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2023 (7) TMI 1529 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal issues:

Whether the appellants contravened the provisions of Section 10(6) read with Section 10(5) of the Foreign Exchange Management Act (FEMA) and Regulation 6(1) of the Foreign Exchange Management (Realization, Repatriation, and Surrender of Foreign Exchange) Regulations 2000.
Whether the delay in issuing the Show Cause Notice constitutes a violation of the principles of natural justice, thereby invalidating the proceedings.
Whether the penalties imposed on the directors of the company were justified given their roles and the timing of their appointments.
Whether the principle of mens rea is applicable in the imposition of penalties under FEMA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Contravention of FEMA Provisions

Relevant Legal Framework and Precedents: The case involves alleged contraventions of Section 10(6) read with Section 10(5) of FEMA and Regulation 6(1) of the relevant regulations. These provisions mandate the submission of documentary evidence for foreign remittances.
Court's Interpretation and Reasoning: The Tribunal found that the company failed to submit necessary documentation for 10 out of 12 remittances, thus establishing contravention.
Key Evidence and Findings: The lack of response to directives issued by the Enforcement Directorate and failure to provide alternative documentation for the majority of remittances were critical in establishing the contravention.
Application of Law to Facts: The Tribunal applied the statutory obligations under FEMA, noting that the appellants did not provide sufficient evidence to counter the charges.
Treatment of Competing Arguments: The appellants argued the absence of mens rea, but the Tribunal held that intention is irrelevant for civil penalties under FEMA.
Conclusions: The Tribunal upheld the contravention charges against the company.

Issue 2: Delay and Natural Justice

Relevant Legal Framework and Precedents: The appellants argued that the delay in issuing the Show Cause Notice violated principles of natural justice.
Court's Interpretation and Reasoning: The Tribunal noted that the appellants were notified of the investigation early on and failed to respond to multiple directives, weakening their argument of procedural unfairness.
Key Evidence and Findings: The Tribunal highlighted the appellants' inaction despite receiving multiple communications from the Enforcement Directorate.
Application of Law to Facts: The Tribunal found that the delay did not prejudice the appellants' ability to respond to the charges.
Treatment of Competing Arguments: The appellants' reliance on laches was dismissed due to their failure to act on earlier notices.
Conclusions: The delay did not invalidate the proceedings.

Issue 3: Penalties on Directors

Relevant Legal Framework and Precedents: Section 42 of FEMA pertains to the liability of directors for company contraventions.
Court's Interpretation and Reasoning: The Tribunal acknowledged that three directors were appointed after the transactions and the Show Cause Notice did not specify their roles.
Key Evidence and Findings: The Tribunal accepted evidence of the directors' appointment dates, which were post-transaction.
Application of Law to Facts: The Tribunal found no basis for penalizing the directors under Section 42 of FEMA.
Treatment of Competing Arguments: The appellants successfully argued the directors' lack of involvement during the relevant period.
Conclusions: Penalties against the directors were quashed.

Issue 4: Mens Rea in FEMA Penalties

Relevant Legal Framework and Precedents: The applicability of mens rea in civil penalties under FEMA was contested.
Court's Interpretation and Reasoning: Citing precedents, the Tribunal concluded that mens rea is not required for imposing penalties under FEMA.
Key Evidence and Findings: The Tribunal referred to Supreme Court judgments affirming that intention is irrelevant in civil penalty contexts.
Application of Law to Facts: The Tribunal applied this principle to uphold the penalty against the company.
Treatment of Competing Arguments: The appellants' argument for the necessity of mens rea was dismissed based on statutory interpretation.
Conclusions: The absence of mens rea does not preclude penalty imposition under FEMA.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulation is established and hence the intention of the parties committing such violation becomes wholly irrelevant."
Core Principles Established: The Tribunal reinforced the principle that mens rea is not a requisite for civil penalties under FEMA, and procedural delays do not necessarily invalidate proceedings if the parties were adequately notified.
Final Determinations on Each Issue: The Tribunal upheld the penalty against the company but quashed penalties against the directors due to lack of involvement during the relevant period. The penalty amount for the company was reduced in consideration of its compliance history.

Company penalized Rs. 5,00,000 for FEMA violations under Section 10(6) but directors' penalties quashed entirely
The Appellate Tribunal under SAFEMA upheld FEMA violations against the company for failing to submit proof of imports for 10 remittances abroad, establishing contraventions under Section 10(6) r/w 10(5) of FEMA. However, charges against four directors were dismissed as three were appointed after the transactions occurred and one 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 substantial regular imports with only miniscule violations. The Rs. 1,00,000 penalty imposed on each director was quashed entirely.

Contravention of statutory obligation under FEMA for failure to furnish Exchange Control Copies of Bills of Entry - penalty under Section 13(1) of FEMA as civil liability not requiring mens rea - doctrine of laches and delay in regulatory proceedings - directorial liability under Section 42 of FEMA - limited judicial scope to override discretion of Authorised Dealer/RBI under the RBI Master Circular - judicial reduction of penalty in the interest of justiceContravention of statutory obligation under FEMA for failure to furnish Exchange Control Copies of Bills of Entry - Contravention by the appellant company for certain outward remittances was established. - HELD THAT: - On the material on record, including information received from the Reserve Bank of India and three directives issued by the Enforcement Directorate (of which the Company did not respond), the Tribunal upheld the finding that for ten remittances the appellant company failed to produce Exchange Control Copies of Bills of Entry. The Adjudicating Authority had accepted alternative documents only in respect of two remittances; for the remaining ten no sufficient proof of import was produced. The enquiries were shown to have been initiated promptly after RBI's communication and the respondent had given multiple opportunities which went unanswered, undermining the appellants' contention of loss of records due to delay or shifting of offices. The contraventions as to the company were therefore held established. [Paras 2, 8, 9, 18]Contravention in respect of ten remittances by the appellant company is established.Doctrine of laches and delay in regulatory proceedings - Delay in initiation or long passage of time did not render the proceedings invalid on the facts of the case. - HELD THAT: - Although the impugned adjudication occurred years after the transactions, the respondent issued directives to the appellants within about four months of receiving RBI's information and on two further occasions; the appellants did not respond to those communications. Given that the appellants were put on notice repeatedly and failed to preserve or produce relevant documents, the Tribunal held that the plea of laches was not available to them. The Tribunal distinguished authorities relied upon by the appellants on delay, finding the factual matrix and the chronology of communications dispositive. [Paras 9, 16]The plea of laches is rejected on the facts; delay does not bar the proceedings.Penalty under Section 13(1) of FEMA as civil liability not requiring mens rea - Mens rea is not a precondition for imposing penalty under Section 13(1) of FEMA. - HELD THAT: - Relying on authoritative precedent, the Tribunal observed that penalties for breach of civil statutory obligations under FEMA are attracted upon establishing contravention and do not require proof of guilty intention. Section 13(1) contains no language indicating a requirement of wilfulness or intention. The Tribunal therefore rejected the appellants' contention that absence of mens rea absolved them from penalty liability. [Paras 11, 12]Imposition of penalty under Section 13(1) of FEMA does not depend on mens rea.Directorial liability under Section 42 of FEMA - Penalties imposed on four individual directors were quashed as Section 42 liability was not established against them. - HELD THAT: - The Tribunal examined Form 32 records and related pleadings showing that three of the four directors were appointed after the impugned transactions and that one director had the status of additional/non executive prior to reappointment. The Adjudicating Authority itself had noted that the Show Cause Notice did not clearly spell out the role of the directors. On this basis the Tribunal held that the case made out against the four individual directors under Section 42 was not sustained and quashed the penalties imposed on them. [Paras 3, 18]Penalties imposed on the four individual directors under Section 42 are quashed.Limited judicial scope to override discretion of Authorised Dealer/RBI under the RBI Master Circular - judicial reduction of penalty in the interest of justice - Benefit under the RBI Master Circular pertains to the Authorised Dealer/RBI decision; Tribunal reduced the company's penalty in the interest of justice and adjusted pre-deposit. - HELD THAT: - The Tribunal observed that the Master Circular envisages the Authorised Dealer (Category I bank) or RBI to accept alternative documents in place of Exchange Control Copies of Bills of Entry; this is not a matter for the Adjudicating Authority to substitute the AD/RBI's discretion. Nevertheless, considering the company's long history of substantial imports and that the default involved a small proportion of its transactions, the Tribunal exercised its power to mitigate the penalty. The penalty originally imposed on the company was reduced and the pre-deposit already made was ordered to be adjusted against the reduced amount. [Paras 4, 10, 19]Benefit under the Master Circular is for the AD/RBI to decide; penalty on the company reduced and pre-deposit adjusted.Final Conclusion: The Tribunal affirmed that the appellant company committed contraventions in respect of ten remittances and that penalties under Section 13(1) FEMA do not require mens rea, but it quashed penalties on four directors for lack of established liability and, in the exercise of its discretion, reduced the penalty on the company with adjustment of the pre-deposit; pleas of laches were rejected on the facts.

2023 (7) TMI 1475 - APPELLATE TRIBUNAL SAFEMA NEW DELHI FEMA

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Condonation of delay requires proven sufficient cause; uncorroborated non-receipt claim failed where service was shown at declared address.
Limitation and condonation of delay depended on proof of sufficient cause for the late filing of the appeal. Service of the show cause notice, demand notice, and adjudication order at the declared address, together with the postal acknowledgment and the appellant's earlier responses to communications at that address, supported valid service. The claim of non-receipt was uncorroborated, and the appellant showed no due diligence or bona fides to explain the extraordinary delay. On those facts, the delay was not condoned and the appeal was dismissed.

Delay in filing appeal - condonation of delay - service of order and proof of service - limitation period for appeal under FERA/FEMA - bona fide and sufficient cause for delayDelay in filing appeal - service of order and proof of service - condonation of delay - bona fide and sufficient cause for delay - Whether the appeal filed on 9-2-2019 was time-barred and whether the respondent's application seeking dismissal on grounds of inordinate delay should be allowed. - HELD THAT: - The Tribunal examined the service history and documentary proof. The impugned Adjudication Order dated 10-12-2004 was shown to have been served by postal acknowledgment dated 13-12-2004 at the appellant's declared address, an address at which earlier communications (Show Cause Notice dated 31-5-2002) and later communications (Demand Notice dated 22-11-2018) were also served and acknowledged. The appellant did not challenge the authenticity of the postal acknowledgment but contended he received the order only in January 2019 and that the acknowledgment bore his late father's signature; he did not satisfactorily explain how subsequent communications were received and acted upon by him at the same address. The Tribunal applied the settled test of sufficient cause/bona fides for condonation of delay and found that the appellant failed to establish diligence or a sufficient cause for approaching the Tribunal within the statutory 45-day period prescribed under FERA/FEMA. In these circumstances, and having regard to the evidentiary material and the appellant's responses, the Tribunal held that there was inordinate and unexplained delay in filing the appeal and that condonation ought not to be granted. [Paras 4, 5, 7, 8, 9]Civil Miscellaneous Application No. 633 of 2020 is allowed; the appeal is dismissed as time-barred for lack of sufficient cause for condonation of delay.Final Conclusion: The Tribunal found the Adjudication Order was served on 13-12-2004, the appeal filed on 9-2-2019 was barred by inordinate delay and not supported by sufficient cause, consequently the respondent's application was allowed and the appeal dismissed.

2023 (7) TMI 1474 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Appellate Tribunal upholds lenient penalty for 2-day delay in FC-GPR filing under Section 13(1) FEMA
The Appellate Tribunal SAFEMA dismissed an appeal seeking enhancement of penalty under FEMA 1999. The case involved a 2-day delay in filing FC-GPR after share issuance. The Tribunal held that Section 13(1) FEMA provides discretionary penalty up to three times the contravention amount, with no fixed minimum. The Adjudicating Authority properly exercised discretion by imposing lenient penalties, considering the contraventions were technical in nature rather than substantive violations. The Authority's judicious approach in penalty imposition met the ends of justice and could not be interfered with.

