ED Couldn’t Deny NOCs for Remitting Funds Abroad Based on Mere FEMA Summons; Clear Proof of Contravention Was Required | HC

Case Details: Times Internet Ltd. v. Directorate of Enforcement - [2024] 169 taxmann.com 496 (HC-Delhi)

Judiciary and Counsel Details

• Sanjeev Narula, J.
• R.K. Handoo, Yoginder Handoo & Ashwin Kataria, Advs. for the Petitioner.
• S.V. Raju, ASG, Anurag Ahluwalia, CGSC, Samrat Goswami, Abhigyan Siddhant & Gaurav Sarkar, Advs. for the Respondent.

Facts of the Case

In the instant case, the Petitioner companies were engaged in overseas investments in innovative digital ventures, by establishing various wholly owned subsidiaries (WOS).

The Petitioner companies received summons under section 37(1) of the FEMA, from Respondent-ED, seeking certain documents and information. The Petitioners sought No Objection Certificate (NOC) from the respondent under rule 10 of FEM (Overseas Investment) Rules, 2022 for the remittance of funds to their WOS abroad. However, their request was denied.

It was noted that the prolonged investigation without any conclusion, coupled with a lack of action under FEMA, was insufficient to justify the denial of the petitioner’s right to make further investments. Further, the petitioners had a legitimate expectation of conducting their business unhindered, particularly in the absence of definitive findings against them.

High Court Held

The High Court held that the mere issuance of summons under section 37(1) of the FEMA, without any finding of contravention under section 4 and alleged non-compliance with provisions of Section 131 and 132 of the Income-tax Act, 1961 could not be a valid ground for denial of NOC.

Therefore, impugned communications were to be set aside and the petitioners were free to approach the Authorised Dealer for remittance of investment abroad.