CHENNAI: The Madras High Court on Friday ruled against the initiation of insolvency proceedings against Amma Makkal Munnetra Kazhagam (AMMK) founder TTV Dhinakaran for default of payment of the penalty imposed for violating provisions of Foreign Exchange Regulation Act (FERA) in receiving foreign contributions because the notice for the proceedings was issued even when an appeal was pending in the court.
The ED had imposed him a penalty of Rs 28 crore for violating the provisions in receiving foreign contributions during 1995-96 when he was a Member of Parliament. When he defaulted on payment of the penalty, the ED initiated insolvency proceedings under the Insolvency Act. He challenged the ED’s action in the high court which quashed the notice for insolvency proceedings in 2001. Against the single judge’s order, the Central agency preferred the appeal in 2005.
The division bench of Justices R Subramanian and R Kalaimathi on Friday pronounced orders in the case. Rejecting the contention of TTV Dhinakaran that Insolvency Act cannot be invoked, the bench held that the Act can be invoked since the penalty for FERA violations is a ‘debt’ within the meaning of the Act but it can be invoked only after the order imposing the penalty became final.
“In this case, the order (of penalty) is the subject matter of a pending appeal at the time the notice (for insolvency proceedings) was issued. Therefore, the notice is bad in law,” the bench ruled while upholding the single judge’s order. It held that a fresh notice for initiating insolvency proceedings against Dhinakaran can be issued.
Referring to the invocation of Tamil Nadu Revenue Recovery Act (TNRRA), 1984 by the ED, which sent a request to the district collector for recovery of the penalty amount from Dhinakaran, the division bench held that TNRRA is meant for collection of revenue of the state government; and so, the Revenue Recovery Act, 1890- the Central Act- might have been invoked. Additional Solicitor General (ASG) AR L Sundaresan appeared for the ED while senior counsel B Kumar represented Dhinakaran.