President of BCCI and ex-officio member of Governing Council for IPL, it cannot be said that the petitioner was a total stranger to the acts and omissions which constituted contravention of FEMA. It is also submitted that the matter is still at the stage of show cause, where a show cause notice is not non-est, this Court may not issue a writ and the petitioner should be directed to respond to adjudication proceedings. Reliance was placed on the decision of the Apex Court in Special Director vs Mohd. Ghulam Ghouse 2004 (3) SCC 440 [LQ/SC/2004/40] .

10. It is true that ordinarily this Court would not entertain a Writ Petition against a show cause notice as the noticee would get an opportunity to submit his reply and of hearing before the adjudicating authority. However, the scheme of the Adjudication Rules in question is different from the other inquiries where an authority issues a show cause notice, the noticee submits his reply, the authority then hears the complainant and the noticee for taking a decision in the matter. Ordinarily, inquiries are not divided into different stages, unlike the inquiry for which procedure is laid down in Rule 4 of the Adjudication Rules. In ordinary inquiries, the inquiry officer is not required to form any opinion before conclusion of the inquiry. On the other hand, the scheme of Rule 4 of the Adjudication Rules is quite different and the same is required to be examined both for the purpose of considering the last alternative submission of the petitioner about breach of Rule 4 of the Adjudicating Rules and also for considering the aforesaid preliminary objection raised by the learned Additional Solicitor General about maintainability of the Writ Petition.

11. It is the case of the petitioner that Special Director is not following the mandate of the Adjudication Rules while adjudicating the show cause notices. In such a case, if the case of the petitioner is correct, it becomes the duty of this Court to ensure that the authorities comply with the statutory provision while adjudicating the show cause notices. It would be convenient to reproduce Rule 4 of the Adjudication Rules, which reads as under:-

4: Holding of inquiry:-

(1) For the purpose of adjudicating under section 13 of the Act whether any person has committed any contravention as specified in that section of the Act, the Adjudicating Authority shall, issue a notice to such person requiring him to show cause within such period as may be specified in the notice (being not less than ten days from the date of service thereof) why an inquiry should not be held against him.

(2) Every notice under sub-rule (1) to any such person shall indicate the nature of contravention alleged to have been committed by him.

(3) After considering the cause, if any, shown by such person, the Adjudicating Authority is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of that person either personally or through his legal practitioner or a chartered accountant duly authorized by him.

(4) On the date fixed, the Adjudicating Authority shall explain to the person proceeded against or his legal practitioner or the chartered accountant, as the case may be, the contravention, alleged to have been committed by such person indicating the provisions of the Act or of rules, regulations, notifications, direction or orders or any condition subject to which an authorization is issued by the Reserve Bank of India in respect of which contravention is alleged to have taken place.

(5) The Adjudicating Authority shall, then, give an opportunity to such person to produce such documents or evidence as he may consider relevant to the inquiry and if necessary, the hearing may be adjourned to a future date and in taking such evidence the Adjudicating Authority shall not be bound to observe the provisions of the Indian Evidence Act, 1872.

(6) While upholding an inquiry under this rule the Adjudicating Authority shall have the power to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the Adjudicating Authority may be useful for or relevant to the subject-matter of the inquiry.

(7) If any person fails, neglects or refuses to appear as required by sub-rule (3) before the Adjudicating Authority, the Adjudicating Authority may proceed with the adjudication proceedings in the absence of such person after recording the reasons for doing so.

(8) If, upon consideration of the evidence produced before the Adjudicating Authority, the Adjudicating Authority is satisfied that the person has committed the contravention, he may, by order in writing, impose such penalty as he thinks fit, in accordance with the provisions of section 13 of the Act.

(9) Every order made under sub-rule (8) of rule 4 shall specify the provisions of the Act or of the rules, regulations, notifications, direction or orders or any condition subject to which an authorization is issued by the Reserve Bank of India in respect of which contravention has taken place and shall contain reasons for such decisions.

(10) to (12)...

