FEMA and Other Economic and Business Legislations – Multidisciplinary Case Studies Important Questions

Question 1.
Mr. Basu desires to draw foreign exchange for the following purposes:
(i) Payment related to ‘Call back services’ of telephones.
(ii) USD 1,20,000 for studies abroad on the basis of estimates given by the foreign university.
(iii) USD 25,000 for sending a cultural troupe on a tour of Europe.
Advise him, whether he can get foreign exchange and, if so, under what conditions.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The Rules stipulate some prohibitions and restrictions and drawal of foreign, exchange for certain purposes.

In the light of provisions of these rules, the answer to the given problem is as follows:
(i) Rule 3 prohibits drawal of foreign exchange for payments related to call back services of telephones. Therefore, payment related to ‘call back sendees’ of telephone is prohibited.

(ii) As per Rule 5, of FEMA (Current Account Transactions) Amendment Rules, 2015, Individuals can avail foreign exchange facility within the limit of USD 2,50,000 for meeting expenses for studies abroad.

Provided that for the purposes mentioned above the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalised Remittance Scheme as provided in Regulation 4 to FEMA Notification 1 /2000-RB, dated the 3rd May, 2000 if it is so required by a country of the university. Thus, in light of above rule withdrawal of USD 1,20,000 does not require any approval of RBI.

(iii) As per Rule 4, Drawal of foreign exchange for cultural tours requires the prior approval of the MHRD (Department of Education and Culture). Therefore, Mr. Basu can obtain USD 25,000 for sending a cultural troupe on a tour of Europe with the prior approval of Central Government. However, no approval of the Central Government is required if the payment is made out of the funds held in Resident Foreign Currency Account.

Question 2.
Mr. Sekhar resided in India for a period of 150 days during the financial year 2007-2008 and thereafter went abroad. He came back to India on 1 st April, 2008 as an employee of a business organisation. What would be his residential status under. Foreign Exchange Management Act, 1999 during the financial year 2008-2009?
Answer:
Provisions, relating to ‘Person’ and ‘Person resident in India’ As per Sec. 2(u) – “Person” includes:

  • an individual,
  • a Hindu undivided family,
  • a company,
  • a firm,
  • an association of persons or a body of individuals, whether incorporated or not,
  • every artificial juridical person not falling within any of the preceding sub-clauses and;
  • any agency, office or branch owned or controlled by such person;

As per Sec. 2(v) – “Person resident in India” means:
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include –

(A) a person who has gone out of India or who stays outside India, in either case –

  • for or on taking up employment outside India, or
  • for carrying on outside India a business or vocation outside India, or
  • for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than:

  • for or on taking up employment in India, or
  • for carrying on in India a business or vocation in India, or
  • for any other purpose, in such circumstances as would indicate his, intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Present Case:
According to the provisions of Section 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

In the given case, Mr. Sekhar has resided in India for a period of only 150 days, i.e. less than 182 days, during the financial year 2007-2008. Hence he cannot be considered as a “Person Resident in India” during the financial year 2008-2009 irrespective of me purpose or duration of his stay.

Question 3.
Mr. Atul an Indian National desires to obtain Foreign Exchange for the following purposes :
(a) Remittance of US Dollars 10,000 for payment for goods purchased from a party situated in Nepal.

(b) US Dollars 10,000 for remitting as commission to his agent in U S. A. for sale of Commercial plot situated near Bangalore, consideration in respect of which was received by Mr. Atul by way of foreign currency inward remittance amounting to US Dollars 1,00,000.
Advise him. if he can get the Foreign Exchange and under what conditions for making the above remittances.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The rules stipulate some restrictions on drawal of foreign exchange for certain purposes. This rule prohibits drawal of foreign exchange in respect of any transaction with a person resident in Nepal or Bhutan.

However in the case of transaction with a person resident in Nepal and Bhutan, the prohibition may be exempted by RBI subject to such term and condition as it may consider necessary. Again Rule 5 requires prior approval of RBI for release of exchange exceeding US$ 2,50,000 or its equivalent in one calender year for one or more private visits to any country except Nepal and Bhutan.

(a) Thus, in light of above provisions Mr. Atul cannot obtain or can obtain if RBI exempt from such prohibition US$ 10,000 for goods purchased from a party situated in Nepal without prior approval of RBI.

(b) Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India, exceeding 5% of the inward remittance or US$ 25,000 whichever is higher requires the prior approval of Reserve Bank of India. For persons other than individuals. As per FEMA (Current Account Transactions)Amendment Rules, 2015.

The Amendment Rules, 2015 further states that prior approval of RBI is not required for any Current Account Transaction apart from those mentioned if it is within the prescribed limits of USD 2,50,000. Thus in light of above Mr. Atul does not require prior approval of RBI.

Question 4.
A Company incorporated in United Kingdom established a branch at Chennai. What is the residential status of the Chennai branch? The Chennai branch proposes to purchase some immovable property at Chennai for the purpose of its business. Is it a ‘Capital Account Transaction’ within the meaning of Sec. 2(e) of the Foreign Exchange Management Act, 1999? Are there any restrictions under the Foreign Exchange Management Act, 1999 in respect of such acquisition?
Answer:
Residential Status: Residential Status of an individual for a particular financial year is determined with reference to his residence in India in the immediately preceding financial year.
Provision Relating to Person and Person Resident in India Please refer 2009 – May [11] (i) on page no. 271 Present Case:
The Chennai branch of a company incorporated in United Kingdom is a person resident in. India’ since it falls under the clause an office, branch or agency in India owned or controlled by a person resident outside India. Capital account transaction:

Meaning of Capital Account Transaction [Sec. 2(e)] – Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes the following transactions as specified in Sec. 6(3):

  • Transfer or issue of any foreign security by a person resident in India.
  • Transfer or issue of any security by a person resident outside India
  • Transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India.
  • Any borrowing or lending in foreign exchange in whatever form or by whatever name called.
  • Any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India.
  • Deposits between persons resident in India and person resident outside India.
  • Export, import or holding of currency or currency notes.
  • Transfer of immovable property outside India other than a lease not exceeding 5 years by a person resident in India.
  • Acquisition or transfer of immovable property in India, other than a lease not exceeding 5 years, by a person resident outside India.
  • Giving of a guarantee or surety in respect of any debt, obligation or other liability incurred:
    (a) by a person resident in India and owed to a person resident outside India; or
    (b) by a person resident outside India.

