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2024 (6) TMI 629 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the appellant was liable for contravention of the foreign exchange law by abetting the authorised dealers in making impermissible transfers to non-resident convertible rupee accounts; (ii) Whether the penalty imposed was excessive and required reduction.

Issue (i): Whether the appellant was liable for contravention of the foreign exchange law by abetting the authorised dealers in making impermissible transfers to non-resident convertible rupee accounts.

Analysis: The transactions were made on the appellant's instructions and resulted in credits to non-resident convertible rupee accounts from non-convertible rupee funds maintained in India. The bilateral trade and banking arrangements required payments to be effected only in non-convertible Indian rupees and within the framework of the arrangement between India and the USSR. The appellant's conduct was found to have initiated and facilitated the prohibited transfers, and the presumption relating to culpable mental state was treated as applicable in the adjudicatory proceeding. The defence that the Indian banks alone bore responsibility was rejected.

Conclusion: The charge of abetment and contravention was established against the appellant.

Issue (ii): Whether the penalty imposed was excessive and required reduction.

Analysis: Although the contravention was upheld, the amount of penalty was found to be disproportionate in the circumstances of the case. The Tribunal therefore interfered with the quantum and substituted a substantially lower penalty to meet the ends of justice.

Conclusion: The penalty was reduced from Rs. 7,67,45,000/- to Rs. 75,00,000/-.

Final Conclusion: The appeal failed on liability but succeeded on penalty, resulting in modification of the impugned order by reducing the monetary sanction.

Ratio Decidendi: A party that, while being bound by a restrictive payment arrangement, itself issues instructions causing prohibited transfers to be made through authorised dealers can be held liable for abetment, and the penalty may be reduced where it is found disproportionate to the proved contravention.

Abetment in foreign exchange transfers upheld, but disproportionate penalty was reduced after review of the contravention
Instructions issued by a party that cause authorised dealers to make transfers to non-resident convertible rupee accounts from non-convertible rupee funds can amount to abetment of foreign exchange law contravention, particularly where the payments fall outside the governing bilateral trade and banking framework. The adjudicatory proceeding treated the presumption of culpable mental state as applicable and rejected the defence that responsibility rested only with the banks. The Tribunal upheld liability but found the penalty disproportionate and reduced the monetary sanction substantially.

Abetment under Section 64(2) of FERA, 1973 - liability of a foreign central bank for contraventions within India - agency arrangements and inter-banking agreements vis-a -vis exchange control obligations - onus to ensure compliance with bilateral Trade Agreement and Exchange Control Laws - mens rea and aiding/instigation principles under Section 107 IPC applied to regulatory contraventions - judicial finality and precedential effect of interlocutory tribunal orders - principle of proportionality in imposition of penaltyLiability of a foreign central bank for contraventions within India - agency arrangements and inter-banking agreements vis-a -vis exchange control obligations - Whether the Appellant (a foreign central bank) is amenable to the provisions of FERA, 1973 and liable for contraventions occasioned by instructions issued from its Vostro accounts which resulted in transfers to non-resident convertible rupee accounts. - HELD THAT: - The Tribunal held that transactions effected by crediting non-resident convertible rupee accounts by debiting the Appellant's non-convertible rupee accounts, pursuant to instructions from the Appellant, fell outside the scope of the bilateral Trade Agreement and the inter-bank/agency arrangements which required payments only in non-convertible Indian rupees between India and the USSR. The Appellant, having entered into the inter-banking Agreement with RBI and agency arrangements with Indian ADs, had the onus to ensure that payments conformed to those Agreements. The Tribunal rejected the contention that Article 5 of the Inter-Bank Agreement or the Agreement's choice of law exempted the Appellant from Indian exchange control obligations, observing that the mechanisms created by those Agreements operated subject to the Indian Exchange Control Laws and could not be read as excluding the Appellant from the framework of FERA where it operated accounts and gave instructions in India. Applying these conclusions to the material facts - absence of underlying contracts on record, transfers to persons having no operations in India, and instructions resulting in convertible-rupee credits abroad - the Tribunal sustained liability under the statutory scheme for the contraventions committed within India. [Paras 16, 20, 22]The Appellant is covered by and amenable to FERA, 1973 and cannot escape liability for the impugned transfers effected under its instructions in breach of the Agreements and exchange control obligations.Abetment under Section 64(2) of FERA, 1973 - mens rea and aiding/instigation principles under Section 107 IPC applied to regulatory contraventions - Whether the charge of abetment under Section 64(2) read with Sections 6(4), 6(5) and 49(i)(a) of FERA, 1973 is established against the Appellant. - HELD THAT: - The Tribunal analysed abetment not narrowly as requiring express meeting of minds but by reference to aiding/instigation principles as elucidated by the Supreme Court and Section 107 IPC. It observed that the Appellant repeatedly instructed ADs to effect transfers that were prohibited by the Agreements and that such instructions, coupled with failure to make enquiries despite queries from RBI and the ADs, evidenced conduct amounting to instigation and aiding. The Tribunal relied on the regulatory presumption under Section 59 of FERA (applicable to adjudication proceedings) to place the onus on the Appellant to disprove culpable mental state; the Appellant failed to discharge this burden. On facts - missing contracts, payments to non-resident beneficiaries, and contemporaneous communications showing awareness of irregularity - the Tribunal concluded that the elements of abetment (instigation/aiding) were satisfied and upheld the charge under Section 64(2) read with the specified provisions. [Paras 21, 24]The charge of abetment under Section 64(2) read with Sections 6(4), 6(5) and 49(i)(a) of FERA, 1973 is established against the Appellant.Judicial finality and precedential effect of interlocutory tribunal orders - Whether the Tribunal's earlier orders in appeals filed by Indian ADs (ANZ Grindlays and Canara Bank) operate as binding precedent defeating the present adjudication against the Appellant. - HELD THAT: - The Tribunal examined its earlier orders of 20.09.2019 and found them not to propound a binding ratio applicable to the present appeal. It noted internal contradictions in those orders - recording contraventions but then setting aside adjudication orders and referring to deposit and lapse - and observed that those orders were under challenge before the Bombay High Court and had not attained finality. Consequently, the earlier orders did not preclude independent adjudication on merits in the present appeal, and the Tribunal proceeded to decide the matter on its own factual and legal findings. [Paras 14]The earlier tribunal orders do not bind the present adjudication and are not relied upon to defeat the appeal on merits.Principle of proportionality in imposition of penalty - Whether the penalty imposed by the Adjudicating Authority is excessive and requires reduction. - HELD THAT: - Having upheld liability, the Tribunal considered proportionality of the penalty. While noting the seriousness of the contraventions, the Tribunal found the original penalty disproportionate to the established charge of abetment and, in the interests of justice, exercised its revisionary power to reduce the penalty to a level it considered commensurate with the contravention. The Tribunal therefore substituted the adjudicated penalty with a reduced amount to meet ends of justice. [Paras 25, 26]The penalty imposed is reduced as excessive; the adjudicated penalty is substituted with a lower penalty to meet the ends of justice.Final Conclusion: The Tribunal held that the Appellant (a foreign central bank) was amenable to FERA, 1973 and established liability for abetment under Section 64(2) read with Sections 6(4), 6(5) and 49(i)(a); earlier tribunal orders concerning ADs were not binding or final; while liability was sustained, the Tribunal reduced the penalty imposed by the Adjudicating Authority and disposed of the appeal partly in favour of the Appellant.

2024 (6) TMI 628 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Cricket betting conviction upheld under FEMA Sections 3(d) and 4 but penalty reduced from Rs.124 lakhs to Rs.50 lakhs
The Appellate Tribunal under SAFEMA upheld the appellant's conviction for FEMA violations involving cricket betting operations but reduced the penalty. The appellant was found guilty of accepting and placing bets on cricket matches for overseas clients through an intermediary in Dubai, contravening Sections 3(d) and 4 of FEMA 1999. Despite the appellant's absence during the raid, substantial evidence including seized computers, mobile phones, and financial records established the illegal betting network with 19 overseas clients. The Tribunal reduced the total penalty from Rs.124 lakhs to Rs.50 lakhs (Rs.10 lakhs for Section 4 violation and Rs.40 lakhs for Section 3(d) violation) to ensure proportionality. The appeal was partly allowed with the reduced penalty amount.

