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2019 (8) TMI 265 - ATFEMA FEMA

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Appeals Dismissed under FEMA: Procedural Orders Not Maintainable
The Tribunal dismissed the appeals as not maintainable under Section 19(1) of FEMA, 1999, ruling that the impugned orders were procedural and did not substantially affect the rights or liabilities of the parties. The Tribunal emphasized that such orders could be challenged after the final order is issued.

Maintainability of appeal under Section 19(1) of FEMA - scope of "an order" versus "any order" - interlocutory orders - orders affecting rights and liabilities - principles of natural justice (cross examination)Maintainability of appeal under Section 19(1) of FEMA - scope of "an order" versus "any order" - interlocutory orders - orders affecting rights and liabilities - principles of natural justice (cross examination) - Whether the appeals under Section 19(1) of FEMA against the Adjudicating Authority's interlocutory orders rejecting requests for cross examination/recall of witnesses are maintainable. - HELD THAT: - The Tribunal examined the textual difference between the words "an order" in Section 19(1) and the wider expressions "any order" in Section 19(6) and "any decision or order" in Section 35 and held that the legislature's choice of words indicates a narrower scope for Section 19(1). The Adjudicating Authority routinely passes interlocutory/procedural orders during an inquiry under Rule 4, but only those interlocutory orders which in substance affect the rights or liabilities of the parties fall within the ambit of an appealable "order." Applying authorities which construe appeal provisions, the Tribunal noted that permitting appeals against every procedural ruling would frustrate the inquiry process. On the facts, the impugned orders (rejection of prayer to recall or further cross examine witnesses and refusal to adjourn) were interlocutory steps in the course of the adjudication; the record showed cross examination of the witness had been conducted, and the appellants failed to demonstrate that the impugned orders substantially affected their rights or liabilities or caused violation of natural justice not remediable on challenge to the final order. Consequently the impugned orders do not fall within the meaning of "an order" in Section 19(1) so as to sustain a separate appeal at that stage. [Paras 12, 19, 20, 27, 29]The appeals are not maintainable and are dismissed for want of maintainability as the impugned interlocutory orders do not fall within the scope of "an order" under Section 19(1) of FEMA.Final Conclusion: The Appellate Tribunal held that interlocutory/procedural orders refusing recall or further cross examination, which do not substantially affect rights or liabilities, are not appealable under Section 19(1) of FEMA; accordingly the present appeals are not maintainable.

2019 (8) TMI 136 - ATFEMA FEMA

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FEMA transition and tribunal bench constitution confirm Single Member Bench jurisdiction after FERA repeal
After the repeal of FERA, pending and transferred appeals fell to be heard under the FEMA transition framework, and the Appellate Tribunal's bench constitution depended on the successor statute rather than the repealed FERA restrictions. Section 49 of FEMA repealed FERA, dissolved the former Appellate Board, and provided for transfer of pending appeals to the FEMA Appellate Tribunal. As the Tribunal's governing law allowed the Chairman to constitute benches with one or two Members, a Single Member Bench was validly constituted and had jurisdiction to hear the appeals and connected miscellaneous petitions.