Note : Sec. 6(3) is omitted by Finance Act, 2015 with effect from a date yet to be notified.

Liberalised Remittance Scheme – allow remittances by a resident individual upto USD 2,50,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 2,50,000 for the financial year by the amount already remitted.

The permissible capital account transactions by an individual under LRS are:

  • opening of foreign currency account abroad with a bank;
  • purchase of property abroad;
  • making investments abroad;
  • setting up wholly owned subsidiaries and Joint Ventures abroad;
  • extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc. [FEMA (Current Account Transaction) Amendment Rules, 2015].

Present Case:
(i) Investment by person resident in India in foreign Securities is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction [(viz., Foreign Exchange Management (Investment in Foreign Securities by a person resident in India) Regulations, 2000)].

(ii) Foreign currency loans raised in India and abroad by a person resident in India is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

(iii) Export, import and holding of currency/currency notes is a capital account transaction. It is permitted within the limit, subject to the compliance of conditions and if declaration is made as per the provisions contained in the Regulations relevant to the transaction.

(iv) Trading in transferable development rights is prohibited since no person resident outside India shall make investment in India in any entity which is engaged, or proposes to engage in trading in Transferable Development Right (TDRs) (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000).

(v) Investment in a Nidhi Company is prohibited since no person resident, ofitside India shall made investment in India in any entity which in engaged, or proposes to engage as Nidhi company (Regulation 4 of Foreign Exchange Management (Permissible Capital Account Transactions) Regulation, 2000).

Permissible Capital Account Transactions (Sec. 6):
1. The Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business.

2. A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India.

3. A person resident outside India may, hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

FEMA (Current Account Transactions) Amendment Rule, 2015 – Under Liberalised Remittance Scheme allow remittances by a resident individual upto USD 2,50,000 per financial year for any permitted current or capital account transaction or a combination of both. If an individual has already remitted any amount under the LRS, then the applicable limit for such an individual would be reduced from the present limit of USD 2,50,000 for the financial year by the amount already remitted. The permissible capital account transactions by an individual under LRS are:

  • opening of foreign currency account abroad with a bank;
  • purchase of property abroad;
  • making investments abroad;
  • setting up wholly owned subsidiaries and Joint Ventures abroad;
  • extending loans including loans in Indian Rupees to Non – resident Indians (NRIs) who are relatives as defined in Companies Act, 2013.

The Scheme cannot be made use for making remittances for any prohibited or illegal activities such as margin trading, lottery, etc.

Present Case : Chennai Branch may as per Sec. 6 purchase immovable property in India.

Question 5.
Attempt:
(a) Examine the provisions of Foreign Exchange Management Act, 1999 and advise whether the approval of Central Govt, is needed in the following cases:
(i) X wants to remit certain sum of money out of lottery winnings.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amendment Rules, 2015. The Rules Stipulate some prohibitions and restrictions and drawal of foreign exchange for certain purposes.

Present Case :
In the light of provisions of these rules, the answer to the given problem is as follows:

  • Rule 3 prohibits remittance out of lottery winnings.
  • Therefore X should not remit any amount out of lottery winning.

Question 6.
Attempt:
(a) During the financial year 2010-11 Mr. Bhattacharyya resided in India for a period of 180 days and thereafter went abroad. On 1st April, 2011 Mr. Bhattacharyya came back to India as an employee of a business organization. Decide the residential status of Mr. Bhattacharyya during the financial year 2010-11 and 2011-12 under the provisions of the Foreign Exchange Management Act, 1999.
Answer:
Provisions Relating to Persons and Persons Resident in India:

As per Sec. 2(u) “Person” includes:

  • an individual,
  • a Hindu undivided family,
  • a company,
  • a firm,
  • an association of persons or a body of individuals, whether incorporated or not,
  • every artificial juridical person not falling within any of the preceding sub-clauses and;
  • any agency, office or branch owned or controlled by such person;

As per Sec. 2(v), “Person resident in India” means:
(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include:
(A) a person who has gone out of India or who stays outside India, in either case:

  • for or on taking up employment outside India, or
  • for carrying on outside India a business or vocation outside India, or
  • for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than:

  • for or on taking up employment in India, or
  • for carrying on in India a business or vocation in India, or
  • for any other purpose, in such circumstances as would indicate his, intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Considering the provisions of the two section, the residential status is as follows:
(i) NNM Ltd. as well as the New York branch of NNM Ltd. is a ‘person’. Therefore, the residential status under FEMA shall be determined for each of them separately. NNM Ltd. is incorporated in India. Therefore, it is a ‘person resident in India. NNM Ltd. (a person resident in India) has established a branch outside India. Therefore, the New York branch of NNM Ltd. falls under the clause ‘an office’, branch or agency outside India owned or controlled by a person resident in India and so the New York branch is a ‘person resident in India.’

(ii) DDI Ltd. (a foreign company) does not fall under any of the clauses of the definition of a ‘person resident in India’. Therefore, DDI Ltd. is a ‘person resident outside India’. The Kanpur branch of DDI Ltd. is a person resident in India’ since it falls under the clause ‘an office, branch or agency in India owned or controlled by a person resident outside India’.

(iii) The Singapore branch of DDI Ltd., through not owned, is controlled by the Kanpur branch. The Singapore branch is a ‘person resident in India’ since it falls under the clause ‘an office, branch or agency outside India owned or controlled by a person resident in India’.