12. On reading the above Rule, particularly sub-rule (1) & (3) thereof, it is clear that on the issue of show cause notice, a noticee is permitted to submit his reply to the same. In terms of the above Rule, the Adjudicating Authority has to consider the objections raised by the noticee and only if he forms an opinion that an inquiry should be continued further that the Adjudicating proceedings can be proceeded with, by issuing a notice for personal hearing. However, if the Adjudicating Authority is satisfied that the objections raised to the notice are valid, he may drop the show cause notice. The provision as found in Rule 4 of the Adjudication Rules is a unique provision. The Counsel for the parties were not able to point out any similar rules under which a two tier adjudication of a show cause notice is provided for in any other statute. Normally, once a show cause notice has been issued, the Adjudicating Authority deals with all the objections of the noticee, be it preliminary as well as any other defence, by passing one common order of adjudication. The fact that the legislature has provided in Rule 4 of the Adjudication Rules that on issue of notice, the noticee can object to the same and this objection has to be considered by the Adjudicating Authority for forming an opinion to proceed further with the show cause notice would require giving some meaning to it, otherwise it would be rendered otiose.

13. According to the learned Additional Solicitor General, the objections which have been raised by the petitioner would be considered and reflected in the final adjudication order which the Adjudicating Authority would pass. It is this final order which is appealable to the Appellate Tribunal for Foreign Exchange. This submission on the part of the respondent would render the entire exercise provided in Rule 4(1) and (3) of Adjudication Rules, a dead provision. The submission of learned Additional Solicitor General was that the objective of receiving objections to the show cause notice and forming an opinion whether or not the inquiry should be conducted further, has been provided only for the purpose of ensuring that the authorities under the Act do not proceed against persons who are complete strangers to the alleged contravention under the Act. The above provision according to him can have no application where prima facie, the noticee is connected to the alleged contravention such as in the present case and, therefore, the authority has formed the opinion to proceed with the inquiry and, therefore, the impugned notice for personal hearing has been issued on 6 June 2013.

14. This submission of the learned Additional Solicitor General would require one to read words into Rule 4 of the Adjudication Rules that the objections to the show cause notice would be considered, only if they are of particular type, such as, the noticee is a stranger to the proceedings and no other objection would be considered while deciding whether or not the adjudication must be proceeded with further. Even if one were to proceed on the basis of the submission of the learned Additional Solicitor General that only some type of cases would fall within the mischief of Rule 4 (1) and (3) of the Adjudication Rules, yet the fact that the Adjudicating Authority has applied his mind to the objection raised by the noticee would only be evident if the formation of his opinion is recorded at least on the file. This forming of opinion need not be a detailed consideration of all the submissions but must show application of mind to the objections raised by the noticee. In case the objections are such as would require detailed consideration, the authority concerned can dispose of the objections by stating that the same would require detailed consideration, which would be done at the disposal of the notice by the final order.

15. However, this formation of opinion by the Adjudicating Authority is not required to be preceded by a personal hearing but only consideration of the written objections of the noticee would meet the ends of natural justice. The personal hearing would be afforded to the notice before the disposal of the show cause notice by a final order an appealable order. This formation of opinion must be on record of the Adjudicating Authority, in this case the Special Director, Directorate of Enforcement. Keeping this recording of reasons on the file would ensure that there has been a due application of mind to the objections raised by the noticee. This would be a necessary safeguard against forming arbitrary opinions. These recorded reasons must be furnished to the noticee, when asked for by the noticee at the time of granting a personal hearing to the noticee. This would give an opportunity to the noticee during the personal hearing to correct any erroneous view taken in forming the opinion to proceed further with the show cause notice. This would ensure that the opinion formed on the preliminary objections which would otherwise never be a subject matter of discussion/debate before the Adjudicating Authority is also a part of the order to be passed by the Adjudicating Officer. In the absence of the above, the preliminary objections would be dealt with by the Adjudicating Authority possibly only in his mind while deciding to proceed further with the notice and the reasons would never be recorded to evidence consideration of the objections. This would result in great prejudice to the noticee for more than one reason. Firstly, the noticeee would have no clue as to what were the considerations which weighed with the Adjudicating Authority to reject the preliminary objections. It is also very clear from the provisions of the Act and the Rules that an Appeal which is provided would not lie from an order recording an opinion of the Adjudicating Authority to proceed further with the adjudication of the notice, but the appeal would only be against the final order.

16. Secondly, though the proceedings under Section 13 of the Act do not result into any conviction or sentence, the consequences are equally penal and disastrous. The noticee may be held to be liable to a penalty up to three times the sum involved in such contravention where such amount is quantifiable. Section 13(1) of the Act reads as under:-

13. Penalties.-

(1) If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable.......