Retracted confessional statements - corroboration of confession - burden to prove voluntariness of statement - admissibility of co-accused statement as substantive evidence - reliance on documents recovered under Panchnama - summons and non-production of material witness - language comprehension of recorded statement - proof of contravention of foreign exchange law relating to creation or transfer of rights outside India - proportionality of penaltyRetracted confessional statements - burden to prove voluntariness of statement - admissibility of co-accused statement as substantive evidence - corroboration of confession - Validity of reliance on the statements of the appellant and co-accused (including retracted statements) for establishing contravention - HELD THAT: - The Tribunal held that the Special Director did not rely solely on the statements of the appellant and the co-accused but also on other material recovered during search. The record shows the statements of both persons were recorded in continuity over several days and months without any contemporaneous retraction, which supported the finding that the statements were recorded voluntarily and without inducement, threat or harassment. Delayed retraction was not accepted in absence of satisfactory reasons and therefore the statements could be relied upon in conjunction with corroborative material. [Paras 16, 17, 21]The statements, though later retracted, were admissible and could be relied upon when considered together with other material; the Special Director's reliance upon them was upheld.Reliance on documents recovered under Panchnama - summons and non-production of material witness - Admissibility and evidentiary value of documents seized at the premises and the effect of non-production of the alleged author (Anik Shah) - HELD THAT: - The Tribunal accepted that documents seized and recorded under the Panchnama were admissible and could be relied upon. The authority summoned Anik Shah, who was alleged to have authored the documents, but he did not appear despite repeated summons; accordingly, the respondents' efforts to produce him were found sufficient and his non-production did not render the seized documents inadmissible. The Tribunal noted some fax/transactional material was legible and was referenced by the Special Director in support of findings. [Paras 14, 16, 18]Documents recovered during search and seized under Panchnama were properly relied upon; non-production of the alleged author after repeated summons did not vitiate reliance on those documents.Language comprehension of recorded statement - burden to prove voluntariness of statement - Whether statements recorded in English could be relied upon where the appellant claimed unfamiliarity with the language - HELD THAT: - The Tribunal found that the Special Director ensured the appellant was given assistance to understand the statements: the statement was read and explained in Hindi with an endorsement to that effect, and subsequent statements were recorded in Hindi. The record also indicated that one statement was in the appellant's handwriting and that assistance was provided by a named person. On these facts the contention that the appellant could not comprehend the statements was rejected. [Paras 8, 16]The statements were recorded after providing language assistance and could be relied upon; the appellant's claim of unfamiliarity with English did not render the statements inadmissible.Proof of contravention of foreign exchange law relating to creation or transfer of rights outside India - reliance on documents recovered under Panchnama - corroboration of confession - Whether the material on record (statements and seized documents) was sufficient to establish contravention of the foreign exchange provisions invoked - HELD THAT: - Having examined the seized material, statements, and other documentary references (including fax transmissions and account details), the Tribunal concluded there was substantial evidence to sustain the Special Director's findings that the appellant was involved in accepting/placing bets on behalf of overseas clients, thereby engaging in transactions attracting Section 3(d) and Section 4 contraventions. The Tribunal accepted the explanation in the Complaint about how outstanding balances and overseas accounts were treated and held that terms like 'received/receivable' and 'paid/payable' did not negate the contravention given the transactional nature and time-lags involved. [Paras 15, 19, 20, 21]The material on record was sufficient to substantiate the finding of contravention of the relevant foreign exchange provisions; the Special Director's conclusion on contravention was upheld.Proportionality of penalty - Appropriateness and quantum of penalty imposed for the established contraventions - HELD THAT: - While sustaining the findings of contravention, the Tribunal found the originally imposed penalties excessive relative to the contraventions. Exercising its remedial powers to adjust penalty to be proportionate, the Tribunal reduced the penalty for the Section 4 contravention from the amount imposed by the Special Director to Rs.10 lakhs, and the penalty for the Section 3(d) contravention to Rs.40 lakhs, resulting in a total penalty of Rs.50 lakhs. The Tribunal noted earlier interim deposits and procedural aspects but focussed its order on making the penalty proportionate to the contravention. [Paras 22]Penalties reduced and substituted so that penalty for the Section 4 contravention is Rs.10 lakhs and for the Section 3(d) contravention is Rs.40 lakhs, total Rs.50 lakhs; appeal partly allowed.Final Conclusion: The Tribunal upheld the Special Director's findings of contravention of the foreign exchange provisions based on statements and seized material, rejected challenges to admissibility and voluntariness of statements and to reliance on seized documents despite non-production of the alleged author, but found the penalty excessive and reduced it to Rs.10 lakhs for the Section 4 contravention and Rs.40 lakhs for the Section 3(d) contravention (total Rs.50 lakhs); the appeal is partly allowed.

2024 (5) TMI 1679 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Self write-off under RBI threshold avoids FEMA penalty where exporter made bona fide recovery efforts and complied with procedure.
Where an exporter who is a status holder effected part realisation, entered an MOU reducing the claim, pursued criminal and civil remedies and could not execute recovery against foreign assets, the outstanding export proceeds falling within the RBI self write off threshold may be treated as legitimately write offable; consequently imposition of penalty under FEMA for non realisation is not warranted on these facts and the prior penalty is set aside. The operative effect is that bona fide, documented recovery efforts plus compliance with the RBI self write off facility negate penalty liability for the specified shortfall.

2024 (5) TMI 1678 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: Whether the show cause notice and penalty orders under the Foreign Exchange Management Act, 1999 and the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 are sustainable where (i) there was substantial delay between detection of default and issuance of notice, (ii) the appellant company was not the named exporter at the time of export and relied only on an MOU with the partnership firms, and (iii) parts of the exports occurred prior to 01.06.2000 (sunset/FERA transition issue), and whether penalties on persons who were not directors at the relevant time are justified.

Analysis: The notice was issued several years after the default was detected and after interim statements were recorded; such inordinate delay engages the principle that proceedings must be initiated within a reasonable period where no statutory limitation is prescribed, and the precedent relied upon (Citi Bank) supports interference for delay. The record does not establish that the appellant company was the exporter at the time of shipment; the exporters were partnership firms and a mere MOU post-facto does not substitute for statutory or company-law steps that would transfer exporter status or create successor liability. Penalising individuals who joined the company after the alleged contravention lacks nexus to the period when the export-related obligations arose. The exports partly pre-dated 01.06.2000, raising transitional/sunset issues under FERA/FEMA which further weakens the basis for invoking FEMA against the appellant without clearer statutory or factual foundation. The respondent did not demonstrate that reasonable steps to recover export proceeds were not taken by the original exporters, nor did it justify the long delay in issuing the notice.

Conclusion: The impugned show cause notice and penalty orders are unsustainable on the grounds of inordinate delay, absence of a lawful basis to treat the appellant company as the exporter based solely on the MOU, and imposition of penalties on persons not directors at the relevant time; the appeal is allowed and the impugned order is set aside.

Inordinate delay in initiating proceedings defeats enforcement; lack of exporter status and post facto MOU precludes penalty.
Show cause notice and penalty orders under FEMA and the Export Regulations were held unsustainable on grounds of inordinate delay in issuing proceedings without statutory limitation, absence of evidence that the appellant was the exporter at time of shipment (a post facto MOU with partnership firms did not effectuate exporter status or successor liability), imposition of penalties on persons who were not directors when obligations arose, and partial occurrence of exports before the regulatory transition date creating a transitional/sunset question; respondent failed to prove lack of recovery steps or justify the delay, and the appeal was allowed.

Validity of show cause notice and penalty orders - substantial delay between detection of default and issuance of notice - Inordinate delay vitiating initiation of proceedings - realisation and repatriation of foreign exchange - liability of successor company for acts of partnership firm - director liability limited to persons in office at time of contravention. Inordinate delay vitiating initiation of proceedings - Whether the long delay in issuance of the show cause notice invalidates the proceedings under the Act of 1999 and Regulations of 2000. - HELD THAT: - The Tribunal applied the principle that where no specific limitation is prescribed, proceedings must be initiated within a reasonable time and an inordinate delay may render them untenable. Having noted that the respondent detected the default in 2001 and recorded statements up to 2004, but issued the show cause notice only in 2009, the Tribunal found no explanation for the delay. Reliance was placed on the Apex Court's reasoning that show cause notices issued after a prolonged unexplained interval are liable to be set aside. On the facts, the delay was found to be fatal to the proceedings. [Paras 25, 26, 33] The proceedings were vitiated by inordinate delay and warranted interference. Liability of successor company for acts of partnership firm - Whether the appellants (the company) could be proceeded against for alleged defaults in export realisation committed by two partnership firms which had exported in their own names. - HELD THAT: - The Tribunal examined the respondent's contention that the partnership firms merged into or were taken over by the company pursuant to an MOU. It held that the respondent failed to identify or apply any statutory provision (for example under company law) by which a partnership could be converted or merged into a private company, or the procedure by which such MOU would have legal effect to transfer exporter status and liabilities. The Tribunal emphasised that, as the exporters of record at the time of export were the partnership firms, the respondent should have proceeded against them; an unsupported MOU did not establish that the company was the exporter liable under section 7/8 and the Regulations. [Paras 22, 24, 29, 30, 31] The show cause notice and penalty could not be sustained against the company on the basis of the MOU; proceedings against the company were not justified. Director liability limited to persons in office at time of contravention - Whether penalties could be validly imposed on persons who joined the company after the alleged contravention. - HELD THAT: - The Tribunal noted that two directors on whom penalties were imposed joined the company subsequent to the period when the exports and the statutory six month realisation obligation arose. It held that imposing penalty on persons who were not directors at the relevant time could not be justified, particularly where the underlying liability against the company itself was not established. [Paras 27, 28, 31] Penalties on the directors who joined after the alleged default were unjustified. Final Conclusion: The impugned adjudication was set aside: the proceedings were vitiated by inordinate delay; the respondent failed to establish that the company succeeded to the partnership firms' exporter status by any lawful mechanism; and penalties on persons who were not directors at the time of alleged contravention could not be sustained. The appeal is allowed and the order under challenge is set aside.

2024 (4) TMI 1400 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether statements recorded under Section 108 of the Customs Act, 1962 and Section 40 of the Foreign Exchange Regulation Act, 1973 could be relied upon, and whether denial of cross-examination vitiated the adjudication. (ii) Whether the appellant's involvement in the circular trading and over-invoiced import-export arrangement established contravention of the Foreign Exchange Regulation Act, 1973 warranting penalty.

Issue (i): Whether statements recorded under Section 108 of the Customs Act, 1962 and Section 40 of the Foreign Exchange Regulation Act, 1973 could be relied upon, and whether denial of cross-examination vitiated the adjudication.

