Pranav Gupta Vs Commissioner of Customs (Appeals) (Appellate Tribunal under SAFEMA, New Delhi)
FEMA Seizure of Former Directors’ Properties Upheld Despite Company’s Insolvency Resolution
Summary: The Appellate Tribunal under SAFEMA, New Delhi, dismissed two appeals filed by Shri Pranav Gupta and Shri Vineet Gupta, former Managing Director and Whole-time Director, respectively, of Parabolic Drugs Ltd., challenging the confirmation of seizure of their immovable properties under Section 37A of the Foreign Exchange Management Act, 1999. The appeals arose from the Competent Authority’s order dated 17 January 2022, confirming the Enforcement Directorate’s seizure order dated 18 September 2020. The investigation concerned alleged foreign exchange defaults of USD 77,52,918.67, equivalent to approximately ₹36.53 crore, attributable to advance import remittances for which physical imports or supporting documentation remained outstanding and export proceeds that had not been realised. The Directorate relied primarily on information furnished by Authorised Dealer Banks and the appellants’ inability to establish that the outstanding transactions had been regularised. The confirmation order related to immovable properties held by the two appellants in their individual names.
The Enforcement Directorate alleged outstanding advance import remittances equivalent to approximately ₹11.91 crore and unrealised export proceeds of approximately ₹24.62 crore. The appellants disputed the inference of foreign exchange contravention. They submitted that Parabolic Drugs Ltd. had conducted substantial pharmaceutical imports and exports over many years and that documentation disputes related to only a small part of its overall transactions. They maintained that relevant records had been supplied to the banks, the Enforcement Directorate and the Resolution Professional. They also contended that the underlying imports and exports belonged to the company, not to them personally, and that their directorship alone could not justify seizure of individually owned properties before the company’s contravention had been established. The Enforcement Directorate countered that both appellants had occupied influential management positions and had failed to ensure the realisation of export proceeds, regularisation of import advances or necessary extensions from the Authorised Dealer Banks or the Reserve Bank of India.
A principal objection concerned the statutory period of 180 days for confirmation of seizure under Section 37A(3) of FEMA. According to the appellants, the seizure order of 18 September 2020 had ceased to operate on 17 March 2021 because confirmation was not obtained within the prescribed period. They argued that the Supreme Court’s pandemic-related limitation extensions could not be used to deprive persons of their property rights, particularly when the Competent Authority was functioning and receiving submissions. The Tribunal rejected this objection. It referred to the Supreme Court’s order dated 10 January 2022 in the suo motu limitation proceedings, under which the period from 15 March 2020 to 28 February 2022 stood excluded for limitation purposes in judicial and quasi-judicial proceedings. The Tribunal held that proceedings before the Competent Authority under Section 37A were quasi-judicial in nature and fell within the scope of the exclusion. Since the seizure, filing of the confirmation petition and confirmation order occurred within the excluded period, the confirmation could not be invalidated as time-barred.
The Tribunal also examined the appellants’ complaint that they had been denied cross-examination of persons whose statements formed part of the investigation, had not been supplied certain departmental comments and had not received an effective final opportunity of hearing. Referring to the Supreme Court decisions in Kanungo & Company, Dharampal Satyapal Ltd., State of U.P. v. Sudhir Kumar Singh and Telestar Travels Pvt. Ltd., the Tribunal held that denial of cross-examination does not invariably result in violation of natural justice. Whether relief is warranted depends on the evidence relied upon and the prejudice actually caused. In the present matter, the seizure was not founded solely upon witness statements. Specific outstanding amounts had been reported by Authorised Dealer Banks, and the appellants had acknowledged documentation disputes relating to the transactions. The record also showed that personal hearings had been provided on more than one occasion. The Tribunal accordingly found no demonstrated prejudice sufficient to invalidate the confirmation proceedings.
Another important issue was the effect of the corporate insolvency resolution process and Section 32A of the Insolvency and Bankruptcy Code, 2016. Parabolic Drugs Ltd. had entered insolvency proceedings in August 2018, and its resolution plan was subsequently approved by the NCLT on 12 January 2021. The appellants relied on the moratorium and the restrictions on proceedings against the corporate debtor, contending that the foreign exchange transactions were undertaken by the company. The Tribunal rejected the attempt to extend the company’s insolvency-related protection automatically to its former management. It noted that Shri Pranav Gupta was responsible for strategic management and supervision of day-to-day affairs, while Shri Vineet Gupta participated in the company’s board decisions. Relying on Manish Kumar v. Union of India, the Tribunal emphasised that protection afforded to a qualifying corporate debtor following resolution does not automatically immunise former promoters or persons in management, or their personal properties, from action permitted by applicable law.
On the substantive basis for seizure, the Tribunal considered the information furnished by Authorised Dealer Banks, the outstanding import and export transactions and the failure to establish their regularisation through repatriation, completion of the transactions or appropriate extension or condonation. It observed that Section 37A(1) of FEMA permits seizure of equivalent assets situated in India where the prescribed authority records reasons to believe that foreign exchange, foreign security or immovable property situated outside India is suspected to be held in contravention of Section 4. The Tribunal found sufficient material at the interim stage to support the seizure. It also explained that confirmation of seizure under Section 37A(4) is protective and continues pending the disposal of adjudication proceedings. The provision contemplates further action following adjudication and permits an application for appropriate relief where the foreign exchange or property is brought back into India, subject to its statutory conditions. Since neither final adjudication nor qualifying repatriation had occurred, the Tribunal declined to vacate the seizure.
