Chennai: In a significant legal development, the Madras High Court rejected connected writ petitions filed by the MP’s daughter J Sri Nisha, his son J Sundeep Aanand, and Accord Distilleries and Breweries Private Limited, wherein his son serves as a director, challenging the proceedings initiated by the Enforcement Directorate (ED) against him and his family members under the Foreign Exchange Management Act (FEMA).
The ED alleged that the DMK MP subscribed to 70 lakh shares of Singapore-based Silver Park International Private Limited without the required Reserve Bank of India (RBI) approval, thereby violating FEMA Sections 3, 4, 8, and 15, along with statutory regulations. Additionally, it was discovered that the MP had transferred shares to his family members, leading to charges of improper acquisition of foreign securities.
Further investigations revealed that on September 15, 2018, the MP transferred 45 lakh shares to his wife J. Anusuya, 22.5 lakh shares to his daughter, and the remaining 2.5 lakh shares to his son. Subsequently, they were also charged with improper acquisition of foreign securities, given their status as Indian citizens.
An authorised officer under FEMA seized properties equivalent to the foreign securities, prompting the competent authority to declare on February 3, 2021, that the interim seizure order couldn’t be confirmed due to a lack of proof of payment for the shares. The ED appealed this decision to the appellate tribunal, and the matter is currently pending adjudication.
Meanwhile, the authorised officer moved the adjudicating authority (Special Director of ED) under Section 16 of FEMA, issuing a show cause notice on December 22, 2021, followed by a corrigendum on March 13, 2023.
During court proceedings, Additional Solicitor General AR.L. Sundaresan, assisted by ED Special Public Prosecutor Rajnish Pathiyil, argued that the MP’s actions contravened FEMA provisions. The charge against the MP was that he subscribed to 70 lakh shares of Singapore-based Silver Park International Private Limited without RBI approval, amounting to 70 lakh Singapore dollars, approximately Rs 32.69 crore.
The authorized officer under FEMA had seized certain properties equivalent to the foreign securities of the writ petitioners. The order of interim seizure was submitted before the competent authority for approval, as required under Section 37A of FEMA.
In response to the ED proceedings, the writ petitioners, including the MP and his family members, contended that parallel proceedings could not be initiated against them on the same set of facts when the competent authority had already held that there was no material to support the charges.
The judge, however, rejected this argument, emphasizing that the competent authority’s finding was specific to the seizure order, while the question of whether the petitioners violated FEMA provisions could only be decided by the adjudicating authority.
Justice N. Seshasayee stated, “The fact that the statute has created two independent authorities…does not enable telescoping the effect of what the latter may do into the power vested in the former. The fact that both these powers are vested in different authorities does not make the order passed by the Competent Authority vis-a-vis the seizure of assets any superior as to interfere with the power of adjudication of the adjudicatory Authority.”
It is worth noting that the Income Tax Department, in a statement last October, disclosed findings from week-long income tax searches at around 100 locations linked to DMK MP S Jagathrakshakan and the Saveetha group of educational institutions. The searches reportedly revealed unaccounted fee receipts worth 400 crore, bogus expenditures for 500 crore in the distillery business, and fund diversion of 300 crore from trusts for personal expenditure. The MP has been under the scrutiny of both the ED and IT departments for an extended period, with searches conducted in the past linked to his premises.
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