Analysis: The statements of the co-noticees and the appellant were found to be part of the same transaction and were corroborated by seizure material, export-import documents, and overseas enquiry results. The adjudicatory standard was treated as one of preponderance of probabilities, not proof beyond reasonable doubt. In the factual matrix of a clandestine transaction, the appellant did not demonstrate prejudice from denial of cross-examination sufficient to invalidate the proceedings or require a de novo inquiry.

Conclusion: The reliance on the statements was upheld, and the objection based on denial of cross-examination was rejected.

Issue (ii): Whether the appellant's involvement in the circular trading and over-invoiced import-export arrangement established contravention of the Foreign Exchange Regulation Act, 1973 warranting penalty.

Analysis: The material on record showed overvalued exports, mis-declared imports, matching of foreign buyer and seller, and movement of the goods in a circular pattern. The appellant's own statement showed acquaintance with the relevant actors and association with export activity, while the investigation record and other statements linked him to the procurement and movement of the CD-ROMs. The adjudicating authority's finding of contravention was supported by the surrounding circumstances and corroborative evidence.

Conclusion: The contravention was established and the penalty was sustained.

Final Conclusion: The challenge to the penalty failed, and the impugned adjudication was maintained in full.

Ratio Decidendi: In adjudication proceedings involving clandestine transactions, statements recorded under customs and foreign exchange law may be relied upon when corroborated by surrounding evidence, and denial of cross-examination does not vitiate the order absent demonstrated prejudice; proof is assessed on the preponderance of probabilities.

Corroborated statements and circumstantial evidence upheld in clandestine foreign exchange adjudication despite denial of cross-examination
Statements recorded under customs and foreign exchange law were relied upon because they were corroborated by seizure material, export-import documents and overseas enquiry results; in a clandestine transaction, denial of cross-examination did not vitiate the adjudication absent demonstrated prejudice. The tribunal applied the preponderance of probabilities standard, not proof beyond reasonable doubt. On the facts, evidence of circular trading, over-invoiced exports, misdeclared imports and the appellant's link to the relevant actors established contravention of foreign exchange law, and the penalty was sustained.

2024 (4) TMI 1399 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether denial of cross-examination of co-accused and other persons vitiated the adjudication; (ii) Whether contravention of Section 8(1) and Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 was established so as to sustain the penalty.

Issue (i): Whether denial of cross-examination of co-accused and other persons vitiated the adjudication.

Analysis: The record contained documentary material, including the export and import documents, shipping bill, bill of entry and invoice, which corroborated the circular trading of overvalued CD-ROMs. Statements recorded under Section 108 of the Customs Act, 1962 and Section 40 of the Foreign Exchange Regulation Act, 1973 were relied upon as part of the same transaction. In these circumstances, the refusal of cross-examination did not cause such prejudice as to require reversal of the order or a de novo enquiry.

Conclusion: The denial of cross-examination did not vitiate the adjudication.

Issue (ii): Whether contravention of Section 8(1) and Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 was established so as to sustain the penalty.

Analysis: The evidence showed overinvoiced export of 40,000 CD-ROMs, subsequent import of the same goods, transfer of export proceeds through linked accounts, and overseas enquiries showing common ownership of the foreign entities. The statements of the persons involved and the appellant's own statements supported the conclusion that the transaction was a structured device to route funds through misdeclared exports and imports. On the standard of proof applicable to adjudication, the material on record established the breach on the balance of probabilities.

Conclusion: Contravention of Section 8(1) and Section 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 was proved and the penalty was sustained.

Final Conclusion: The appellate challenge failed and the penalty order was maintained.

Ratio Decidendi: In adjudication proceedings involving clandestine foreign exchange transactions, documentary corroboration and recorded statements may suffice on a preponderance of probabilities, and denial of cross-examination does not warrant interference absent demonstrated prejudice.

Foreign exchange contravention proven on documentary corroboration; denial of cross-examination caused no prejudice and penalty stood.
Documentary corroboration and recorded statements may establish clandestine foreign exchange transactions on a preponderance of probabilities in adjudication. Where export and import records, shipping documents, invoices, linked-account transfers, and overseas enquiries show a structured device involving overvalued or misdeclared goods, contravention of the Foreign Exchange Regulation Act is proved and penalty may be sustained. Denial of cross-examination of co-accused or other persons does not vitiate the adjudication unless specific prejudice is shown; absent such prejudice, the order need not be set aside or remitted.

Imposition of penalty for contravention of Sections 8(1) and 9(1)(f)(i) of FERA, 1973 - Use of statements recorded under the Customs Act in FERA adjudication - Preponderance of probabilities - clandestine transactions - Denial of cross-examination - prejudice as to vitiate the adjudication - Contravention through overvalued export and circular trading. Use of statements recorded under the Customs Act in FERA adjudication - HELD THAT:- The modus operandi adopted in the present case has therefore not been disputed. The circular trading of the CD-ROMs manufactured in India being exported abroad at overvalued prices and thereafter import to India is not only corroborated by the Shipping Bill, Bill of Entry and invoice of M/s SCIL but also by the statements recorded under the Customs Act and FERA. The overseas enquiries have also corroborated the circular trading since the buyer and the seller abroad were owned by the same person. What has been challenged is the role of the Appellant on the grounds as mentioned before. The Tribunal held that the overvalued export of CD-ROMs, their subsequent re-import, the supporting shipping and import documents, the overseas enquiry showing common ownership of the foreign entities, and the statements recorded under the Customs Act and FERA together established the circular trading arrangement. Relying on Vinod M. Chitalia vs Union of India [2012 (5) TMI 157 - BOMBAY HIGH COURT] it held that statements recorded under Section 108 of the Customs Act are capable of being used in adjudication under the foreign exchange law when they relate to the same transaction. On the plea of denial of cross-examination, the Tribunal found that, having regard to the documentary material and the appellant's own statements, no prejudice had been caused so as to require reversal of the order or a de novo enquiry. On that basis, the appellant's involvement stood established and the finding of contravention under Sections 8(1) and 9(1)(f)(i) was sustained. [Paras 8] The penalty for contravention of Sections 8(1) and 9(1)(f)(i) of FERA was upheld and no interference with the adjudicating authority's order was warranted. Final Conclusion: The appeal was dismissed. The Tribunal upheld the finding that the appellant was involved in the overvalued export and re-import arrangement, and held that reliance on the Customs Act statements and the refusal of cross-examination did not invalidate the penalty order.

2024 (10) TMI 393 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Unexplained property investment under SAFEMA can justify forfeiture despite a bare tenancy claim
Forfeiture under SAFEMA was sustained where reliable material showed that the premises had been acquired and developed from unexplained funds linked to an affected person. The appellant's assertion that she was only a tenant running a guest house was rejected because it was unsupported by credible proof, while the assessment material, investigation record, and absence of a lawful source for the investment supported the finding that the affected person had in substance possessed the property. Late-produced rent receipts were treated as unreliable and insufficient to displace the earlier evidence, so the forfeiture order was upheld.

Forfeiture of property acquired from illegal earnings - proof of ownership versus tenancy in forfeiture proceedings - use of Income tax assessment to infer source of funds - presumption arising from failure to reply to show cause notice - reliance on investigative material and conduct of partiesForfeiture of property acquired from illegal earnings - reliance on investigative material and conduct of parties - Validity of the forfeiture order of the premises and guest house - HELD THAT: - The Tribunal held that the Competent Authority was entitled to forfeit the properties after issuance of the show cause notice and on the material that Dawood Ibrahim had been detained under the Act of 1974 and was an affected person. Investigative material and prior adjudications forfeiting properties acquired by Dawood Ibrahim in the names of relatives, together with the conduct of parties and absence of satisfactory explanation for the investment, were treated as sufficient basis for the Competent Authority to conclude that the property was attributable to illegal earnings and to confirm forfeiture. The Tribunal noted that no effective reply was filed within the prescribed period and that the detention order had neither been revoked nor set aside, allowing the Authority to proceed on the available material. [Paras 16, 18, 25]The forfeiture order of the property and guest house was upheld.Proof of ownership versus tenancy in forfeiture proceedings - presumption arising from failure to reply to show cause notice - Effect of appellant's claim of tenancy (and alleged ownership by K.M. Pardawala) on the forfeiture - HELD THAT: - The Tribunal observed that the deceased appellant repeatedly described herself as a tenant and did not claim title, yet the Competent Authority relied on material indicating occupation and investment linked to Dawood Ibrahim. The Authority placed weight on the fact that the alleged owner, K.M. Pardawala (or his legal heirs), had not challenged the forfeiture, while the person before the Authority asserted only tenancy. The Tribunal found that a tenancy claim by a person who was not shown to be the owner did not negate the material relied upon for forfeiture, particularly where the appellant failed to satisfactorily explain the substantial investment and where documentary rent receipts produced late were treated as untrustworthy. [Paras 17, 21, 22]The contention of mere tenancy and alleged ownership by K.M. Pardawala did not overthrow the finding that the property was forfeitable.Use of Income tax assessment to infer source of funds - reliance on investigative material and conduct of parties - Permissibility of relying on the Income tax assessment (Assessment Year 1990-1991) estimating investment to infer illegal source of funds - HELD THAT: - The Tribunal accepted the Competent Authority's reliance on the Income tax assessment order dated 18.12.1996 for Assessment Year 1990-1991, which had estimated an investment and added it to Dawood Ibrahim's income in the absence of disclosed sources. The assessment's findings about occupation, transfer and estimated investment were treated as relevant material from which the Competent Authority could draw inference that the investment was out of illegal earnings. The appellant's failure to provide an alternative source of the investment supported that inference. [Paras 10, 20, 21]The Income tax assessment was appropriately relied upon to infer that the investment in the property derived from undisclosed/illegal sources.Proof of ownership versus tenancy in forfeiture proceedings - Credibility of rent receipts produced late in the proceedings - HELD THAT: - The Tribunal examined the rent receipts produced by the appellant's legal heirs and recorded concerns about inconsistent signatures, unsigned receipts and cash payments. The receipts, produced at the final stage, were described as not inspiring confidence. The Tribunal did not adjudicate forgery but permitted the respondents to pursue criminal investigation into the authenticity of the receipts and directed preservation of those documents by the Registry for that purpose. [Paras 13, 23, 24]The late-produced rent receipts were regarded as unreliable for overturning the forfeiture; respondents were permitted to investigate their authenticity.Final Conclusion: The Tribunal found the Competent Authority's reliance on investigative material and the Income tax assessment justified, rejected the appellant's contention of mere tenancy/third party ownership as insufficient to upset the forfeiture, treated belated rent receipts as untrustworthy and permitted further criminal investigation, and accordingly dismissed the appeal and confirmed the forfeiture order.