Jurisdiction of Single Member Bench - repeal of Appellate Board under FERA - transfer of pending appeals to Appellate Tribunal under FEMA - constitution of Benches and powers of Chairman under SAFEMA - effect of omission of limitation on single member authority - binding effect of Supreme Court decision in UOI v. Premier Ltd.Jurisdiction of Single Member Bench - repeal of Appellate Board under FERA - constitution of Benches and powers of Chairman under SAFEMA - binding effect of Supreme Court decision in UOI v. Premier Ltd. - Whether a Single Member Bench of the Appellate Tribunal has jurisdiction to hear and decide the appellants' appeals originating under FERA and proceeding under FEMA. - HELD THAT: - The Appellate Board constituted under Section 52 of FERA stood dissolved on the repeal of FERA by Section 49(1) of FEMA and appeals pending under the repealed Act were transferred to the Appellate Tribunal constituted under FEMA (Section 49(5)(b)). The Appellate Tribunal for FEMA matters is the Tribunal constituted under SAFEMA and, under Section 12(6A) of SAFEMA, the Chairman may constitute Benches of one or two Members which may exercise the Tribunal's powers and functions. The earlier FERA provision limiting the competence of a single Member in relation to penalties (as relied upon by the appellants) is no longer operative after repeal and subsequent statutory scheme. The omission (by Finance Act, 2017) of the erstwhile limiting provision and the Chairman's constitution and allocation of cases to Single Member Benches support the Tribunal's competence. Further, the Supreme Court in UOI v. Premier Ltd. confirms that appeals arising from orders under FERA filed after 1.6.2000 lie before the Appellate Tribunal under FEMA, reinforcing that FEMA/SAFEMA provisions govern constitution and jurisdiction of the Tribunal. Having regard to these statutory provisions and the Supreme Court ruling, the contention that a Single Member Bench lacks jurisdiction to decide the present appeals founded on the FERA limitation is unsustainable. [Paras 5, 6, 7, 8, 9]The miscellaneous petitions challenging the jurisdiction of the Single Member Bench are dismissed; the appellants must comply with the pre deposit direction of this Bench's order dated 5.12.2018 within the time granted and report compliance.Final Conclusion: The Tribunal held that, on repeal of FERA and by virtue of FEMA and SAFEMA, Benches (including Single Member Benches) constituted by the Chairman are competent to exercise the Appellate Tribunal's jurisdiction; the challenge to Single Member jurisdiction is rejected and the miscellaneous petitions are dismissed, subject to the pre deposit directions issued by the Bench.

2019 (8) TMI 135 - ATFEMA FEMA

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Appeal Dismissed Upholding FEMA Violations Penalties. Substantial Evidence Backs Tribunal Decision.
The appeal was dismissed by the appellate tribunal, upholding penalties imposed on the appellants for contravention of FEMA, 1999. The tribunal found substantial evidence supporting illicit transactions by the appellants, including verified international communications and the lack of credible explanations for the seized amount. Appellants' retractions were deemed unconvincing, and their denial of involvement in foreign currency transactions was contradicted by their own statements. The tribunal concluded that the penalties were justified based on the preponderance of evidence and upheld the original order.