Discretionary imposition of penalty under Section 13(1) of FEMA, 1999 - Exercise of judicial discretion in imposing penalty - Technical contraventions as distinct from substantive non compliance - Delay in statutory compliances and effect on liabilityDiscretionary imposition of penalty under Section 13(1) of FEMA, 1999 - Exercise of judicial discretion in imposing penalty - Whether the Adjudicating Authority erred in exercising its discretion and imposing lenient penalties instead of enhancing them up to the maximum prescribed under Section 13(1) of FEMA. - HELD THAT: - The Court held that Section 13(1) prescribes a maximum penalty (up to thrice the sum involved where quantifiable, or up to Rs.2 lakh where not quantifiable) and does not mandate a fixed or minimum penalty. The quantum of penalty is therefore a matter of discretion to be exercised judiciously by the Adjudicating Authority after considering the facts and evidence. Reliance was placed on precedent recognising that statutory maxima do not deprive the adjudicating authority of discretion to impose lower penalties. The Adjudicating Authority recorded that the contraventions were technical in nature and reached a reasoned, lenient conclusion after examining the circumstances. Having regard to the statutory scheme and the Authority's recorded reasoning, there was no demonstrable perversity or illegality in the exercise of discretion to impose the penalties as done. [Paras 8, 9, 10, 12]No interference with the Adjudicating Authority's discretionary imposition of penalties.Technical contraventions as distinct from substantive non compliance - Delay in statutory compliances and effect on liability - Whether the contraventions (delays in reporting FDI, share issuance and filing FC GPR) were substantive breaches justifying higher penalties, or technical breaches mitigated by subsequent compliance. - HELD THAT: - The Tribunal found that the respondents had ultimately complied with the substantive provisions of the Regulations, although beyond prescribed timelines. The time limits in the Regulations provide a window for compliance and notification but non adherence to those timelines does not negate the obligation to comply thereafter. The Show Cause Notice was issued long after all compliances had been completed, indicating absence of intent to flout substantive obligations. On these facts the Adjudicating Authority's characterization of the breaches as technical and the imposition of separate but moderate penalties for each delay were held to be reasonable and adequate to meet the ends of justice. [Paras 6, 7, 12]The contraventions were technical and mitigated by subsequent compliance; penalties imposed were appropriate.Final Conclusion: The appeal seeking enhancement of penalties is dismissed; the Adjudicating Authority's order imposing separate, moderate penalties for the technical delays is upheld.

2023 (5) TMI 1384 - APPELLATE TRIBUNAL FOR FOREIGN EXCHANGE MANAGEMENT ACT NEW DELHI FEMA

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Issues:
Appeal for enhancement of penalty imposed under FEMA 1999 for contravention of provisions involving outward remittances without corresponding imports.

Analysis:
The judgment pertains to an appeal filed by the Union of India against an Adjudication Order imposing a penalty of Rs. 21,00,00,000 on the respondent for contravention of provisions of FEMA 1999. The appeal sought enhancement of the penalty, arguing that the amount imposed was unreasonably low despite the upheld charges. The respondent failed to appear for multiple hearings, leading to an ex-parte decision based on available records. The Adjudicating Authority found the respondent guilty for outward remittances without corresponding imports, contravening FEMA provisions. The penalty was imposed under Section 10(6) and Section 3(b) of FEMA, 1999. The appeal contended that the penalty was unreasonably low and cited Section 13(1) of FEMA, which allows penalties up to thrice the contravention amount.

The judgment analyzed Section 13(1) of FEMA, emphasizing that the penalty amount is at the discretion of the Adjudicating Authority, to be exercised judiciously based on case facts and evidence. It noted that the Authority had imposed a penalty slightly over the total amount involved in the contraventions, complying with the statutory provisions. The judgment referenced a Supreme Court case to highlight that statutes like FEMA provide a maximum penalty limit, allowing discretion for the Authority to determine the penalty amount. It concluded that the Adjudicating Authority had acted judiciously, and the appeal failed to demonstrate any reasons for interference with the penalty decision.

In light of the discussions and observations, the judgment dismissed the appeal, stating that the Adjudicating Authority's order could not be interfered with due to the lack of reasons presented in the appeal to challenge the penalty imposition. The judgment upheld the penalty decision based on the Authority's compliance with statutory provisions and the exercise of discretion in determining the penalty amount.

FEMA penalty upheld for disguised outward remittances as import advances across 39 tranches under Section 13(1)
The Appellate Tribunal for FEMA upheld penalty imposed on appellant for outward remittances in 39 tranches abroad disguised as advance for imports. The tribunal ruled that under Section 13(1) FEMA, penalty imposition up to three times the contravention amount is discretionary, requiring judicious exercise by the Adjudicating Authority. The Authority imposed penalty slightly over fifty percent for each contravention, totaling over hundred percent, which the tribunal found objective and judicious. Appeal failed as appellant could not demonstrate improper exercise of discretion by the Adjudicating Authority.

Discretionary imposition of penalty - penalty up to thrice the sum involved under Section 13(1) of FEMA - contravention of Section 10(6) FEMA read with Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - contravention of Section 3(b) of FEMA - concurrent penalties for multiple contraventions arising from the same transactions - ex parte adjudication/decision - requirement of judicious exercise of statutory discretionDiscretionary imposition of penalty - penalty up to thrice the sum involved under Section 13(1) of FEMA - requirement of judicious exercise of statutory discretion - Validity of the quantum of penalty imposed by the Adjudicating Authority and whether appellate enhancement was warranted - HELD THAT: - The Tribunal held that Section 13(1) of FEMA prescribes only the maximum permissible penalty - up to thrice the sum involved - and does not mandate a minimum or fixed quantum. Consequently the quantum of penalty is a matter of discretion for the Adjudicating Authority, which must be exercised judiciously based on facts and evidence. The appellant failed to demonstrate that the Adjudicating Authority acted without or beyond that discretion or that the discretion was exercised perversely. The Adjudicating Authority evaluated the evidence, upheld both counts of contravention and imposed penalties aggregating slightly over 100% of the amount involved by awarding about 50% for each contravention. In absence of pleaded or demonstrated error in exercise of discretion, the Tribunal declined to enhance the penalty, relying on the principle that statutes prescribing a maximum do not compel imposition of the maximum and on the need for objectivity in penal assessment. [Paras 6, 7, 8, 9]The appeal seeking enhancement of penalty fails; the Adjudicating Authority's exercise of discretion in fixing the penalty is upheld.Contravention of Section 10(6) FEMA read with Regulation 6(1) of Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - contravention of Section 3(b) of FEMA - concurrent penalties for multiple contraventions arising from the same transactions - Whether imposing separate penalties for distinct statutory contraventions arising from the same set of transactions was impermissible double penalisation - HELD THAT: - The Tribunal noted that the Adjudicating Authority found two distinct statutory contraventions on the same factual matrix: (a) acquisition and remittance of foreign exchange for purported import which did not occur, attracting contravention of Section 10(6) read with Regulation 6(1), and (b) outward remittances to persons outside India without RBI permission attracting contravention of Section 3(b). Having examined each contravention, the Adjudicating Authority imposed penalty for each count. The Tribunal held there is no statutory prohibition against imposing penalties for separate contraventions arising from the same transactions so long as each contravention is examined and established; insistence on imposing a higher penalty for each count merely because they arise from the same facts would introduce subjectivity and is not required by statute. [Paras 4, 7]Penalties for the two established contraventions arising from the same transactions are permissible; the Adjudicating Authority's approach is sustainable.Ex parte adjudication/decision - Validity of deciding the appeal ex parte due to non appearance of the respondent - HELD THAT: - The respondent failed to appear and did not file any reply despite service of notices. The Tribunal therefore proceeded to decide the appeal ex parte on the basis of the available record. The ex parte disposal was recorded and the merits were considered on that basis. [Paras 2, 3]Proceeding and decision ex parte was validly undertaken in view of respondent's non participation.Final Conclusion: The appeal is dismissed; the Adjudication Order upholding the two contraventions and imposing the aggregate penalty is affirmed and there is no basis for enhancement of penalty.

2023 (4) TMI 1360 - APPELLATE TRIBUNAL SAFEMA, NEW DELHI FEMA

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Acknowledgement of debt requires a real debtor-creditor relationship; share application money alone did not establish contravention.
Receipt of share application money from non-resident investors did not, without proof of share allotment or any written or implied admission of liability, amount to an acknowledgement of debt under section 9(1)(c) of the Foreign Exchange Regulation Act, 1973. The tribunal treated acknowledgement as requiring a subsisting debtor-creditor relationship, and held that mere receipt of funds as share capital was insufficient to convert the amount into an acknowledged debt. As no material showed that the recipients admitted any liability to the non-residents, the alleged contravention was not established and the penalty order could not be sustained.

Acknowledgement of debt - contravention of section 9(1)(c) FERA - requirement of a written instrument for acknowledgement - implied acknowledgement of debt - burden of proof for share allotment - refund of pre-depositContravention of section 9(1)(c) FERA - burden of proof for share allotment - Whether the contravention of section 9(1)(c) of FERA was established against the appellants for retaining amounts received from non-resident Indians as 'Share Application Money' without allotment of shares. - HELD THAT: - The Adjudicating Authority found that Rs. 1,03,21,220 was received as share application money and no shares were allotted, concluding contravention of section 9(1)(c). The Tribunal examined the record and the appellants' consistent plea that shares were allotted and that documents could not be produced due to fire and lock-out. The Tribunal accepted that mere non-production of allotment documents does not ipso facto convert share capital into a debt; the respondent also failed to produce evidence to demonstrate that an acknowledgment of debt was made. Absent proof of either allotment or an admission creating a jural creditor-debtor relationship, the statutory embargo in section 9(1)(c) could not be held to have been breached on the basis alleged by the Adjudicating Authority. [Paras 2, 6]The finding of contravention of section 9(1)(c) FERA was not sustained and the adjudication on that ground was set aside.Acknowledgement of debt - requirement of a written instrument for acknowledgement - implied acknowledgement of debt - Whether an 'acknowledgement of debt' so as to attract section 9(1)(c) can be inferred in the absence of a written instrument or express admission. - HELD THAT: - The Tribunal considered authoritative exposition of 'acknowledgement' which requires an admission relating to a subsisting liability and ordinarily presupposes a written statement or an instrument; while acknowledgements may sometimes be implied from facts, such implication cannot be made as a matter of law without clear supporting circumstances. The record contained no admission by the appellants during investigation or thereafter admitting a debt or a jural relationship with the NRIs, nor did the respondent produce documentary or other evidence demonstrating creation of such an acknowledgement. Consequently, the circumstances did not permit an inference of acknowledgement of debt sufficient to invoke section 9(1)(c). [Paras 8, 9, 10]There was no proved acknowledgement of debt-express or properly implied-sufficient to sustain penalty under section 9(1)(c).Refund of pre-deposit - Whether the pre-deposit of penalty made by the appellants should be refunded following allowance of the appeals. - HELD THAT: - The Tribunal allowed the appeals, set aside the impugned Adjudication Order and directed that the pre-deposit amounts already made by the two appellants be refunded by the respondent upon expiry of the statutory period for preferring an appeal against the Tribunal's order. [Paras 3, 11]The pre-deposits are to be refunded to the appellants after the period for appeal against this order has expired.Final Conclusion: Appeals allowed; Adjudication Order dated 28-2-2014 set aside for lack of proof of acknowledgement of debt or allotment of shares; pre-deposits made by the appellants to be refunded after expiry of the period for appeal.

2020 (11) TMI 513 - ATFEMA FEMA

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Issues: (i) Whether the appellants who were in charge of the companies during the relevant period were liable for contraventions relating to non-realisation of export proceeds and non-submission of import evidence. (ii) Whether the appellants who were not shown to be in charge of the day-to-day affairs during the relevant period could be fastened with liability under the company-liability provision.

Issue (i): Whether the appellants who were in charge of the companies during the relevant period were liable for contraventions relating to non-realisation of export proceeds and non-submission of import evidence.

Analysis: The record showed persistent non-realisation of export proceeds and failure to establish sufficient steps for recovery. The Tribunal found that the requests for set-off/write-off did not amount to an approval by the Reserve Bank of India and did not absolve the companies or those controlling them from compliance. It further held that the chairman and the director who stepped into the shoes of the earlier managing director during the relevant period were connected with the conduct of business and that the contraventions stood established against them.