2024 (10) TMI 392 - APPELLATE TRIBUNAL SAFEMA FEMA

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Company and director penalized for 24-day delay in reporting USD 3.09 million FDI receipt under FEMA Section 6(3)(b)
The AT upheld penalty imposition on a company and director for 24-day delay in reporting USD 3.09 million FDI receipt, violating FEMA Section 6(3)(b) and Regulation 5(1) of 2000. The appellant's excuse of online reporting system teething problems was rejected as the system operated for a year before becoming mandatory. The tribunal found the company had previous reporting delays, indicating non-compliance pattern. While confirming liability, the AT reduced penalty from Rs. 20 crores to Rs. 2 crores for the company and Rs. 5 crores to Rs. 5 lakhs for the director, citing excessiveness of original quantum.

Reporting requirement for FDI within 30 days - Penalty for delayed reporting under FEMA and subordinate regulations - Effect of repeal/omission and saving under the General Clauses Act - Section 47(3) saving of pre-existing RBI regulations - Technical default versus penal liability - Reasonableness of penaltyReporting requirement for FDI within 30 days - Penalty for delayed reporting under FEMA and subordinate regulations - Appellant failed to report receipt of FDI within the prescribed 30-day period and thereby violated the reporting obligation under the applicable FEMA regulations, attracting penal consequences. - HELD THAT: - The Tribunal found on the facts that the appellant received the FDI on 21.04.2016 and reported the same only on 13.06.2016, a delay of 24 days. Para 9(1)(A) of Schedule I to Regulation 5(1) of the 2000 Regulations required submission of the ARF within 30 days of receipt of consideration. The factual failure to report within the statutory period constituted non-compliance of the reporting requirement. The appellants' plea of teething/technical problems with the online reporting system was rejected because online reporting had been operational well before it was made compulsory and no substantive material was placed on record to substantiate systemic difficulties; the Tribunal also noted prior instances of delayed reporting by the appellant relevant to assessment of bonafides. The Tribunal therefore sustained liability for delayed reporting and the power to impose a penalty under the statute and regulations was held to be properly invoked. [Paras 25, 26, 27, 28, 29]Violation of the reporting obligation was established and the appellant was liable to penal consequences for delayed reporting.Effect of repeal/omission and saving under the General Clauses Act - Section 47(3) saving of pre-existing RBI regulations - Omission/repeal of Section 6(3)(b) did not preclude initiation and continuation of proceedings based on the earlier regulations; the saving and continuance principles under the General Clauses Act and Section 47(3) preserve the applicability of pre-existing RBI regulations until amended or rescinded by the Central Government. - HELD THAT: - The Tribunal analysed the interplay between the omission of Section 6(3)(b) w.e.f. 15.10.2019 and the preservation of regulatory obligations. It applied the reasoning in Fibre Boards Pvt. Ltd., holding that express omission/repeal does not necessarily extinguish rights, obligations or proceedings created under the earlier enactment where saving provisions apply. Section 47(3) of FEMA (as amended) was held to save regulations made by the RBI on capital account transactions until the Central Government amends or rescinds them; consequently the reporting obligations contained in the earlier Regulations remained operative through subsequent regulatory frameworks (2017 and 2019 Regulations) and continued to support action for delayed reporting. The Tribunal rejected the contention that omission ipso facto nullified liability, finding no legal infirmity in invoking the earlier regulatory obligations for the period in question. [Paras 33, 34, 35, 36, 37]Omission of Section 6(3)(b) did not bar proceedings; the earlier RBI regulations continued to govern reporting obligations by virtue of Section 47(3) and principles in the General Clauses Act as interpreted in Fibre Boards (supra).Technical default versus penal liability - Reasonableness of penalty - Delay in reporting was not accepted as a sufficient technical excuse to avoid penal consequences, but the quantum of penalty imposed by the Adjudicating Authority was found to be excessive and was reduced as a matter of reasonableness. - HELD THAT: - The Tribunal held that permitting blanket immunity for 'technical' delays would undermine statutory reporting mandates; hence the appellant's plea of mere technical default did not justify nullifying penal consequences. Nevertheless, penalties must be reasonable. Having considered facts including the amount involved, the period of delay, prior defaults by the appellant, and the need for proportionality, the Tribunal interfered with the quantum. The Adjudicating Authority's original penalties were substituted with reduced amounts as being fair and reasonable in all circumstances while otherwise upholding the legal and factual conclusions of liability. [Paras 29, 38, 39]Penalty liability sustained but quantum reduced for reasonableness; original penalty set aside to the extent indicated and substituted by lesser amounts.Final Conclusion: The appeal is allowed in part: the finding of liability for delayed reporting is upheld; the legal challenge to proceedings based on the omission of Section 6(3)(b) is rejected (proceedings valid in view of saving/continuance principles and Section 47(3)); the imposed penalties are moderated by the Tribunal as a matter of reasonableness and the appeal is otherwise disposed of accordingly.

2024 (10) TMI 391 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Cross-examination in foreign exchange adjudication is not absolute where relied-upon material is supplied and no prejudice is shown.
In adjudication proceedings under foreign exchange law, refusal of cross-examination does not vitiate the order where the relied-upon statements and documents were supplied, opportunities of hearing were given, the material is corroborated by seized documents and statements, and no prejudice is shown. The tribunal therefore maintained the finding of contravention under section 9(1)(f)(i) of FERA. It also considered that the penalty could not remain in full in view of the long pendency of the appeal and the pre-deposit already made, and reduced the monetary liability substantially, granting only partial relief.

Natural justice - Right to cross-examination - Discretionary power to allow cross-examination - Reliance on seized documents and statements as evidence - Penalty under Section 9(1)(f)(i) of FERA, 1973 - Pre-deposit and reduction of penalty in the interest of justiceNatural justice - Right to cross-examination - Discretionary power to allow cross-examination - Denial of opportunity to cross-examine did not vitiate the adjudication proceedings. - HELD THAT: - The Tribunal held that the Adjudicating Authority afforded multiple opportunities to the Appellant and his representatives to participate in the proceedings but those opportunities were not availed. The adjudicating authority had supplied the statements and seized documents relied upon (Annexure A to the SCN) and thereby discharged its obligation under principles of natural justice. The authority may, in the exercise of its discretion, allow cross-examination selectively; an absolute right to cross-examination in every case does not exist. The factual circumstances, including non-attendance at hearings and the Calcutta High Court's finding about non-participation, support the conclusion that denial of cross-examination did not cause prejudice warranting reversal. [Paras 5, 7, 8, 10]No violation of principles of natural justice arising from refusal to permit cross-examination; refusal did not vitiate the order.Reliance on seized documents and statements as evidence - Penalty under Section 9(1)(f)(i) of FERA, 1973 - Evidence on record sufficed to sustain imposition of penalty under Section 9(1)(f)(i) of FERA, 1973 on the Appellant. - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that seized documents from Shri Keshav Bangur's residence, explanations thereof, and corroboratory statements of co-noticees (including Shri Prakash Khaitan and Shri AK Jain) constitute clinching and contemporaneous evidence. The Appellant's partial admissions in statements regarding related transactions and the corroboration by other statements meant the denial of arranging foreign exchange did not absolve him. On these factual and evidentiary bases the Tribunal found no reason to disturb the finding of violation of Section 9(1)(f)(i). [Paras 11, 12]Findings of the Adjudicating Authority that the Appellant violated Section 9(1)(f)(i) of FERA, 1973 are sustained.Pre-deposit and reduction of penalty in the interest of justice - Penalty reduced to the amount pre-deposited in view of the appellant's death, prolonged pendency and attenuating circumstances. - HELD THAT: - Noting the Appellant's death, substitution by his widow, the fact of a pre-deposit of 20% already made pursuant to earlier directions, and the exceptional delay of nearly 19 years in disposal of the appeal despite reservation of orders, the Tribunal exercised its discretion in the interest of justice to reduce the penalty to the pre-deposited amount. [Paras 13, 14]Penalty reduced to the pre-deposit amount (Rs. 10,00,000/-) and the appeal is partly allowed and disposed of.Final Conclusion: The Tribunal upheld the adjudicating findings on violation of Section 9(1)(f)(i) of FERA, 1973 and found no miscarriage of natural justice in refusal to allow cross-examination, but in view of the appellant's death, prior pre-deposit and inordinate delay the penalty was reduced to the pre-deposited amount and the appeal was partly allowed and disposed of.

