The Enforcement Directorate cannot withhold a no-objection certificate for compounding applications unless serious contraventions are established, which was not the case here.

ORDER :

This Writ Petition challenges the letter dated 17.06.2022 issued by the Reserve Bank of India (hereinafter RBI) (the second respondent in the writ petition), which returned the petitioner's compounding application dated 31.03.2022, as well as the order dated 07.12.2022 bearing reference No.SDE/SRO/HYZO/21/22 issued by the Directorate of Enforcement(hereinafter ED) (the first respondent in the writ petition). The petitioner seeks to quash both orders and consequently direct the ED to provide a No Objection Certificate in relation to the compounding application dated 31.03.2022 before respondent No.2, and to instruct the RBI to consider the petitioner's compounding application dated 31.03.2022 expeditiously.

2. The factual context in which the Writ Petition arises is as follows:

2.1. The ED, by its communication dated 07.06.2017, commenced an investigation under Section 37 of the Foreign Exchange Management Act, 1999 ( FEMA ) and directed the petitioner to furnish certain records and documents related to the advance remittances received since 2010, as well as the details of exports and imports from that year. On 29.06.2017, the petitioner submitted the required information. Additionally, on 07.07.2017, the petitioner produced further documents that had been requested by the ED. Subsequently, a summons was served by the ED for a hearing on 29.05.2018, in which the petitioner participated. Certain questions were posed to them, and he provided reasons for the non-export of goods in relation to the trade advance remittances. On 30.08.2018, the petitioner was informed that a complaint had been filed with the adjudicating authority, namely the Special Director at the ED, Southern Region, Chennai.

2.2. It is the case of the ED that a complaint was also filed with the adjudicating authority as of 30.08.2018. On 06.02.2019, when the petitioner submitted a request to accept the concerned form – FC-GPR, concerning the allotment of shares, the second respondent highlighted irregularities in reporting the inward remittances and required the petitioner to file an application under Section 15 of the FEMA to compound the mentioned contraventions. On 06.05.2019, the RBI also appeared to have addressed the first respondent regarding the receipt of Foreign Direct Investment by the petitioner and non- compliance with FEMA.

2.3. Thereafter, on 12.06.2019, the ED directed the RBI to keep the compounding application in abeyance. The petitioner formally filed a compounding application on 18.11.2019. The petitioner also addressed a letter to the Manager of HDFC Bank, Hyderabad, on 12.11.2019, requesting permission to refund the export advances amounting to $62,82,000/- US Dollars received from the parent and group companies of the petitioner since, they were unable to make the exports. Subsequently, on 27.02.2020, the RBI returned the compounding application, citing the pendency of the case with the ED and the non-receipt of the No Objection Certificate from the ED.

2.4. On 24.02.2022, the petitioner submitted the compounding application before the RBI again, following their instructions. On 15.03.2022, the RBI pointed out certain defects in the compounding application. After complying with the said defects, the petitioner refiled the compounding application on 23.03.2022. Again, further defects were notified, and the petitioner rectified them on 31.03.2022.

2.5. On 12.04.2022, the petitioner sent a letter to HDFC Bank, reiterating their request to convert the trade advances into share capital. Subsequently, on 17 June 2022, the RBI returned the compounding application, citing the case's pending status with the ED and the non-receipt of the No Objection Certificate. On 24.08.2022, the RBI also sought certain clarifications regarding the petitioner's application for converting inward remittances into share capital. Following this, additional hearings were conducted, and by communication dated 30.11.2022, the RBI granted further time to the petitioner co