Conclusion: The liability and penalties were upheld against the appellants found to be in charge during the relevant period, and their appeals were dismissed.

Issue (ii): Whether the appellants who were not shown to be in charge of the day-to-day affairs during the relevant period could be fastened with liability under the company-liability provision.

Analysis: The Tribunal found no material showing that the later-appointed executive and the overseas director were in charge of, or responsible for, the conduct of the companies' business during the period when the contraventions occurred. On that basis, the requirements for fastening personal liability under the company-liability provision were not met in their case.

Conclusion: The penalties against those appellants were quashed and set aside, and their appeals were allowed.

Final Conclusion: The adjudication was sustained only against the appellants shown to have been responsible for the companies during the relevant period, while the others escaped personal liability for want of the necessary managerial nexus.

Ratio Decidendi: Personal liability for company contraventions under the company-liability provision attaches only to those who were in charge of and responsible for the conduct of business at the time of the contravention, and it cannot be imposed merely because a person held a directorship or executive title without such responsibility being shown.

Personal liability for company contraventions depends on proof of control and responsibility during the breach, not title alone.
Personal liability for company contraventions under the company-liability provision attaches only to persons shown to have been in charge of, and responsible for, the conduct of the business when the breach occurred. The Tribunal upheld liability where the record showed control during the relevant period, persistent non-realisation of export proceeds, and failure to establish steps sufficient to justify write-off or set-off; requests for such treatment did not amount to RBI approval or cure the default. It set aside penalties where there was no material showing day-to-day responsibility at the relevant time, holding that a directorship or executive title alone is insufficient to fasten liability.

Liability of directors under Section 68 of FERA - presumption of failure to take reasonable steps under Section 18(3) FERA - failure to realise export proceeds and contravention of Sections 18(2) & 18(3) FERA - requirement to submit Exchange Control copies of Bills of Entry under Para 7A-20 of the Exchange Control Manual - pendency of set-off/write-off applications with the Reserve Bank of India not absolving statutory responsibility - non-applicability of force majeure on the facts - liability of non-executive/NRI directors for acts attributable to day-to-day managementLiability of directors under Section 68 of FERA - presumption of failure to take reasonable steps under Section 18(3) FERA - pendency of set-off/write-off applications with the Reserve Bank of India not absolving statutory responsibility - Liability of Shri Sebastian Chokkattu for contraventions and imposition of penalties - HELD THAT: - The Tribunal accepted the Adjudicating Authority's findings that substantial export proceeds remained unrealised for the period 1992-1997 and that no sufficient and visible steps for realisation were taken by the noticee companies. The record did not show that the RBI had granted an effective write-off or set-off in respect of the relevant export realizations; the solitary conditional RBI communication of 17.09.1996 did not dispose of the matters before the Authority and the appellants produced no material showing compliance with the condition. The Tribunal held that mere pendency of an application for write-off/set-off before RBI does not absolve statutory responsibility under Sections 18(2)/18(3) and that on the facts there was no force majeure. Applying Section 68, the appellant as chairman and a director was found to have not taken sufficient steps to realise the export proceeds and the penalties imposed by the Adjudicating Authority were held to be proper and proportionate.Appeal dismissed; penalties imposed on Shri Sebastian Chokkattu upheld.Liability of directors under Section 68 of FERA - requirement to submit Exchange Control copies of Bills of Entry under Para 7A-20 of the Exchange Control Manual - Liability of Shri B. Balakrishnan as director of M/s. Intimate Apparels (P) Ltd. - HELD THAT: - The Tribunal found that Shri V.P. Gopalakrishnan Nair was the director in charge of Indian operations until 11.07.1995 and that Shri B. Balakrishnan succeeded him on that date and thereby stepped into the role of being 'in charge of, and responsible to, the company for the conduct of business' during the period when the exports were made. On that basis, and having regard to the failure to submit requisite Exchange Control documentation and to take sufficient steps to realise export proceeds, the Tribunal found no illegality in holding Balakrishnan liable under Section 68 and in the penalty imposed by the Adjudicating Authority.Appeal dismissed; penalty imposed on Shri B. Balakrishnan upheld.Liability of non-executive/NRI directors - liability of directors under Section 68 of FERA - Liability of Shri Biju Thomas (NRI director) for the alleged contraventions - HELD THAT: - The Tribunal observed there was no material on record showing that Shri Biju Thomas was responsible for or in charge of the day-to-day affairs of the Trend Setters group during the period of contraventions (1992-1997). On the facts, Section 68(2) - liability where contravention is with consent or connivance or attributable to neglect - was not attracted against him. The Tribunal relied on authorities of the Delhi and Bombay High Courts (as cited in the appeals) regarding non-executive directors not being held liable where they were not in charge of day-to-day management. Accordingly, the findings and penalties against Shri Biju Thomas were held to be erroneous and set aside.Appeal allowed; findings and penalties against Shri Biju Thomas quashed and set aside.Liability of non-executive/NRI directors - liability of directors under Section 68 of FERA - Liability of Shri S. Sunil Kumar (joined as CEO in 1998) for contraventions occurring in 1992-1997 - HELD THAT: - The Tribunal recorded that Shri S. Sunil Kumar joined the group as Chief Executive Officer only on 01.01.1998 and there was no material that he had any role in the day-to-day affairs during 1992-1997 when the alleged contraventions occurred. The Tribunal held that attributing the earlier contraventions to him was unwarranted; reliance was placed on the same authorities as in the case of Shri Biju Thomas concerning non-executive or post-facto appointees. Accordingly, the findings and penalties imposed on Shri S. Sunil Kumar were held to be erroneous and not sustainable.Appeal allowed; findings and penalties against Shri S. Sunil Kumar quashed and set aside.Final Conclusion: The Tribunal upheld the Adjudicating Authority's findings and penalties against Shri Sebastian Chokkattu and Shri B. Balakrishnan, dismissing their appeals, while allowing the appeals of Shri Biju Thomas and Shri S. Sunil Kumar and quashing the penalties imposed on them; all other reliefs dismissed and there is no order as to costs.

2020 (1) TMI 544 - ATFEMA FEMA

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Tribunal upholds penalties for FEMA violations by company and MD investing without RBI approval
The tribunal upheld that the appellant company and its Managing Director contravened Section 6(3)(a) of FEMA and Regulations 5, 6, and 13 by investing in step-down subsidiaries without RBI approval. Penalties imposed were deemed proportionate under FEMA, with the Managing Director held personally liable due to his involvement in company activities. The tribunal dismissed the appeals, affirming the penalties and rejecting requested reliefs.

Prior approval of the Reserve Bank of India for overseas direct investment - post-facto approval by the Reserve Bank of India - contravention of Section 6(3)(a) of FEMA read with Regulations 5, 6 and 13 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 - imposition of penalty under Section 13 of FEMA - personal liability of managing director under Section 42(1) of FEMA - proportionality of penaltyPrior approval of the Reserve Bank of India for overseas direct investment - post-facto approval by the Reserve Bank of India - contravention of Section 6(3)(a) of FEMA read with Regulations 5, 6 and 13 - Investments made by the appellant (through its Mauritius WOS) in three step down foreign subsidiaries were without prior RBI approval and no post facto approval was shown to have been granted, constituting contravention of the statutory/regulatory provisions. - HELD THAT: - The Tribunal examined the record including RBI correspondence relied on by the appellant and concluded that the RBI letter of 14.10.2003 does not grant approval but records that acquisitions were made without prior approval and warns against recurrence. The appellant failed to demonstrate that any post facto sanction was sought or granted. On that basis the Adjudicating Authority's finding that neither prior nor post approval existed was upheld and the investments were held to be in breach of the applicable FEMA provision and Regulations 5, 6 and 13. The Tribunal rejected the authorities cited by the appellant as inapposite to these facts. [Paras 13, 16]The contraventions were established and the finding of breach was upheld.Imposition of penalty under Section 13 of FEMA - proportionality of penalty - The penalties imposed on the appellant company and on its managing director were lawful and not disproportionate in the facts of the case. - HELD THAT: - Section 13 authorises penalty up to thrice the quantifiable sum involved. The Tribunal accepted the Adjudicating Authority's exercise of discretion and observed that the penalty imposed (less than the maximum available) was in fact lenient given the admitted scale of investments. The Tribunal found no basis to reduce the quantum and rejected submissions seeking mitigation on proportionality grounds. [Paras 15, 17]Penalties as imposed were sustainable and alternative prayer for reduction was rejected.Personal liability of managing director under Section 42(1) of FEMA - Penalty imposed on the Managing Director was legally justified on the material that established his responsibility for the company's affairs. - HELD THAT: - The Tribunal noted that the ODA form dated 07.06.2001 was signed by the Managing Director on behalf of the WOS and that no evidence was produced to show another person was responsible for day to day affairs. Relying on that record, the Adjudicating Authority's conclusion that the Managing Director bore responsibility for the contraventions was affirmed and authorities cited by the appellant were found inapplicable. [Paras 14, 16]The Managing Director's liability to penalty was upheld.Final Conclusion: The appeals are dismissed; the adjudicating authority's findings of contravention and the penalties imposed on the company and its managing director are affirmed.

2019 (12) TMI 1136 - ATFEMA FEMA

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Liberal condonation of delay in substitution matters may be granted where merits would otherwise go unheard and costs can cure prejudice.
Applications for substitution of a deceased appellant's legal representatives require a liberal but reasoned assessment of sufficient cause, considering the length of delay, bona fides, absence of deliberate inaction or negligence, and prejudice to the other side. Although the explanation for the substantial delay was general and did not fully cover the period in question, the Tribunal found that refusal would prevent the appeals from being heard on merits and that any prejudice to the respondent could be addressed through costs. The delay was therefore condoned and the substitution application was allowed on payment of costs.

Condonation of delay - sufficient cause under Section 5 of the Limitation Act - substitution of legal heirs under Section 28 of FEMA and Order XXII CPC - liberal construction of "sufficient cause" - prejudice and costs as compensationCondonation of delay - sufficient cause under Section 5 of the Limitation Act - substitution of legal heirs under Section 28 of FEMA and Order XXII CPC - liberal construction of "sufficient cause" - prejudice and costs as compensation - Application for condonation of delay in filing applications for substitution of legal heirs of the deceased appellant - HELD THAT: - The Tribunal found that the deceased appellant died on 26.10.2017 and the common application for substitution was filed on 01.11.2018, resulting in a delay of approximately 370 days. The appellants' explanations - grief of family members, alleged communication gaps, and oversight by counsel - were held to be general and insufficient to account satisfactorily for the long delay. The Tribunal considered precedents emphasising that while a liberal approach is to be adopted to advance substantial justice in condonation applications, the explanation must be bona fide, reasonable and relate to the conduct of the applicant. The Tribunal noted the need to balance leniency with protection of rights acquired by the respondent due to delay and to consider prejudice. Although not convinced by the explanations offered, the Tribunal applied its discretion to permit the substitution application to proceed so that the appeals could be decided on merits; however, to offset prejudice to the respondent arising from the inordinate delay, the Tribunal imposed a compensatory cost to be paid by the proposed legal heirs in each appeal. The Tribunal therefore exercised a pragmatic and discretionary balancing of the principles governing sufficient cause, liberal construction, and prejudice by admitting the delayed application subject to payment of costs. [Paras 5, 6, 8, 10, 11]Application for condonation of delay is allowed but only on condition that the proposed legal heirs pay costs of Rs.25,000 in each appeal within six weeks; the substitution applications are listed for hearing on 25th February, 2020.Final Conclusion: Condonation of delay in filing applications for substitution of legal heirs was permitted despite an inordinate delay of about 370 days because the Tribunal chose to decide the appeals on merits; permission was granted subject to payment of costs in each appeal to compensate prejudice to the respondent, and the substitution applications were ordered to be listed for hearing.