2024 (3) TMI 1558 - APPELLATE TRIBUNAL UNDER SAFEMA NEW DELHI FEMA

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Conditional pre-deposit waiver requires appellants to deposit part of the penalty to secure a stay pending appeals.
Conditional waiver of pre-deposit and stay of penalty orders pending appeal may be granted without examining merits or prima facie liability at the interim stage, where such observations could prejudice final adjudication. The appellants' limited role and lack of benefit from the alleged contraventions supported interim protection. Deposit of 10% of the penalty amount was prescribed as a condition; on compliance, the impugned order remains stayed until final disposal of the appeals.

2024 (3) TMI 1506 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Pre-deposit waiver for penalty granted where prior deposits and seized cash together met the required security.
Waiver of pre-deposit for penalty was granted where the appellant had already deposited part of the amount and the seized sum remained in the respondent's custody. The Tribunal treated the deposited amount and the seized cash together as sufficient security at the present stage, and allowed waiver for the balance pre-deposit. The appeal was then directed to proceed on merits.

2024 (3) TMI 1533 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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FEMA residency test bars property acquisition without RBI permission where employment abroad breaks resident status
A person who stays in India for more than 182 days in the preceding financial year but takes up employment outside India during that year does not qualify as a "person resident in India" under FEMA. As a person resident outside India, prior RBI permission is required to acquire immovable property in India, and acquisition without that permission contravenes the applicable immovable property regulations. The document states that such contravention supports penalty and confiscation under FEMA, and the challenge to the adjudication failed.

Prohibition on transfer of immoveable property by non-residents - Definition of person resident in India under Section 2(v) - requirement of Reserve Bank of India permission for acquisition by non-residents - lawfulness of penalty and confiscation under Section 13(1) and (2). Definition of person resident in India under Section 2(v) - HELD THAT:- The Court held that while the appellant had resided in India for more than 182 days in the preceding financial year (2002-2003), he admitted taking employment outside India in March 2003. Under the exclusion in Section 2(v), taking up employment outside India during the relevant preceding financial year removes the benefit of the 182-day residence test; accordingly the appellant did not qualify as a person resident in India for the purposes of the Act. [Paras 13, 14] Appellant was not a person resident in India in the preceding financial year because he took employment outside India during that year. Requirement of Reserve Bank of India permission for acquisition by non-residents - lawfulness of penalty and confiscation under Section 13(1) and (2) - HELD THAT:- Having found the appellant to be a non-resident, the Court applied Regulation 8 of the Acquisition and Transfer of Immoveable Property in India Regulations, 2000 (prohibiting transfer by persons resident outside India absent RBI permission) read with the then Section 6(3) of the Act. The purchase thus contravened the prohibition on transfer. The adjudicating authority lawfully invoked Section 13(1) to impose a penalty and Section 13(2) to direct confiscation of the property, the term 'property' being interpreted inclusively under the Explanation to Section 13(2). The Court found no illegality in imposing the penalty and ordering confiscation. [Paras 15, 16, 17, 18] Acquisition contravened the Regulations and the penalty and confiscation under Section 13(1) and (2) were lawful. Final Conclusion: The Court dismissed the appeal, holding that the appellant was not a resident in India for the relevant preceding financial year, that the acquisition violated the RBI-related regulations, and that the penalty and confiscation under Section 13(1) and (2) were sustainable.

2024 (3) TMI 1536 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Admissibility of investigative statements upheld where retraction deemed afterthought and documentary corroboration sustained penalties.
The appellate tribunal (AT) addressed whether Enforcement Directorate statements and seized documents could sustain penalty and confiscation under the Foreign Exchange Management Act. It applied the principle that investigative statements remain admissible unless shown to be unreliable, found the subsequent retraction to be an afterthought requiring no independent nullification, and held that the seized ledger, notebook and recipient witness statements furnished adequate documentary corroboration. The tribunal also rejected challenges to search, seizure transfer and procedural delays as not vitiating the adjudication. Outcome: appeal dismissed and penalties and confiscation under FEMA upheld against the appellant.

Admissibility of statements recorded by Enforcement Directorate - retracted confession requires corroboration - show cause notice may be issued on complaint and supporting documents where authority applies its mindAdmissibility of statements recorded by Enforcement Directorate - retracted confession requires corroboration - Statements of the appellant recorded by officers of the Enforcement Directorate and their evidentiary value despite subsequent retraction - HELD THAT: - The Tribunal held that the statements recorded by the I.O. of the Enforcement Directorate are admissible because those officers are not police exercising police powers, and the subsequent letter retracting the statements was treated as an afterthought. The Court further found that the statements were corroborated by seized ledger and notebook entries and by statements of persons who received money, satisfying the need for independent and cogent corroboration before relying on retracted admissions. [Paras 5]Statements recorded by the Enforcement Directorate were admissible and, being corroborated by seized documents and witness statements, supported the Adjudicating Authority's findings.Show cause notice may be issued on complaint and supporting documents where authority applies its mind - Validity of the show cause notice issued by the Adjudicating Authority when accompanied by the complaint filed by the Enforcement Directorate - HELD THAT: - The Tribunal recorded that the Adjudicating Authority issued the show cause notice after reviewing the complaint and documents and was satisfied with its contents; this did not demonstrate lack of independent application of mind. The presence of the complaint with the notice did not render the notice defective where the Authority had considered the materials and proceeded accordingly. [Paras 5]The show cause notice was validly issued on the basis of the complaint and supporting material; no defect was shown in the Adjudicating Authority's exercise of mind.Search and seizure followed by transfer to Enforcement Directorate - Effect of initial search and seizure by police and subsequent transfer of records to the Enforcement Directorate - HELD THAT: - The Tribunal noted that the police interception and seizure were not denied and that there was nothing on record to show the police officer was aware of FEMA violations; thereafter the case was transferred to the Enforcement Directorate for further investigation. The Tribunal treated the transfer and subsequent ED investigation as the proper basis for recording statements and relying on seized material. [Paras 5]The initial police seizure and transfer to the Enforcement Directorate did not vitiate the investigation or the use of seized material in adjudication.Delay in filing complaint is not determinative absent demonstrated prejudice - Whether the delay of several years in filing the complaint before the Adjudicating Authority invalidated the proceedings - HELD THAT: - The Tribunal considered the contention regarding delay and found no sufficient showing that the delay caused prejudice or rendered the adjudication unsustainable. Errors in totalling of amounts in documents were not held to be fatal in the absence of demonstrated prejudice to the appellant. [Paras 5, 6]The delay in filing the complaint did not invalidate the proceedings and was not a ground to set aside the impugned order.Final Conclusion: The appeal is dismissed and the Adjudicating Authority's order imposing penalties and confiscation is upheld, the Tribunal finding the ED statements admissible and corroborated, the show cause notice valid, the seizure and transfer proper, and the delay in filing the complaint not fatal.

2023 (11) TMI 1428 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Waiver of pre-deposit considered on arguable prima facie case and hardship; conditional partial deposit plus bank guarantee required.
Application for waiver of pre-deposit under the Foreign Exchange Management Act was considered on whether an arguable prima facie case and undue hardship exist; the analysis balanced admissibility and weight of evidence against the need to safeguard penalty recovery and applied principles permitting conditional waiver with adequate security. Outcome provided a partial conditional waiver: a percentage of the penalty must be deposited and an equivalent portion secured by a bank guarantee, with the remainder waived until final disposal of the appeal.

Application for waiver of pre-deposit of the penalty - prima facie case - financial hardship/undue hardship - conditional interim relief by deposit and bank guarantee - no pre-judgment of merits - penalty for contraventions under FEMA - inadmissibility of private diaries as books of account - HELD THAT:- It is neither feasible nor advisable at this stage to go deep into the merits of the main appeal in order to avoid pre-judging the issues involved therein. Having given due consideration to the contentions from both sides, however, the existence of an arguable prima facie case cannot be altogether denied. At the same time, the order impugned in this appeal is, at the first look, by no means an order which has no legs to stand on. Considering the ratio of the decisions of the Hon’ble Delhi High Court in Bank of Baroda [2005 (2) TMI 918 - DELHI HIGH COURT] and the Hon’ble Supreme Court in Monotosh Saha [2008 (8) TMI 9 - SUPREME COURT] the next question that arises is what is the quantum of waiver, if any, to be granted in the instant case. As per the respondent’s own written reply, the two concerns are the proprietary concerns of the appellant. Under the Income- tax Act, income from a proprietary concern will be included in the income of the proprietor filed in his capacity as an individual. As such, there can be no separate ITR for a proprietary concern. The situation would have been different had the business been carried out in the capacity of an HUF, firm, company etc. In that case, there would have been a separate return for such entity. At the same time, find force in the respondent Directorate’s submission that it is difficult to believe that a person who was engaged in business operations of such magnitude has discontinued all income-earning activities and is living on the charity of family members. No submissions have been made regarding the level of income of his immediate family. It is quite possible that the business activity which was being carried on in the name of the appellant was deliberately discontinued but the same or any other business is being carried on in the name of another family member under a different name and style. It would be appropriate to direct the appellant to deposit 25% of the penalty and offer bank guarantee from any of the scheduled banks for a further 25% of the penalty, whereupon, the remaining 50% of the penalty imposed shall remain waived off until the final disposal of the appeal. Accordingly, an amount of Rs. 19,50,000/- shall be deposited in the manner specified in para 8.6 (page no. 55) of the impugned order and, in addition, the bank guarantee for an identical amount in favour of the respondent Directorate shall also be submitted to the Directorate within eight weeks from the date of receipt of this order.

