REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5188   OF 2008 (Arising out of SLP (C.) No. 1830 of 2007)

Monotosh Saha  ..Appellant

Versus

Special Director, Enforcement Directorate And Anr.  ..Respondents

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Leave granted.

2. Challenge  in  this  appeal  is  to  the  order  passed  by  a

Division  Bench  of  the  Calcutta  High  Court  dismissing  the

appeal  filed   by  the  appellant  under  Section  35  of  Foreign

Exchange Management Act, 1999 (in short the ‘Act’).

3. Background facts in a nutshell are as follows:

Memorandum  was  issued  by  the  Enforcement

Directorate,  Ministry  of  Finance.  On   the  basis  of  certain

statements  recorded  it  was  indicated  therein  that  M/s

Godsons  (India)   and  its  proprietor,  the  present  appellant

had acquired foreign exchange contravening the provisions of

Section 8(1) of the Foreign Exchange Regulation Act, 1973 (in

short the ‘Foreign Exchange Act’)  thereby rendering him liable

to  be  proceeded  under  Section 50  of  the  Foreign Exchange

Act.   The  memorandum  was  issued  under  Rule  3  of  the

Adjudication  Proceedings  and  Appeal  Rules,  1974  (in  short

‘Adjudication Rules’).  The reply to the show cause notice was

filed  by  the  appellant.  The  Special  Director,  of  Foreign

Exchange Act passed an order  on 13th May, 2005 imposing

penalty  of  Rs.25  lakhs  on  the  appellant.  The  appellant

preferred  an  appeal  before  the  Appellate  Tribunal  (Foreign

Exchange) (in short the ‘Tribunal’) and filed an application for

dispensing  with  the  requirement  of  pre-deposit.  By  order

dated 7.3.2006 the Tribunal passed an order directing deposit

of 60% of the penalty amount for the purpose of entertaining

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the appeal.  An appeal was filed under Section 35 of the Act

which came to be dismissed by the High Court holding that no

case for hardship was made out either before the Tribunal or

before  it  and,  therefore,  there  was no scope  of  interference

with the order of the Tribunal. However, time permitting the

deposit was extended.  

4. In  support  of  the  appeal,  learned  counsel  for  the

appellant  submitted  that  a  case  for  dispensing  with  pre-

deposit was made out. In any event, in compliance with this

Court’s  interim  order  dated  5.2.2007  the  amount  of

Rs.10,00,000/-  has  been  deposited  with  the  concerned

Directorate.

5. Learned counsel for the respondents on the other hand

submitted  that  the  appellant  did  not  make  out  a  case  for

dispensing with pre-deposit and, therefore,  the order of the

Tribunal as affirmed by the High Court  does not suffer from

any infirmity.  

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6. Principles  relating to grant of  stay pending disposal  of

the  matters  before  the  concerned  forums  have  been

considered  in  several  cases.  It  is  to  be  noted  that  in  such

matters  though  discretion  is  available,  the  same  has  to  be

exercised judicially.

7. The applicable principles have been set out succinctly in

Silliguri Municipality and Ors. v. Amalendu Das and Ors. (AIR

1984 SC 653) and  M/s Samarias Trading Co. Pvt. Ltd. v.  S.

Samuel and Ors. (AIR 1985 SC 61) and Assistant Collector of

Central Excise v. Dunlop India Ltd. (AIR 1985 SC 330).

8. It is true that on merely establishing a prima facie case,

interim order of protection should not be passed.  But if on a

cursory glance it appears that the demand raised has no leg to

stand, it would be undesirable to require the assessee to pay

full  or  substantive  part  of  the  demand.   Petitions  for  stay

should not be disposed of in a routine matter unmindful of the

consequences flowing from the order requiring the assessee to

deposit full or part of the demand.  There can be no rule of

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universal application in such matters and the order has to be

passed keeping in view the factual scenario involved.  Merely

because this Court has indicated the principles that does not

give a license to the forum/authority to pass an order which

cannot  be  sustained  on  the  touchstone  of  fairness,  legality

and public interest. Where denial of interim relief may lead to

public  mischief,  grave  irreparable  private  injury  or  shake

citizens’  faith  in  the  impartiality  of  public  administration,

interim relief can be given.

