Smt. Lakshmi Anil Salgaocar Vs Commissioner of Customs (Appeals) (Appellate Tribunal under SAFEMA, New Delhi)
Foreign Assets Generated Before Section 37A but Continued to Be Held Abroad Thereafter Can Trigger Seizure of Equivalent Indian Assets: SAFEMA Tribunal
Summary: The Appellate Tribunal under SAFEMA has held that Section 37A of FEMA can be invoked where foreign assets or foreign exchange allegedly acquired before the provision came into force continued to be held abroad after its introduction on 09.09.2015.
The Tribunal rejected the contention that such action amounted to retrospective application of Section 37A. It upheld the seizure of shares worth approximately ₹1.52 crore held by the estate in 33 Indian companies, as value-equivalent assets against suspected foreign exchange of approximately USD 690.65 million—₹5,718.59 crore—held outside India.
Background of the case
The Enforcement Directorate initiated an investigation against late Shri Anil Salgaocar based on information emerging from the Panama and Pandora Papers.
The investigation revealed that five companies had been incorporated in the British Virgin Islands:
- Ling Tao Trading Ltd.;
- Sino Ling Tao Resources Ltd.;
- GBA Minmetals Trading Ltd.;
- Cheermark Global Ltd.; and
- Joyking Global Ltd.
According to the Directorate, these companies procured iron ore from Salgaocar Group concerns in India and resold it in the Chinese market. During 2004-2012, approximately 22.75 million tonnes of iron ore were allegedly traded, generating turnover of about USD 1.794 billion and net trading profits of approximately USD 690.65 million.
The Directorate alleged that Shri Anil Salgaocar was the real beneficial owner of the BVI entities and their underlying assets, though the shares and control were ostensibly placed in the hands of Shri Darsan Jhaveri under a trust arrangement.
Singapore litigation disclosed beneficial ownership claim
In 2015, Shri Anil Salgaocar instituted proceedings before the Singapore High Court claiming that the shares in the BVI and Singapore entities were held by Shri Darsan Jhaveri in trust for him.
After Shri Salgaocar died on 01.01.2016, his widow, Smt. Lakshmi Salgaocar, acting as administratrix of his estate, amended and continued the proceedings.
The Singapore High Court decreed the suit in favour of the estate on 28.02.2023. Although an appeal was filed against the judgment, the Delhi High Court subsequently recorded in connected proceedings that the shares relating to the foreign entities had been transferred to Smt. Lakshmi Salgaocar.
The Enforcement Directorate treated the pleadings and outcome of the Singapore proceedings as material indicating that the foreign companies, profits and assets were beneficially owned by Shri Salgaocar and thereafter by his estate.
Seizure of equivalent assets in India
Section 37A permits an authorised officer, upon recording reasons to believe that foreign exchange, foreign securities or immovable property situated outside India are suspected to be held in contravention of Section 4, to seize assets of equivalent value situated in India.
Invoking this provision, the Directorate seized shares worth approximately ₹1,51,84,871 held by the estate in 33 Indian companies.
The Competent Authority confirmed the seizure. The administratrix of the estate challenged that order before the Tribunal.
Plea against retrospective application rejected
The appellant contended that the foreign trading profits related to transactions undertaken between 2004 and 2012, whereas Section 37A came into force only on 09.09.2015. Therefore, the provision could not be invoked retrospectively.
The Tribunal rejected this argument on two grounds.
First, the claim over the foreign companies and their assets was asserted by Shri Salgaocar through the Singapore suit filed in 2015. The estate continued the proceedings after his death, and the Singapore judgment recognising its claim was delivered only in 2023. Therefore, the relevant acquisition or recognition of ownership occurred after Section 37A had come into force.
Second, even if the profits were treated as having accrued between 2004 and 2012, the foreign assets continued to be held abroad after 09.09.2015. Holding or possessing foreign exchange in contravention of Section 4 was treated as a continuing activity.
The Tribunal held that applying Section 37A to foreign assets continuing to be held after its commencement did not amount to retrospective operation merely because the assets had originally been generated earlier.
Pending appeal did not erase existing Singapore judgment
The appellant argued that the seizure was premature because an appeal against the Singapore High Court judgment remained pending.
The Tribunal observed that the mere filing of an appeal does not extinguish the judgment under challenge. As on the relevant date, the judgment stood in favour of the estate. Further, the Delhi High Court had recorded that the subject shares had been transferred to the appellant.
Accordingly, the pendency of the appeal did not establish that the estate had not acquired or did not hold the foreign assets.
Seizure is an interim protective measure
The Tribunal emphasised that seizure under Section 37A is not a final determination of contravention or confiscation. It is an interim measure intended to protect the value of foreign assets suspected to be held outside India in violation of Section 4.
The seizure continues until the adjudication proceedings are concluded. The Adjudicating Authority must ultimately decide the contravention and issue appropriate directions concerning the seized assets.
Section 37A(4) also permits the aggrieved person to disclose the foreign assets and bring them back to India, following which an application may be made for suitable relief, including release of the seized Indian assets.
The Tribunal noted that the Indian assets seized were worth only about ₹1.52 crore, a very small fraction of the suspected foreign assets valued at over ₹5,718 crore.