2023 (9) TMI 1570 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Single property purchase by subsidiary doesn't constitute real estate business under FEMA requires systematic continuous activity
The Appellate Tribunal under SAFEMA ruled in favor of respondents in a FEMA contravention case. The tribunal found that a single purchase of residential real estate in UK by a step-down subsidiary did not constitute real estate business, as business requires systematic and continuous activity. The respondents had properly declared their investments through ODI forms and Annual Performance Reports, which were not questioned by authorities. The tribunal rejected the lifting of corporate veil principle since the investment structure was transparently disclosed. Consequently, charges under Sections 4, 6(3)(h), and 10(6) of FEMA were not established, and the seizure of mutual funds worth Rs. 10.35 crores could not be sustained.

Prohibition on direct investment in a foreign entity engaged in real estate business - bona fide business activity in respect of overseas wholly owned and step down subsidiaries - validation of declarations in Form ODI and Annual Performance Reports - regulation of immediate purpose of foreign exchange acquisition versus ultimate end use - acquisition of immovable property outside India and applicability of Section 4 of FEMA - seizure under the special provisions of Section 37A of FEMA and its revocation on adjudication - distinction between branch/office/agency and wholly owned/step down subsidiaries for control - consequential liability of directors and persons in control for contraventions of FEMAProhibition on direct investment in a foreign entity engaged in real estate business - bona fide business activity in respect of overseas wholly owned and step down subsidiaries - real estate business - Whether the investment by the Indian party contravened the ODI Regulations by resulting in investment in a foreign entity engaged in real estate business and whether the overseas entities lacked a bona fide business activity. - HELD THAT: - Regulation 5(2) prohibits direct investment by an Indian party in a foreign entity engaged in real estate business. Regulation 6(2)(ii) requires that an overseas wholly owned subsidiary be engaged in a bona fide business activity. The Regulations apply to the entire chain of entities; a step down subsidiary cannot be used to escape the requirement that overseas entities have bona fide business. However, the term 'real estate business' contemplates continuity and organized trading in real estate; a solitary purchase of a residential apartment does not, by itself, constitute real estate business. On the facts, no evidence shows that the WOS or the SDS 1 engaged in real estate business, and the SDS 2's single purchase of the UK residential property was not established as carrying on real estate business. Consequently the charge invoking Regulation 5 and Regulation 6(2)(ii) is not made out. [Paras 31, 32, 33]The allegation of contravention of the ODI Regulations by reason of investment in a foreign entity engaged in real estate business and for lack of bona fide business activity is rejected.Validation of declarations in Form ODI and Annual Performance Reports - regulation of immediate purpose of foreign exchange acquisition versus ultimate end use - Section 10(6) FEMA - declarations to Authorised Dealer - Whether the declarations made in the Forms ODI and the Annual Performance Reports were invalidated by the subsequent purchase of immovable property and whether contravention of Section 10(6) FEMA was established. - HELD THAT: - The respondents filed Forms ODI for each tranche declaring the purpose as equity contribution to a WOS to act as an SPV for downstream trading, and filed APRs with RBI which reiterated those declarations. The appellant alleged these were a smokescreen and that the ultimate end use breached Section 10(6). Section 10(6) regulates the purpose declared by the purchaser of foreign exchange; it does not directly regulate every ultimate end user of funds once transferred through legitimate channels. Documentary evidence, including APRs and the SDS 2's trading records and bank statements, support that the SDS 2 engaged in trading activity and that the declarations were neither false on their face nor queried by the Authorised Dealer/RBI. The original funds in question were first put to use by the SDS 2, but that alone does not invalidate the ODI/ APR declarations where trading activity is evidenced. [Paras 34, 35, 36]The declarations in the Forms ODI and APRs are not invalidated by the purchase of the UK property and the charge under Section 10(6) FEMA is not proved.Acquisition of immovable property outside India and applicability of Section 4 of FEMA - distinction between branch/office/agency and wholly owned/step down subsidiaries for control - lifting of corporate veil and place of effective management - Whether the acquisition of the UK immovable property by the BVI step down subsidiary amounted to acquisition by the Indian party in contravention of Section 4 of FEMA. - HELD THAT: - Section 4 forbids a person resident in India from acquiring immovable property situated outside India, save as otherwise provided. The appellant argued that the SDS 2 was effectively a branch/office/agency or under the control of the Indian party, thereby attracting Section 4. The tribunal examined incorporation documents, the SDS 2's board, trading bank statements, and statements on record. While ownership structure may permit some influence by the Indian parent, limited influence or occasional validation does not amount to de jure or de facto control sufficient to treat the SDS 2 as a branch/office/agency of the Indian party. There is no documentary proof that the SDS 2's affairs were managed as a mere alter ego of the Indian party; the corporate veil need not be lifted where the factual status of entities is disclosed and separate directors and operations exist. Therefore the acquisition by the SDS 2 cannot be attributed to the Indian party under Section 4. [Paras 38, 39, 40, 41]The charge under Section 4 of FEMA is not established; the acquisition by the BVI subsidiary is not attributable to the Indian party.Seizure under the special provisions of Section 37A of FEMA and its revocation on adjudication - Whether the seizure of mutual funds under the Seizure Order and its confirmation could be sustained in view of the adjudication findings. - HELD THAT: - Seizure under Section 37A is based on prima facie belief of contravention. The Competent Authority had confirmed the seizure. The Adjudicating Authority, and on appeal this Tribunal, have concluded that none of the substantive contraventions alleged against the respondents are established. The immovable property was sold and proceeds were remitted to India. Given that the charges are dropped on merits and the relevant funds have been repatriated, the basis for sustaining the seizure is removed. [Paras 9, 41, 42, 43]The seizure of the mutual funds cannot be sustained and the Adjudicating Authority's order for release is upheld.Consequential liability of directors and persons in control for contraventions of FEMA - Whether the consequential allegations against directors and the person in control stand once the primary allegations against the Indian party are found not established. - HELD THAT: - The SCN invoked provisions for liability of directors and persons in control as consequential to the principal contravention by the Indian party. The Adjudicating Authority found no contravention by the Indian party and accordingly dropped consequential charges against directors and the person in control. This Tribunal notes that the appellant did not include the fourth noticee as a respondent in the appeal; in any event, where principal contraventions are not established, consequential invocations against officers fall away. [Paras 9, 25, 42]Consequential charges against the directors and other noticees are dropped; the impugned AO stands in their favour.Final Conclusion: The Tribunal finds that the appellant has not established contraventions of the FEMA provisions and ODI Regulations as alleged; the Adjudicating Authority's findings and orders (including revocation of seizure and release of seized mutual funds) are upheld, the appeal is dismissed and the consequential charges against the other noticees fall away.

2023 (9) TMI 1561 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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FEMA Section 3(c) violation upheld for receiving Dubai payments without RBI permission despite retraction attempts
The Appellate Tribunal SAFEMA, New Delhi dismissed the appeal challenging penalties under FEMA, 1999. The appellant received payments from a Dubai resident without RBI permission, violating section 3(c). The Tribunal upheld the validity of search and seizure operations under section 37(3) of FEMA read with section 132 of Income-tax Act, 1961. Documentary evidence seized during the operation, corroborated by statements from 14 recipients who confirmed receiving amounts on foreign instructions, established the violation. The appellant's attempted retraction was deemed an afterthought with little evidentiary value, as he failed to rebut the documentary evidence or deny having a brother-in-law named Imtiyaz in Dubai.

Receipt of payment from abroad in contravention of section 3(c) of FEMA, 1999 - imposition of personal penalty under section 13(1) of FEMA, 1999 - application of the presumption under section 132(4A) of the Income tax Act, 1961 - evidentiary weight of confessional statements and seized documents - retraction and its evidentiary valueReceipt of payment from abroad in contravention of section 3(c) of FEMA, 1999 - imposition of personal penalty under section 13(1) of FEMA, 1999 - Appellant was guilty of contravention of section 3(c) of FEMA, 1999 by receiving payments from abroad and liable to penalty under section 13(1). - HELD THAT: - The Tribunal upheld the adjudicating authority's finding that the appellant received remittances totalling as recorded in the seized documents during November 2002 to January 2003 and thereby contravened the prohibition in section 3(c) of FEMA, 1999. The Special Director's order recorded detailed documentary evidence, the appellant's sworn admissions recorded on the day of search and in a subsequent statement, and corroborative statements of recipients located through telephone records. On the cumulative material, the Tribunal found no reason to disturb the conclusion that the essential ingredients of the contravention were established and that imposition of a personal penalty under section 13(1) was justified. [Paras 10, 21, 23, 26]Appeal dismissed and penalty confirmed.Application of the presumption under section 132(4A) of the Income tax Act, 1961 - evidentiary weight of confessional statements and seized documents - retraction and its evidentiary value - Seized documents and sworn statements, supported by statutory presumption and corroboration, were of sufficient evidentiary weight; the later retraction was of little value and failure to independently verify the alleged sender did not vitiate the case. - HELD THAT: - The Tribunal reviewed the legal effect of search seized material and observed that officers of the Directorate exercise powers analogous to Income tax authorities, invoking the presumption in section 132(4A) of the I T Act in favour of the authenticity and ownership of the documents found. The appellant's contemporaneous sworn statement, and a confirming statement recorded 11 days later, set out the modus operandi, amounts, dates and beneficiary details; many beneficiaries, traced through telephone records supplied by authorities, corroborated receipt on instructions from abroad. The purported retraction filed much later was treated as an afterthought and of little evidentiary value. Although the Directorate did not independently verify the sender's residence, the appellant had not denied having a brother in law by that name or his Dubai residence; on the totality of corroborative material the Tribunal found no infirmity in the finding of contravention. [Paras 20, 21, 22, 24, 25]The challenge based on retraction and alleged non verification of the sender rejected; evidentiary basis for conviction upheld.Final Conclusion: The appeal is dismissed; the adjudicating authority's finding of contravention of section 3(c) of FEMA, 1999 for receipts during November 2002 to January 2003 and the imposition of a personal penalty under section 13(1) are sustained.