As is apparent from the complaint at Exhibit B, the amount for which the alleged contravention has taken place i.e. not obtaining the RBI permissions/clearances, are to the tune of about Rs.1314 crores. Hence, the penalty can go up to three times the said amount. Such an order would be enforceable under Section 14 of the Act, which provides that if any person fails to make full payment of penalty imposed on him within a period of 90 days from the date of service of notice for payment of penalty, he shall be liable to civil imprisonment and the civil imprisonment will be for a period up to six months [Section 14(9), 14(11) (b) of the Act]. Even after release from such detention, the person concerned would not be discharged from his liability for the arrears.

17. Even though an appeal would lie against such an order, the learned Counsel for the petitioner submits, the Appellate Authority may require the noticee to deposit a part of the penalty as a condition for granting stay during pendency of the appeal. Even deposit of a small percentage of the above staggering amount would render an individual professional like the petitioner bankrupt, inspite of the fact that the petitioner was not involved with any financial or operational matters or day to day affairs of IPL. The petitioner is a lawyer with genuine interest in cricket.

18. In view of such serious consequences which would be inflicted upon the noticee against whom the adjudication order may be passed under Section 13 of the Act, the safeguards provided by sub-rules (1), (2) and (3) of Rule 4 of the Adjudication Rules must be rigorously applied by this Court, otherwise the noticee would be presented with dire penal consequences of being imprisoned for six months, apart from other liabilities and adverse consequences. Merely because the imprisonment would be in a civil prison and not in a criminal prison, would be no consolation to the person who was not responsible for contravention of FEMA.

19. The above view taken by us on the interpretation of Rule 4 of the Adjudication Rules finds supports from decision of the Apex Court rendered in Income Tax matters. Sections 147 and 148 of the Income Tax Act, 1961 provides for reopening of completed assessment. In the above provision of the Income Tax Act, 1961, there is no provision as found in Rule 4 of the Adjudication Rules of inviting objections to the noticee and thereafter, forming an opinion on these objections before proceeding further with the notice for reopening an assessment. Even so, the Supreme Court in the matter of GKN Driveshafts in 259 ITR 19 [LQ/SC/2002/1239] has held that on receipt of notice under Section 148 of the Income Tax Act, 1961, seeking to reopen a completed assessment, the party is entitled to seek from the Assessing Officer, the reasons recorded for reopening the assessment. On receipt of the reasons recorded for reopening the assessment, the party is entitled to place its objections to the reasons recorded for reopening before the Assessing Officer. The Assessing Officer is then required to consider those objections and pass an order thereon before proceeding to reassess the assessees income in respect of a completed assessment. Thus, the Supreme Court has provided for giving of reasons recorded while reopening the assessment to the party and then dealing with the objections of the party.

In this case, it has been specifically provided in Rule 4 of the Adjudication Rules that the noticee under the Act is entitled to raise objections to the issuance of the notice and the Adjudicating Authority is obliged to consider those objections and form an opinion whether or not to proceed further with the show cause notice. Formation of opinion itself would pre-suppose an application of mind to the facts and the objections of the party before it is decided to proceed further with the show cause notice. This opinion cannot be arbitrary, but must be supported by reasons, howsoever, minimal those reasons may be, to evidence application of mind to the objections raised by the noticee.

20. The nature of the adjudication proceedings, the nature of the alleged contraventions, the nature of alleged liability and the extent of penalty which may be imposed demonstrate why we are inclined to place the aforesaid interpretation on the provisions of Rule 4(3) of the Adjudication Rules in the context of the adjudication proceedings under Section 13 read with Section 42 of the Act.

21. Thus, in view of the above discussion, we are of the view that Adjudicating Authority after issuing show cause notice and receiving objections to the notice from the noticee, is required to apply his mind to the objections by recording his reasons for forming an opinion on the file. This exercise need not be preceded by personal hearing and the order to be passed on the objections is not required to be detailed order, but it must disclose some link with the objections raised by the noticee and the opinion formed by the Adjudicating Authority. This recording of the opinion of the Adjudicating Authority would be given to the noticee when the proceedings are dropped in the form of an order. However, in cases where the opinion is formed to proceed further with the show cause notice, then a notice for personal hearing is required to be given to the party in terms of Rule 4 of the Adjudication Rules. However, if on receipt of the notice for personal hearing, the recorded reasons are sought for by the noticee, the same should be given. However, this recording of reasons is not an appealable order but it would give the noticee a chance during adjudication proceedings to meet the reasons which led the Adjudicating Authority to form an opinion that he must proceed further with the inquiry against noticee. This would only result in fair procedure which would be in consonance not only with Rule 4 of the Adjudication Rules but with principles of natural justice.