2019 (10) TMI 1210 - ATFEMA FEMA

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Issues: (i) whether an authorised dealer could be held liable under Sections 8 and 9 of the Foreign Exchange Regulation Act, 1973 for the impugned credit entries in rupee vostro accounts; (ii) whether the alleged breaches of Sections 6(4), 6(5) and 49 of the Foreign Exchange Regulation Act, 1973 and the Exchange Control Manual, 1987 justified the penalties imposed; and (iii) whether the officers could be proceeded against under Section 68 on the basis of the show-cause notices and the material on record.

Issue (i): Whether an authorised dealer could be held liable under Sections 8 and 9 of the Foreign Exchange Regulation Act, 1973 for the impugned credit entries in rupee vostro accounts.

Analysis: The authorised dealer was treated as a distinct class under the statutory scheme and the Tribunal held that the prohibitory provisions aimed at "person" dealing in foreign exchange were not intended to fasten the same liability on an authorised dealer acting within the banking channel. The credit entries were in rupees in vostro accounts, the bank had acted in the course of inter-bank transactions, and the transactions were not shown to involve a culpable acquisition or transfer of foreign exchange by the bank itself in the manner alleged.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Issue (ii): Whether the alleged breaches of Sections 6(4), 6(5) and 49 of the Foreign Exchange Regulation Act, 1973 and the Exchange Control Manual, 1987 justified the penalties imposed.

Analysis: The Tribunal held that the bank had acted in good faith in the course of routine banking transactions, that the amounts had been repatriated, and that there was no material showing deliberate defiance, contumacious conduct, or dishonest intent. It also found that the Exchange Control Manual and related circulars could not be used to enlarge the penal scope of the parent statute beyond what was warranted by the Act and the facts proved.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Issue (iii): Whether the officers could be proceeded against under Section 68 on the basis of the show-cause notices and the material on record.

Analysis: The Tribunal held that the notices did not contain the necessary specific allegations to sustain liability under the negligence limb of Section 68(2), and that mere bald assertions of responsibility were insufficient for vicarious liability under Section 68(1). It further held that, in the absence of adequate foundational averments and proof of the requisite mental element, the officer-wise penalties could not stand.

Conclusion: The issue was answered in favour of the appellants and against the revenue.

Final Conclusion: The penalties could not be sustained on the facts and in law, and the adjudication orders were set aside.

Ratio Decidendi: An authorised dealer cannot be penalised under the general prohibitory provisions of FERA merely for crediting rupees to a vostro account in bona fide banking transactions unless the statutory contravention, the requisite mental element, and the specific basis of officer liability are clearly established on the record and in the show-cause notice.

FERA liability in bona fide banking transactions failed where rupee vostro credits, penalty basis, and officer notice allegations were not proved.
An authorised dealer was treated as a distinct class under FERA, and the Tribunal held that the general prohibitions in Sections 8 and 9 did not, on these facts, fasten liability for rupee credit entries in vostro accounts made through ordinary inter-bank banking channels. It further held that alleged breaches of Sections 6(4), 6(5) and 49, and of the Exchange Control Manual, did not justify penalties where the transactions were bona fide, amounts were repatriated, and no deliberate defiance or dishonest intent was shown. As to Section 68, the notices lacked specific foundational averments for vicarious or negligence-based liability, so the officer-wise penalties could not stand and the adjudication orders were set aside.

Liability of authorised dealers under the Foreign Exchange Regulation Act - scope and operation of Section 6(4) and 6(5) of FERA - applicability of Sections 8 and 9 of FERA to authorised dealers - statutory character and enforceability of Exchange Control Manual (Chapter X) - deeming fiction treating rupee credits to non-resident rupee (vostro) accounts as remittance - penal jurisdiction of Enforcement Directorate vis-a -vis Reserve Bank of India and Section 73A - vicarious liability of officers under Section 68 (consent, connivance, negligence) - requirement of mens rea / culpable mental state in quasi criminal adjudication under FERA - adequacy and specificity of show cause notices required to sustain adjudicationLiability of authorised dealers under the Foreign Exchange Regulation Act - applicability of Sections 8 and 9 of FERA to authorised dealers - penal jurisdiction of Enforcement Directorate vis-a -vis Reserve Bank of India and Section 73A - Whether the adjudicating authority (ED) could proceed to impose penalties under Sections 8, 9 and 50/51 of FERA on the authorised dealer appellants instead of RBI invoking the special regime for authorised dealers. - HELD THAT: - The Tribunal examined the scheme of FERA, the delegation power under Section 74 and the special regulatory role of RBI over authorised dealers under Section 6 (and the later-inserted Section 73A). It recorded that authorised dealers are a distinct statutory class and that specific safeguards and remedies (including action by RBI such as revocation or monetary penalty under Section 73A) exist for breaches by authorised dealers. While recognising that authorised dealers must comply with RBI directions and may be penalised by RBI, the Tribunal held that the Enforcement Directorate's invocation of general penal provisions against an authorised dealer required careful application in light of the legislative scheme and the doctrine against double punishment for the same act. On the facts before it, having regard to the remedial steps taken by the bank in consultation with RBI (including repatriation of funds) and absence of a contemporaneous RBI revocation or parallel RBI adjudication, the Tribunal found the ED's adjudication unsustainable and inappropriate as the primary forum to discipline the authorised dealer in these circumstances.Findings and penalty orders imposed by the adjudicating authority upon the authorised dealer appellants under Sections 8/9 and Sections 50/51 are not sustainable in the circumstances; matters of compliance by authorised dealers fall primarily for regulation and disciplinary action by RBI and, on the facts, the ED's orders are set aside.Statutory character and enforceability of Exchange Control Manual (Chapter X) - deeming fiction treating rupee credits to non-resident rupee (vostro) accounts as remittance - Whether provisions of Chapter X of the Exchange Control Manual (ECM) operate as binding directions/rules for authorised dealers and whether credits to non resident rupee (vostro) accounts are to be treated as equivalent to remittance of foreign exchange. - HELD THAT: - The Tribunal reviewed the history and text of the ECM, the manner in which RBI communicates amendments by AD circulars, and prior administrative and judicial treatment. It accepted that Chapter X contains standing directions and operational rules for authorised dealers and that, as a matter of exchange control administration, credits to non resident rupee accounts are treated as equivalent to remittance and attract the procedural safeguards and reporting (Forms A1/A2/A3 and R returns) prescribed in the ECM. The Tribunal also accepted that ECM provisions explain and operate alongside the definitions of 'foreign currency' and 'foreign exchange' in FERA and impose duties on authorised dealers to ensure prior permissions where required.Chapter X of the ECM constitutes binding exchange control directions for authorised dealers and its deeming treatment of certain rupee credits as equivalent to remittances is operative for administrative/regulatory purposes; non compliance may attract regulatory consequences.Requirement of mens rea / culpable mental state in quasi criminal adjudication under FERA - vicarious liability of officers under Section 68 (consent, connivance, negligence) - Whether mens rea (or a sufficient degree of culpability) is required before imposing penalty on individual officers and whether the officers were properly charged under Section 68(1)/(2) on the materials in the show cause notices. - HELD THAT: - The Tribunal considered authorities on the quasi criminal nature of FERA proceedings, Section 59 (presumption of culpable mental state and its application), and jurisprudence on vicarious liability of company officers. It underlined that findings imposing liability under Section 68(1)/(2) must rest on material showing that the person was in charge of and responsible for the company's conduct or that the limb of consent/connivance/negligence relied upon was pleaded and proved. The Tribunal found no material of deliberate, contumacious or dishonest conduct by the named officers; many had acted in the ordinary course of banking and the show cause notices did not specifically plead negligence/connivance/consent as required. It emphasised that mens rea or equivalent culpability is a relevant consideration in penal/quasi criminal adjudication and that the ED could not, without adequate pleading and proof, import negligence findings not raised in the notices.Imposition of penalties on the individual officers under Section 68 (on the basis of negligence or vicarious liability) was unsustainable where those specific charges were not pleaded and proved and where requisite culpability was not established; the orders against the officers are set aside.Adequacy and specificity of show cause notices required to sustain adjudication - Whether the show cause notices and opportunity afforded were legally sufficient to ground the adverse findings and penalties ultimately recorded. - HELD THAT: - The Tribunal reiterated the elementary principle that a show cause notice must disclose the precise case the noticee has to meet and should identify the specific legal basis and facts forming the foundation of the proposed action. It noted that in many impugned orders the adjudicator reached findings (for example under Section 68(2) for negligence) which were not pleaded in the notices and that material relied upon beyond the relied upon documents in the notices was used to frame broader conclusions. Where the fundamentals of the charge were not set out with sufficient specificity the noticees were deprived of effective opportunity to meet the case.Findings and penalties premised on matters not specifically pleaded in the show cause notices are unsustainable; the impugned orders which relied upon such unpleaded bases are set aside.Final Conclusion: The Tribunal set aside the impugned adjudication orders and quashed the penalties imposed upon the bank and its officers. Although the Tribunal recognised that the transactions fell within the subject matter of exchange control and that ECM Chapter X operates as binding directions for authorised dealers, it found (i) the Enforcement Directorate's penal proceedings and the specific allegations against individual officers were not properly founded or proved (mens rea/culpability and specific pleading under Section 68 were lacking), and (ii) matters concerning compliance by authorised dealers fall primarily for RBI regulation and remedies; on the facts (including voluntary repatriation of funds and absence of mala fide), the ED's orders were not sustainable. No costs; deposited sums were not pressed for refund by the appellants.

2019 (10) TMI 174 - ATFEMA FEMA

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Foreign exchange abetment requires intentional aid or knowledge; routine cheque clearance alone did not sustain penalties.
Abetment of a foreign exchange contravention was not established where cheques were cleared in the ordinary course of banking and later credited to a non-resident account. The Tribunal held that liability under the Foreign Exchange Regulation Act and the Exchange Control Manual required intentional aid, instigation, or conspiratorial participation, and that mere clearance of cheques, absent proof of knowledge that the proceeds would be remitted abroad, did not satisfy that test. The absence of Form A3 and the later movement of funds outside India, without more, showed at most negligence in banking procedure. The penalties therefore could not be sustained and the common adjudication order was set aside.

Abetment by aiding - Abetment under Section 107 IPC - Liability under Section 64(2) of FERA - Requirement of Form A3 for credit to non-resident accounts - Responsibility of paying and receiving banks under Exchange Control Manual Clause 10.13 - Negligence not constituting abetmentAbetment by aiding - Abetment under Section 107 IPC - Liability under Section 64(2) of FERA - Canara Bank and its officers abetted ANZ Grindlays Bank in contravention of the FERA provisions alleged in the show cause notices. - HELD THAT: - The Tribunal examined whether the appellants had the requisite intention or intentionally aided the alleged contraventions. The Adjudicating Authority's finding that the face of the cheques indicated funds would be credited to a non-resident account was held insufficient to establish active complicity. Evidence showed the presenter bank (ANZ Grindlays) presented the instruments in local clearing without sending Form A3 to Canara Bank; the paying bank honoured the cheques in the ordinary course and the appellants did not have knowledge that proceeds would be repatriated abroad. The Tribunal accepted that at most negligence was shown, and reiterated the principle that mere facilitation or negligent acts are not the same as intentional aiding required for abetment under Section 107 IPC and liability under Section 64(2) of FERA. The decision in the contemporaneously decided Standard Chartered Bank appeals, which rejected abetment, was applied to the present matters. [Paras 13, 25, 29, 30]Abetment not established; appellants cannot be held guilty of abetting the contraventions alleged.Requirement of Form A3 for credit to non-resident accounts - Responsibility of paying and receiving banks under Exchange Control Manual Clause 10.13 - Negligence not constituting abetment - Validity of the penalties imposed on Canara Bank and the individual officers for the alleged contraventions. - HELD THAT: - Having concluded that abetment was not proved and that the conduct demonstrated, if any, amounted to negligence rather than intentional aiding, the Tribunal found the imposition of penalties unsustainable. The Tribunal noted that the presenter bank did not furnish Form A3 to the paying bank, that the cheques were presented and honoured in normal clearing, and that there was no finding of overt acts by particular officers establishing intentional wrongdoing. Applying the reasoning adopted in the Standard Chartered Bank appeals, the Tribunal allowed the appeals against the adjudication order and set aside the penalties. [Paras 13, 25, 29, 30]Penalties and adjudication order set aside; appellants' appeals allowed.Final Conclusion: The appeals are allowed; the Adjudicating Authority's common order dated 30.11.2007 is set aside as abetment was not established and the penalties imposed on the bank and its officers are quashed.