Present Case:
Mr. Bhattacharyya did not reside in India during the year 2010-2011 for more v titan 182 days and his residential status during the next year, i.e 2011-2012 is non-resident even though he stayed in India from 1st April, 2011 as an employee. His residential status in 2010-2011 cannot be ascertained as his stay in India during the previous year 2009-2010 is not known.

Question 7.
Attempt:
A person aggrieved by an order made by the Special Director (Appeals) desires to file an appeal against the said order to the Appellate Tribunal but the period of limitation of 45 days as prescribed in Sec. 19(2) of the ‘ Foreign Exchange Management Act, 1999 has expired. Advise.
Answer:
The Appellate Tribunal is the second appellate authority which has original appellate jurisdiction as well as revisionary jurisdiction. An appeal can be filed with the Appellate Tribunal against the order made by:

  • Special Director (Appeals); or
  • an Adjudicating Authority other than an Assistant Director of Enforcement or a Deputy Director of Enforcement.

Time limit for filing the appeal. The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority or the Special Director (Appeals) (Excluding the time required in obtaining a copy of the order). However, if sufficient cause is shown, the Appellate Tribunal may condone the delay. Thus, the person can make an appeal to Appellate Tribunal even after a delay i.e. expiry of 45 days if Appellate Tribunal is satisfied that there was sufficient cause for not filing it within that period.

Question 8.
Mrs. Chandra, a resident outside India, is likely to inherit from her father some immovable property in India. Are there any restrictions under the provisions of the Foreign Exchange Management Act, 1999 in acquiring or holding such property? State whether Mrs. Chandra can sell the property and repatriate outside India the sale proceeds.
Answer:
Inheritance by Non Resident of Property in India:
As per Sec. 6(5) of the FEMA, 1999, a person resident outside India may hold, own transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

Present Case:
Mrs. Chandra may acquire or hold immovable property following the provisions laid down under Sec. 6(5) as her father was resident in India. Mrs. Chandra can even sell the property and repatriate outside India the sale proceeds of such immovable property.

Repatriation of sale proceeds : A person referred in Sec. 6(c) of the set or his successor shall not except with the prior permission of Reserve Bank, repatriate outside India the sale proceeds of any immovable property.

Present Case :
Mrs. Chandra can sell the property and repatriate outside India the sale proceeds only with the prior permission of RBI.

Question 9.
Attempt:
Mr. Kishore resided in India during the Financial Year 2009-2010 for less than 182 days. He came to India on 1st April, 2010 for business. He closed down his business on 30th April, 2011 and left India on 30th June, 2011 for the purpose of employment outside India. Decide the residential status of Mr. Kishore during the Financial Years 2010-2011 and 2011-2012 under the provisions of the Foreign Exchange Management Act, 1999.
Answer:
As per Sec. 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

Residential Status in Financial Year 2010-11:
In the given chse, Mr. Kishore resided in India for less than 182 days during the financial year 2009-10. Hence, he cannot be considered as a “Person Resident in India” during the financial year 2010-11.

Residential Status in Financial Year 2011-12:
During the financial year 2010-11, Mr. Kishore resided in India for more than 182 days. Normally, he would have been resident in India during the financial year 2011-2012 but as he left India on 30th June, 2011 for the purpose of taking up employment outside India, he would cease to be resident in India from the date of his departure from India i.e. 30th June, 2011. Therefore, Kishore cannot be called a person resident in India during the entire financial year 2011-2012.

Question 10.
Examine with reference to the Provisions of the Foreign Exchange Management Act, 1999 and the rules made thereunder whether foreign exchange can be drawn for the following purposes:
(i) Mr. Gopal, a cine artist in India proposes to organize a cultural programme at Dubai and requires to draw foreign exchange US$ 1,00,000 for this purpose.

(ii) Mr. Shah proposes to visit United States on a business tour and for this purpose he wants to draw foreign exchange US$ 40,000 for meeting expenses.
Answer:
As per Sec. 5, any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction. However, the Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed.

The Central Government has framed Foreign Exchange Management (Current Account Transactions) (now amended) Rules, 2000.The Rules stipulate some prohibitions and restrictions and drawal of foreign exchange for certain purposes.

In the light of provisions of these rules, the answer to the given problem is as follows:
(i) Cultural Programme: Foreign exchange for meeting expenses of cultural tour can be withdrawn by a person after obtaining permission from the Government of India, MHRD (Department of Education and Culture) Thus, Mr. Gopal can withdraw US $ 1,00,000 after obtaining permission from the Government of India. However no approval is required if payment is made out of fund held in RFC Account.

(ii) As per Rule 5 of FEMA (Current Account Transactions) Amendment Rules, 2015, individuals can avail foreign exchange facility for meeting expense relating to travel for business or attending conferences or specialised training within the limit of USD 2,50,000 only. Any additional remittance in excess of above limit requires prior approval of RBI. Hence, Mr. Shah can obtain USD 40,000 for business tour to United States without prior approval of RBI.

Question 11.
Mrs. Kavita, an Indian National desires to obtain foreign exchange for the following purpose:
(i) Remittance of US Dollar 30000 for payment for goods purchased from a party situated in Japan.
(ii) Remittance of US Dollar 50000 out of winnings on a lottery ticket.
Advise her if she can get the foreign exchange and under what condition?
Answer:
As per Section 5 of the Foreign Exchange Management Act, 1999, certain rules have been made for drawal of foreign exchange for current account transactions.

(i) Remittance to JAPAN, such remittance is prohibited and the same is Included in first schedule to the Foreign Exchange Management Rules 2000. Hence, Mrs. Kavita cannot withdraw Foreign Exchange for this purpose.

(ii) Remittance out of lottery winnings, such remittance is prohibited and the same is included in first schedule to the Foreign Exchange Management Rules 2000. Mrs. Kavita cannot withdraw the foreign exchange for this purpose.