22. The alleged violations of the Act were in respect of eleven remittances/receipts of foreign exchange in the conduct of the second edition of IPL in the year 2009 in South Africa without obtaining the general or special permission of the Reserve Bank of India (RBI) as provided in Section 3 and other provisions of the Act requiring RBI permissions/clearances.

23. As far back as on 13 September 2007, at the meeting of the Working Committee of BCCI, the then Treasurer Mr.Srinivasan had pointed out that the Board would set up a Sub-Committee in the form of a Governing Council to deal with all matters pertaining to Indian Premier League and the Governing Council would consist of

(a) Mr. Lalit Modi as Chairman and seven other members including three former cricketers, office bearers of BCCI would be ex-officio members of the Council,

(b) Governing Council would be authorised to engage a Chief Executive Officer and other staff to attend to day to day affairs of Indian Premier League,

(c) Indian Premier League will have a separate Bank Account to be opened by the Treasurer, BCCI, Mr. N. Srinivasan ; and

(g) Indian Premier League will have its separate office at the Cricket Center, Wankhede Stadium, Mumbai.........

(emphasis supplied)

The following resolution was unanimously passed at the said meeting :

It is hereby resolved that the Hony. Tresurer of BCCI is authorized to open a separate Bank Account in the name of Indian Premier League.

24. Again, at the meeting held on 16 December 2007, the Special General meeting of BCCI approved the amendment proposed by Mr.N. Srinivasan, then Secretary, BCCI, to the Rules and Regulations of BCCI as under:-

The Committee to administer Indian Premier League shall be appointed by the General Body of the Board and the term of the office members of the Committee shall be 5 years.

The Committee shall comprise of the following:-

1) Chairman

2) Four Members appointed by the Board

3) Three Ex-cricketers of repute

The Office Bearers of the Board during their tenure would be ex-officio members of the Committee.

All decisions relating to the League would be taken by the Committee by majority and in case of equality of votes, the Chairman shall have a casting vote.

The Committee shall maintain a separate Bank Account, which shall be operated by the Treasurer, BCCI.

The Committee shall submit a report of its annual activities and decisions along with the audited statement of accounts every year for the approval of the General Body at the Annual General Meeting.

At the said meeting, the appointment of the Chairman (Mr.Lalit Modi) and Members of the first Governing Council of Indian Premier League was ratified.

25. Thereafter, at the meeting of BCCI held on 22 March 2009, the decision was taken to shift the venue of second edition of IPL outside India in view of the circumstances already indicated in the earlier part of this judgment. At the said meeting, the only role assigned by BCCI to the petitioner was to take the final decision in the matter of selecting the venue for IPL 2009, whether it should be United Kingdom or South Africa. As far as the issue under consideration is concerned, when Mr.Lalit Modi, Chairman of Governing Council of IPL requested members of BCCI to approve the opening of an account of US dollars 10 million to take care of the expenses for the staging of the IPL abroad, the petitioner specifically stated that the account should be opened after seeking clearance of Reserve Bank of India and that the account would be operated by Honorary Treasurer Mr. M.P. Pandove. The members agreed with the observations of the petitioner and appropriate resolution in this regard was to be framed by Mr. N. Srinivasan, Secretary of BCCI.

26. During investigation, the petitioners statement recorded on 10 August 2011, has been referred to in the complaint as under:-

.... he was not aware whether any account was opened by BCCI in SA for IPL tournament, since it was an operational matter and he was also not aware whether any application was made to the RBI seeking approval for opening a bank account outside India for IPL tournament. He further stated that he was not concerned with the accounts of BCCI and therefore, he was not aware about the details of remittances made to CSA for the tournament.

On being asked about decisions taken in terms of the rule requiring decisions in the GC meetings to be taken by majority, Shri Manohar stated that to the best of his knowledge no decision was put to vote at the GC. He denied having been informed about the various expenses before they were made by the BCCI in SA for IPL 2009. He further stated that the Hon. Secretary was authorized to approve expenses on behalf of BCCI.