Hawala transactions - contravention of Section 3(b) and 3(c) of FEMA, 1999 - burden of proof in civil adjudication under FEMA - evidentiary value of statements of accused and independent witnesses - CFSL report as corroborative evidence - retraction of statements and its evidentiary effect - cross-examination and principles of natural justice in adjudicationContravention of Section 3(b) and 3(c) of FEMA, 1999 - hawala transactions - CFSL report as corroborative evidence - evidentiary value of statements of accused and independent witnesses - Appellants committed contraventions of Section 3(b) and 3(c) of FEMA, 1999 by receiving and distributing payments under instructions of persons resident outside India. - HELD THAT: - The adjudicating authority's findings that the appellants received and distributed payments under instructions from persons abroad are supported by multiple consistent statements of the appellants, independent statements of at least 26 other persons who received money on such instructions, and a CFSL report showing international calls/messages to the appellant's phones. The Appellant Shri Shamsher Singh repeatedly confirmed earlier statements in eight statements recorded between 03.08.2011 and 14.09.2011 admitting his role in making and receiving payments and distributing compensatory payments under foreign instructions; the other appellant's statements corroborate receipt, destruction of a fax listing payees and that seized cash was for distribution. Given the clandestine nature of hawala business, direct documentary proof is often unavailable, and corroborative oral testimony together with CFSL findings suffices on the preponderance of probabilities in civil adjudication under FEMA. The adjudicator therefore correctly concluded contraventions of the statutory provisions based on the totality of evidence. [Paras 5, 8]Findings of contravention of Section 3(b) and 3(c) of FEMA, 1999 are upheld and the impugned order sustaining those findings is not interfered with.Retraction of statements and its evidentiary effect - evidentiary value of statements of accused and independent witnesses - Retraction letters purportedly sent by the appellants do not vitiate the earlier confessional statements in the absence of proof of dispatch/receipt and where earlier statements were repeatedly confirmed. - HELD THAT: - The retraction claimed by Shri Shamsher Singh and Shri Dimple Thakur was made long after the original statements (Shamsher Singh's purported retraction after 43 days and following eight statements) and there is no proof that the retraction letters were actually received by the Directorate as the adjudicating authority recorded. Earlier statements were consistent, repeatedly confirmed, and corroborated by independent witnesses and CFSL findings. On these facts the tribunal rightly found the retractions unavailing. [Paras 5, 7]Retractions are rejected as ineffective to overturn the earlier consistent and corroborated statements.Cross-examination and principles of natural justice in adjudication - burden of proof in civil adjudication under FEMA - Denial of cross-examination did not amount to violation of natural justice in the adjudication proceedings under FEMA in the facts of this case. - HELD THAT: - The tribunal applied settled principle that natural justice in adjudicatory proceedings requires an opportunity to be heard and to place one's case; it is not invariably co-extensive with criminal procedure rights such as cross-examination. The appellants had opportunity to make submissions and to place affidavits; the adjudicator's refusal of cross-examination was not shown to have deprived the appellants of a fair adjudicatory opportunity given the documentary and testimonial record relied upon. [Paras 6]No interference with the adjudicating authority on the ground of denial of cross-examination; natural justice requirements were satisfied.Rejection of claimed explanation for seized cash - evidentiary value of post-facto affidavits - The explanation offered by the appellants for the seized cash (that it belonged to the mother in law from an earlier advance) is implausible and rejected. - HELD THAT: - Affidavits filed in 2013 claiming that the seized cash was part of an advance for a land sale were inconsistent with the admitted non-occurrence of the sale, contradicted by earlier documents (e.g., the Will) and the contemporaneous statements admitting that the cash was for hawala distribution. Given these contradictions and the corroborative evidence of illicit payments, the adjudicator reasonably rejected the post facto affidavits as lacking truth. [Paras 7]The claimed innocent source for the seized cash is disbelieved and does not affect the finding of contravention.Final Conclusion: The appeals are dismissed; the adjudicating authority's findings of contravention of Section 3(b) and 3(c) of FEMA, 1999, the rejection of retractions and of the asserted innocent source of seized cash, and the conclusion that natural justice was satisfied despite denial of cross examination are affirmed.

2019 (8) TMI 134 - ATFEMA FEMA

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Appeal decision: Rs. 5 Lakhs deposit as penalty, reduced due to health issues and delays. No costs awarded.
The appeal was disposed of with the direction that the appellant's deposit of Rs. 5 Lakhs constituted the full and final penalty amount. The Tribunal considered the appellant's health issues and the procedural delays in its decision, ultimately reducing the penalty imposed. No costs were awarded in this case.