2019 (10) TMI 173 - ATFEMA FEMA

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Issues: (i) Whether the proceedings could be sustained on the basis of unauthenticated photocopies of foreign documents and the presumption under section 39 of FEMA; (ii) Whether the appellate authority could enhance the penalty in the absence of any appeal or cross-objection by the Department.

Issue (i): Whether the proceedings could be sustained on the basis of unauthenticated photocopies of foreign documents and the presumption under section 39 of FEMA.

Analysis: The material relied upon by the Department consisted of photocopies said to have been received from outside India, but their authenticity was doubted even by the Department itself. The record showed that no satisfactory authentication was forthcoming, and the documents were in a language not understood by the noticees or the adjudicating authority. In such circumstances, the statutory presumption could not be invoked to fill the gap in proof, particularly when the foundational facts necessary to support the alleged contravention were not established by admissible evidence.

Conclusion: The finding of contravention could not be sustained on the basis of such material and is set aside in favour of the assessee.

Issue (ii): Whether the appellate authority could enhance the penalty in the absence of any appeal or cross-objection by the Department.

Analysis: Enhancement of the penalty was made without any appeal by the aggrieved side. The appellate authority could not, on its own, place the appellants in a worse position than under the original adjudication in the absence of a challenge by the Department. The enhancement was therefore beyond jurisdiction and contrary to settled appellate principles.

Conclusion: The enhancement of penalty was illegal and unsustainable and is set aside in favour of the assessee.

Final Conclusion: The impugned appellate order and the original adjudication order were quashed, and all the appeals were allowed.

Ratio Decidendi: Unauthenticated foreign documents cannot, by themselves, sustain a finding of contravention where the statutory presumption is not properly attracted, and an appellate authority cannot enhance a penalty in the absence of an appeal or cross-objection by the aggrieved side.

Unauthenticated foreign documents and no departmental appeal cannot justify FEMA penalty enhancement or contravention findings.
Unauthenticated photocopies of foreign documents could not sustain a finding of contravention under FEMA where their authenticity was doubtful, the documents were untranslated or not understood by the noticees or adjudicating authority, and the foundational facts were not proved by admissible evidence; the statutory presumption under section 39 could not cure that evidentiary gap. The appellate authority also lacked jurisdiction to enhance penalty in the absence of any appeal or cross-objection by the Department, as it could not place the appellants in a worse position without a challenge from the aggrieved side.

Authentication of documents received from abroad - admissibility of unauthenticated photocopies - presumption under Section 39 of FEMA - arbitrary apportionment of alleged foreign funds - enhancement of penalty in absence of appealAuthentication of documents received from abroad - admissibility of unauthenticated photocopies - Whether the impugned proceedings could validly rest on unauthenticated photocopies of foreign documents received from the Income Tax Department. - HELD THAT: - The Tribunal found that the material relied upon by the respondent consisted of unauthenticated photocopies in a language unknown to the appellants, the Adjudicating Authority and the respondent, and that the respondent had itself questioned the authenticity by seeking authentication from the Income Tax Department (letter dated 11-06-2013) which went unanswered. The adjudicating authorities proceeded to adjudicate and impose penalties without ensuring authentication in terms of the applicable rules; reliance was placed on unverified foreign material and no proper evidentiary foundation was laid before invoking presumptions. In these circumstances the documents could not be treated as admissible evidence to sustain the allegations against the appellants, and the presumption sought to be invoked could not be legitimately raised on such unauthenticated material. [Paras 10, 11, 18, 20, 21]Findings and proceedings based on the unauthenticated photocopies were unsustainable; the material could not be relied upon as admissible evidence.Presumption under Section 39 of FEMA - Whether the presumption under Section 39 of FEMA could be invoked on the basis of the documents placed on record. - HELD THAT: - The Tribunal held that the respondent misapplied Section 39 by attempting to invoke statutory presumption on the basis of unauthenticated and suspect documents. The authority had not satisfied the foundational requirements to raise the presumption and in fact had entertained doubts about the credibility of the material. Reliance on Section 39 is impermissible where the documents themselves are inadmissible or unauthenticated and where the basic facts required to raise the presumption are not established. [Paras 9, 10, 18, 20]Invocation of the presumption under Section 39 was improper and could not sustain the orders against the appellants.Arbitrary apportionment of alleged foreign funds - Whether the Adjudicating Authority and the Special Director were justified in dividing the alleged foreign fund equally among the four appellants without evidential basis. - HELD THAT: - The Tribunal noted that the Adjudicating Authority contrived to attribute one-fourth of the alleged amount to each appellant by converting the total into Indian currency and making an arbitrary division contrary to the SCN and without any supporting evidence. The Special Director affirmed those findings and devised fresh, speculative reasoning not grounded in material on record. Such apportionment and conclusions reached without evidence amounted to perfunctory and arbitrary decision-making, lacking application of mind and contrary to principles of fair adjudication. [Paras 8, 13, 15]The attribution of one-fourth of the alleged amount to each appellant was arbitrary and unsupported by evidence and the conclusions based thereon were set aside.Enhancement of penalty in absence of appeal - Whether the Special Director could lawfully enhance the penalty in the absence of an appeal by the Department. - HELD THAT: - The Tribunal held that the Special Director enhanced the penalty without any appeal filed by the Department or cross-appeal, effectively acting as an aggrieved party without locus. That exercise of enhancing penalty in the absence of an appeal rendered the enhanced order void ab initio because the Special Director lacked authority to increase the penalty when no appeal by the aggrieved party was before him. [Paras 16, 22, 23]Enhancement of penalty by the Special Director in the absence of any appeal by the Department was unlawful and void.Final Conclusion: The impugned order of the Adjudicating Authority dated 18-11-2016 and the appellate order of the Special Director are set aside and quashed for being founded on unauthenticated and inadmissible material, for arbitrary apportionment unsupported by evidence, and for unlawful enhancement of penalty in absence of an appeal; all appeals are allowed. No costs.

2019 (9) TMI 940 - ATFEMA FEMA

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Appeals granted, penalty increased to Rs. 50 lakhs. Emphasis on natural justice, ex-post facto permissions. Fair adjudication process.
The Tribunal partly allowed the appeals, setting aside the confiscation order and enhancing the penalty to Rs. 50 lakhs. The decision emphasized the importance of following principles of natural justice, the discretionary nature of confiscation under Section 13(2) of FEMA, and the need to consider ex-post facto permissions from RBI. The Tribunal underscored the necessity of a fair and just adjudication process, respecting the rights of the parties involved.

Requirement of prior RBI permission for acquisition under Regulation 7 of FEMA (Acquisition and Transfer of Immovable Property) - Confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999 - Mandatory imposition of penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - Ex post facto permission by the Reserve Bank of India and its effect on FEMA proceedings - Principles of natural justice - right to cross examine witnesses relied upon by adjudicating authority - Effect of contravention on civil title - transfer not void merely by breach of FEMA/FERA - Judicial discretion in exercise of confiscation powerRequirement of prior RBI permission for acquisition under Regulation 7 of FEMA (Acquisition and Transfer of Immovable Property) - Whether the purchase of eight flats by the appellant contravened Section 6(3)(i) of FEMA read with Regulation 7 of the Acquisition Regulations. - HELD THAT: - The Tribunal found on the material that the eight flats with five parking spaces were purchased without prior permission of the Reserve Bank of India and that Regulation 7 makes prior permission an essential ingredient for nationals of specified countries. Applying the statutory scheme and the factual findings recorded below, the Tribunal held that the purchases contravened clause (i) of sub section (3) of Section 6 read with Regulation 7. The Tribunal accepted the Adjudicating Authority's conclusion on contravention while treating title under civil law as distinct from penal consequences under FEMA. [Paras 24, 25, 28]Contravention of Section 6(3)(i) read with Regulation 7 established in respect of the eight flats and five parking spaces.Confiscation under Section 13(2) of the Foreign Exchange Management Act, 1999 - Judicial discretion in exercise of confiscation power - Principles of natural justice - right to cross examine witnesses relied upon by adjudicating authority - Ex post facto permission by the Reserve Bank of India and its effect on FEMA proceedings - Whether the Adjudicating Authority rightly exercised its discretion under Section 13(2) to direct confiscation of the eight flats and five parking spaces. - HELD THAT: - Section 13(2) confers a discretionary power to confiscate property involved in a contravention; it is not mandatory. The Tribunal examined surrounding facts and concluded that the discretion was improperly exercised. The Tribunal relied on multiple reasons: absence of mala fide or foreign exchange loss (payments were in Indian rupees and from domestic loans/income), failure of the Adjudicating Authority to decide or permit cross examination of witnesses whose statements were relied upon (violating principles of natural justice), the pendency (and material relevance) of an application to RBI for ex post facto permission which the Adjudicating Authority declined to await, and subsequent grant of Indian citizenship to the appellant. The Tribunal held these factors required it to set aside the confiscation portion of the impugned order while leaving the finding of contravention intact. [Paras 36, 40, 44, 45, 47]Order of confiscation under Section 13(2) quashed; Adjudicating Authority's exercise of discretion set aside for reasons stated.Mandatory imposition of penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - Whether penalty under Section 13(1) should be imposed and, if so, its quantum. - HELD THAT: - While the Tribunal set aside confiscation under Section 13(2), it sustained the finding of contravention under Section 13(1), observing that imposition of penalty is mandatory upon adjudication of contravention. Having regard to the appellant's changing stands and conduct, the Tribunal exercised its appellate power under Section 19(6) to enhance the penalty. The Tribunal directed payment of the enhanced penalty within a specified period. [Paras 33, 35, 47]Finding under Section 13(1) upheld; penalty enhanced to Rs. 50 lakhs and directed to be deposited as ordered.Effect of contravention on civil title - transfer not void merely by breach of FEMA/FERA - Validity of the Adjudicating Authority's conclusion that transfers (gifts) to Ms. Sabah Galadari were ipso facto illegal and that she had no legal right to the flats. - HELD THAT: - The Tribunal reviewed precedent establishing that contravention of foreign exchange acquisition rules does not automatically invalidate civil title passing under registered instruments. Applying those principles, the Tribunal quashed the Adjudicating Authority's categorical finding that the subsequent transfer/gift to Ms. Sabah was ipso facto invalid. The Tribunal observed that inter se disputes (including claims of payment, advances, or equitable mortgages between the parties) fall outside its adjudicatory remit and must be determined by competent civil courts; no final determination on those private rights was made by the Tribunal. [Paras 31, 39, 40, 42, 47]Findings that the transfers to Ms. Sabah were automatically illegal quashed; inter se claims left to competent civil forum for determination.Final Conclusion: The Tribunal upheld the finding of contravention of Section 6(3)(i) read with Regulation 7 in respect of the eight flats and five parking spaces but set aside the Adjudicating Authority's confiscation order under Section 13(2) as an improper exercise of discretion (quashed). The penalty under Section 13(1) was sustained and enhanced to the amount directed by the Tribunal. The Tribunal also quashed the Adjudicating Authority's categorical finding that transfers to Ms. Sabah were ipso facto invalid and left inter se disputes between the parties to be decided by the competent civil courts.

2019 (9) TMI 666 - ATFEMA FEMA

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Resident Indians under FEMA: Tribunal rules no violations, stresses compliance with fund transfer rules
The Tribunal found that the appellants qualified as "Resident Indians" under FEMA, having resided in India for over 182 days, allowing them to acquire properties without RBI permission. The Tribunal determined no violations of FEMA regulations by the appellants, setting aside penalties and confiscation ordered by the Respondent authority. The decision emphasized the importance of compliance with legal channels for fund transfers and highlighted the lack of proper consideration in the Respondent authority's order. The appeal was allowed without costs.

