SHANKER SHARMA Vs. DIRECTOR OF ENFORCEMENT

JUDGEMENT

(1.) The petitioner by this petition under Section 439 of the Code of Criminal Procedure, 1973 (for short 'Code of Criminal Procedure') is seeking bail in the case under Sections 8(1), 19(1)(b) of Foreign Exchange Regulations Act, 1973 (for short/'FERA') read with sub-Sections (3) &.(4) of Section 49 of Foreign Exchange Management Act, 1999 (for short "FEMA").

(2.) Prosecution allegations in brief are that after noticing abnormal outflow of foreign exchange from the stock market. Enforcement Directorate.Mumbai Zonal Office made enquiries from the Securities and Exchange Board of India Act, 1992 (for short 'SEBI') vide their letter dated 7/03/2001. On receipt of information, the department took up investigation and sought information from First Global Stock Broking Private Limited for short 'FGSBPL') of which petitioner is the director. On 3/10/2001, reference was received from the Income-tax Department regarding sale of shares of Himachal Futuristic Communication Ltd. (for short 'HFCL') by FGSBPL, to Foreign Institutional Investors (for short 'FIIs') and their sub-accounts, at half the prevailing market rates. Earlier on 1/10/2001, reference from Reserve Bank of India (for short 'RBI') was also received regarding irregularities in overseas investments by FGSBPL. Since the transaction of sale of shares of HFCL took place on 3/03/2000, inquiries.under FERA were also initiated and summon was issued to the petitioner to join investigations on 23/10/2001. The petitioner through his advocates asked about the nature of investigations before filing replies to the queries of the department. It is alleged that despite seven opportunities and summons, neither the petitioner nor his wife Mrs.Devina Mehra, who is also a director in said "company joined the investigations. Therefore, a complaint was filed for their prosecution for non- compliance of the summons under Section 56 of FERA read with sub-Sections (3) and (4) of Section 49 of the FEMA in the Court of CMM, Mumbai on 26/11/2001. The Court took cognizance and issued summons for appearance of the petitioner on 26th February, 2002. Show cause notices for non-compliance of summons were also issued on 19th November, 2001. In the third week of November, 2001, the Enforcement Directorate received copies of documents pertaining to the transactions in HFCL shares from the Income -tax Department. On scrutiny of these documents search of the premises connected with FGSBPL was conducted between 24th and 26/11/2001. Some computer hard discs, floppies, Indian currency and other incriminating documents were seized. However residential premises of the petitioner at Mumbai could not be searched as none was available and same had to be sealed. On 27/11/2001, petitioner sent a communication through the lawyers stating that they are sending keys of their house at Mumbai through their employee Hitesh Kavelkar and Pankaj Walla, who shall represent them at the time of search. However, they also did not turn up.

(3.) Enquiries were also made from RBI on the issue of sale of shares of HFCL acquired on private placement basis by group of companies of the petitioner to FIIs. RBl in their letter dated 11/12/2001 confirmed that the sale of said shares by the group of companies of the petitioner and the-purchase by the FIIs under sub-accounts was violative of the provisions of FERA. Thereafter, on 17/12/2001, Department conducted search of company's premises at Delhi under.Section 37 of FERA, Where, petitioner was staying. Statement of the petitioner was recorded under Section 40 of FERA and on 18/12/2001, on finding that a prima facie case for violation of Sections 19(1)(b) of FERA having been made out, he was put under arrest and is in judicial custody.