Residence under FEMA not established as outside India
The appellant argued that both late Shri Salgaocar and the administratrix were persons resident outside India. Singapore employment permits were produced in support of this contention.
The Tribunal held that an employment permit by itself did not conclusively establish residential status under Section 2(v) of FEMA. The statutory test considers physical stay as well as the purpose and intention of remaining outside India.
No year-wise details were produced to establish that Shri Salgaocar’s stay in India was within the prescribed limit or that he had left India with an intention to remain abroad for an uncertain period.
The residential status of the administratrix was considered irrelevant because the proceedings concerned assets belonging to the estate of late Shri Salgaocar. The Tribunal also declined to treat the estate as a person resident outside India merely because its administratrix resided abroad.
Appeal dismissed
The Tribunal found that the Singapore suit, the claim of beneficial ownership, the Singapore judgment, the transfer of shares and the continued holding of foreign assets provided sufficient reasons to suspect a contravention of Section 4.
It accordingly upheld both the seizure order dated 08.08.2023 and the confirmation order dated 29.12.2023.
Author’s comments
The ruling makes an important distinction between the historical acquisition of a foreign asset and its continued holding after Section 37A came into force. Even where the original income or transaction arose before September 2015, continued ownership or possession of the resulting foreign asset may permit seizure of value-equivalent property in India.
However, an order under Section 37A remains provisional and protective. At this stage, the Department needs recorded reasons to suspect a Section 4 contravention; final proof of unlawful acquisition, beneficial ownership and residential status must still be examined in adjudication proceedings.
The decision also illustrates that claims made by a person in foreign civil litigation may later become significant evidence in FEMA proceedings. A party cannot easily assert beneficial ownership before a foreign court to obtain assets and simultaneously deny that ownership when Indian regulatory consequences arise.
Finally, FEMA residential status does not depend merely on citizenship, tax residence or possession of a foreign employment permit. The actual period of stay, purpose of departure and intention to remain abroad must be supported by proper year-wise evidence.
Cases Discussed
- Ashwani Kumar Mehra & Ors. v. A.H. Khan, 2018 SCC OnLine ATFEMA 24
- Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602
- State of Madhya Pradesh v. Rameshwar Rathod, (1990) 4 SCC 21
- CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1
- Rao Shiv Bahadur Singh v. State of Vindhya Pradesh, (1953) SCR 1188
- Sajjan Singh v. State of Punjab, (1964) 4 SCR 630
- State of Bombay v. Vishnu Ramchandra, (1961) 2 SCR 26
- Mohan Lal v. State of Rajasthan, (2015) 6 SCC 222
- Gokak Patel Volkart Ltd. v. Dundayya Gurushiddaiah Hiremath, (1991) 2 SCC 141
FULL TEXT OF THE JUDGMENT/ORDER OF APPELLATE TRIBUNAL UNDER SAFEMA
This Order disposes of the Appeal No. FPA-FE-24/GOA/2024 filed by Smt. Lakshmi Anil Salgaocar against the Order No. 03/MUM-CUSM/FEMA/2023-24 dated 29.12.2023 (Impugned Order) passed by the Competent Authority, Commissioner of Customs (Appeals), Mumbai-I under Section 37 A (3) of Foreign Exchange Management Act, 1999 (FEMA). Ld. Competent Authority (CA) has confirmed the Seizure Order No. 01/2023 dated 08.08.2023, vide which the moveable properties of the Estate of Late Shri Anil Salgaocar of value Rs. 1,51,84,871/- were seized. The seized movable properties comprise of shares of the Estate of Late Shri Anil Salgaocar held in 33 Indian Companies. The seizure was effected because there were reasons to believe that the Estate of Late Shri Anil Salgaocar had acquired abroad, foreign exchange worth USD 69,06,50,641 amounting to Rs. 5718,58,73,074.80, as on 08.08.2023, calculated at the rate of Rs. 82.80 per USD.
2. Ld. Counsel for the Appellant submitted that the Impugned Order has confirmed the seizure of the shares held by the Estate of Late Shri Anil Salgaocar in 33 Indian Companies. The Appellant namely Smt. Lakshmi Anil Salgaocar is the administratrix of the Estate. Ld. Counsel submitted that in the Seizure Order, it is the case of the Respondent that an investigation under FEMA was initiated against Shri Anil Salgaocar (AS) on the basis of Panama and Pandora Paper leaks, wherein it had been alleged that AS incorporated certain companies in the British Virgin Island (“BVI”). Ld. Counsel further submitted that the Respondent has claimed that the investigation revealed that AS had filed Suit No. 821 of 2015 (“Singapore Suit”) before the General Division of the High Court of the Republic of Singapore (“Singapore High Court”) against Shri Darsan Jhaveri (“Darsan”) and others, claiming that shares in certain BVI and Singapore Companies were held by Shri Darsan in trust for AS, and that AS was the beneficial owner of these shares and the monies, investments and assets held by the BVI Companies. After the demise of AS on 01.01.2016, the Appellant herein amended the statement of claim in the Singapore Suit.