Definition of Person resident in India under Section 2(v) of FEMA - prior permission of Reserve Bank of India for acquisition of immovable property - requirements of Section 3(c) of FEMA - foreign inward remittance certificates (FIRC) as proof of legal receipt - confiscation under Section 13(2) of FEMA - penalty and adjudication under FEMADefinition of Person resident in India under Section 2(v) of FEMA - Appellants satisfied the residency test and were persons resident in India for FEMA purposes - HELD THAT: - The Tribunal accepted documentary evidence of continuous presence in India from 08.08.2008 to 31.03.2009 amounting to more than 182 days in the relevant previous year. The immigration stamps and visa records filed by the appellants were considered and the adjudicating authority's finding that the appellants met the residency criterion was affirmed. The court therefore held that the appellants fell within the statutory definition of a person resident in India under Section 2(v). [Paras 12, 18]Appellants were persons resident in India at the relevant timeForeign inward remittance certificates (FIRC) as proof of legal receipt - requirements of Section 3(c) of FEMA - Receipts alleged to be donations/remittances were received through authorized banking channels and the ingredients of Section 3(c) of FEMA were not established - HELD THAT: - The Tribunal noted production of FIRCs and bank records showing inward remittances into the appellants' bank account prior to the purchase. On the evidence, the adjudicating authority's finding that the consideration for the immovable property and the funds received were routed through legal channels was accepted. Because the threefold test under Section 3(c) (receipt, receipt otherwise than through an authorised person, and receipt by or on behalf of a person resident outside India) was not established on the record, the alleged contravention under Section 3(c) was not made out. [Paras 14, 17, 18]Alleged receipt in violation of FEMA not proved; requirements of Section 3(c) not satisfiedPrior permission of Reserve Bank of India for acquisition of immovable property - No prior RBI permission was required once residency criterion under Section 2(v) was satisfied and appellants had sought RBI guidance before purchase - HELD THAT: - The appellants had approached the Reserve Bank of India before acquiring the property and produced the RBI communication which indicated that prior approval from RBI was not required if the residency condition under Section 2(v) was met and that residency proof could be furnished if required. The Tribunal accepted that the appellants had taken steps to obtain RBI guidance and that, given their established resident status, no separate prior permission obligation survived to invalidate the purchase. [Paras 13, 18]No prior RBI permission was required once residency was established; appellants had sought RBI guidanceConfiscation under Section 13(2) of FEMA - penalty and adjudication under FEMA - Confiscation and penalties imposed by the adjudicating authority were unsustainable and set aside - HELD THAT: - Having found that the appellants qualified as residents and that the funds were received through authorised channels with FIRCs on record, the Tribunal concluded that the foundational allegations of contravention were not established. In consequence, the Tribunal held that the confiscation order and the imposition of penalties were not sustainable on law or facts and therefore quashed the confiscation and set aside the penalties. [Paras 18, 19]Order of confiscation and penalty set asideFinal Conclusion: The appeal is allowed: the appellants were held to be residents for FEMA purposes, the receipts were established to have come through authorised channels (FIRCs produced) and the RBI had indicated no prior permission was required if residency was satisfied; consequently the adjudicating authority's findings of contravention, the confiscation order and the penalties are set aside.

2019 (9) TMI 161 - ATFEMA FEMA

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Issues: (i) Whether the amount transferred by one company to another for meeting the working expenses of a vanaspati manufacturing arrangement was a loan or deposit attracting Section 26(7) of the Foreign Exchange Regulation Act, 1973. (ii) Whether penalty could be sustained against the company and its directors, including under Section 68 of the Foreign Exchange Regulation Act, 1973.

Issue (i): Whether the amount transferred by one company to another for meeting the working expenses of a vanaspati manufacturing arrangement was a loan or deposit attracting Section 26(7) of the Foreign Exchange Regulation Act, 1973.

Analysis: The transaction was supported by the accounts, explanatory note and contemporaneous correspondence showing that the money was advanced only to meet operating expenses for carrying on the business in trust and on behalf of the other company. The essential feature of a loan, namely an absolute promise to repay, was absent. The mere description in the accounts as "loans and advances" was not conclusive, and the burden of proving lending or borrowing attracting the statutory prohibition remained on the authority.

Conclusion: The amount was not a loan or deposit within Section 26(7) of the Foreign Exchange Regulation Act, 1973, and no contravention on that basis was established.

Issue (ii): Whether penalty could be sustained against the company and its directors, including under Section 68 of the Foreign Exchange Regulation Act, 1973.

Analysis: As the foundational contravention was not proved, the penalty against the company could not stand. Independently, the material did not contain specific factual averments showing that the directors were in charge of and responsible for the conduct of the business so as to attract vicarious liability. The circumstances also did not justify imposition of penalty, particularly where the conduct was consistent with a bona fide commercial arrangement.

Conclusion: The penalties against the company and the directors were unsustainable.

Final Conclusion: The appeals succeeded and the impugned penalty order was set aside in entirety.

Ratio Decidendi: A transaction is not a loan or deposit under Section 26(7) of the Foreign Exchange Regulation Act, 1973 unless there is material showing lending or borrowing with an obligation to repay, and directors cannot be penalised vicariously in the absence of specific facts establishing responsibility for the contravention.

Commercial advance, not loan or deposit, defeats foreign exchange penalty and vicarious liability against directors.
A transfer made to meet another company's working expenses was treated as a commercial advance, not a loan or deposit, because the accounts, explanatory note and correspondence showed it was given to carry on business in trust and on behalf of that company and lacked an absolute promise to repay. On that basis, no contravention under Section 26(7) of the Foreign Exchange Regulation Act, 1973 was established. Penalties on the company and its directors also could not stand: with the foundational breach unproved, and without specific facts showing the directors were in charge of and responsible for the business, vicarious liability was not made out. The penalty order was set aside.

Characterisation of advances versus loans - application of Section 26(7)(i) and (ii) of FERA, 1973 - definition of "person resident in India" under Section 2(p) of FERA - administrative clarifications in the Exchange Control Manual vis-a -vis statutory text - vicarious liability of directors under Section 68 - imposition of penalty in quasi criminal statutory proceedings: requirement of bona fide belief and absence of contumacious conductCharacterisation of advances versus loans - application of Section 26(7)(i) and (ii) of FERA, 1973 - The payments made by Lipton India Ltd. to Hindustan Lever Ltd. were advances for funding operations carried out by HLL in trust for LIL and did not amount to a loan or deposit attracting Section 26(7)(i)/(ii) of FERA, 1973. - HELD THAT: - The Tribunal examined the annual accounts entry, the explanatory note and the letter dated 13.02.1987 and held that the amounts were advanced from time to time to meet working capital and operating expenses of the Vanaspati operations carried on by HLL in trust for and on behalf of LIL. The Special Director's conclusion that the sums constituted a 'loan' was contrary to the settled test that a loan requires an advance of money accompanied by an absolute promise to repay; there is no material showing such an obligation to repay here. The heading 'Loans and Advances' in the annual report cannot, by itself, override the substance of the transaction as disclosed by the documents and parties' intention. Consequently the transactions do not fall within the statutory concept of lending/borrowing under Section 26(7). [Paras 14, 15, 16, 23, 34]The impugned finding that the sums were loans/deposits under Section 26(7) is set aside.Definition of "person resident in India" under Section 2(p) of FERA - administrative clarifications in the Exchange Control Manual vis-a -vis statutory text - application of Section 26(7)(i) and (ii) of FERA, 1973 - A body corporate incorporated in India (Lipton India Ltd.) cannot be treated as a 'person resident in India' within the specific definition in Section 2(p) of FERA for purposes of sub section (7); consequently the sub section's prohibition is not applicable to transactions between two bodies corporate in the facts of this case. - HELD THAT: - The Tribunal construed the exhaustive definition of 'a person resident in India' in Section 2(p) and observed that its clauses refer to individuals (natural persons) and not bodies corporate. The General Clauses Act definition of 'person' cannot be invoked to override the specific statutory phrase which is defined in FERA. Further, the Exchange Control Manual is an administrative clarification and cannot alter or expand the statutory definition; administrative instructions do not bind the court where they conflict with the statutory text. On this construction, Section 26(7)'s proscription - which contemplates dealings between a FERA company and 'a person resident in India' as defined - does not apply to the inter corporate advances in the present case. [Paras 28, 29, 30, 31, 32]Section 26(7) is inapplicable to the transactions between LIL and HLL; reliance on the Exchange Control Manual does not change this result.Imposition of penalty in quasi criminal statutory proceedings: requirement of bona fide belief and absence of contumacious conduct - application of Section 26(7)(i) and (ii) of FERA, 1973 - Even assuming, without admitting, a technical contravention, imposition of penalty was not justified on the facts because the company acted bona fide under a genuine belief and there was no deliberate defiance, contumacious or dishonest conduct warranting penal consequences. - HELD THAT: - The Tribunal relied on the impugned order's own finding that there was no outflow of foreign exchange or siphoning, and applied settled principles that penalty in quasi criminal statutory proceedings is not ordinarily imposed where the breach is technical or arises from a bona fide belief as to legality. The appellants produced contemporaneous explanations and a counsel opinion supporting their bona fides; in these circumstances and on the construction of the transaction as advances rather than loans, the Tribunal found no justification for the penalties levied on the company. [Paras 35, 36, 37, 38, 44]The penalties imposed on the company are quashed.Vicarious liability of directors under Section 68 - The penalties imposed on the directors cannot be sustained because there were no specific factual averments showing that any director was in charge of and responsible for the conduct of the company's business concerning the alleged offence. - HELD THAT: - The Tribunal applied authority requiring specific allegations to fasten vicarious liability on directors; mere recitation of Section 68 in the show cause notice is insufficient. The material showed that one director joined after the relevant period, the chairman was not involved in day to day operations, and other directors were non executive, so no case was made out against them individually. Absent factual averments attributing responsibility to particular directors, proceedings against them are vitiated. [Paras 40, 41, 42, 43]The penalties imposed on the individual directors are set aside.Final Conclusion: The appeals are allowed: the Tribunal set aside the Special Director's findings that the transactions were loans under Section 26(7) of FERA, held Section 26(7) inapplicable on the statutory definition of 'person resident in India', quashed the penalties on the company and on the directors, and directed refund of the pre deposit.

2019 (8) TMI 683 - ATFEMA FEMA

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Issues:
Appeal against contravention of FEMA provisions - Alleged involvement in hawala transactions - Lack of direct evidence - Admissibility of statements from others - Coercion in statement recording - Previous cases against the appellant - Culpability based on seized items and statements - Interpretation of Section 3(b) and 3(c) of FEMA - Necessity of RBI authorization for transactions - Presence of corroborative evidence - Offence in hawala cases - Presumption of guilt - Analysis of phone call details - Circulation of Indian money within the country - Need for thorough investigation.

Analysis:
The appellant filed an appeal challenging the accusation of involvement in hawala transactions, contravening Section 3(b) and 3(c) of FEMA, 1999, based on statements of others. The appellant denied the allegations, emphasizing the lack of direct evidence and the illegality of relying solely on statements. The appellant argued that his statement was coerced and lacked corroboration regarding payments to or from persons outside India, as required by FEMA provisions. The respondent contended that the appellant's history as a habitual offender, seized items, and statements of co-accused indicated guilt. The respondent highlighted the broad scope of transactions under FEMA and the presumption of guilt in hawala cases.

Upon examination, the tribunal focused on the requirement under Section 3(b) and 3(c) of FEMA, emphasizing the need for evidence of payments to or from persons outside India. The impugned order alleged the appellant received hawala payments from individuals in India, not directly from abroad. The tribunal noted the lack of investigation into the Indian individuals involved in delivering money to the appellant, despite available details. The analysis found shortcomings in phone call details and the absence of a direct link to foreign transactions.

Consequently, the tribunal set aside the impugned order and remanded the case for a thorough investigation to establish the necessary links under FEMA provisions. The decision underscored the importance of proper evidence collection and a comprehensive inquiry into all relevant aspects of the case. The ruling allowed the appeal by way of remand, emphasizing the requirement for a detailed examination to determine compliance with FEMA regulations.

