Writ Against ED’s Seizure of Property Over Bogus Imports Dismissed Due to Factual Disputes; Unfit for Article 226 Review | HC

Case Details: PC Financial Services (P.) Ltd. v. Directorate of Enforcement - [2024] 166 taxmann.com 178 (HC-Delhi)

Judiciary and Counsel Details

• Manmohan, ACTG CJ & Tushar Rao Gedela, J.
• Ms Vanita Bhargava, Ajay Bhargava, Atul Pandey, Hirak Mukhopadhyay, Milind Jain & Varun Yadav, Advs. for the Appellant.
• Anurag Ahluwalia, CGSC & Abhigyan Siddhant, Adv. for the Respondent.

Facts of the Case

In the instant case, the appellant company was engaged in the business of providing unsecured short-term loans to its customers/borrowers in India via its digital application-based platform. The appellant entered into a software licence agreement with a Hong Kong-based company to provide IP and digital lending software licences to the appellant for the Indian digital micro-lending market.

ED has already filed a statutory complaint before the Adjudicating Authority alleging that the appellant made foreign remittances to different foreign companies under the guise of payments against the bogus import of services and that these amounts were held outside India by related foreign companies of the appellant.

An equivalent property value was seized from the appellant in India, and a seizure order was issued. The appellant filed a writ petition before the Single Judge, which was dismissed on the ground that disputed questions of facts as arising in the petition could not be considered by the Writ Court under Article 226 of the Constitution of India.

On appeal, the appellant contended that the Single Judge did not consider the merits of the matter as well the fact that there was no tangible material or evidence before the Seizing Authority to form “reason to believe” for effecting seizures under orders which were challenged before the Single Judge.

It was noted that ED had already filed a statutory complaint before the Adjudicating Authority, and substantial hearings had already taken place before it. Further, the issue as to how the appellant had transacted its business and by what mode etc. and whether the appellant was connected to foreign entities with whom and through which financial transactions were alleged to have been made in violation of the provisions of FEMA involved highly disputed questions of fact.

As such, the Court, exercising its powers of judicial review under Article 226 of the Constitution of India, did not possess the necessary means to render its opinion on these disputed factual matters.

High Court Held

The High Court held that since, the Single Judge had already examined the issue on merits and passed impugned judgment, there were no reasons to interfere with observations rendered by the Single Judge and, thus, instant appeal was to be dismissed.

List of Cases Reviewed

• Radha Krishan Industries v. State of Himachal Pradesh and Ors. 2021 6 SCC 771 (para 18)
• Income Tax Officer v. Lakhmani Mewal Das 1976 3 SCC 757 (para 20) followed

List of Cases Referred to

• Radha Krishan Industries v. State of Himachal Pradesh and Ors. 2021 6 SCC 771 (para 18)
• ITO v. Lakhmani Mewal Das 1976 3 SCC 757 (para 20).