3. Ld. Counsel for the Appellant submitted that the Respondent has made the seizure claiming that it was evident from the Singapore Suit that trading profits of around USD 690,650,641/- derived by five BVI Companies amounted to profit shifting outside India. Moreover, these profits were not declared by AS before the Indian Authorities. Accordingly, the Respondent alleged that by holding assets outside India, AS had contravened Section 4 of FEMA for a total amount of USD 690,650,641/- and subsequently the Estate of AS acquired foreign exchange worth USD 69,06,50,641/- in contravention of Section 4 of FEMA. The 05 BVI Companies i.e. Ling Tao Trading Limited, Sino Ling Tao Resources Limited, GBA Minmetals Trading Limited, Cheermark Global Limited and Joy king Global Limited of Late AS derived profit amounting to around USD 690,650,641 (approx. Rs. 5718,58,73,074/-) through Salgaocar’s iron ore trading activities. The same was not declared before the Indian authorities. Hence by holding foreign exchange and assets outside India through BVI and Singapore Companies, Late AS contravened the provisions of section 4 of FEMA. Therefore, an order of seizure bearing no. 01/2023 dated 08.08.2023 was issued seizing the shares of Estate of Late Anil Salgaocar in 33 companies to the amount of INR 1,51,84,875/- within India, being the value equivalent in terms of Sub section (1) of Section 37A of FEMA, 1999. Ld. Counsel argued that it is pertinent to note that on perusal of the Seizure Order and the Petition, it appears that the Respondent has placed reliance solely and wholly on the contents of the statement of claim made in Singapore Suit, without appreciating that there would be a counter argument to the statement made by a plaintiff in any suit. In this case also, the suit was heavily contested by the defendant therein, and upon hearing both the sides, the judgment dated 28.02.2023 was passed by the Singapore High Court in the Singapore Suit (“Singapore Judgment”). It is also pertinent to note that the Singapore Judgment has already been challenged by the defendant therein before the Appellate Division of the Singapore High Court (“Singapore Appellate Court”) at the time of filing of the Petition, and the same is currently pending adjudication. There was no other material placed on record by the Respondent to substantiate the vague allegations of contravention of Section 4 of FEMA by AS. The Respondent’s contentions were solely based on a selective reading of the contents of the Singapore Suit without regard to the outcome of the suit or the present status thereof.
4. Ld. Counsel for the Appellant stated that Section 37A of FEMA was introduced by way of Section 142 of the Finance Act, 2015 on 14.05.2015, and came into force with effect from 09.09.2015. Ld. Counsel argued that Section 37A of FEMA cannot be applied retrospectively to contraventions of Section 4 that are alleged to have been committed prior to Section 37A of FEMA coming into force, as held by this Tribunal in Ashwani Kumar Mehra & Ors. v. A.H. Khan 2018 SCC OnLine ATFEMA 24 (“Ashwani Kumar Mehra”). The decision in Ashwani Kumar Mehra was passed by a two-member bench of this Tribunal and would have precedence over the decision of a single member of the Appellate Tribunal in Sintex Industries. Further, ED’s Appeal against the decision in Ashwani Kumar Mehra was dismissed by the Hon’ble Delhi High Court and the Order of the Hon’ble High Court merges with the order of this Tribunal and is therefore binding on the officers of ED, including the Respondent. Moreover, AS was not a person resident in India at the time of Section 37A of FEMA coming into force on 09.09.2015, or at the time of his demise on 01.01.2016. In support of this contention, the Appellant submitted employment permits issued to AS in Singapore from time to time. Section 4 of FEMA also has no application to the Estate since the Appellant, being the administratrix of the Estate, was not a person resident in India when the Appellant made amendments to the Singapore Suit or when Singapore Judgment was delivered. The burden of proof as regards residency of a person and applicability of Section 4 of FEMA is on the Respondent, and the Respondent has erroneously presumed the residence status of AS. The Singapore Judgment did not even pertain to the Subject Foreign Exchange or the shares in the five BVI Companies referred to in the Petition or the Seizure Order. Even otherwise, the invocation of Section 37A of FEMA for an alleged violation of Section 4 of FEMA in the present case was wholly premature since the enforcement of the Singapore Judgment was subject to the outcome of the Appeal preferred by the defendant before the Singapore Appellate Court and none of the assets alleged to have been held outside India have been transferred to the Estate. No provision of the FEMA has been cited / invoked by the Respondent justifying seizure under Section 37A of FEMA in the hands of the Estate. The Respondent Directorate issued a Show-Cause Notice dated 11.10.2018 bearing F. No. T-4/3-D/2018 (“SCN of 2018”) alleging contraventions of FEMA against various persons. SCN of 2018 makes detailed references to the claims made by AS in Suit 821 and the Subject Foreign Exchange. No allegation of contravention of provisions of FEMA, however, has been made in the SCN of 2018.