Question 12.
Attempt:
(a) (i) Mr. P has won a big lottery and wants to remit US Dollar 20,000 out of his winnings to his son who is in USA. Advise whether such remittance is possible under the Foreign Exchange Management Act, 1999.
Answer:
Rule 3 read with Schedule I for rules on FEMA (Current Account Transactions Amendment) Rules, 2015 provides that remittance out of income from:

Lottery winnings or
Racing/riding etc. or any other hobby are transactions for which drawal of foreign exchange is prohibited.

Present Case:
Thus, Mr. P cannot remit US Dollar 20,000 out of his winning, to his son in USA.

Question 13.
Mr. Rohan, an Indian Resident individual desires to obtain Foreign Exchange for the following purposes:
(A) US $ 1,20,000 for studies abroad on the basis of estimates given by the foreign university.
(B) Gift Remittance amounting US$ 10,000.
Advise him whether he can get Foreign Exchange and if so, under what condition(s)?
Answer:
(A) Please refer 2008 – Nov [10] (ii) on page no. 270
(B) As per FEMA (Current Account Transactions) Amendment Rules, 2015 Gift Remittance amounting USD 10,000 does not require prior approval of RBI.

However, prior approval of RBI shall be required where the payment is made out of funds held in Resident Foreign Currency (RFC) Account of the remitter.

Question 14.
Mr. B has won a big lottery and wants to remit US Dollar 25,000 out of the winnings to his son who is in USA. Advise whether such remittance is possible under the Foreign Exchange Management Act, 1999.
Answer:
Rule 3 read with Schedule I for rules on current account transactions under the Foreign Exchange Management Act, 1999 provides that remittance of income from: Lottery winnings or Racing/riding etc. or any other hobby are transactions for which drawal of foreign exchange is prohibited. Thus, Mr. B cannot remit US Dollar 25000 out of his winning, to his son in USA.

Question 15.
Attempt the following:
(a) India Exports Limited engaged in the export of software products to U.S. One party in U.S. to whom the company exported certain products failed to pay the amount due for these exports resulting into non-repatriation of amount to India. The Adjudicating Authority on coming to know about this, levied a penalty on India Exports Limited under the provisions of Foreign Exchange Management Act, 1999. The company seeks your advice as to which authority, to whom it can make an appeal against the decision of Adjudicating Authority. State also, the time limit within which the appeal can be lodged.
Answer:
Sec. 17 and 19 of FEMA, 1999 provide for appeals against orders of Adjudicating Authority. If Adjudicating Authority is Assistant Director of the Enforcement or Deputy Director of Enforcement, appeal will lie to Special Director (Appeals). Further appeal shall lie with Appellate Tribunal of Foreign Exchange. However, if the adjudicating authority is senior to the Assistant- Director of Enforcement or Deputy Director of Enforcement, then the appeal shall lie directly to the Appellate Tribunal.

Under FEMA, two appellate authorities have been constituted. These are as follows:

  1. Special Director
  2. Appellate Tribunal

Appeal to Special Director (Appeals (Sec. 17):

Appointment of Special Director (Appeals). The Central Government shall appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities. The Central Government shall also specify the jurisdiction of Special Director (Appeals).
Who may prefer an appeal? Any person aggrieved by an order made by the Adjudicating Authority may prefer an appeal to the Special Director (Appeals).
Right of legal assistance. The appellant may either appear in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Special Director (Appeals) Sec. 32).
When can appeal be filed? An appeal can be filed with the Special Director (Appeals), if the Adjudicating Authority is –
1. An Assistant Director of Enforcement.
2. A Deputy Director of Enforcement.
Time limit for filing the appeal. The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority (excluding the time required in obtaining a copy of the order). However, if sufficient cause is shown, the Special Director (Appeals) may condone the delay.
Order of special Director (Appeals) 1. The Special Director (Appeals) may pass such orders as he thinks fit. He may confirm, modify or set aside the order of the Adjudicating Authority.
2. He shall give an opportunity of being heard to the parties before passing any order.
3. He shall send a copy of every order made by him to the parties to the appeal and the concerned Adjudicating Authority.
Time limit for disposal of appeal. No time limit has been prescribed for disposal of an appeal by the Special Director (Appeals.)

Appeal with the Appellate Tribunal (Sec. 19):

Establishment of Appellate Tribunal. The Central Government shall appoint an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals).
Who can prefer an appeal? The Central Government or any person aggrieved may prefer an appeal to the Appellate Tribunal.
Right of legal assistance. The appellant may either appear in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Appellate Tribunal (Sec. 32).
When can appeal be filed An An appeal can be filed with the Appellate Tribunal against the order made by-
a. Special Director (Appeals); or
b. an Adjudicating Authority other than an Assistant Director of Enforcement or a Deputy Director of Enforcement.
Thus, the Appellate Tribunal is the second appellate authority which has original appellate jurisdiction as well as revisionary jurisdiction.
Deposit of penalty Any person filing an appeal to the Appellate Tribunal shall, while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government.
Discretion to dispense with deposit of penalty. The Appellate Tribunal may dispense with the deposit of penalty, if it is of the opinion that the deposit of penalty would cause undue hardship to such person. The Appellate Tribunal may impose certain conditions so as to safeguard the realisation of penalty.
Time limit for filing the appeal The appeal shall be filed within 45 days from the date of order of the Adjudicating Authority or the Special Director (Appeals) (Excluding the time required in obtaining a copy of the order). However, if sufficient cause is shown, the Appellate Tribunal may condone the delay.
Order of Appellate Tribunal 1. The Appellate Tribunal may pass such orders as he thinks fit. It may confirm, modify or set aside the order appealed against.
2. It shall give an opportunity of being heard to the parties before passing any order.
It shall send a copy of every order made by him to the parties to the appeal and the concerned Adjudicating Authority or the Special Director (Appeals).
Time limit for disposal of appeal The Appellate Tribunal shall dispose of the appeal as expeditiously as possible. It shall endeavour to dispose off the appeal within 180 days from the date of filing the appeal. Where any appeal could not be disposed off within the said period of 180 days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period.

