Intention Was To Stay In USA For Uncertain Period: Bombay High Court Upholds Order Imposing FERA Penalty On “Persons Resident Outside India”

The Appeals before the High Court were filed challenging the common order of the Special Director, Enforcement Directorate (ED) and the common order made by the Appellate Tribunal for foreign exchange (Tribunal) dismissing the Appeals instituted by the Appellants herein against the Special Director’s Order. The Appeal was filed by Neha Shroff, Kiran Shroff, and Kanan Shroff, who are the daughters of the directors of one M/s. Sujay Trading Corporation Pvt Ltd.

The Division Bench of Justice M.S. Sonak & Justice Jitendra Jain said, “As noted earlier, the evidence on record sufficiently establishes circumstances as would indicate the intention of the Shroff daughters to stay in the USA for an uncertain period.”

“Now that we have held that the Shroff daughters were not persons resident in India, this question of law will have to be answered against the Appellants. No arguments were advanced based upon clause 1.28 of the Exchange Control Manual, 1993. In any event, even if some aid could be taken from these provisions, the question will have to be determined in the light of the statutory definitions contained in the FERA. This is precisely what the Special Director and the Tribunal have done”, it added.

Advocate B. Seshagopalan represented the Appellant while Advocate Vinit Jain represented the Respondent.

Factual Background

It was alleged in the show cause notice that in the year 1995, the Appellant who was alleged to be a person resident outside India purchased 5,62,600 shares of M/s Ditco Securities Pvt Ltd, a company based in Mumbai at the rate of Rs. 30 per share for a total amount of Rs. 1,68,78,000 without obtaining any permission from the Reserve Bank of India (RBI) thereby contravening the provisions of the FERA. Similar allegations were made in the show-cause notices issued to the other two Shroff daughters, namely Kiran Shroff and Kanan Shroff.

The Shroff daughters denied the allegations in the show cause notices. They contended that they were not persons resident outside India but were students pursuing their higher studies in the United States of America (USA). The Appellants pointed out that they were in the USA on a visitor or student visa. Therefore, there was no necessity to obtain permission from the RBI for the purchase of shares in an Indian company. The impugned orders imposed a penalty of Rs. 41 Lakh on each of the Shroff daughters.

Reasoning

The Bench referred to Section 2 (p) of FERA, which defines “person resident in India” to mean a citizen of India, who has, at any time after the 25th day of March 1947, been staying in India, but does not include a citizen of India who has gone out of, or stays outside, India, in either case for or on taking up of employment outside, or India, or for carrying on outside India a business or vocation outside India, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.

The Bench noted that at the relevant time, the Shroff daughters were residing in the USA. There was no clear evidence suggesting that they were living in the USA for employment, business, or vocational purposes.

The Bench was of the view that where the circumstances indicated the Shroff daughters intended to stay outside India for an uncertain period, it was for the Appellants to have produced some proper material based upon which such circumstances could have been explained, and it could have been established that the Shroff daughters had no intention whatsoever to stay outside India for an uncertain period. The circumstances surrounding their stay in the USA, the length of the stay, their marriage to persons settled in the USA, and the lack of details about their return or any proposed return to India indicated an intention to stay outside India for an uncertain period.

As per the Bench, the impugned orders made by the Special Director and the Tribunal considered in detail the materials on record, which included the statements recorded during the proceedings and the documentary evidence concerning the transactions. Both authorities had correctly applied the relevant legal provision.

Thus, finding no merit in the appeal, the Bench dismissed the same.

Cause Title: Neha Shroff v. Union of India (Neutral Citation: 2025:BHC-AS:25376-DB)

Appearance

Petitioner: Advocates B. Seshagopalan, Lorna Carvalho

Respondent: Advocates Vinit Jain, Neeta Masurkar, Y. R. Mishra

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