5. Ld. Counsel for the Appellant challenged the Impugned Order on the grounds that the rigours of Section 37 A of FEMA cannot be applied retrospectively. The retrospective operation should not be given to a provision, so as to takeaway an existing right or to impose a new liability. In this regard, Ld. Counsel cited the Judgments of the Hon’ble Supreme Court in CIT v. Vatika Township (P) Ltd., (2015) 1 SCC 1; Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602; State of Madhya Pradesh v. Rameshwar Rathod, (1990) 4 SCC 21. Ld. Counsel further argued that Respondent has completely abdicated the investigative powers conferred on it, and has merely relied upon a selective reading of the contents of the Singapore Suit. The Singapore Judgment was limited to shares of entities other than the five BVI Companies referenced in the Seizure Order and the Petition, and did not deal with Subject Foreign Exchange in any manner. Moreover, the Singapore Judgment has already been challenged by the defendant therein before the Singapore Appellate Court, and its enforcement remains subject to the outcome of the said Appeal. The Respondent Directorate had itself noted in the SCN of 2018 that information arising out of Suit 821 was to be “further investigated as per the outcome of the pending suit”, and therefore it was not open for the Respondent to suspect any contravention of Section 4 of FEMA. The Respondent Directorate made a wholly illegal and erroneous presumption that ‘constructive ownership’ of an asset is the same as ‘actual ownership’. Ld. Counsel pointed out that the documentary proof in the form of employment permits to determine the residence status was not considered in the Impugned Order. Moreover, the point in time at which the assets were ‘transferred’ to the Estate was the date of Singapore Judgment, when the Estate and the Appellant admittedly did not fall under the definition of ‘person resident in India’ under Section 2 (v) of FEMA. Ld. Counsel contended that Late AS could not declare the subject foreign exchange in his Income Tax Returns (ITRs) of Financial Years 2014-15, 2015-16 and 2016-17, since, during the said period the Singapore Suit was pending adjudication. Moreover, it is merely a presumption on the part of the Respondent Directorate that the trading profits of USD 690,650,641 were transferred and being held by the Estate. Ld. Counsel therefore pleaded to allow the Appeal.
6. Ld. Counsel for the Respondent Directorate submitted that in the facts of the present case, though the transactions of sale of Iron Ore took place between 2004-2012, the shares of the Special Purpose Vehicles (SPVs), the Companies abroad, as per the scheme devised by the parties involved, were ostensibly lying with Shri Darsan Jhaveri. It was only in the year 2015 that Late Shri Anil Vasudeo Salgaocar filed a Suit before the concerned Court in Singapore staking a claim on the shares of the said SPVs. Following the demise of Late Shri Anil Salgaocar on 01.01.2016, the Statement of Claim in the suit was amended by the administrator of his Estate, Smt. Lakshmi Anil Salgaocar. Therefore, in the facts of the present case, a stake was claimed by Late Sh. Salgaocar on the shares of the SPVs in BVI and Singapore in which the offending transactions took place, only in 2015 and thereafter the suit was amended by the present Appellant only on 01.01.2016. Moreover, the suit was decreed in favour of the Appellant on 28.02.2023. The Hon’ble Delhi High Court was informed in a parallel Income Tax proceedings on 29.08.2024 that the said shares have been transferred in the name of the Appellant herein i.e. Smt. Lakshmi Anil Salgaocar. In a petition filed by Shri Darsan Jhaveri before the Hon’ble Delhi High Court against Garnishee Notice issued by the Income Tax Department, it has been noted vide order dated 29.08.2024 in W.P. (C) 14567/2023 that:
“1. Mr. Kapil Sibal, learned senior counsel, who appears on behalf of the petitioner, submits that in view of the subject shares [concerning the companies located in Singapore and British Virgin Islands] having been transferred to respondent no. 4, he has instructions not to press the above-captioned writ petition.”
Ld. Counsel stated that it is seen from the memo of parties of the abovementioned W.P. that Respondent No. 4 therein was the Appellant herein i.e. Smt. Lakshmi Anil Salgaocar. Therefore, Ld. Counsel argued that the trigger events giving rise to the violation of Section 4 of FEMA have all occurred post September 2015 i.e. when Section 37A was inserted in FEMA.
7. Ld. Counsel for the Respondent Directorate contended that the provisions of Section 37 A of FEMA do not create new liabilities retrospectively but address the existing violations that are ongoing or having enduring effects post-enactment. The characterization of Section 37A of FEMA as a penal provision by the Appellant is incorrect, since it is a regulatory provision designed to address situations where contraventions of Section 4 of FEMA result in unlawful acquisition of foreign assets. Further, Section 37A of FEMA merely ensures an opportunity to defend before the adjudication proceedings and seeks to preserve the integrity of economic transactions. Ld. Counsel cited that the observations of the Hon’ble Supreme Court in the case of Rao Shiv Bahadur Singh vs. The State of Vindhya Pradesh (1953) SCR 1188, at Para 8, while interpreting Article 20(1) of the Constitution of India, was pleased to place reliance on the decision of Lord Denman CJ in Queen v. St. Mary Whitechapel, 116 ER 811 and held that:
“a statute which in its direct operation is prospective cannot properly be called a retrospective statute because a part of the requisites for its action is drawn from a time antecedent to its passing.”
Ld. Counsel placed further reliance on the decision of the Hon’ble Supreme Court in the case of Sajjan Singh vs. State of Punjab (1964) 4 SCR 630.
8. Ld. Counsel for the Respondent Directorate submitted that the Appellant has also failed to consider that though the alleged violations occurred before 2015, but the foreign exchange assets acquired in contravention of Section 4 of FEMA continued to exist post-enactment of Section 37A of FEMA. Therefore, the provision applies to address such continuing effects of prior contraventions. Section 4 of FEMA, 1999 is reproduced as below:
“4. Holding of foreign exchange, etc. – Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.”