27. The complaint under Section 16(3) and other provisions of the Act lodged with the Special Directorate of Enforcement (Adjudicating Authority) also indicates that remittances were made to Cricket South Africa for conduct of IPI 2 tournament as per the forms submitted by Mr. M.P. Pandove, the then Honorary Treasurer between 31 March 2009 and 27 August 2010. In paragraphs 2.2, 2.11 and 2.14 of the complaint, it is stated as under:-

2.2 Investigation revealed that the BCCI entered into an agreement with Cricket South Africa (CSA) on 30.03.2009 for hosting and staging of the IPL-2 tournament. The agreement with Cricket South Africa (CSA) was signed on behalf of BCCI by Shri N. Srinivasan, the then Honorary Secretary of BCCI. Under the said agreement CSA was required to open and operate a dedicated bank account in the name of IPL South Africa. ....

2.11 Shri Srinivasan, in reply to a query, stated that the final reconciliation of the accounts was yet to be done. On being asked whether any permission was taken from the RBI for making advance payment to Cricket South Africa, Shri Srinivasan stated that the BCCI did not approach the RBI. This fact was further confirmed by the BCCI vide its letter dated 20.07.2010.

2.14 Vide his letters dated 21.012011, Shri N. Srinivasan, inter alia, submitted that BCCI was not operating the Bank account held in the name of IPL, SA and has no control over the said account of the entity. He further stated that IPL SA is a subsidiary of Cricket South Africa and BCCIs permission/ approval was not required for Cricket South Africa to incorporate the subsidiary.

(emphasis supplied)

28. It was under the said agreement dated 30 March 2009 signed by Mr.Srinivasan, the then Secretary on behalf of BCCI, that for the services to be provided by CSA, CSA was to receive payments in US dollars and for this purpose a dedicated bank account of IPL (SA) (PTY) was to be opened. Pursuant to the above agreement for releasing sums from the said bank account, written authorization was to be given by BCCI-IPL. It is, therefore, clear that then the Honorary Secretary of BCCI had entered into the above agreement and he was conversant with all the financial operations to be carried out. This is also clear from paragraph 2.8 of the complaint, wherein it is stated as under:-

2.8 Shri Srinivasan has further stated that BCCI had entered into an agreement with Cricket South Africa and IMG (uk) Ltd. For the conduct of IPL 2; that the agreements with CSA were prepared by IMG and he along with the Hon. Treasufer, BCCI, Chief Administrative Officer, BCCI and Mr. Sundar Raman, COO, IPL participated in discussion with Mr.Gerald Majola, Chief Executive and representative of CSA, Mr. Don Mcintosh, COO of Csa finalized the agreements; that the agreement with Cricket South Africa was executed by him as the then Hon. Secretary of the BCCI under the authority given by the President/Working Committee of the BCCI; that the agreement with IMG Media was signed by Mr.Lalit Modi; that Cricket South Africa along with representatives from IPL and IMG and some officials from BCCI were authorized by the BCCI to organize and monitor the functioning of IPL 2 in South Africa.

29. As regards the procedure for making remittances during IPL in South Africa has been pointed out in the statement of Mr.Pandove, Honorary Treasurer, recorded on 19 August 2011, which is set out in the complaint specifically as under:-

Further statement of Shri Pandove was recorded on 19th August 2011, wherein he inter alia, stated that the procedure in the BCCI for making remittances outside India was that all receipts and payments were effected after approval by the Working Committee/Honorary Secretary of the BCCI. In respect of the remittances made to CSA for hosting and conducting of the IPL in South Africa he stated that as per the decision of the IPL Governing Council and Working Committee, procedure for making the remittances was as under:-

a) The IPL Chairman, IPL Secretariat, IMG and CSA personnel were at South Africa to assist the CSA to conduct the tournament.

b) The BCCI transferred the money, as per the authorisation of the IPL Chairman and confirmation by the BCCI/IPL staff deputed to South Africa and approval of the Honorary Secretary for the specific amount.

c) All remittances were done as per the advices/debit notes received in the office of the Honorary Treasurer after due approval of the Honorary Secretary. He further stated that the remittances made for IPL2 tournament to CSA were on the basis of advices received from the Honorary Secretary.

