Govt Authorities Can't Use Alternate Remedy Doctrine As A 'China Wall' Against Invocation Of Writ Jurisdiction: Karnataka High Court

The Karnataka High Court has observed that the doctrine of alternate remedy cannot be used as a rigid barrier against invocation of its writ jurisdiction, especially by entities falling under Article 12 of the Constitution.

Justice Krishna S Dixit relied on the Supreme Court decision in Godrej Sara Lee Ltd vs. Excise & Taxation Officer to hold so. 

“In all cases, the entities answering Article 12 of the Constitution of India cannot press into service the doctrine of alternate remedy as the China Wall against the invocation of writ jurisdiction.”

The petitioner was a private company established in 2019 under the Companies Act, contesting a seizure order passed by the Enforcement Directorate freezing its bank account for alleged violation of provisions of the Foreign Exchange Management Act.

The petitioner argued that the seizure order was tainted with malice, an abuse of power, lacked proper consideration, and was unreasonable. They contended that the freeze on their bank accounts prevented them from fulfilling essential financial obligations, such as paying taxes and salaries.

However, the respondents argued that the petition was not maintainable since an alternative remedy exists under Section 37A(5) of FEMA. They asserted that the freeze is part of ongoing proceedings under the Act and that the petitioner should address their concerns in that forum.

The court reiterated that the doctrine of an alternative remedy does not bar every petitioner from approaching the writ court and that it depends on the specific circumstances of each case and the need to achieve justice.

“It hardly needs to be stated that the rule of alternate remedy is not a Thumb Rule to non-suit every litigant approaching the Writ Court. It all depends upon facts & circumstances of each case and the requirement of doing justice to the aggrieved.”

The bench agreed with the respondents that the case involves disputed facts, particularly concerning the large sum remitted to foreign entities which cannot be adequately adjudicated within the writ jurisdiction. 

“The amount involved is huge i.e., about Rs.83 crore admittedly remitted to foreign entities; that constitutes arguably about 90% of the revenue of the petitioner-Company. Whether this amount was paid for defraying the advertisement expenditure undertaken in the course of business, is a pure question of fact on which parties are at loggerheads.”

For this reason, the court decided to abstain from adjudicating on such pure questions of facts since it involves a host of intricacies of facts, which ordinarily judges are unfamiliar with.

"After all, what the Writ Courts address is the decision making process and not the decision itself.”

However, the bench allowed the petitioner to operate its bank accounts for the purpose of paying statutory dues, such as taxes and levies, citing Opto Circuit India Ltd v. Axis Bank, where the Supreme Court permitted a similar arrangement.

“The limited indulgence of this court is eminently warranted at least to the extent of permitting the petitioner to operate the bank accounts for making payment of statutory dues such as the taxes, levies, etc.”

The court further noted that Section 37A created specific procedures and authorities for handling disputes of this nature. It also acknowledged the potential risk of defeating the purpose of proceedings under the Act if the frozen funds are allowed to be withdrawn without safeguards.

Therefore, the court suggested that the petitioner should furnish a bank guarantee to cover the withdrawn amount to the satisfaction of the authorities.

However, it partly allowed the petition saying,  “Nothing observed in the course of judgment shall be construed as expressing anything on the merits of the matter that is being considered at the hands of the Competent Authorities/Tribunal under the provisions of 1999 Act.”

It thus partly quashed the seizure order to the extent that it prohibited the petitioner from withdrawing funds for paying taxes and levies without the need for additional security.

However, the respondent authorities were directed to permit the petitioner to operate its bank accounts to the extent of the value of the bank guarantees they provide as a precondition.

It was also clarified that these observations do not pass judgment on the merits of the matter, which is under consideration by the Competent Authorities/Tribunal under the Act.

Accordingly, the Court partly allowed the petition. 

Citation: 2023 LiveLaw (Kar) 363

Appearance: Senior Advocate Aditya Sondhi a/w Advocate Karan Joseph for Petitioner.

ASG A R L Sundaresan a/w Advocate Madhukar Deshpande for Respondents.

Case Title: Pigeon Education Technology India Private Limited And Directorate of Enforcement & Others

Case NO: WRIT PETITION NO.11532 OF 2023

Date of Order: 19-09-2023

Click Here To Read/Download Order