Ld. Counsel argued that from a bare perusal of the above provision, the activities pertaining to the Section 4 of FEMA, would be continuous activities. Ld. Counsel cited the case of State of Bombay v. Vishnu Ramchandra, (1961) 2 SCR 26, wherein the Hon’ble Supreme Court has held:
“12…….An offender who has been punished may be restrained in his acts and conduct by some legislation, which takes note of his antecedents; but so long as the action taken against him is after the Act comes into force, the statute cannot be said to be applied retrospectively. The Act in question was thus not applied retrospectively but prospectively.”
Ld. Counsel further cited the case of Gokak Patel Volkart Ltd. v. Dundayya Gurushiddaiah Hiremath, (2015) 6 SCC 222.
Ld. Counsel therefore contended that for the present case of a contravention under the FEMA, the date of coming into force of the Section 37A of FEMA i.e., 09.09.2015 is irrelevant if the FEMA contravention is continued to be committed on a date subsequent to the above date. To support his contention, Ld. Counsel relied upon the case of Gokak Patel Volkart Ltd. v. Dundayya Gurushiddaiah Hiremath (1991) 2 SCC 141, wherein the Hon’ble Supreme Court has held:
“26. Applying the law enunciated above to the provisions of Section 630 of the Companies Act, we are of the view that the offence under this section is not such as can be said to have consummated once for all. Wrongful withholding, or wrongfully obtaining possession and wrongful application of the company’s property, that is, for purposes other than those expressed or directed in the articles of the company and authorised by the Companies Act, cannot be said to be terminated by a single act or fact but would subsist for the period until the property in the offender’s possession is delivered up or refunded. It is an offence committed over a span of time and the last act of the offence will control the commencement of the period of limitation and need be alleged. The offence consists of a course of conduct arising from a singleness of thought, purpose of refusal to deliver up or refund which may be deemed a single impulse. Considered from another angle, it consists of a continuous series of acts which endures after the period of consummation on refusal to deliver up or refund the property. It is not an instantaneous offence and limitation begins with the cessation of the criminal act, i.e. with the delivering up or refund of the propriety. It will be a recurring or continuing offence until the wrongful possession, wrongful withholding or wrongful application is vacated or put an end to. The offence continues until the property wrongfully obtained or wrongfully withheld or knowingly misapplied is delivered up or refunded to the company. For failure to do so sub-section (2) prescribes the punishment. This, in our view, is sufficient ground for holding that the offence under Section 630 of the Companies Act is not one time but a continuing offence and the period of limitation must be computed accordingly, and when so done, the instant complaints could not be said to have been barred by limitation. The submission that when the first respondent upon his retirement failed to vacate and deliver possession of the company’s quarter to the company the offence must be taken to have been complete, has, therefore, to be rejected.”
9. Ld. Counsel for the Respondent Directorate argued that, it can be seen that Section 37A of FEMA is not a final provision under FEMA and the Adjudication Proceedings have to occur in order to attain finality. Therefore, any order under Section 37A of FEMA is not a final order and merely an interim measure in order to protect the foreign exchange of the country till the completion of investigation and adjudication proceedings. Ld. Counsel therefore pleaded to dismiss the Appeal.
10. We have considered the rival submissions and the material on record. We find that the Seizure Order No. 01/2023 issued on 08.08.2023 by the Assistant Director, Goa, Enforcement Directorate relate to shares of value Rs. 1,51,84,875/- in 33 Indian Companies. The said shares were being held by the Estate of Late Shri Anil Salgaocar. The seizure was effected in terms of the provisions of Sub-Section (1) of Section 37A of FEMA. It was found in the enquiry by the Respondent Directorate that all the assets in India as well as abroad were held by the companies in which Late Shri Anil Salgaocar was the shareholder and after his demise all the shares were transferred in the name of Estate of Shri Anil Salgaocar which is being administrated by Smt. Lakshmi Salgaocar W/o Late Shri Anil Salgaocar. The Seizing Officer has recorded the following in the said Seizing Order:
“12. Hence, I have reason to believe that Estate of Late Shri Anil Salgaocar acquired foreign exchange worth USD 69,06,50,641 (equivalent to Rs. 5718,58,73,074.80 as on 08.08.2023 calculated @ Rs. 82.80 per USD) in contravention of section 4 of Foreign Exchange Management Act, 1999 and therefore, the shares of Estate of Late Anil Salgaocar in 33 companies to the amount of INR 1,51,87,350, are liable to be seized in terms of the provisions of sub-section (1) of section 37A of FEMA. 1999 and in terms of G.S.R. 702(E) dated 16.09.2015 & G.S.R. 701(E) dated 16.09.2015 issued by the Central Government.”