The Tribunal ultimately dismissed both appeals, holding that the objections concerning statutory limitation, natural justice, directors’ responsibility and insolvency protection did not justify interference with the confirmation order. The ruling does not represent final adjudication of every alleged foreign exchange contravention or a final confiscation order. Rather, it sustains the interim seizure of equivalent Indian assets pending the proceedings contemplated by FEMA. Its compliance significance lies in the importance of timely export realisation, documented import remittance closure, reconciliation with Authorised Dealer Banks, preservation of supporting evidence and obtaining permissible extensions or condonation where necessary. It also illustrates the distinction between protection available to a resolved corporate debtor and the potential continuing exposure of persons formerly responsible for its affairs.
Introduction
The Appellate Tribunal under SAFEMA, New Delhi, upheld the seizure of immovable properties belonging to two former directors of Parabolic Drugs Ltd. under Section 37A of the Foreign Exchange Management Act, 1999 (FEMA). The proceedings arose from outstanding export proceeds and advance import remittances for which supporting import evidence remained pending.
Dismissing both appeals, the Tribunal rejected challenges concerning limitation, denial of cross-examination and protection arising from insolvency proceedings. It held that the company’s resolution did not shield its erstwhile management from action permissible under the applicable law.
Background of the Dispute
Parabolic Drugs Ltd. manufactured pharmaceutical ingredients and traded in pharmaceutical products through imports and exports. Pranav Gupta served as its Managing Director, while Vineet Gupta was its Whole-time Director.
According to the Enforcement Directorate (ED), information obtained from Authorised Dealer (AD) Banks disclosed outstanding foreign exchange equivalent to approximately ₹36.53 crore. This comprised approximately ₹11.91 crore in advance import remittances against which imports were allegedly not completed and ₹24.62 crore in unrealised export proceeds.
On 18 September 2020, the ED ordered seizure of the appellants’ immovable properties. The Competent Authority confirmed the seizure on 17 January 2022. The appellants challenged that confirmation before the Tribunal.
Arguments of the Appellants
The appellants argued that the seizure had expired because it was not confirmed within the 180-day period under Section 37A(3). They maintained that the Supreme Court’s pandemic-related limitation orders did not justify extending the period, particularly when the Competent Authority was functioning and receiving submissions.
On merits, they submitted that the transactions belonged to the company and that they had acted only in their capacity as directors. They claimed that documentation disputes concerned a small proportion of the company’s overall business and that relevant records had been supplied to banks and investigating authorities.
They also relied on the company’s corporate insolvency resolution process, the moratorium declared by the NCLT and subsequent approval of its resolution plan. Additionally, they alleged denial of an effective hearing and cross-examination.
Tribunal’s Findings on Limitation
The Tribunal rejected the contention that the confirmation order was time-barred. It relied on the Supreme Court’s order dated 10 January 2022, excluding the period from 15 March 2020 to 28 February 2022 for limitation purposes in judicial and quasi-judicial proceedings.
The Tribunal held that confirmation proceedings under Section 37A were quasi-judicial in nature. The seizure order, the petition seeking confirmation and the confirmation order all fell within the excluded period. Consequently, the limitation objection failed.
Denial of Cross-Examination: Prejudice Must Be Established
The Tribunal observed that the seizure did not rest solely on statements. It was also supported by specific information from AD Banks, while the appellants themselves acknowledged disputes concerning documentation of the outstanding transactions.
In these circumstances, the Tribunal found that denial of cross-examination had caused no demonstrated prejudice. It also noted that personal hearings had been provided on more than one occasion.
Referring to Supreme Court decisions, including Dharampal Satyapal Ltd., Sudhir Kumar Singh and Telestar Travels Pvt. Ltd., the Tribunal emphasised that an alleged procedural lapse does not invariably invalidate proceedings. Its effect must be assessed against the requirements of fairness and the prejudice actually caused.
Insolvency Resolution Did Not Protect Former Management
The Tribunal rejected the appellants’ attempt to dissociate themselves from the company’s affairs. It noted their responsibilities in strategic management, daily operations and board decisions during the relevant period.
Relying on Manish Kumar v. Union of India, the Tribunal referred to the safeguards underlying Section 32A of the Insolvency and Bankruptcy Code, 2016. Protection available to a qualifying corporate debtor following resolution does not automatically extend to persons formerly responsible for its business who were involved in the relevant wrongdoing.
Accordingly, the company’s insolvency resolution did not make the seizure of the appellants’ properties unlawful.
Seizure Was an Interim Protective Measure
The Tribunal found that the bank inputs and investigation furnished reasons to believe that foreign exchange was suspected to be held abroad contrary to Section 4 of FEMA. It also noted the failure to secure realisation or return of the amounts, or obtain appropriate extension or condonation.
The Tribunal emphasised the transient nature of seizure under Section 37A(4). Confirmation continues pending adjudication, with further directions to follow. Repatriation of the foreign exchange may also support an application for appropriate relief.
Conclusion
Both appeals were dismissed. The ruling upholds the continued seizure at the interim stage and highlights the importance of bank-confirmed reconciliation, timely foreign exchange compliance and proof of actual prejudice when challenging procedural deficiencies.