2023 (9) TMI 1559 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Issues:
Violation of regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000; Appeal against penalty imposition; Consideration of citizenship status in penalty imposition; Justification of penalty imposition; Ignorance of law as a defense; Grant of relief based on circumstances.

Analysis:
The judgment involves an appeal arising from a penalty imposed on the appellant for contravention of regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. The appellant, a citizen of Pakistan, purchased property in India without obtaining necessary permissions. The Adjudicating Authority initially imposed a penalty of Rs. 3,00,000/-, which was paid by the appellant. Subsequently, a further penalty of Rs. 50,000/- was imposed, leading to an appeal challenging this additional penalty.

The appellant argued that he had been granted Indian citizenship and the property transaction should be considered regularized. He contended that no foreign exchange was involved as the property was purchased using funds earned in India. The appellant emphasized his compliance with immigration laws, lack of mens rea, and cited legal precedents supporting leniency for technical breaches. The respondent, however, argued that ignorance of the law is not a defense and supported the imposition of the additional penalty.

The tribunal considered the appellant's background, including political asylum in India, grant of citizenship, and the objective of FEMA, 1999. Despite acknowledging that ignorance of the law is not a defense, the tribunal found that the original penalty had been paid, and the further penalty was unwarranted. The tribunal set aside the additional penalty of Rs. 50,000/-, granting relief to the appellant based on the circumstances and objectives of the legislation.

In conclusion, the tribunal allowed the appeal, setting aside the additional penalty imposed by the adjudicating authority and upheld by the Special Director of Enforcement (Appeals). The decision was based on a comprehensive analysis of the appellant's situation, the legal framework, and the objectives of the foreign exchange regulations, ultimately granting relief to the appellant in this case.

Pakistani refugee who became Indian citizen wins appeal against additional FEMA penalty for property purchase
The Appellate Tribunal SAFEMA, New Delhi allowed the appeal of a Pakistani national who purchased immovable properties in Dehradun without RBI permission under FEMA regulations. The appellant, a Hindu refugee who arrived in India in 1992 seeking political asylum and later obtained citizenship, had already paid the original penalty of Rs. 3,00,000. The Tribunal found that considering the appellant's background as a persecuted refugee, eventual naturalization, and payment of the initial penalty, the additional penalty of Rs. 50,000 was unjustified. The Tribunal set aside the further penalty while acknowledging that ignorance of law is no defense, concluding that justice was served with the original penalty payment.

Penalty for contravention of FEMA regulations - Regularisation of acquisition by subsequent naturalisation - Confiscation under section 13(2) of FEMA - Ignorance of law not a defence - Judicial discretion in imposition of penalty - Object and purpose of FEMAPenalty for contravention of FEMA regulations - Judicial discretion in imposition of penalty - Ignorance of law not a defence - Regularisation of acquisition by subsequent naturalisation - Validity of the further penalty of Rs. 50,000 imposed for alleged contravention of Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 - HELD THAT: - The Tribunal examined the factual matrix including that the appellant, originally a Pakistani national, had acquired the property without prior permission as required by Regulation 7, had earlier been adjudged liable and had paid an original penalty which was deposited, and was subsequently granted naturalisation by the Government of India. While acknowledging the settled proposition that ignorance of law is not a defence, the Tribunal applied judicial discretion in the light of the appellant's background, the absence of an absolute prohibition on acquisition (permission being the statutory requirement), the object and purpose of FEMA to regulate foreign exchange and not to frustrate settled persons, and the fact that the original penalty had been paid. Having regard to these circumstances and the ends of justice, the Tribunal concluded that imposing an additional penalty was not justified and set aside the further penalty. The Tribunal noted that there was no case for confiscation under section 13(2) of FEMA as held earlier by the Adjudicating Authority, and did not disturb that finding. [Paras 11, 12]The further penalty of Rs. 50,000 imposed by the Adjudicating Authority and upheld by the Special Director (Appeals) is set aside.Final Conclusion: The appeal is allowed; in view of the facts, including payment of the original penalty and subsequent naturalisation, the additional penalty of Rs. 50,000 is quashed and the impugned order is set aside.

2023 (9) TMI 1558 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Issues:
Violation of Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property In India) Regulations, 2000.
Imposition of penalties under FEMA, 1999.
Grant of citizenship and naturalization under the Citizenship Act, 1955.
Consideration of relief in the case based on legal intricacies and circumstances.
Applicability of penalties based on mens rea and intention.
Judicial discretion in imposing penalties for statutory obligations.

Analysis:
The judgment involves a case where the appellant, a citizen of Pakistan, purchased immovable properties in India without obtaining necessary permissions as required under Regulation 7 of the Foreign Exchange Management Regulations. The appeal arose from the imposition of penalties for contravention of FEMA regulations. The appellant's acquisition of properties without RBI approval led to a complaint and subsequent adjudication proceedings, resulting in penalties totaling Rs. 7,50,000. The appellant's appeal challenged the imposition of a further penalty of Rs. 4,50,000 by the Adjudicating Authority, which was upheld by the Special Director (Appeals).

The appellant argued that he and his family were granted Indian citizenship and naturalization, emphasizing their background of seeking asylum due to persecution in Pakistan. The appellant contended that the properties were purchased using funds earned in India and with the help of relatives, asserting no violation involving foreign exchange. Additionally, the appellant highlighted his compliance with the initial penalty and raised concerns regarding the imposition of additional penalties, citing legal principles and case laws supporting his case.

On the other hand, the respondent contested the appellant's contentions, emphasizing the appellant's citizenship status at the time of property acquisition and the Adjudicating Authority's reasonable decision to impose penalties. The respondent argued that ignorance of the law is not a defense and supported the penalty imposition upheld by the Special Director (Appeals).

The Tribunal, after considering the facts and arguments presented, granted relief to the appellant. The Tribunal acknowledged the appellant's circumstances, including the grant of citizenship and the absence of a complete prohibition on property acquisition by Pakistani citizens. While recognizing that ignorance of the law is not a defense, the Tribunal found that the penalties imposed were not justified based on the appellant's compliance with the initial penalty and the objectives of FEMA, 1999. Consequently, the Tribunal set aside the further penalty of Rs. 4,50,000, allowing the appeal and providing relief to the appellant.

Pakistani citizen's FEMA penalty reduced after purchasing property without RBI permission under Regulations 2000
The Appellate Tribunal SAFEMA, New Delhi allowed the appeal of a Pakistani citizen who purchased immovable properties in Dehradun without RBI permission under FEMA Regulations 2000. The Tribunal considered the appellant's naturalization background, long-term visa grant, and that no absolute bar existed on Pakistani property acquisition - only permission requirement. While acknowledging ignorance of law is no defense, the Tribunal found the initial penalty of Rs. 3,00,000 already paid was sufficient to meet justice ends. The additional penalty of Rs. 4,50,000 imposed by the adjudicating authority and upheld by Special Director of Enforcement (Appeals) was set aside as unjustified.

Acquisition of immovable property by a foreign national without prior permission - Penalty for contravention of FEMA regulations - Confiscation under section 13(2) of FEMA - Discretion to impose penalty in case of bona fide or venial breach - Ignorance of law not a defence - Regularisation of prior irregularity by subsequent naturalisationAcquisition of immovable property by a foreign national without prior permission - Penalty for contravention of FEMA regulations - Discretion to impose penalty in case of bona fide or venial breach - Regularisation of prior irregularity by subsequent naturalisation - Whether the enhanced penalty imposed on the appellant for contravention of Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 was justified - HELD THAT: - The Tribunal examined the factual background, including that the appellant, a Pakistani national at the time of purchase, had acquired two immovable properties in India without prior permission as required by the Regulation; that an initial penalty had been imposed by the Adjudicating Authority and paid by the appellant; that the Deputy Director successfully appealed leading to de novo adjudication which resulted in an enhanced penalty; and that the appellant subsequently obtained naturalisation. While recognising the general principle that ignorance of law is not a defence, the Tribunal applied the discretionary principle that penalties should not normally be imposed for technical or venial breaches arising from bona fide belief and considered the totality of facts - the circumstances of the appellant's migration, long residence in India, payment of the original penalty and absence of confiscation finding under section 13(2) of FEMA. Balancing these factors, the Tribunal held that the further enhanced penalty was not justified and that the ends of justice were met by leaving intact the original penalty which had been paid. [Paras 11, 12]The further enhanced penalty of Rs. 4,50,000/- was unjustified and is set aside; the original penalty already imposed and paid stands.Final Conclusion: The appeal is allowed; the enhanced penalty imposed by the Adjudicating Authority and upheld by the Special Director (Appeals) is quashed and the earlier penalty already paid is left undisturbed.

2023 (7) TMI 1478 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Issues:
1. Appeal against Adjudication Order under FEMA.
2. Allegations of contravention of FEMA provisions.
3. Imposition of penalties on appellants.
4. Pre-deposit of penalty amounts.
5. Arguments regarding consultancy fees and tax payments.
6. Legal arguments on contraventions under FEMA.
7. Interpretation of penalty provisions under FEMA.

Analysis:
1. The judgment pertains to Appeals No. FPA-FE-41/MUM/2018 & FPA-FE-42/MUM/2018 challenging an Adjudication Order under FEMA issued by the Additional Director of the Enforcement Directorate, Mumbai. The appellants sought to set aside the said order dated 13-4-2018.