11. It is not disputed that the enquiry is based upon the Suit No. 821 of 2015 filed by the Late Shri Anil Salgaocar against Shri Darsan Jitendra Jhaveri in the General Division of The High Court of the Republic of Singapore. After the demise of Late Shri Anil Salgaocar on 01.01.2016, the administrator of Estate of Late Shri Anil Salgaocar, i.e. Smt. Lakshmi Salgaocar, the Appellant herein amended the statement of claim in the suit. It appears that around December 2003, it was agreed between Late Shri Anil Vassudeva Salgaocar and Shri Darsan Jitendra Jhaveri that Late Shri Anil Vassudeva Salgaocar would set up Special Purpose Vehicles (“SPVs”) for the conduct of businesses and the holding of assets/investments abroad. Among the SPVs to be set up for the conduct of business, Late Shri Anil Vassudeva Salgaocar had set up SPVs in the British Virgin Islands (“BVI”) for selling iron ore into China. Late Shri Anil Vassudeva Salgaocar was responsible for providing the necessary funds required for the SPVs, including for the capitalization, making of investments, acquisition of assets, and for all operating and trading expenses. Shri Darsan Jitendra Jhaveri would be a shareholder and/or director and/or bank signatory of the SPVs and would hold such position in the capacity of a Nomincee shareholder of Late Shri Anil Vassudeva Salgaocar and/or fiduciary and/or for the benefit of and/or in trust for Late Shri Anil Vassudeva Salgaocar. Shri Darsan Jitendra Jhaveri would act in accordance with the instructions of Late Shri Anil Vassudeva Salgaocar as to any actions to be taken in connection with the SPVs. Thus, Shri Darsan Jitendra Jhaveri was to hold any position in the SPVs only in a fiduciary capacity for the benefit of Late Shri Anil Vassudeva Salgaocar, and was to act in accordance with instructions of Late Shri Anil Vassudeva Salgaocar.
In consideration for his role, Shri Darsan Jitendra Jhaveri would be paid a certain consideration (the Consideration amount detailed in the Suit is of USD$ 0.50 for each Wet Metric Ton (WMT) of iron ore sold by the BVI trading company). In furtherance to the above agreement, Late Shri Anil Vassudeva Salgaocar had set up the following SPVs in BVI viz, Ling Tao Trading Ltd, Sino Ling Tao Trading Ltd., GBA Minmetals Trading Ltd, Cheermark Ltd and Joyking Global Ltd. These 5 BVI companies procured iron ore exclusively from the mines of the Late Shri Anil Vassudeva Salgaocar group companies in India and such iron ore was resold by these BVI Companies into the Chinese market. The enquiry further revealed that it is detailed in the Suit filed by Late Shri Anil Salgaocar and later amended by the administrator of Estate of Shri Anil Vassudeva Salgaocar, Smt. Lakshmi Salgaocar that during the period from April 2004 to July 2012, Late Shri Anil Vassudeva Salgaocar group sold/exported about 22.75 million tons of iron ore in China through the aforesaid 5 BVI companies (of which Late Shri Anil Vassudeva Salgaocar was the beneficial owner), realizing turnover of USD 1,79,42,74,012/- and net trading profits of about USD 690,650,641/-. The Suit was decreed by the Singapore High Court in favour of the Appellant on 28.02.2023 as its evident from the Order dated 29.08.2024 passed by the Hon’ble Delhi High Court in W.P. (C) 14567/2023. It is noted in Paragraph 1.8 of the Impugned Order that from the perusal of the ITRs of Late Shri Anil Salgaocar for A.Y. 2014-15, 2015-16 and 2016-17 that neither the Companies floated in BVI and Singapore nor the profits derived from these Companies were declared by Late Shri Anil Salgaocar to the Indian Authorities.
12. It is pertinent to note the provisions of Section 37A (1) of FEMA. The provisions are as follows:
“37A. Special provisions relating to assets held outside India in contravention of section 4.—(1) Upon receipt of any information or otherwise, if the Authorised Officer prescribed by the Central Government has reason to believe that any foreign exchange, foreign security, or any immovable property, situated outside India, is suspected to have been held in contravention of section 4, he may after recording the reasons in writing, by an order, seize value equivalent, situated within India, of such foreign exchange, foreign security or immovable property:
Provided that no such seizure shall be made in case where the aggregate value of such foreign exchange, foreign security or any immovable property, situated outside India, is less than the value as may be prescribed.”
We observe that the information was received on the basis of Panama Paper Leaks which led to an investigation that revealed the details of the Suit No. 821 of 2015 filed by Late Shri Anil Salgaocar in the General Division of The High Court of the Republic of Singapore. These details provide reasons to believe that the Foreign Exchange worth Rs. 5718,58,73,074.80 was suspected to be held abroad in contravention of Section 4 of FEMA. The provisions of the said Section are as follows:
“4. Holding of foreign exchange, etc.—Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India.”
The investigation has brought out that the said foreign exchange was acquired by the aforementioned five BVI Companies through trade and resale of Iron Ore mined in India to China. It is also on record that in the said five BVI Companies Late Shri Anil Salgaocar had predominant ownership and control interests. The aforementioned foreign exchange continued to be held abroad even till 28.02.2023 when the Suit was decreed in favour of the Estate of Late Shri Anil Salgaocar. We do find that the Respondent Directorate therefore had reasons to believe to suspect the contravention of Section 4 of FEMA, so as to initiate the step of seizure prescribed under the provisions of Section 37A (1) of FEMA.