Thus : TKM Exporters of Delhi can make an appeal either to special Director (Appeals) or Appellate Tribunal. It may be noted that Tribunal is final fact finding authority and no appeal lies against it.

Question 16.
Mr. Sekh, resided fora period of 150 days in India during the Financial Year 2013-2014 and thereafter went abroad. He came back to India on 1st April, 2014 as an employee of a business organization. What would be his residential status during the Financial Year 2014-2015 under Foreign Exchange Management Act, 1999.
Answer:
According to the provisions of Section 2(v) of the Foreign Exchange Management Act, 1999, a person in order to qualify for the purpose of being treated as a “Person Resident in India” in any financial year, must reside in India for a period of more than 182 days during the preceding financial year.

In the given case, Mr. Sekh has resided in India for a period of only 150 days, i.e. less than 182 days, during the financial year 2013-2014. Hence he cannot be considered as a “Person Resident in India” during the financial year 2014-2015 irrespective of the purpose or duration of his stay.

Question 17.
Indian Software Ltd. seeks to export software to its client in Indonesia. In this regard:
(i) Explain the procedure to be adopted for export of software under the Foreign Exchange Management Act, 1999 and also state the period within which export value is to be realised.

(ii) Explain the position in case of delay in receipt of payment from its client.
Answer:
(i) Procedure for the export of the software under the FEMA, 1999 read with FEM (Export of goods and services) Regulation 2015. Declaration of Exports [Regulation 3]:
Regulation 3(1) provides – that in case of exports taking place through Customs manual ports, every exporter of goods or software in physical form or through any other form, either directly or indirectly, to any place outside India, other than Nepal and Bhutan, shall furnish to the specified authority, a declaration in one of the forms set out in the Schedule and supported by such evidence as may be specified, containing true and correct material particulars including the amount representing.
a. the full export value of the goods or software;

b. if the full export value is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods or the software in overseas market, and affirms in the said declaration that the full export value of goods (whether ascertainable at the time of export or not) or the software has been or will within the specified period be, paid in the specified manner.

Declarations shall be executed in sets, of such number as specified – It may be noted that in respect of export of services to which none of the Forms specified in the Regulations apply, the exporter may.export such services without furnishing any declaration, but shall be liable to realise the amount of foreign exchange which becomes due or accrues on account of such export, and to repatriate the same to India in accordance with the provisions of the Act, and these Regulations, as also other rules and regulations made under the Act. Realization of export proceeds in respect of export of goods/software from third party should be duly declared by the exporter in the appropriate declaration form.

Indication of Importer-Exporter Code Number [Regulation 5] – The importer-exporter code number allotted by the Director General of Foreign Trade under Section 7 of the Foreign Trade (Development & Regulation)Act, 1992 shall be indicated on all copies of the declaration forms submitted by the exporter to the specified authority and in all correspondence of the exporter with the authorised dealer or the Reserve Bank, as the case may be.

Authority to whom declaration is to be furnished and the manner of dealing with the declaration [Regulation 6] – Regulation 6 deals with the authority to whom declaration is to be furnished and the manner of dealing with the declaration.

Declaration in Form EDF:
(i) The declaration in form EDF shall be submitted in duplicate to the Commissioner of Customs.

(ii) After duly verifying and authenticating the declaration form, the Commissioner of Customs shall forward the original declaration form/data to the nearest office of the Reserve Bank and hand over the duplicate form to the exporter for being submitted to the authorised dealer.

Declaration in Form SOFTEX:
(i) The declaration in Form SOFTEX in respect of export of computer software and audio/video/television software shall be submitted in triplicate to the designated official of Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Special Economic Zones (SEZs) in India.

(ii) After certifying all three copies of the SOFTEX form, the said designated official shall forward the original directly to the nearest office of the Reserve Bank and return the duplicate to the exporter. The triplicate shall be retained by the designated official for record.

Duplicate Declaration Forms to be retained with Authorised Dealers: On the realisation of the export proceeds, the duplicate copies of export declaration forms viz. EDF and SOFTEX shall be retained by the Authorised Dealers.

Evidence in support of declaration [Regulation 7] – The Commissioner of Customs or the postal authority or the official of Department of Electronics, to whom the declaration form is submitted, may, in order to satisfy themselves of due compliance with Section 7 of the Foreign Exchange Management Act and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, require such evidence in support of the declaration as may establish that –
(a) the exporter is a person resident in India and has a place of business in India;

(b) the destination stated on the declaration is the final place of the destination of the foods exported;

(c) the value stated in the declaration represents –

  • the full export value of the goods or software; or
  • where the full export value of the goods or software is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods in the overseas- market.

It may be noted that ‘final place of destination’ means a place in a country in which the goods are ultimately imported and cleared through Customs of that country.

Manner of payment of export value of goods [Regulation 8] – Unless otherwise authorised by the Reserve Bank, the amount representing the full export value of the goods exported shall be paid through an authorised dealer in the manner specified in the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000 as amended from time to time.

It may be noted that re-import into India, within the period specified for realisation of the export value, of the exported goods in respect of which a declaration was made under Regulation 3, shall be deemed to be realisation of full export value of such goods.

Period within which export value of goods/software/services to be realised [Regulation 9] – In terms of Regulation 9(1), the amount representing the full export value of goods/software/services exported shall be realised and repatriated to India within nine months from the date of export, provided :

(a) that where the goods are exported to a warehouse established outside India with the permission of the Reserve Bank, the amount representing the full export value of goods exported shall be paid to the authorised dealer as soon as it is realised and in any case within fifteen months from the date of shipment of goods;

(b) further that the Reserve Bank, or subject to the directions issued by that Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months or fifteen months, as the case may be.

