13-year-old ED ruling against Sterlite Industries overturned by the Bombay High Court

21 Jul 2022 , 11:58 AM

A 13-year-old Enforcement Directorate (ED) order that had fined Sterlite Industries (India) Ltd. and its promoter Anil Agarwal Rs25.20 crore for allegedly breaking foreign exchange laws when acquiring Monte Cello BV, a company that owned copper mines in Australia, has been overturned and overturned by the Bombay High Court.

In 2000, Monte Cello Corporation NV and Sterlite entered into a transaction for a price of Rs203.82 crore ($43.5 million at the time).
Later, in June 2008, the Special Director of Enforcement sent the firm and its promoter a show-cause notice, stating that they had broken the Foreign Exchange Management Act, 1999, when they sent $43.50 million for the purchase of the two copper mines.

In order to contest the ED notice, the company filed compounding applications at about the same time with the Chief General Manager of the Reserve Bank of India (RBI), the Compounding Authority.

After carefully reviewing the business’s arguments, the RBI issued five separate compounding orders requiring the company to deposit Rs25 lakh and each of its officers to contribute Rs10 lakh. The business and its management submitted the aforementioned funds as compounding fees.

The Foreign Exchange Management Act (FEMA) regulations were allegedly violated by the corporation, according to an order issued by the ED in November 2008. As a result, the company was fined Rs20 crore. Additionally, the ED fined three officers–Anil Agarwal, Tarun Jain, who at the time served as director of finance, Rs3 crore, Rs2 crore, and Somnath Patil and Lalit Singhvi–Rs10 lakh apiece.

Later, the corporation filed a complaint with the Bombay High Court challenging the legitimacy and legality of the ED’s ruling in November 2008.

For Sterlite Industries and Agrawal, Senior Advocate Venkatesh Dhond and Nishit Dhruva of MDP & Partners argued that the issue of the compounding orders ended the proceedings against the petitioners that had been started by the Special Director of Enforcement by issuing the show-cause notice.

Sandesh Patil, a lawyer with the ED, refuted this claim by claiming that the business never told the ED that it had submitted compounding applications to the approved Compounding Authority.

In its ruling dated July 14, the division bench of Justices KR Shriram and MN Jadhav noted that after the Compounding Authority has issued the compounding orders, the petitioners cannot be blamed or held accountable for violating them.