13. Ld. Counsel for the Appellant has challenged the Impugned Order on the grounds that the seizure was made pre-maturely since the profit of USD 690,650,641/- being acquired by the Estate of Late Shri Anil Salgaocar was subject to the Appeal filed by the other parties against the decision dated 28.02.2023 of Singapore High Court. However, we find that even in the petition No. W.P. (C) 14567/2020 filed by Shri Darsan Jhaveri, the other party in the Suit, before the Hon’ble Delhi High Court, it was noted in Order dated 29.08.2024 that the shares had been transferred to the Respondent No. 4 viz the Appellant herein. In the Impugned Order, it has been inferred in Paragraph 6 ix as follows:
“It is also an undisputed fact that the Singapore Suit was decided in the favour of the Estate of AVS, however, Defendants in the Singapore Suit have preferred an Appeal against the Judgment dated 28 February, 2023 on 14 August, 2023, which remains pending till date. Hence, as on date decision of Singapore suit is in favour of the Respondents.”
The filing of Appeal which is pending before the Court does not change the fact of the acquisition and ownership of the foreign exchange by the Estate of Late Shri Anil Salgaocar. We cannot therefore accept the contention of the Appellant that the acquisition of the said profit amounting to around USD 690,650,641/- has not been acquired by the Estate of Late Shri Anil Salgaocar, as on 28.02.2023.
14. The provisions of Section 37 A (4) of FEMA are as follows:
“37A. Special provisions relating to assets held outside India in contravention of section 4.—
(4) The order of the Competent Authority confirming seizure of equivalent asset shall continue till the disposal of adjudication proceedings and thereafter, the Adjudicating Authority shall pass appropriate directions in the adjudication order with regard to further action as regards the seizure made under sub-section (1):
Provided that if, at any stage of the proceedings under this Act, the aggrieved person discloses the fact of such foreign exchange, foreign security or immovable property and brings back the same into India, then the Competent Authority or the Adjudicating Authority, as the case may be, on receipt of an application in this regard from the aggrieved person, and after affording an opportunity of being heard to the aggrieved person and representatives of the Directorate of Enforcement, shall pass an appropriate order as it deems fit, including setting aside of the seizure made under sub-section (1).”
We observe that the Appellant has not disclosed the fact of such foreign exchange having been brought back to India. These provisions also reflect that the seizure is only a temporary measure so as to safeguard the foreign exchange held abroad by a person resident in India. The provisions also bring out that it is ultimately the Adjudicating Authority, which shall pass appropriate direction in the Adjudication Order with regard to further action as to be taken against the seized movable property. In fact, in the present case the seizure is merely of value Rs. 1,51,84,875/-, which is a small percentage of the trading profits of Rs. 5718,58,73,074/-. In view of the aforementioned, not only were there reasons to believe to suspect the contravention of Section 4 of FEMA, but also the SCN has been issued on 11.10.2018 for such contravention.
15. Ld. Counsel for the Appellant argued that the provisions of Section 37A of FEMA were inserted vide Section 142 of the Finance Act, 2015 and the provisions came into force with effect from 09.09.2015. It was further argued that since the Seizure Order dated 08.08.2023 and the Impugned Order dated 29.12.2023 do not dispute that the profits which were allegedly acquired abroad arose from trading in iron ore from 2004 to 2012, the provisions of Section 37A of FEMA cannot be applied retrospectively. We find from the facts of the case that profits around USD 69,06,50,641 have been derived by the Five Companies in BVI viz Ling Tao Trading Limited, Sino Ling Tao Resources Limited, GBA Minmetals Trading Limited, Cheermark Global Limited and Joyking Global Limited through the iron ore trading activities of Late Shri Anil Salgaocar. It is also evident that Late Shri Anil Salgaocar and Shri Darsan Jhaveri entered into an agreement in December, 2003 not only to set up the aforementioned Special Purpose Vehicles (SPVs) in the BVI, but also to provide for the funding of investment and of expenses by Late Shri Anil Salgaocar. Shri Darsan Jhaveri was made a Shareholder/Director/Bank Signatory of the SPVs to act in trust for Late Shri Anil Salgaocar and to act in accordance with the instructions of Late Shri Anil Salgaocar. In consideration for his role, Shri Darsan was to be paid consideration of USD 0.50 for each Wet Metric Ton of iron ore sold by the BVI Trading Companies. The five BVI Companies procured iron ore exclusively from the mines of Late Shri Anil Salgaocar Group of Companies in India, which in turn was sold in China. It seems that there arose a dispute between Late Shri Anil Salgaocar and Shri Darsan Jhaveri, leading to initiation of Suit No. 821 of 2015 by Late Shri Anil Salgaocar in the High Court of Singapore. It is on record that Late Shri Anil Salgaocar died on 01.01.2016. The Notification dated 05.05.2016 published in Gazette of Government of State of Goa declared Smt. Lakshmi Salgaocar, Shri Arjun Anil Salgaocar, Shri Sameer Anil Salgaocar, Smt. Purnima Salgaocar and Smt. Chandana Salgaocar as legal heir of Late Shri Anil Salgaocar. From the record it is obvious that the dispute between Late Shri Anil Salgaocar and later amended by the Administrator of Estate of Late Shri Anil Salgaocar viz Smt. Lakshmi Salgaocar continued till the Judgment dated 28.02.2023 was passed by the Singapore High Court in the said Suit. The Judgment was in favour of the Estate of Late Shri Anil Salgaocar, there was thus acquisition of the said profit by the Estate of Late Shri Anil Salgaocar on 28.02.2023. There is nothing on record to show that the Appeal filed against the Judgment dated 28.02.2023 has been decided. Therefore, it appears that the Estate of Late Shri Anil Salgaocar continues to hold the said foreign exchange abroad, even after 28.02.2023. Under these circumstances of the present case the question of retrospectivity does not arise.