Regulation 9(2)(a) provides – that where the export of goods/software/services has been made by Units in Special Economic Zones (SEZ) /Status Holder exporter/ Export Oriented Units (EOUs) and units in Electronics Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-Technology Parks (BTPs) as defined in the Foreign. Trade Policy in force, then notwithstanding anything contained in sub-regulation(l), the amount representing the full export value of goods or software shall be realised repatriated to India within nine months from the date of export.

Provided further – that the Reserve Bank, or subject to the directions issued by the Bank in this behalf, the authorised dealer may, for a sufficient and reasonable cause shown, extend the period of nine months.

As per Regulation 9(2)(b) – the Reserve Bank may for reasonable and sufficient cause direct that the said exporter/s shall cease to be governed by sub-regulation(2);

Provided that no such direction shall be given unless the unit has been given a reasonable opportunity to make a representation in the matter. Regulation 9(2)(c) states that on such direction, the said exporter/s shall be governed by the provisions of sub-regulation(l), until directed otherwise by the Reserve Bank. It may be noted that the “date of export” in relation to the export of software ir other than physical form, shall be deemed to be the date of invoice covering such export.

Submission of Export Documents [Regulation 10] – The documents pertaining to export shall be submitted to the authorised dealer mentioned in the relevant export declaration form, within 21 days from the date of export, or from the date of certification of the SOFTEX form:

Provided that, subject to the directions issued by the Reserve Bank from time to time, the authorized dealer may accept the documents pertaining to export submitted after the expiry of the specified period of 21 days, for reasons beyond the control of the exporter.

(ii) Delay in Receipt of Payment [Regulation 14] – Where in relation to goods or software export of which is required to be declared on the specified form and export of services, in respect of which no declaration forms has been made applicable, the specified period has expired and the payment therefor has not been made as aforesaid, the Reserve Bank may give to any person who has sold the goods or software or who is entitled to sell the goods or software or procure the sale thereof, such directions as appear to it to be expedient, for the purpose of securing,

  • the payment therefor, if the goods or software has been sold and
  • the sale of goods and payment thereof, if goods or software has not been sold or reimport thereof into India as the circumstances permit, within such period as the Reserve Bank may specify in this behalf;

Provided that omission of the Reserve Bank to give directions shall not have the effect of absolving the person committing the contravention from ‘the consequences thereof.

Question 18.
Answer the following :
Forex Dealers Ltd. is an Authorised Person within the meaning of Foreign Exchange Management Act, 1999. Reserve Bank of India issued certain directions to the said Authorised person to file certain returns which it failed to file. You are required to state the penal provisions to which the said Authorised Person has exposed itself.
Answer:
In accordance with the provisions of the Foreign Exchange Management Act, 1999 as contained in Section 11(3), where any authorized person contravenes any direction given by the Reserve Bank of India.under the said Act or fails to file any return as directed by the Reserve Bank of India, the Reserve Bank of India may, after giving reasonable opportunity of being heard, impose on Authorised Person a penalty which may extend to ten thousand rupees and in the case of continuing contraventions with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues.

Since as per the facts given in the question, the Authorized person, namely, Forex Dealers Ltd., has failed to file the return as directed by the Reserve Bank of India, according to the above provisions.it has exposed itself to a penalty which may extend to ₹ 10,000 and in the case of continuing

contraventions in the nature of failure to file the return, with an additional penalty which may extend to ₹ 2,000 for every day during which such Contravention continues.

Question 19.
Ms. LOMIA a resident outside India, is likely to inherit from her father some immovable property in India. Are there any restrictions under the provisions of the Foreign Exchange Management Act, 1999 in acquiring or holding such property?
State, whether Ms. Lomia can sell the property and repatriate outside India the sale proceeds.
Answer:
As per Sec. 6(5) of FEMA, 1999, a person resident-outside India may hold, own transfer or invest in India currency, security or any immovable property situated-in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India.

In the present case; Ms. Lomia may acquire or hold immovable property following the provisions laid down under Sec. 6 (5) as her father was resident in India. Ms. Lomia can even sell the property and repatriate outside India the sale proceeds of such immovable property.

Question 20.
Ms. Ashima daughter of Mr. Mittal (an exporter), is residing in Australia since long. She wants to buy a flat in Australia. Since she is unmarried, she wants to make her father Mr. Mittal a joint holder in that flat, for which entire proceeds are to be paid by her.
(i) What are the provisions of FEMA governing such type of transaction?
(ii) Can Mr. Mittal join her daughter in acquiring such a flat in Australia?
(iii) Mr. Mittal, wants to receive advance payments against his exports from a buyer outside India. What are the relevant provisions?
Answer:
(i) As per Schedule I to Sec. 6, under Sec. (2) of The Foreign Exchange Management (Permission Capital Account Transaction) Regulations, 2000,
1. A person resident in India may acquire immovable property out side India:

  • By way of gift or inheritance from a person referred to in sub-section (4) of Sec. 6 of the FEMA or referred to in clause (b) of regulation 4 acquired by a person resident in India on or before 8th July, 1947 and continued to be held by him with the permission of Reserve Bank.
  • By way of purchase out of foreign exchange held in Resident Foreign Currency (RFC) account maintained in accordance with the foreign exchange management (Foreign Currency accounts by a person resident in India) Regulation, 2015.
  • Jointly with a relative who is a person resident outside India, provided there is no outflow of funds from India.

2. A person resident in India may acquire immovable property outside India, by way of Inheritance or gift from a person resident in India who has acquired such property in accordance with the foreign exchange provision in force at the time of such acquisition.

3. A Company incorporated in India having overseas offices, may acquire immovable property outside India for its business and for residential purposes of its staff, in accordance with the direction issued by the Reserve Bank of India from time to time.

(ii) On the grounds of above regulations, Mr. Mittal can join her daughter in acquiring such flat in Australia.