Identification of person named in seized documents - delay in issuance of show-cause notice and prejudice - reliance on seized documents and third-party statements in enforcement proceedings - burden of proof to establish identity in enforcement proceedings - mitigation of penalty on health and equity grounds - appropriation of pre-deposit as full and final penalty - FEMA enforcement procedureDelay in issuance of show-cause notice and prejudice - reliance on seized documents and third-party statements in enforcement proceedings - Whether the long delay in issuing the show-cause notice and the prosecution's conduct justified interference in the enforcement proceedings - HELD THAT: - The Tribunal recorded that the Enforcement officers recorded the appellant's statement on 29/04/2003 but the complaint was filed only on 04/12/2012 and the show-cause notice issued on 04/01/2013, a lapse of about ten years. The order notes absence of explanation for the long delay and that no subsequent investigative steps (such as recording further statements or attempting to apprehend the principal accused) were shown to have been taken by the Enforcement authorities. The Tribunal treated the unexplained delay and the prosecutorial inertia as material circumstances that militated against upholding a severe penalty without closer scrutiny of prejudice to the appellant. [Paras 4, 12, 17, 18]Delay of nearly ten years in issuing the show-cause notice was unexplained and constituted a material circumstance warranting interference with the quantum of penalty.Identification of person named in seized documents - burden of proof to establish identity in enforcement proceedings - Whether the identity of the appellant as the person named in the seized documents was established sufficiently to sustain the enforcement action - HELD THAT: - The Tribunal observed that the seized documents showed the name 'Moidu Haji Annara' but, according to the appellant's recorded statement, the documents did not carry his father's name, house name or full address and he denied knowledge of the principal accused. The adjudicating authority had placed the burden on the appellant to produce documents to show existence of other persons of the same name at the place, but the Tribunal noted absence of any independent steps by the Enforcement to verify identity (for example, enquiry with local village authorities) and that there was no whisper of attempts to apprehend or record statement of the principal accused. On this record the Tribunal found that the identity of the person referred to in the seized documents was not established in a legally acceptable manner. [Paras 10, 11, 13]Identity of the appellant as the person referred to in the seized documents was not established satisfactorily; findings based solely on the seized entries were inadequate.Mitigation of penalty on health and equity grounds - appropriation of pre-deposit as full and final penalty - Whether reduction or mitigation of the penalty previously imposed was justified and what order should be made regarding the deposited amount - HELD THAT: - The Tribunal took into account the appellant's advanced age, serious medical condition (Parkinson's disease and symptoms of Alzheimer's disease) and the totality of the peculiar facts including unexplained delay, failure of seizure from his premises, and the inadequacy of identity evidence. Considering these circumstances the Tribunal held that it was appropriate to reduce the penalty. The Tribunal directed that 25% of the penalty amount already deposited (as ordered earlier) be appropriated by the respondent and that this appropriation shall stand as the full and final penalty, thereby disposing the appeal on that basis. [Paras 16, 19, 20]Penalty reduced; the respondent to appropriate 25% of the amount already deposited and that appropriation to be the full and final penalty.Final Conclusion: The appeal is allowed in part. On the facts-unexplained delay in prosecution, inadequacy of proof of the appellant's identity in the seized documents, absence of seizure from his residence and his serious ill-health-the Tribunal reduced the penalty by directing appropriation of 25% of the amount already deposited and treating that appropriation as the full and final penalty; appeal and pending applications disposed of with no costs.

2019 (8) TMI 133 - ATFEMA FEMA

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FEMA Penalties Reduced for Companies & Individuals, Directors' Penalties Altered Based on Involvement
The Tribunal reduced the penalty imposed on the companies and individuals under FEMA from Rs. 98.35 crores to Rs. 15 crores, considering the technical nature of the contraventions and lack of financial loss to the exchequer. Penalties on individual directors were either set aside or reduced based on their involvement. The appellants were allowed to seek regulatory approval for issuing shares to remitters or refund the inward remittances as per FEMA provisions.