16. Even if the argument that the profits that were generated in the past from 2004 to 2012, accrued to Late Shri Anil Salgaocar then, is considered, we find that as on 09.09.2015, the date on which Section 37A of FEMA came into force, the said profits continued to be held by Late Shri Anil Salgaocar through the SPVs created by him. In this regard, Paragraph 14 of the Judgment of the Hon’ble Supreme Court in the case of Sajjan Singh vs. State of Punjab (1964) 4 SCR 630 is worth citing:
“14. Looking at the words of the section and giving them their plain and natural meaning we find it impossible to say that pecuniary resources and property acquired before the date on which the Prevention of Corruption Act came into force should not be taken into account even if in possession of the accused or any other person on his behalf. To accept the contention that such pecuniary resources or property should not be taken into consideration one has to read into the section the additional word “if acquired after the date of this Act” after the word “property”. For this there is no justification.”
We further cite the Judgment of the Hon’ble Supreme Court in the case of Mohan Lal vs. State of Rajasthan (2015) 6 SCC 222. Following Paragraphs of the Judgment are being reproduced as follows:
“24. In the instant case, Article 20(1) would have no application. The actus of possession is not punishable with retrospective effect. No offence is created under Section 18 of the NDPS Act with retrospective effect. What is punishable is possession of the prohibited article on or after a particular date when the statute was enacted, creating the offence or enhancing the punishment. Therefore, if a person is in possession of the banned substance on the date when the NDPS Act was enforced, he would commit the offence, for on the said date he would have both the “corpus” and “animus” necessary in law.
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29. We have dwelled upon the said submission, as the learned counsel for the State has seriously addressed that it is a continuing offence. We have already opined that on the date the NDPS Act came into force, the appellant – accused was still in possession of the contraband article. Thus, it was possession in continuing and hence, the principle with regard to continuing offence gets attracted.”
The Suit No. 821 was decided in favour of the Appellant on 28.02.2023. There was thus prima facie basis available to provide the reasons to believe to the Respondent Directorate to suspect that the contravention of Section 4 of FEMA continues to occur.
17. Ld. Counsel for the Appellant has raised an issue regarding the question about Late Shri Anil Salgaocar and the Appellant Smt. Lakshmi Salgaocar not being residents in India. In this regard, Section 2(u) and Section 2(v) of FEMA are reproduced below:
“2. Definitions.—In this Act, unless the context otherwise requires,—
(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;
(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—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) 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—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) 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;”
We find there is nothing on record to show that the year wise stay in India, during the relevant period, of Late Shri Anil Salgaocar was only upto 182 days. The argument which has been advanced is that Late Shri Anil Salgaocar had been issued employment permits of Singapore. However, the aforementioned provisions of Section 2 (v) of FEMA make it clear that a person, who has resided for more than 182 days in India may not be included as a person resident in India provided, he has gone out of India for taking up employment outside India or for doing business outside India or for any other purposes whereby the intention to stay outside India for uncertain period is indicated. In the absence of any evidence as to show that Late Shri Anil Salgaocar had gone out of India with intention to stay abroad for and uncertain period, we cannot agree with the proposition that Late Shri Anil Salgaocar at any stage of the relevant period i.e. from 2004 till 01.01.2016 was a person, who was resident outside India. Another argument taken by the Appellant is that she has been resident outside India. There is no ambiguity in the fact that Smt. Lakshmi Salgaocar is the Appellant in her capacity as the administratrix of the Estate of Late Shri Anil Salgaocar. It is also on record that the Notification dated 05.05.2016 published in Gazette of Government of State of Goa, declared Smt. Lakshmi Salgaocar, Shri Arjun Anil Salgaocar, Shri Sameer Anil Salgaocar, Smt. Purnima Salgaocar and Smt. Chandana Salgaocar as legal heir of Late Shri Anil Salgaocar. We do not find that the residential status of Smt. Lakshmi Salgaocar is relevant to the present issue. We also note that there cannot be any case of holding the Estate of Late Shri Anil Salgaocar, even if counted as ‘person’ under Section 2 (u) of FEMA, as person resident outside India. The Seizure Order dated 08.08.2023 has therefore resulted in seizure of the movable properties in the form of shares in 33 Indian Companies presently held by the Estate of Late Shri Anil Salgaocar in accordance with the provisions of Section 37A (1) of FEMA.
18. In view of the aforementioned discussions and analysis, we uphold the Impugned Order dated 29.12.2023 and the Seizure Order dated 08.08.2023. We therefore dismiss the Appeal No. FPA-FE-24/GOA/2024 filed by Smt. Lakshmi Anil Salgaocar being devoid of merit. Applications pending, if any, are disposed of accordingly.