(iii) Advance payment against export:
The following are the provisions governing the advance payments against exports: Where an exporter receives advance payment (with or without interest), from a buyer outside India, the exporter shall be under an obligation to ensure that:

  • the shipment of goods is made within one year from the date of receipt of advance payment;
  • the rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
  • the documents covering the shipment are routed through the authorised dealer through whom the advance payment is received.

Provided that in the event of the exporter’s inability to make the shipment, partly or fully, within one year from the date of receipt of advance payment or towards, no remittance towards refund of un-utilised portions of advance payment or towards payment of interest, shall be made after the expiry of the period of one year, without the prior approval of the RBI.

Notwithstanding anything contained in clause (i) of sub-regulation (1), an exporter may receive advance payment where the export agreement itself duly provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment.

Question 21.
Mr. T. Raghava has secured admission in a reputed and recognized university in Germany, for the study of higher and technical education, outside India. After arrival in Germany, he has gone ill and wants medical treatment facility in a reputed German hospital. He desires to apply to the Government of India for availing the additional remittance beyond the limit approved for foreign currency exchange facility. He has already enjoyed the permitted facility of foreign exchange for studies abroad, for the said financial year. Decide the following as to the facts given in the question as per the provisions of the Foreign Exchange Management Act, 1999:
(i) As an individual, to what extent Mr. T. Raghava may avail foreign exchange facilities for higher and technical study in Germany.

(ii) Can Mr. T. Raghava avail the facility of additional remittance in foreign exchange, beyond the limit, for the medical treatment.
Answer:
1. Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawl is a current account transaction. However, Central Government may in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be prescribed as per Sec. 5. The Central Government has framed Foreign Exchange Management (Current Account Transactions) Amended Rules, 2015. The Rules stipulate some prohibitions and restrictions on drawl of foreign exchange for certain purposes. In light of such regulations.

2. Any release of foreign exchange for studies abroad does not require any approval if the foreign exchange drawn does not exceed the estimate 2,50,000 per academic year. Any drawl of foreign exchange exceeding the above limits requires the approval of Reserve Bank of India.

3. Any release of foreign exchange for meeting expenses for medical treatment abroad does not require any approval if, the expenses of medical treatment do not exceed the estimate from doctor in India or hospital/doctor abroad. However, foreign exchange exceeding the estimate from the doctor in India or hospital/doctor abroad require the prior approval of Reserve Bank of India. Any person may release foreign exchange upto US$ 2,50,000 for medical treatment without any estimate of doctor and without any prior approval of Reserve Bank of India.

Present case:
1. In this case, Mr. T. Raghava has taken admission in Germany and after this he goes ill and wants to draw foreign exchange from India for medical treatment. However, he has already enjoyed his facility of foreign exchange limit for studies abroad. So as per above regulations, Mr. T. Raghava can draw foreign exchange to the limit specified. So answer to his queries has been given as follows:
(i) Mr. Raghava can drawn foreign exchange upto US$ 2,50,000 for higher and technical study in Germany. However, foreign exchange exceeding the estimate from the limit as above., he requires to take prior approval of Reserve Bank of India.

(ii) Remittance for Medical Treatment: Remittance of foreign exchange for medical treatment abroad requires prior permission or approval of RBI where the individual requires withdrawal of foreign exchange exceeding USD 2,50,000. The Schedule also prescribes that for the purpose of expenses in connection with medical treatment, the individual may avail of exchange facility for an amount in excess of the limit prescribed under the Liberalized Remittance Scheme, if so required by a medical institute offering treatment. Such amount shall be reduced from USD 2,50,000 by the amount so remitted.

Therefore, Mr. T. Reghava can draw foreign exchange exceeding USD 2,50,000 by taking prior permission/approval of RBI.

Question 22.
Bharat Computer Hardware Ltd. received an advance payment for export of high-tech hardware to a business concern in Singapore by entering into an export agreement to supply the hardware within six months from the date of receipt of advance payment. The shipment of hardware was made after 9 months and the documents covering the shipment were routed through an authorized dealer through whom the advance payment was received.

Examine whether Bharat Computer Hardware Ltd. has discharged its obligation in accordance with the provisions of The Foreign Exchange Management Act, 1999? Is it possible to receive advance payment where the export agreement provides for shipment of goods within 15 months from the date of receipt of advance payment? Also identify the maximum rate of interest payable on the advance payment under the said Act.
Answer:
1. As per the provisions of the Foreign Exchange Management Act, 1999, where an exporter receives advance payment (with or without interest), from a buyer/ third party named in the export declaration made by the exporter, outside India, the exporter shall be under an obligation to ensure that:
(i) the shipment of goods is made within one year from the date of . receipt of advance payment;

(ii) the rate of interest, if any, payable on the advance payment does not exceed the rate of interest London Inter – Bank Offered Rate, (LIBOR) + 100 basis points and

(iii) the documents covering the shipment are routed through the authorised dealer through whom the advance payment is received; Provided that in the event of the exporter’s inability to make the shipment, partly or fully within one year from the date of advance payment, no remittance towards refund of unutilized portion of advance payment or towards payment of interest shall be made after the expiry of the period of one year, without the prior approval of the Reserve Bank.

a. In this case, Bharat Computer Hardware Ltd., an exporter export the shipment of hardware after 9 months and the documents covering the shipment were routed through an authorized dealer through whom the advance payment was received. So here yes company has validly discharged its obligation in accordance with the provisions of the Foreign Exchange Management Act, 1999.

b. Provision further provides that, an exporter may receive advance payment where the export agreement itself duly provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment. It is possible to receive advance payment where the export agreement provides for the shipment of goods within 15 months from the date of receipt of advance payment.

c. Maximum rate of interest payable on the advance payment shall be London Inter – Bank Offered Rate (LIBOR) + 100 Basis points.