Tribunal sets aside order in hawala transaction appeal, emphasizes need for evidence under FEMA. Denial, coercion, lack of corroboration reviewed. Investigation deficiencies noted.
The tribunal set aside the impugned order in an appeal involving alleged hawala transactions, emphasizing the need for evidence of transactions with persons outside India under FEMA provisions. The appellant's denial, coercion in statement recording, and lack of corroborative evidence were considered. The tribunal highlighted deficiencies in the investigation, phone call details, and foreign transaction links. The case was remanded for a thorough inquiry to establish compliance with FEMA regulations, stressing the importance of proper evidence collection and comprehensive examination.

Contravention of FEMA Section 3(b) and 3(c) - requirement of link to a person resident outside India - corroboration of statements of co-accused and third parties - admissibility and probative value of CDR analysis - speaking order and further investigation on essential linksContravention of FEMA Section 3(b) and 3(c) - requirement of link to a person resident outside India - corroboration of statements of co-accused and third parties - Whether the impugned order validly established contravention of Section 3(b) and 3(c) of FEMA, 1999 against the appellant. - HELD THAT: - The tribunal examined the statutory requirement that offences under Section 3(b) and 3(c) entail making or receiving payments to or for the credit of persons resident outside India. The impugned order alleged receipt of large sums in India from named Indian intermediaries who, it was asserted, had in turn arranged funds from abroad. The tribunal found that the order did not establish that the appellant received or made payments directly from or to persons resident outside India, and that circulation of Indian currency within India is not per se prohibited under FEMA. The authority had not adequately investigated the Indian intermediaries who delivered funds to the appellant despite having details such as mobile numbers, nor had it completed a conclusive analysis of call data records to demonstrate the content or substance of communications with abroad. The tribunal held that statements of others, without independent corroborative evidence linking the appellant to persons resident abroad, were insufficient to sustain the finding of contravention. [Paras 5, 6]Finding of contravention under Sections 3(b) and 3(c) not established on the record; remand for further investigation and a speaking order to establish the requisite link to persons resident outside India.Admissibility and probative value of CDR analysis - speaking order and further investigation on essential links - Whether the matter required remand for further investigation and a speaking order. - HELD THAT: - Having identified investigative lapses - notably incomplete inquiry into Indian intermediaries and inconclusive CDR analysis that did not show details of conversations with abroad - the tribunal concluded that the original authority must undertake a thorough investigation on those issues and any other relevant aspects. The tribunal directed that a speaking order be passed which specifically establishes the links necessary to sustain allegations under Sections 3(b) and 3(c), rather than relying solely on statements of co-accused or peripheral material. [Paras 6, 7]Impugned order set aside; appeal allowed by way of remand to the original authority for comprehensive investigation and a speaking order addressing the required links.Final Conclusion: The impugned order is set aside and the appeal is allowed by way of remand: the matter is remitted to the original authority to conduct a thorough investigation (including proper inquiry into intermediaries and exhaustive CDR analysis) and to pass a speaking order establishing the link required under Sections 3(b) and 3(c) of FEMA, 1999.

2019 (8) TMI 682 - ATFEMA FEMA

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Prima facie evidence and round-tripping allegations justified interim relief by staying the pre-deposit in foreign exchange proceedings.
At the stay stage in foreign exchange contravention proceedings, the tribunal found that the adjudicating authority had not relied on prima facie documentary or other conclusive evidence to establish unauthorised transfer of foreign exchange or round tripping. Issues such as common directors, the actual source of funds, and the alleged offshore investment structure were treated as matters for final hearing. On that basis, the appellants were held to have a strong case on merits for interim relief, and the pre-deposit was stayed in their favour.

Prima facie evidence - round tripping of funds - commonality of interests - stay of pre-deposit - FERA contravention for acquisition and transfer of foreign exchange without RBI permission - directors' liabilityPrima facie evidence - round tripping of funds - commonality of interests - No prima facie material exists on which the adjudicating authority has conclusively relied to prove that the funds were round tripped or that the source of the investment was the appellant company. - HELD THAT: - The adjudicating authority's case rests on the allegation that an offshore entity remitted funds into Indian companies and that, because the offshore entity had minimal declared capital and shared directors with the Indian companies, the investment was in fact funded by the Indian company and returned as round tripped funds. The Tribunal found that there was no prima facie documentary or other evidence placed on record by the adjudicating authority to conclusively establish round tripping, common control producing the alleged funding flow, or the actual source of the funds. These factual and evidentiary questions require detailed inquiry and are not amenable to final determination at the interlocutory stage. [Paras 4]Finding of absence of prima facie evidence; appellants have a strong case on merits.Stay of pre-deposit - FERA contravention for acquisition and transfer of foreign exchange without RBI permission - directors' liability - Interim relief in the form of stay of the pre-deposit was granted in respect of the appeals against the adjudicating order. - HELD THAT: - On consideration of the submissions and the material before it, and in view of the Tribunal's prima facie conclusion that the adjudicating authority has not placed conclusive evidence, the Tribunal exercised its discretionary power to stay the requirement of pre-deposit pending final disposal. No averse finding was recorded on hardship, and no directions were given on that aspect. [Paras 4, 5]Pre-deposit stayed; matter listed for final hearing.Round tripping of funds - source of funds - commonality of interests - Final adjudication on whether funds were round tripped, the actual source of funds, and the significance of shared directorships was remanded for hearing on merits. - HELD THAT: - The Tribunal indicated that determinations on the existence of round tripping, the effect of common directors, and the true source of the investments are matters of detailed fact and evidence that must be examined at the final hearing. The interlocutory order does not decide these factual issues on merits but preserves them for full adjudication. [Paras 4]Issues remanded for consideration at the final hearing scheduled on 14th October, 2019.Final Conclusion: On the material before it the Tribunal found no prima facie evidence to conclusively establish the alleged round tripping or source of funds, stayed the pre deposit required by the impugned FERA order and remanded the substantive factual issues for final hearing (listed for 14 October 2019).

2019 (8) TMI 681 - ATFEMA FEMA

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Issues:
- Dismissal of appeals by the Tribunal on grounds of limitation and non-compliance with pre-deposit order
- Remand of certain appeals by the Delhi High Court for fresh decision
- Restoration of appeals applications for two appeals
- Legal requirement for filing restoration of appeal applications with valid grounds
- Dismissal of restoration of appeals applications for lack of grounds and substance
- Continuation of final hearing for remanded appeals

Analysis:

1. The Tribunal dismissed four appeals against the adjudication order due to limitation and non-compliance with the pre-deposit order. Subsequently, the Delhi High Court remanded two appeals for a fresh decision on the consequences of failure to deposit the pre-deposit amount and on the merits of the appeals. However, the other two appeals did not receive such a remand order, making the Tribunal's order final for those appeals.

2. The appellants filed restoration of appeals (ROA) applications for the two appeals without providing valid grounds or reasons. During the hearing, the appellants argued against the need for ROA, claiming the matter should be heard afresh based on the Delhi High Court order. The lack of reasons for restoration and the contradictory stance of the appellants indicated a casual approach towards legal procedures.

3. The respondent opposed the ROA applications, emphasizing that the Delhi High Court did not remand the two appeals in question. The absence of valid grounds for restoration after the detailed dismissal by the Tribunal further weakened the appellants' case for restoration.

4. Upon examination of the ROA applications and submissions, it was evident that the Delhi High Court's remand order only pertained to two specific appeals, not including the other two. The appellants failed to provide valid grounds for restoration, both in their applications and during the hearing, leading to the dismissal of the restoration of appeals applications.

5. Consequently, the restoration of appeals applications for the two appeals was dismissed due to the lack of grounds and substance, as highlighted by the failure to comply with the legal requirements for restoration.

6. For the appeals remanded by the Delhi High Court, the final hearing was scheduled but faced multiple adjournments at the appellants' requests. The appeals were released from being part heard and listed for a fresh hearing on a later date to ensure a fair and complete consideration of the case.

7. The Tribunal's decision to dismiss the restoration of appeals applications and proceed with the final hearing for the remanded appeals reflects a commitment to upholding legal procedures and ensuring a thorough examination of the matters at hand.

Tribunal dismisses appeals, Delhi High Court remands; restoration applications fail due to lack of valid grounds
The Tribunal dismissed four appeals due to limitation and non-compliance with the pre-deposit order. The Delhi High Court remanded two appeals for fresh decisions, while the other two appeals remained final. The appellants filed restoration of appeals applications without valid grounds, leading to their dismissal. The lack of reasons for restoration and contradictory arguments weakened their case. The absence of valid grounds and failure to comply with legal requirements resulted in the dismissal of restoration applications. The remanded appeals faced adjournments but were listed for a fresh hearing to ensure a fair consideration.

Restoration of appeal - pre-deposit requirement under Section 19 FEMA - finality of tribunal order - remand for fresh adjudication - limitation and non-compliance with pre-depositRestoration of appeal - finality of tribunal order - Restoration of appeals in FPA-FE-473/DLI/2003 and FPA-FE-488/DLI/2003. - HELD THAT: - The Delhi High Court order dated 08.12.2014 remanded only appeal Nos. 475 of 2004 and 543 of 2004 for fresh decision on specified questions; no remand was made in respect of appeals 473 and 488 of 2003. The ATFE's order dated 28.07.2008 dismissing those two appeals had therefore become final. Appellants filed restoration applications without stating any grounds or reasons justifying restoration and during hearing contended that restoration was unnecessary, thereby failing to supply the requisite legal basis for revival of finally disposed appeals. In the absence of any valid or substantive grounds for restoration, the applications were considered unsustainable. [Paras 1, 4, 5]Restoration of appeals FPA-FE-473/DLI/2003 and FPA-FE-488/DLI/2003 is dismissed for want of grounds; the earlier tribunal order stands final.Pre-deposit requirement under Section 19 FEMA - limitation and non-compliance with pre-deposit - Consequences of failure to deposit the pre-deposit amount and merits in appeals remanded by the Delhi High Court (FPA-FE-475/DLI/2004 and FPA-FE-543/DLI/2004) to the ATFE. - HELD THAT: - The Delhi High Court expressly remanded appeals Nos. 475 of 2004 and 543 of 2004 to the Appellate Tribunal for fresh decision on the question of consequences for failure to deposit the pre-deposit amount under Section 19 FEMA and on the merits. Pursuant to that remand, the tribunal commenced final hearing which was adjourned and treated as part-heard on multiple dates at the appellants' requests; the appeals were subsequently released from part-heard and re-listed for fresh hearing. The tribunal has therefore not decided the substantive remanded questions and has scheduled the matters for a fresh hearing. [Paras 1, 6, 7]Appeals FPA-FE-475/DLI/2004 and FPA-FE-543/DLI/2004 are to be heard afresh by the tribunal in accordance with the Delhi High Court's remand on pre-deposit consequences and merits; listed for hearing on 25th October, 2019.Remand for fresh adjudication - Status of pending listing and part-heard proceedings in the remanded appeals. - HELD THAT: - The tribunal recorded that the remanded matters (appeals 475 and 543 of 2004) had been subject to multiple adjournments and part-heard listings at the appellants' requests. The tribunal released the appeals from part-heard status and ordered that they be heard afresh, with a fresh listing fixed. This procedural direction implements the remand and clears the docket for substantive re-hearing. [Paras 6, 7]Remanded appeals were released from part-heard and listed for fresh hearing on 25th October, 2019.Final Conclusion: The tribunal dismissed the restoration applications for appeals 473 and 488 of 2003 for lack of grounds, leaving the earlier dismissal final; appeals 475 and 543 of 2004 - remanded by the Delhi High Court to decide consequences of non-deposit of the pre-deposit and on merits - have been released from part-heard and listed for fresh hearing on 25 October 2019.

2019 (8) TMI 266 - ATFEMA FEMA

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Issues: (i) Whether the penalties imposed for alleged contraventions of Sections 8(1), 9(1)(a) and 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 could be sustained on the basis that foreign exchange was deposited in NRE accounts by the appellant before the clarificatory change in the regulatory position. (ii) Whether the retracted statement recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 could, independent corroboration, form the sole basis for sustaining penalty.

