INDIA BUSINESS WORLD SEPTEMBER (16^th - 30^th) 2007
The Month that was ...

STANCHART CHALLENGES ENFORCEMENT DIRECTORATE AUTHORITY IN SUPREME COURT

THE Supreme Court has sought an explanation from the Centre on a plea by Standard Chartered Bank challenging the power of the Enforcement Directorate to initiate proceedings against it under the Foreign Exchange Regulation Act (FERA), now known as the Foreign Exchange Management Act (FEMA). The multinational bank has argued that the Reserve Bank of India (RBI) was the appropriate authority to regulate, discipline, penalise or prosecute banks for such violations.

If the amount remitted out of the country is repatriated back, the prosecution proceedings against the concerned bank should be quashed, the bank said.

A bench comprising Justice BN Agrawal and Justice PP Naolekar is-sued notices to the Centre and the ED after hearing the plea of the petitioner bank. The apex court granted the directorate six weeks to explain its case.

For foreign exchange contraventions under FERA, the sole regulatory agnecy for enforcement was RBI, senior counsel Harsih Salve and ad-vocate Mahesh Agrawal said, on behalf of Stanchart.

According to the provision of FERA, dealing in forex requires an authorisation by the RBI. Banks were authorised to deal in forex by a licence issued by the central bank. Regulating power relating to the matter lay with the RBI, argued Mr Agrawal. The ED has no jurisdic-tion to regulate or initiate proceedigngs against banks for alleged vio-lations of FERA provisions, he submitted.

Stanchart's appeal in the Supreme Court was against a Bombay High Court order. The high court, on July 27, had dismissed the bank's pe-tition that had sought quashing of the proceedings initiated by ED against the bank.

In 1991-92, Standard Chartered Bank had been accused of violating FERA. Acting on it, the bank voluntarily decided to repatriate the amount of forex it was alleged to have been remitted out of the coun-try. Once the amount remitted out of the country was repatriated, the proceedings were illegal as the purpose was to prevent the economic losss to the country, said the bank.