9. It has become an unfortunate trend to casually dispose

of  stay  applications  by  referring  to  decisions  in  Siliguri

Municipality and  Dunlop  India cases  (supra)  without

analysing factual scenario involved in a particular case.

10. Section 19 of the Act reads as follows:

“19(1). Save as provided in sub-section (2), the Central  Government or  any person aggrieved by  an  order  made  by  an  Adjudicating Authority, other than those referred to in sub- section  (1)  of  section  17,  or  the  Special Director (Appeals), may prefer an appeal to the Appellate Tribunal :

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Provided  that  any  person  appealing  against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall  while  filing  the  appeal,  deposit  the amount of such penalty with such authority as may be notified by the Central Government:

Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal  may  dispense  with  such  deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.”  

11. Two significant  expressions  used  in the  provisions  are

“undue  hardship  to  such  person”  and  “safeguard  the

realization  of  penalty”.   Therefore,  while  dealing  with  the

application  twin  requirements  of  considerations  i.e.

consideration  of  undue  hardship  aspect  and  imposition  of

conditions to safeguard the realization of penalty have to be

kept in view.

12. As noted above there are two important expressions in

Section 19(1).  One is undue hardship. This is a matter within

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the special knowledge of the applicant for waiver and has to be

established by him.  A mere assertion about undue hardship

would  not  be  sufficient.   It  was  noted  by  this  Court  in  S.

Vasudeva v.  State of Karnataka and Ors. (AIR 1994 SC 923)

that under Indian conditions expression “Undue hardship” is

normally related to economic hardship.  “Undue” which means

something  which  is  not  merited  by  the  conduct  of  the

claimant,  or  is  very  much  disproportionate  to  it.  Undue

hardship is caused when the hardship is not warranted by the

circumstances.

13. For a hardship to be ‘undue’ it must be shown that the

particular  burden  to  have  to  observe  or  perform  the

requirement  is  out  of  proportion  to  the  nature  of  the

requirement itself, and the benefit which the applicant would

derive from compliance with it.

14. The  word  “undue”  adds  something  more  than  just

hardship.   It  means  an  excessive  hardship  or  a  hardship

greater than the circumstances warrant.   

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15. The  other  aspect  relates  to  imposition  of  condition  to

safeguard the realization of penalty.  This is an aspect which

the Tribunal has to bring into focus.  It is for the Tribunal to

impose such conditions as are deemed proper to safeguard the

realization of penalty.  Therefore,  the Tribunal while dealing

with the application has to consider materials to be placed by

the assessee relating to undue hardship and also to stipulate

condition as required to safeguard the realization of penalty.

16. The above position was highlighted in Benara Valves Ltd.

and Ors. v.  Commissioner of Central Excise and Anr. (2006

(13)  SCC  347).   The  decision  was  rendered  in  relation  to

Section  35F  of  the  Central  Excise  Act,  1944  where  also

identical stipulations exist.

17. In the instant case Tribunal has rightly observed that the

rival stands have to be examined in detail with reference to

material on record.  

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18. The  only  other  question  that  needs  to  be  examined  is

whether  any  reduction  of  the  amounts  to  be  deposited  as

directed by the Tribunal is called for.

19. Undisputedly  the  appellant  had  deposited  the  amount

which was directed to be deposited. However, for the balance

amount demanded with a view to safeguard the realization of

penalty the appellant shall  furnish such security as may be

stipulated  by the  Tribunal.  On that  being done,  the  appeal

shall be heard without requiring further deposit if the appeal

is otherwise free from defect.  

20. The appeal is disposed of accordingly.  

……….……..........................J. (Dr. ARIJIT PASAYAT)

……………….………...............J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, August 21, 2008

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