Issue (i): Whether the penalties imposed for alleged contraventions of Sections 8(1), 9(1)(a) and 9(1)(f)(i) of the Foreign Exchange Regulation Act, 1973 could be sustained on the basis that foreign exchange was deposited in NRE accounts by the appellant before the clarificatory change in the regulatory position.

Analysis: The regulatory position prior to 31.07.1995 was treated as permitting deposits in NRE accounts through mandate holders or power of attorney holders, and the impugned order proceeded on the premise that the appellant himself had made the deposits. The record also showed that the deposits were linked to the NRI account holder's foreign earnings, and the necessary ingredients of the alleged contraventions were not established on that basis.

Conclusion: The alleged contraventions were not made out and the penalties could not be sustained on this ground.

Issue (ii): Whether the retracted statement recorded under Section 40 of the Foreign Exchange Regulation Act, 1973 could, independent corroboration, form the sole basis for sustaining penalty.

Analysis: A retracted confession requires substantial corroboration by independent and cogent evidence before it can be relied upon. The appellant retracted the statement promptly and asserted coercion, while no independent material was shown to corroborate the confession to the degree required for imposition of penalty.

Conclusion: The retracted statement could not be relied upon as the sole basis for penalty.

Final Conclusion: The appellate tribunal set aside the impugned penalty order and granted complete relief to the appellant on the merits of the alleged FERA contraventions.

Ratio Decidendi: A retracted confession cannot, by itself, sustain penalty unless it is substantially corroborated by independent evidence, and where the pre-existing regulatory position does not establish the alleged contravention, penalty is liable to be set aside.

FERA penalty cannot rest on a retracted confession alone without strong corroboration or proof of the alleged contravention.
Penalty under FERA was unsustainable where the pre-31.07.1995 regulatory position treated deposits into NRE accounts through mandate or power of attorney holders as permissible, and the record did not establish that the appellant himself made the impugned deposits or otherwise satisfied the ingredients of Sections 8(1), 9(1)(a) and 9(1)(f)(i). A retracted statement under Section 40 could not, without substantial independent and cogent corroboration, be used as the sole basis for penalty. As no adequate corroborative material was shown, the penalty order was set aside and relief was granted on the merits of the alleged contraventions.

Validity of show cause notice and adjudication under FERA - Deposits in NRE accounts by mandatees prior to 31.07.1995 - Erroneous attribution of foreign currency deposits to a charged person - Reliance on retracted confession and requirement of independent corroboration - Preclusive effect of consistent judicial decisions quashing similar show cause notices - Imposition of penalty under FERADeposits in NRE accounts by mandatees prior to 31.07.1995 - Validity of show cause notice and adjudication under FERA - Whether the impugned adjudication could sustain penalties when deposits into NRE accounts prior to 31.07.1995 were made by persons other than the account-holder under prevailing practice. - HELD THAT: - The Tribunal held that prior to the RBI Notification dated 31.07.1995 the established position was that foreign currency could be deposited in NRE accounts by power of attorney/mandate holders; consequently the necessary ingredients for contraventions under Sections 8(1), 9(1)(a) and 9(1)(f) of FERA were not made out. The Adjudicating Authority failed to take this position into account and proceeded on an erroneous premise that the deposits were attributable to the appellant. In that factual and legal matrix the impugned adjudication could not be sustained. [Paras 16, 17]Adjudication based on alleged deposits into NRE accounts prior to 31.07.1995 does not establish contraventions under the cited provisions of FERA; impugned findings on this basis cannot be sustained.Erroneous attribution of foreign currency deposits to a charged person - Imposition of penalty under FERA - Whether the penalties imposed could stand where the record showed the foreign currency deposits were made from the NRI's foreign earnings and not by the appellant. - HELD THAT: - The Tribunal observed that the Impugned Order erroneously proceeded on the premise that the appellant had deposited the foreign exchange into the NRE accounts, whereas material on record (including the outcome of parallel tax proceedings) established that the deposits were made by the NRI account-holder from his foreign earnings. The Adjudicating Authority did not adequately consider the intervening judicial findings which negatived attribution of those deposits to the appellant. [Paras 17, 21, 22]Penalties cannot be sustained where deposits are not attributable to the appellant and the Impugned Order proceeded on an incorrect factual premise.Reliance on retracted confession and requirement of independent corroboration - Whether the retracted confessional statement recorded under Section 40 FERA could support imposition of penalties in the absence of independent corroboration. - HELD THAT: - The Tribunal reiterated settled law that a retracted confession cannot form the basis for penal consequences unless substantially corroborated by independent, cogent evidence. The appellant had retracted the statement alleging coercion; the Enforcement Directorate produced no independent material that substantially corroborated the retracted confession. Applying the principle that confessions extracted by inducement, threat or pressure should be excluded or treated with caution, the Tribunal found the statement insufficient to sustain penalties. [Paras 24, 25, 26]The retracted confession, without independent corroboration, cannot be relied upon to impose penalty.Preclusive effect of consistent judicial decisions quashing similar show cause notices - Validity of show cause notice and adjudication under FERA - Whether the consistent judgments of the High Court quashing similar show cause notices and related proceedings affected the viability of the impugned adjudication. - HELD THAT: - The Tribunal took note of multiple High Court decisions (including quashing of the same form of show cause notice in Standard Chartered Bank and analogous rulings) which held that prior to 31.07.1995 there was no clear prohibition on deposits by persons other than the NRI account-holder and set aside show cause notices and adjudication orders. The existence of those judicial rulings, and the pendency and disposition of related appeals, were relevant and militated against sustaining the impugned penalties. [Paras 8, 13, 14, 15]Consistent judicial rulings quashing similar show cause notices undermine the impugned adjudication and weigh against imposing penalty.Imposition of penalty under FERA - Whether the impugned order imposing penalties on the appellant should be set aside. - HELD THAT: - In view of the incorrect factual premise regarding deposit attribution, the pre-31.07.1995 legal position on deposits into NRE accounts, the absence of independent corroboration for the retracted confession, and controlling High Court decisions on similar notices, the Tribunal concluded that the Adjudicating Authority's order could not be sustained. Applying these determinative considerations, the Tribunal allowed the appeal and set aside the impugned order. [Paras 16, 22, 26, 27]The appeal is allowed and the impugned Order No. SDE (PKD)/III/15/2006 dated 28.04.2006 is set aside.Final Conclusion: The Tribunal allowed the appeal, set aside the adjudication order imposing penalties, holding that (i) deposits into NRE accounts prior to 31.07.1995 by mandate-holders did not establish the alleged contraventions, (ii) the Impugned Order wrongly attributed the deposits to the appellant contrary to intervening findings, (iii) the retracted confession lacked independent corroboration and could not support penalty, and (iv) consistent High Court decisions quashing similar show cause notices further undermined the impugned adjudication. No costs.

2019 (8) TMI 213 - ATFEMA FEMA

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Retracted confession alone cannot sustain FERA penalty without independent corroboration; adjudication set aside.
A retracted confessional statement, standing alone, cannot sustain penal action under FERA unless it is substantially corroborated by independent and cogent evidence. The Tribunal found that the only material against the appellant was an earlier confession later retracted, and the record disclosed no independent evidence linking the appellant to the alleged transactions or the relevant NRE account. In the absence of corroboration, the penalty was unsustainable. The adjudication order was set aside and the appeal was allowed.

Retracted confession and requirement of independent corroboration - validity of show cause notice regarding deposits into NRE accounts prior to 31.07.1995 - imposition of penalty under FERA for contravention relating to credits by persons other than the NRE account holder - reliance on statements recorded under Section 40 FERA as sole basis for adjudicationValidity of show cause notice regarding deposits into NRE accounts prior to 31.07.1995 - imposition of penalty under FERA for contravention relating to credits by persons other than the NRE account holder - Impugned penalty could not be sustained because deposits/credits by persons other than the NRE account holder prior to the notification of 31.07.1995 did not, as a matter of law, clearly attract the provisions relied upon for imposing penalty. - HELD THAT: - The Tribunal noted and applied the judicial decisions of the High Court which held that prior to 31.07.1995 there was no clear cut stipulation prohibiting deposits/credits into NRE accounts by persons other than the account holder; the circular dated 31.07.1995 was treated by the Division Bench as not merely clarificatory and therefore changed the legal position. The Adjudicating Authority failed to take this legal position into account when imposing penalty. In these circumstances the statutory contraventions relied upon in the impugned order were not made out on the legal matrix prevailing for the relevant period and the Adjudicating Authority ought to have considered the parallel judicial orders quashing similar show cause notices and adjudication orders before imposing penalty. [Paras 15, 21]Impugned order setting penalty under FERA for the stated NRE account credits is set aside on this legal ground.Retracted confession and requirement of independent corroboration - reliance on statements recorded under Section 40 FERA as sole basis for adjudication - The confessional statement retracted by the appellant could not be the sole basis for imposing penalty in the absence of substantial independent corroboration. - HELD THAT: - The Tribunal applied settled principles that a retracted confession cannot found adverse adjudication unless substantially corroborated by independent and cogent evidence. The impugned order relied primarily on the appellant's statement recorded under Section 40 FERA, which the appellant retracted and alleged was given under coercion; no independent material was placed on record to corroborate that statement or to establish any nexus between the appellant and the NRE account of the purported account holder. In view of authorities cited in the order, the retracted confession could not be acted upon to sustain a penalty. [Paras 18, 19, 20, 21]Reliance on the retracted confession without independent corroboration vitiates the impugned adjudication; the penalty cannot be sustained on that basis.Final Conclusion: The appeal is allowed; the adjudication order imposing penalty dated 10.09.2004 is set aside on grounds that (a) the legal position governing deposits into NRE accounts prior to 31.07.1995 and relevant judicial decisions were not taken into account, and (b) the retracted confessional statement relied upon was not independently corroborated and therefore could not sustain the penalty.

2019 (8) TMI 137 - ATFEMA FEMA

AI TextQuick Glance (AI)Headnote

Export proceeds realisation by uncontroverted documents defeats penalty for alleged non-realisation under foreign exchange law.
Penalty for alleged contravention of Section 18(2) and Section 18(3) of the Foreign Exchange Regulation Act, 1973 could not be sustained where the exporters produced export realisation particulars, bank certificates and contemporaneous documents showing that the proceeds had in fact been realised. The respondent did not dispute the documentary evidence, so the factual for treating the proceeds as outstanding disappeared. On that basis, the impugned order was set aside and the appeals were allowed.

Realisation of export proceeds - penalty for non-realisation of export proceeds - contravention of Section 18(2) and 18(3) of FERA, 1973 - bank realisation certificates as contemporaneous evidence - pre-deposit / stay/waiver applications before the Appellate Tribunal - remand for fresh decision where primary evidence not consideredRealisation of export proceeds - bank realisation certificates as contemporaneous evidence - penalty for non-realisation of export proceeds - Whether the appellants had realised the export proceeds and, on the basis of the bank certificates and other documents, the penalty imposed for alleged contravention of Section 18(2) and 18(3) of FERA, 1973 could be sustained. - HELD THAT: - The Appellate Tribunal was directed by the High Court to reconsider the appellants' waiver/pre-deposit applications because the Tribunal had not considered the bank certificates which prima facie indicated realisation of export proceeds. On review of the record and after hearing counsel, the Tribunal noted that the appellants produced lists and supporting documents showing realisations, produced a contemporaneous RBI letter and bank realisation certificates (EXH-D) and that item no.3 was realised during adjudication itself. No contrary evidence or submissions were placed on record by the respondent. In these circumstances the Tribunal accepted the documentary evidence of realisation and, in the interest of justice, set aside the impugned order and allowed the appeals. [Paras 12, 13]Documentary proof established realisation of the export proceeds; the penalties imposed in the adjudication order were not to be sustained and the appeals are allowed by setting aside the impugned order.Final Conclusion: The Appellate Tribunal, after considering the bank realisation certificates and related documents (which were not controverted), held that the export proceeds had been realised and accordingly set aside the impugned adjudication order and allowed the appeals; no costs.

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