2. The complaint alleged that the appellants maintained a joint account in a foreign bank where consultancy earnings were deposited and subsequently transferred to accounts in Geneva and Dubai without RBI approval. The Adjudication Order found charges established, leading to penalties of Rs. 1.5 crores and Rs. 3.5 crores on the appellants, respectively, for contraventions of FEMA provisions.

3. The Tribunal allowed pre-deposits of penalty amounts by the appellants. The appellants argued that the funds were consultancy fees from Nigeria, and they had paid taxes on the foreign exchange. They also highlighted compliance efforts and previous tribunal decisions in their favor.

4. The respondent contended that the appellants violated FEMA by depositing foreign exchange abroad without RBI permission, and the offense was completed due to delayed remittance. The respondent emphasized deliberate intent in holding foreign funds abroad and argued against the appeal.

5. The judgment analyzed the contraventions under FEMA and the imposition of penalties. It referenced a Supreme Court decision stating that penalty imposition does not require mens rea. The FEMA provisions clearly outlined penalties for contraventions without specifying mens rea, emphasizing civil obligations over intent.

6. Considering the facts and actions of the appellants, including bringing back the foreign exchange and paying taxes, the penalties were reduced to the pre-deposit amounts. The division of funds between the appellants led to adjusted penalties of Rs. 37.5 lakhs and Rs. 35 lakhs for each appellant, respectively, based on their involvement in the fund transfers.

7. The judgment partly allowed the appeals, acknowledging the appellants' compliance efforts and tax payments while reducing the penalties to the pre-deposit amounts. The decision was based on the interpretation of FEMA provisions and previous legal precedents regarding penalty imposition without requiring mens rea.

SAFEMA Tribunal upholds FEMA violations for unauthorized Geneva bank accounts, reduces penalties to Rs. 72.5 lakhs
The Appellate Tribunal SAFEMA upheld FEMA violations for holding unauthorized Geneva bank accounts without RBI approval. The Tribunal rejected the mens rea defense, ruling that FEMA penalties are civil obligations requiring no guilty intent. Despite appellants bringing back Rs. 6.14 crores and paying income tax, penalties were reduced from Rs. 5 crores total to Rs. 72.5 lakhs based on pre-deposits made. Appellant No. 1 received higher penalty due to greater involvement in foreign account transfers.

Contravention of FEMA for acquisition, holding and transfer of foreign exchange without prior RBI permission - penalty under Section 13 of FEMA is attracted without requirement of mens rea - delay in repatriation vis-a -vis Regulation 7 of the Realization, Repatriation and Surrender of Foreign Exchange Regulations, 2000 - adjustment of pre-deposit as final penaltyContravention of FEMA for acquisition, holding and transfer of foreign exchange without prior RBI permission - repatriation obligations under the Realization, Repatriation and Surrender of Foreign Exchange Regulations, 2000 - The appellants contravened FEMA by acquiring, holding and transferring foreign exchange abroad without RBI permission and failed to repatriate the funds within the prescribed time. - HELD THAT: - The Tribunal found as admitted and undisputed that US$13,36,000 was held in a joint account in Deutsche Bank, Geneva, transferred to an HSBC Geneva account in the name of the appellant and his wife and thereafter to an HSBC Dubai account in a relative's name. The respondent relied upon the prosecution complaint; no evidence unearthed during ED investigation rebutted the appellants' explanation of consultancy earnings. However, documentary efforts to repatriate predated 2015 only to a limited extent and actual remittance into the respondent account occurred between September 2019 and February 2020. Thus, contraventions of provisions prohibiting residents from acquiring/holding/transferring foreign exchange abroad without RBI authorisation are established, and repatriation was not effected within the 180-day period stipulated under Regulation 7, though the funds were ultimately brought back in 2019-2020. [Paras 7, 8]Contraventions under the relevant FEMA provisions are established; repatriation was delayed beyond the Regulation 7 period though eventual remittance occurred in 2019-2020.Penalty under Section 13 of FEMA is attracted without requirement of mens rea - Mens rea is not a prerequisite for imposition of penalty under Section 13 of FEMA; penalty is attracted upon establishment of contravention. - HELD THAT: - The Tribunal relied on Supreme Court authority holding that where the language of the statute does not require culpable intention, penalty for breach of a civil obligation attaches upon establishing the contravention. Section 13(1) FEMA contains no words indicating the need to prove willful or deliberate intention. Therefore, the absence of mens rea is immaterial to the question of liability for monetary penalty under Section 13. [Paras 9, 10]Penalty under Section 13 may be imposed without proof of mens rea once contravention is established.Adjustment of pre-deposit as final penalty - mitigation of penalty in view of repatriation and tax payment - The Tribunal reduced the adjudicated penalties and directed that the amounts already pre-deposited by the appellants be treated as the final penalties. - HELD THAT: - Noting that the appellants had repatriated the entire foreign exchange in 2019-2020 and paid income-tax and interest thereon, the Tribunal exercised its discretion to restrict penalties. Considering the distribution of the funds and the appellant No.1's greater activity in transfers, the Tribunal reduced the penalties to Rs.37.5 lakhs for appellant No.1 and Rs.35 lakhs for appellant No.2 and ordered that the pre-deposits already made be adjusted as the respective final penalties. [Paras 11]Penalties reduced and limited to the amounts pre-deposited by the appellants, those pre-deposits to be adjusted as final penalties.Final Conclusion: Appeals partly allowed: contraventions under FEMA established and penalty liability sustained; mens rea held unnecessary for penalty under Section 13; penalties reduced and pre-deposits adjusted as final penalties in the sums specified by the Tribunal.

2023 (7) TMI 1477 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Company penalized Rs. 5 lakh for FEMA violations but directors' penalties quashed under Section 42(1)
The Appellate Tribunal SAFEMA, New Delhi held that while the company violated FEMA provisions by failing to submit Exchange Control Copies for 12 outward remittances and not surrendering foreign currency, charges against four directors under Section 42(1) could not be sustained. Three directors were appointed after the contraventions occurred, and the fourth was a non-executive director not involved in daily operations. The company's penalty was reduced from the original amount to Rs. 5,00,000 considering the violations were minimal compared to regular substantial imports. The Rs. 1,00,000 penalty imposed on each director was quashed entirely.

Contravention of statutory obligation under FEMA - penalty without requirement of mens rea - laches and delay in initiation of adjudicatory proceedings - liability of company directors under section 42 of FEMA - judicial discretion in reduction of penaltyContravention of statutory obligation under FEMA - Contravention for failure to submit Exchange Control Copies of Bills of Entry for certain outward remittances - HELD THAT: - The Tribunal found that enquiries were initiated after information from the Reserve Bank of India and that the Enforcement Directorate issued directives to the appellant company on multiple occasions to produce documentary proof, to which the company did not respond until after service of the Show Cause Notice. The Adjudicating Authority's finding that documentary proof was not produced for ten of the remittances was upheld, while alternative documents produced for two remittances were accepted. The Tribunal therefore sustained the finding of contravention by the company in respect of the ten remittances. [Paras 8, 9, 18]Contravention established against M/s. Akzo Nobel India Ltd. for failure to produce Exchange Control Copies for ten remittances; two remittances accepted on alternative documents.Laches and delay in initiation of adjudicatory proceedings - Applicability of laches as a defence to the delayed issuance of the Show Cause Notice - HELD THAT: - Although there was an interval between receipt of information by RBI and issuance of the Show Cause Notice, the record showed that the Enforcement Directorate issued directives to the appellant company within about four months of receiving RBI's information and on two subsequent occasions, none of which were answered by the company. The Tribunal held that the company's failure to respond to repeated directives and its delay in joining the enquiry after the Show Cause Notice disentitled it to rely on laches; the inactivity of the company, not departmental lapse, was determinative. [Paras 8, 9, 13, 16]The plea of laches is rejected and does not absolve the company of liability.Penalty without requirement of mens rea - Whether mens rea is a precondition for imposition of penalty under FEMA - HELD THAT: - Relying on the statutory language of Section 13(1) of FEMA and the Supreme Court authority cited in the impugned order, the Tribunal observed that the provision imposes civil penalties for contravention and does not require proof of guilty intention. The Tribunal reiterated the settled proposition that where a statute creates civil liability by contravention, absence of mens rea is not a bar to imposing penalty. [Paras 11, 12]Mens rea is not a requisite for imposition of penalty under Section 13(1) of FEMA.Liability of company directors under section 42 of FEMA - Liability of the four individual directors for the contraventions charged in the Show Cause Notice - HELD THAT: - On the record before the Tribunal, three of the four directors were appointed after the transactions in question; the fourth director's chronology showed vacation and reappointment around the relevant period and he was asserted to be non executive. The Adjudicating Authority had also not clearly articulated the role of the directors in the Show Cause Notice. In view of these facts and the absence of a clear pleading on directors' roles, the Tribunal held that the charges as framed could not be sustained against the four directors under section 42. [Paras 18]Penalties imposed on the four individual directors quashed.Judicial discretion in reduction of penalty - Appropriate quantum of penalty against the company - HELD THAT: - Noting that the company is a long standing importer and that the contraventions related to a small proportion of its imports, the Tribunal exercised its discretionary jurisdiction to moderate the penalty. The Adjudicating Authority's original penalty on the company was reduced in the interest of justice, and pre deposit previously paid was ordered to be adjusted against the reduced penalty. [Paras 19]Penalty on the company reduced and pre deposit adjusted against the reduced penalty.Final Conclusion: Appeals partly allowed: contraventions by the company in respect of ten remittances are upheld; penalty under Section 13(1) of FEMA reduced and pre deposit adjusted. Penalties imposed on the four individual directors are quashed.

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