In a significant legal development, the Madras High Court has dismissed the writ petitions filed by Flipkart co-founders, Sachin Bansal and Binny Bansal, challenging the Enforcement Directorate's (ED) complaint and subsequent show cause notice alleging violations of the Foreign Exchange Management Act (FEMA) and the Transfer or Issue of Security by a Person Resident Outside India (TISPRO) Regulations, 2000. The court's decision underscores the judiciary's stance on the availability of alternative remedies within the legal framework before invoking its writ jurisdiction.
Background of the Case
The origins of this legal battle trace back to allegations that between 2009 and 2014, the Bansal brothers, along with associated entities, contravened specific provisions of FEMA. The ED initiated an investigation into these alleged violations in 2012, focusing on the issuance of shares by certain Flipkart group companies to foreign investors during the specified period. The crux of the allegations centered on purported non-compliance with conditions outlined in the Consolidated Foreign Direct Investment Policy of 2010, effective from April 1, 2010.
Following the investigation, the Deputy Director of Enforcement in Bengaluru filed a complaint, leading to the issuance of a show cause notice on July 1, 2021. This notice implicated the Bansal brothers, along with other entities and individuals, holding them personally responsible for alleged violations involving approximately ₹23,000 crore.
Petitioners' Arguments
Challenging the show cause notice, the Bansal brothers filed writ petitions before the Madras High Court. They contended that the notice was arbitrary and unreasonable, primarily due to the significant delay of over a decade between the alleged violations and the issuance of the notice. Sachin Bansal emphasized that he had proactively participated in the ED's investigation between 2013 and 2015, providing all necessary documents to establish his innocence. He argued that after a prolonged period of inactivity from the ED, the sudden issuance of the notice in 2021 was unjustified.
Furthermore, Sachin Bansal highlighted that he had completely exited Flipkart and its associated companies following their acquisition by Walmart International Holdings Inc. in August 2018. He expressed concerns about his inability to access company documents, which would impede his defense in the adjudication proceedings. He also raised apprehensions about the potential impact of the proceedings on his current ventures, including Navi Technologies Private Limited.
Binny Bansal echoed similar sentiments, asserting that the allegations were baseless and that the ED's actions amounted to a gross abuse of the legal process. He emphasized that the prolonged delay violated the principles of natural justice and due process.
Enforcement Directorate's Counterarguments
In response, the ED clarified that FEMA does not prescribe a specific time limit for completing investigations or filing complaints before the adjudicating authority. The agency attributed the delay to the complexities involved in gathering evidence from multiple countries and the frequent transfer of officers handling the case.
The ED also contended that the writ petitions against the show cause notices were premature, as the petitioners had the alternative remedy of presenting their objections before the adjudicating authority. The agency emphasized that the petitioners could raise all their concerns, including those related to the delay, during the adjudication process.
Court's Analysis and Judgment
Justice S. Sounthar, presiding over the case, observed that under the scheme of FEMA, the petitioners had adequate alternative remedies available. The court noted that any order passed by the adjudicating authority could be challenged before the Appellate Tribunal and, subsequently, through a second appeal before the High Court under Section 35 of FEMA. Given this comprehensive appellate mechanism, the court was disinclined to exercise its discretionary jurisdiction under Article 226 of the Constitution.
The court further referenced the Supreme Court's judgment in Whirlpool Corporation vs. Registrar of Trade Marks, which delineates exceptions to the general rule regarding the exhaustion of alternative remedies. Justice Sounthar concluded that the petitioners had not demonstrated that their case fell within any of these exceptions, such as a breach of fundamental rights, violation of natural justice principles, or actions taken without jurisdiction.
Consequently, the court dismissed the writ petitions, emphasizing that the petitioners should avail themselves of the statutory remedies provided under FEMA before seeking judicial intervention.
Implications of the Judgment
This judgment reinforces the judiciary's adherence to the principle that when statutory remedies are available, parties should exhaust these avenues before approaching the courts. It underscores the importance of the adjudication process established under specialized statutes like FEMA and highlights the judiciary's reluctance to intervene prematurely.
For the Bansal brothers, the dismissal of their writ petitions means that they must now present their case before the adjudicating authority, where they can raise all pertinent objections, including those related to the delay in proceedings. The judgment also serves as a precedent for similar cases, indicating that courts may be unwilling to entertain challenges against show cause notices when adequate alternative remedies exist within the statutory framework.
Conclusion
The Madras High Court's dismissal of the Bansal brothers' writ petitions marks a pivotal moment in the ongoing legal proceedings concerning alleged FEMA violations by Flipkart's founders. The judgment emphasizes the necessity for parties to utilize available statutory remedies before seeking judicial review and highlights the court's commitment to upholding the procedural frameworks established by law.
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