(emphasis supplied)

30. It was submitted by learned Counsel for the petitioner that from all the statements recorded by the Assistant Director of Enforcement, it is clear that the petitioner had no role to play in the matter of opening bank account or obtaining Reserve Bank of India approvals or clearances. It is, therefore, submitted that the petitioner cannot be held responsible for any alleged violations of FEMA merely on the ground that he was Honorary President of BCCI and an ex-officio member of Governing Council of IPL. The learned Counsel has also submitted that the petitioner had no involvement with the day to day affairs and operational aspects of the second edition of IPL conducted in South Africa and, therefore, he had not even gone to South Africa when the tournament was being played (paragraph 11 of the Petition). His only association with the said tournament was that when the decision was left to him whether the tournament should be conducted in United Kingdom or in South Africa, he decided to fix the venue of the tournament in South Africa only because, the weather conditions in South Africa were better in England and the venues in South Africa were equipped with flood light facilities which were not available in all the stadiums in UK.

31. As it transpires from the complaint itself, day to day affairs and the operational matters of Second IPL in South Africa, such as, opening bank account, obtaining Reserve Bank of India permission, etc. were to be handled by the Secretary, Mr.Srinivasan, assisted by Mr.Prasanna Kannan, Manager of BCCI and employed with Indian Cements Ltd., Chennai, Mr.Sunder Rajan, Chief Operating Officer of IPL and Mr. M.P. Pandove, Treasurer BCCI. Hence, the petitioners case that the petitioner was not at all required to attend to such operational matters or day to day affairs was not contradicted by any of the persons whose statements were recorded during the investigation. The petitioner would, therefore, prima facie be justified in submitting as far as opening and operating of bank account of IPL or obtaining permission of Reserve Bank of India for making remittances or receipts of foreign exchange was concerned, the petitioner was not in charge of and responsible to BCCI for the aforesaid operational matters.

It is also the petitioners case that the remittances and receipts of foreign exchanges without obtaining permission of Reserve Bank of India which took place without the petitioners knowledge. The petitioner had exercised all due diligence to prevent such contravention by informing the Working Committee of BCCI at its meeting held on 22 March 2009 at Mumbai that permission of Reserve Bank of India should be obtained for opening an account and that the account would be operated by Treasurer Mr. M.P. Pandove. The Working Committee had accepted the above suggestion and the resolution in that regard was to be framed by Mr. N. Srinivasan. Mr. N. Srinivasan, Honorary Secretary of BCCI and Mr. M.P. Pandove, Honorary Treasurer of BCCI were also present at the said meeting apart from Mr.Lalit Modi who was the Chairman of the Governing Council for IPL, as would be reflected in the minutes of the said meeting.

32. The learned Additional Solicitor General has invited our attention to the following observations in paragraphs 8 and 9 of the decision of the Supreme Court in S.M.S. Pharmaceuticals Ltd. vs Neeta Bhalla and another, (2005) 8 SCC 89 , [LQ/SC/2005/943] in relation to paramaterial provisions of Section 141 of the Negotiable Instruments Act, 1881:

8. The officers responsible for conducting the affairs of companies are generally referred to as directors, managers, secretaries, managing directors, etc. What is required to be considered is : Is it sufficient to simply state in a complaint that a particular person was a director of the company at the time the offence was committed and nothing more is required to be said. ....

. Therefore, mere use of a particular designation of an officer without more, may not be enough by way of an averment in a complaint.

9. The position of a managing director or a joint managing director in a company may be different. These persons, as the designation of their office suggests, are in charge of a company and are responsible for the conduct of the business of the company. In order to escape liability such persons may have to bring their case within the proviso to Section 141(1), that is, they will have to prove that when the offence was committed they had no knowledge of the offence or that they exercised all due diligence to prevent the commission of the offence.

33. The learned Counsel for the petitioner has relied on the observations of the three Judge Bench of the Supreme Court in the above case in the very next paragraph immediately preceding sub para and after para 9 :-

..... When the requirement in Section 141, which extends the liability to officers of a company, is that such a person should be in charge of and responsible to the company for conduct of business of the company, how can a person be subjected to liability of criminal prosecution without it being averred in the complaint that he satisfies those requirements. Not every person connected with a company is made liable under Section 141. Liability is cast on persons who may have something to do with the transaction complained of. A person who is in charge of and responsible for conduct of business of a company would naturally know why the cheque in question was issued and why it got dishonoured.

10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are every person. These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words :

Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence, etc.

What is required is that the persons who are sought to be made criminally liable under Section 141 should be, at the time the offence was committed, in charge of and responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. It is only those persons who were in charge of and responsible for the conduct of business of the company at the time of commission of an offence, who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. If being a director or manager or secretary was enough to cast criminal liability, the section would have said so. Instead of every person the section would have said every director, manager or secretary in a company is liable..., etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action.