Contravention of FEMA - deemed liability under Section 42(1) - penalty under Section 13 - regulated versus restricted versus prohibited transactions under FEMA - proportionality in imposition of penalty - reporting requirement under TISPRO (Schedule I, para 9(1)(A)) - refund of inward remittance under TISPRO (Schedule I, para 8)Contravention of FEMA - reporting requirement under TISPRO (Schedule I, para 9(1)(A)) - Whether the three inward remittances into India breached FEMA and the TISPRO reporting/issuance requirements - HELD THAT: - The Tribunal recorded that foreign exchange was brought into India through normal banking channels and that no misutilisation or loss to the exchequer was shown; yet the Adjudicating Authority had held the appellants to have contravened provisions of FEMA and the TISPRO regulations in relation to the three remittances. The impugned adjudication found failures including non-reporting within the prescribed time and non-issuance of shares within 180 days; the Tribunal accepted that contraventions had been alleged and recorded by the Adjudicating Authority but treated many of the obligations invoked as regulatory in nature. The Tribunal noted the factual matrix (funds received and used in India; no benefit received by remitters; attempts made to obtain post-facto approvals) while observing that certain formal requirements (mode of remittance, identity of remitter versus intended investor, and reporting) had not been complied with and that RBI/FIPB had declined approvals in the past. [Paras 36, 51, 55, 59]The Tribunal proceeded on the basis that contraventions as recorded in the impugned order were made out in respect of the remittances, but characterised many of the infringements as regulatory/technical breaches deserving proportionate treatment.Proportionality in imposition of penalty - penalty under Section 13 - Whether imposition of penalty and its quantum under the adjudication was justified and proportionate - HELD THAT: - Applying the principles governing quasi criminal penalty proceedings, the Tribunal held that the exercise of discretion to impose penalty must be judicial, guided by proportionality, and sensitive to whether breaches are prohibited, restricted or regulated. The Tribunal found that many of the alleged violations fell in the category of regulatory/technical non compliances and that there was no allegation of misutilisation, loss to the exchequer or contumacious conduct. In the absence of aggravating features, imposition of maximum permissible penalty (three times the sum involved) was held to be excessive. The Tribunal therefore exercised its discretion to reduce the penalty amounts markedly, treating the pre deposit already made as adequate in the circumstances. [Paras 59, 72, 86, 91, 92]The Tribunal reduced the aggregate penalty from Rs. 98.35 crores to Rs. 15 crores (the amount already deposited) and fixed reduced individual penalties as set out in its order.Deemed liability under Section 42(1) - contravention of FEMA - Whether the individuals arrayed (directors and other persons) were liable under Section 42(1) of FEMA - HELD THAT: - The Tribunal applied settled precedent that liability under Section 42(1) can be imposed only on persons who were in charge of and responsible for the day to day conduct of the company at the time of contravention; mere designation as a director is not sufficient. The Respondent bore the initial burden to prove that each individual was in overall operational control when the contraventions occurred. The Tribunal found that the Adjudicating Authority had not made specific findings identifying individual roles or day to day control for many noticees, and in several instances the persons penalised were not associated with the company at the relevant time. Applying the legal tests from authoritative decisions, the Tribunal set aside or reduced penalties on multiple individuals: (i) deleted the penalty as against certain directors who were not in charge at the relevant time; (ii) reduced the penalties in respect of others after examining their roles and conduct. [Paras 80, 82, 83, 84, 85]Penalties on a number of individual appellants were set aside or reduced: some individuals were relieved of penalty entirely, others had their penalty substantially reduced in light of absence of proof of day to day control or culpable conduct.Refund of inward remittance under TISPRO (Schedule I, para 8) - Whether appellants are entitled to seek refund of inward remittances if shares cannot be issued - HELD THAT: - The Tribunal noted that TISPRO (Schedule I, para 8) provides for refund of inward remittances where shares are not issued within 180 days, and recorded that appellants remain entitled to pursue representations to the RBI for issuance of shares or for refund. The Tribunal observed that appellants may move RBI/other authorities and that the alternative plea for refund shall be considered subject to the regulatory provisions and deposit of penalty. [Paras 93, 94, 95]Appellants may seek refund or pursue issuance of shares with RBI; refund/remedy under TISPRO will be available subject to compliance and after penalty deposit.Final Conclusion: The Tribunal accepted that regulatory contraventions concerning the three remittances had been recorded but, applying established law on deemed liability and principles of proportionality for quasi criminal penalties, reduced the aggregate penalty to Rs. 15 crores (treated as the penalties for all appellants), set aside or reduced penalties on several individual noticees for lack of proof of day to day control, and permitted appellants to seek issuance of shares or refund of inward remittances from RBI in accordance with TISPRO after compliance with the order.

2019 (8) TMI 132 - ATFEMA FEMA

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Quasi-criminal FERA penalty failed where an unsigned fax and withheld original record left the alleged contravention unproved.
In quasi-criminal FERA enforcement proceedings, the department had to prove the alleged contravention with admissible and reliable evidence. The penalty could not be sustained because the main relied-upon material was an unsigned fax message whose authenticity, source, and status as original or copy were not proved, and the original record was not produced despite repeated directions. As the evidentiary foundation for the charge was incomplete, the alleged contravention was not established. The continued non-production of the original record also justified an adverse inference against the department, and the impugned penalty order was set aside.

