The Reserve Bank of India must return compounding applications if the Enforcement Directorate identifies serious contraventions suspected of money laundering.

JUDGMENT :

HEMANT CHANDANGOUDAR, J.

These intra-court appeals assail the common order dated 02.04.2024 passed by the learned Single Judge in W.P. Nos. 19631 and 19632 of 2017. By the said order, the learned Single Judge dismissed the writ petitions filed by the appellants herein challenging the communication issued by the first respondent returning the compounding applications submitted by the appellants for compounding of contraventions under the Foreign Exchange Management Act, 1999 (for brevity, “ FEMA , 1999”). Since the issues involved in both the writ appeals are similar, they are taken up together, heard, and disposed of by this common judgment.

2. The complaint against the appellants was registered for alleged contraventions of the provisions of FEMA , 1999, read with the regulations framed thereunder, rendering the appellants liable for penalty under Section 13 (1) read with Section 42 of , 1999. The alleged contraventions are summarized as follows:

i. During the course of business, the appellant purchased 1,50,000 equity shares of Rs. 100/- each in M/s. Vasan Health Care Pvt. Ltd. for a total consideration of Rs. 1,50,00,000/- on 30.10.2008. Subsequently, on 21.10.2010, a Joint Share Purchase Agreement was entered into between the Sequoia Group (purchasers) and the promoters of M/s. Vasan Health Care Pvt. Ltd. along with the appellant (both sellers). Under the said agreement, the purchasers agreed to acquire 30,000 equity shares of M/s. Vasan Health Care Pvt. Ltd. from the appellant for a total consideration of Rs. 22,50,00,502/-, i.e., Rs. 7,500/- per share. On 26.10.2010, the sale of shares was completed in accordance with the terms of the Share Purchase Agreement dated 21.10.2010, and the entire sale proceeds were credited to the account of the appellant on the same day. As per Regulation 5(1), Paragraph 10 to Schedule I of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, the due date for filing Form FC-TRS (Foreign Currency Transfer of Shares) with the Development Credit Bank (DCB), the authorised dealer bank for the appellant, was 25.12.2010, being 60 days from the date of receipt of the remittance.

ii. On 01.11.2010, a Profit Share Agreement was entered into between the purchasers and the sellers. However, the appellant filed Form FC- TRS with DCB only on 30.04.2011, well beyond the prescribed time limit. Consequently, the second respondent issued summons to the appellant and its Directors under Section 50 of the Prevention of Money Laundering Act, 2002 (PMLA). The second respondent thereafter conducted a search on 01.12.2015 under Section 37 of FEMA , 1999, in the office premises of the appellant and the residential premises of its Directors. Subsequently, the Income Tax Department also conducted a survey under Section 133A of the Income Tax Act, 1961 in the office premises of the appellant.

3. During the pendency of the said complaint, the appellant submitted an application to the Reserve Bank of India (RBI) for compounding of the alleged contravention under Rule 4(1) of the Foreign Exchange (Compounding Proceedings) Rules, 2000 (hereinafter referred to as “Rules, 2000”). The said application was returned, citing that the RBI had been advised by the Joint Director, Directorate of Enforcement, not to proceed with the compounding and to remit the case to the Adjudicating Authority for adjudication under Section 13 of FEMA , 1999, in terms of the proviso to Rule 8(2) of the Rules, 2000.

4. Aggrieved by the said communication, the a