(emphasis supplied)

34. The learned Counsel for the petitioner has submitted that the wider observations made by the Supreme in paragraph 9 have then been qualified by the principles laid down in paragraph 10 of the judgment. It is further submitted that, in any view of the matter, when the material on record as disclosed in the complaint itself was sufficient to persuade any reasonable person that the petitioner was not in charge of and responsible for anything relating to opening and operating bank account involving receipts and remittances of foreign exchange by Governing Council of IPL chaired by Mr.Lalit Modi and that the operational matters of IPL were handled by the then Secretary and Treasurer, BCCI and Chairman/Chief Executive Officer of Governing Council for IPL and that the petitioner had clearly stated that RBI permission should be obtained, the Adjudicating Authority must first indicate whether the petitioner is required to be called upon to discharge the burden cast by the proviso to sub-section (1) of Section 42 of the Act.

35. Since the provisions of Section 42 of the Act are in parimateria with the provisions of Section 141 of the Negotiable Instruments Act, 1881, the principles laid down by the Supreme Court in S.M.S. Pharmaceuticals Ltd. Vs Neeta Bhalla and another, (2005) 8 SCC 89 , [LQ/SC/2005/943] are required to be applied to FEMA cases also. The Supreme Court has in terms held that the liability is cast on persons who may have something to do with the transaction complained of and not on the basis of merely holding a designation or office. It would depend on what role one plays and not on designation and status. Since the nature of liability and consequences cast by Sections 13 and 14 of the Act, as indicated in paragraph 16 of this judgment, are no less penal than the liability and consequences under Section 138 of the Negotiable Instruments Act, the only persons who can be said to be connected with the contravention of FEMA at the relevant time have been subjected to action. That is why even in case of a person holding the position of a managing director, he will not be liable if he had no knowledge of the contravention when the contravention took place or if he had exercised all due diligence to prevent the contravention of the Act. The liability is thus cast on persons who had something to do with the transactions complained of.

36. Having further considered the rival submissions, we are of the view that since the material on record was sufficient to take the view that the petitioner himself was not in charge of and responsible for opening and operating the bank accounts involving receipts and remittances of foreign exchange to parties outside India, it would be necessary for the adjudicating authority to form an opinion whether the petitioner could at all be considered as covered by the substantive part of Section 42(1) of the Act and further, even if the answer is in the affirmative, whether the petitioner should be called upon to prove that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. In fact, it is the case of the petitioner, which is not contradicted by any person whose statement was recorded at the investigation and in fact it is corroborated by the material which is part of the complaint, that the petitioner had stated in so many words at the BCCI meeting held on 22 March 2009 that the permission of the Reserve Bank of India would have to be obtained for opening a foreign exchange bank account. In fact, the resolutions passed at various meetings of BCCI clearly indicate that all operational matters were to be dealt with by the Chairman of the Governing Council for IPL and officers engaged by the said Council and by the Secretary and Treasurer of BCCI. (See Minutes of the Meetings dated 13 September 2007, 16 December 2007 and 22 March 2009).

37. There is nothing on record to indicate that the adjudicating authority has considered the aforesaid aspects before forming the opinion to proceed further with the inquiry under sub-rule (4) of Rule 4 of the Adjudication Rules.

38. In view of the above discussion, though we do not disturb, at this stage, the impugned show cause notices dated 25 November 2011 issued by the Special Director, Directorate of Enforcement, to the Petitioner, we set aside the communication dated 6 June 2013 issued by respondent No.2, calling the petitioner for a personal hearing. We direct the Special Director, Directorate of Enforcement first to form his opinion, after recording reasons, whether to proceed against the petitioner with regard to the impugned 11 show cause notices, in light of the observations made in this judgment. If the opinion so formed is adverse to the petitioner, such opinion along with the reasons so recorded shall be furnished so as to reach the petitioner at least 15 days prior to the date of personal hearing. This would meet the requirements of Rule 4(3) of the Adjudication Rules.

39. We make it clear that this judgment is rendered after considering the facts highlighted by the petitioner for himself. The cases of other noticees may be decided by the Adjudicating Authority in light of the facts of their own respective cases.

40. In the result, the Petition is disposed of in above terms with no order as to costs.