Question 23.
Ramesh Kumar and Jainendra Singh (respondants) had asked following information from RBI under the Right to Information Act, 2005:

  • Details of the reports pertaining to investigation and audit carried out by RBI and details of past 20 years investigation with respect to cooperative banks.
  • Details of the report sent by RBI to the Finance Ministry with respect to FEMA violations committed by several commercial banks.
  • Details of the inspection reports of apex cooperative banks.
  • Details of the loans taken by the industrialists that have not been repaid and about the names of the top defaulters who have not repaid their loans to public sector banks.
  • Details of the show cause notices and fines imposed by the RBI on various banks.

RBI refused to provide the requisite information on the grounds of economic interest, commercial confidence, fiduciary relationships with other banks and the public interest. Is the refusal by the RBI tenable? Give reasons in support of your answer.
Answer:
In the given case refusal by RBI is not tenable.
The given case is similar to the case of Reserve Bank of India vs. Jayantilal n. Mistry[SC] Transferred Case (Civil) No. 91 of 2015 (Arising out of Transfer Petition (Civil) No. 707 of 2012) along with batch of petitions [Decided on 16/12/2015], In this case Supreme Court inter-alia held that in the instant case, the RBI does not place itself in a fiduciary relationship with the Financial institutions (though, in word it puts itself to be in that position)

because, the reports of the inspections, statements of the bank, information related to the business obtained by the RBI are not under the pretext of confidence or trust. In this case neither the RBI nor the Banks Act in the interest of each other. By attaching an additional fiduciary label to the statutory duty, the Regulatory authorities have intentionally or unintentionally created and in terrorem effect.

RBI is a statutory body set up by the RBI Act as India’s Central Bank. It is a statutory regulatory authority to oversee the functioning of the banks and the country’s banking sector. RBI has been given powers to issue any direction to the banks in public interest, in the interest of banking policy and to secure proper management of a banking company. It has several other far-reaching statutory powers.

RBI is supposed to uphold public interest and not the interest of individual banks. RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximize the benefit of any public or private sector bank, and thus there is no relationship of ‘trust’ between them. RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks. It is duty bound to comply with the provisions of the RTI Act, and disclose the information sought by respondents herein.

In the present case, we have to weigh between the public interest and fiduciary relationship (which is shared between the RBI and the Banks). Since, RTI Act is enacted to empower the common people, the test to determine limits of S. 8 of the RTI Act is whether giving information to the general public would be detrimental to the economic interests of the country? To what extent should the public be allowed to get information?

In the context of above questions, it had long since come to our attention that the Public Information Officers (PIO) under the guise of one of the exceptions given under S. 8 of RTI Act, have evaded the general public from getting their hands on the rightful information that they are entitled to.

And in this case the RBI and the Banks have sidestepped the general public’s demand to give the requisite information on the pretext of “fiduciary relationship” and “economic interest”. This attitude of the RBI will only attract more suspicion and disbelief in them. RBI is a regulatory authority should work to make the banks accountable to their actions.

The ideal of ‘Government by people’ makes it necessary that people have access to information on matters of public concern. The free flow of information about affairs of Government paves way for debate in public policy and fosters accountability in Government. It creates a condition for ‘open governance’ which is a foundation of democracy.

Question 24.
Zom entered into a buyer’s agreement with EMANKI Land Developers Private Limited in the year 2015. As per the agreement the possession of flat was to be handed over in January 2018. The company was deferring the handing over of flat for almost a year. In January 2019, Zom filed a consumer complaint before the NCDRC against the Company praying for delivery of possession of the flat, adjustment of excess payment and compensation for deficiency in service. As the agreement also provided for an arbitration clause providing for settlement of disputes between parties under the Arbitration and Conciliation Act, 1996, the Company filed an application under Section 8 of Act for referring the matter to arbitration. Will the Company be successful in having an arbitration in respect of said matter?
Answer:
The present case is similar to the case of Emaar MGF Land Limited v. Aftab Singh [SC] Review Petition (C) Nos. 2629-2630 of 2018 in Civil Appeal Nos.23512-23513 of 2017. The Supreme Court in the series of judgments considering the provisions of Consumer Protection Act, 1986 as well as Arbitration and Conciliation Act, 1996 laid down that complaint under Consumer Protection Act being a special remedy, despite there being an arbitration agreement the proceedings before Consumer Forum have to go on and no error is committed by Consumer Forum on rejecting the application.

There is reason for not interjecting proceedings under Consumer Protection Act on the strength an arbitration agreement by Arbitration and Conciliation Act, 1996. The remedy under Consumer Protection Act is a remedy provided to a consumer when there is a defect in any goods or services. The remedy under the Consumer Protection Act is confined to complaint by consumer as defined under the Act for defect or deficiencies caused by a service provider, the cheap and a quick remedy has been provided to the consumer which is the object and purpose of the Act.

The amendment in Section 8 of the Arbitration and Conciliation Act, 1996 cannot be given such expansive meaning and intent so as to inundate entire regime of special legislations where such disputes were held to be not arbitrable. Something which legislation never intended cannot be accepted as side wind to override the settled law. The submission of the petitioner that after the amendment the law as laid down by this Court in National Seeds Corporation Limited is no more a good law cannot be accepted.

The words “notwithstanding any judgment, decree or order of the Supreme Court or any Court” were meant only to those precedents where it was laid down that the judicial authority while making reference under Section 8 shall entitle to look into various facets of the arbitration agreement, subject matter of the arbitration whether the claim is alive or dead and whether the arbitration agreement is null and void. The words added in Section 8 of the Arbitration and Conciliation Act, 1996 cannot be meant for any other meaning.

In the event a person entitled to seek an additional special remedy provided under the statutes does not opt for the additional/special remedy and he is a party to an arbitration agreement, there is no inhibition in disputes being proceeded in arbitration. It is only the case where specific/ special remedies are provided for and which are opted by an aggrieved person that judicial authority can refuse to relegate the parties to the arbitration. Hence, no error has been committed by the NCDRC.

Hence, it can be concluded that the consumer disputes are not arbitrable.

Multidisciplinary Case Studies CS Professional Notes