Admissibility of unsigned document - onus of proof in quasi criminal FERA proceedings - production of primary evidence and secondary evidence rule - failure to comply with judicial/tribunal directions and adverse inference under Illustration (g) of Section 114, Indian Evidence Act, 1872 - violation of principles of natural justice by denial of effective cross examination - improper shifting of burden under Sections 71 and 72 of FERA, 1973Admissibility of unsigned document - production of primary evidence and secondary evidence rule - onus of proof in quasi criminal FERA proceedings - Validity and evidentiary value of the unsigned purported fax (page 31 of seized file 'D') relied upon by the Enforcement Directorate and whether the respondent discharged the burden of proving that document as original or by lawful secondary evidence. - HELD THAT: - The Tribunal held that proceedings under FERA are quasi criminal in character and the Directorate, as prosecutor, bore the initial duty to make out the alleged contravention beyond reasonable doubt by producing primary evidence. The unsigned plain paper fax, which the respondent could not establish as original or satisfactorily prove by admissible secondary evidence, lacked necessary authentication and therefore could not be relied upon to sustain the charge. The adjudicatory finding emphasises established authorities that unsigned/anonymous communications (including uncorroborated faxes or photocopies) are of doubtful evidentiary value and cannot substitute for properly proved primary documents; where originals are unavailable the party relying thereon must prove admissible secondary evidence, which was not done here. [Paras 26, 28, 31]The purported fax message could not be admitted as reliable primary evidence and the respondent failed to discharge the burden of proof with respect to that document.Failure to comply with judicial/tribunal directions and adverse inference under Illustration (g) of Section 114, Indian Evidence Act, 1872 - Relevance of the Enforcement Directorate's repeated non production of the original fax and related file despite multiple Tribunal directions and whether adverse inferences arise. - HELD THAT: - The Tribunal recorded that multiple earlier orders (including a final Division Bench direction dated 13.01.2016) had commanded production/inspection of the complete fax and the file containing the arrest memo, but the respondent repeatedly failed to comply or explain non production. The non compliance with binding Tribunal directions and unexplained suppression of the original record warranted drawing an adverse inference under Illustration (g) to Section 114, Indian Evidence Act, given the respondent's failure to produce the documents it relied upon. [Paras 21, 22, 23, 30]The Directorate's persistent non production despite Tribunal orders justified an adverse inference and impaired the respondent's case on the relied documents.Violation of principles of natural justice by denial of effective cross examination - Whether the appellants were denied principles of natural justice by limited allowance for cross examination of prosecution/search witnesses and thereby deprived of effective opportunity to challenge the seizure and provenance of the document. - HELD THAT: - The Tribunal noted that the appellants sought to cross examine multiple members of the search party and independent seizure witnesses but were permitted to examine only two officers. Given the critical nature of the provenance and authenticity of the disputed document, denial of broader cross examination curtailed the appellants' ability to test the seizure account and the claim of plantation, thereby engaging principles of natural justice applicable to quasi criminal FERA proceedings. [Paras 9, 19, 26]Restriction of cross examination on witnesses central to proving seizure and authenticity of the document amounted to denial of effective opportunity and was a prejudicial breach of natural justice.Improper shifting of burden under Sections 71 and 72 of FERA, 1973 - Whether the Special Director rightly shifted the initial burden of proof onto the appellants under Sections 71 and 72 of FERA, 1973 when the respondent had not proved its relied documents. - HELD THAT: - The Tribunal found that the Special Director erred in presuming facts and shifting the initial burden onto the appellants despite the Directorate's failure to authenticate or produce primary evidence. Sections 71 and 72 (as invoked) could not be legitimately applied where the respondent had not first established the existence and admissibility of the primary documents and relevant corroboration; consequently, the imposition of penalties on that footing was unsustainable. [Paras 28, 29, 31]The adjudicating authority wrongly shifted the burden to the appellants; the respondent had not discharged its onus under the statutory and evidentiary regime.Final Conclusion: For the reasons stated - failure by the Enforcement Directorate to produce or authenticate the primary document relied upon, inadequate secondary proof, repeated non compliance with Tribunal directions (warranting adverse inference), and denial of effective cross examination - the impugned order dated 20.05.2005 imposing penalties is set aside and the appeals are allowed.

2019 (6) TMI 1752 - APPELLATE TRIBUNAL FOR SAFEMA AT NEW DELHI FEMA

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Issues: (i) Whether the property transaction in question was a benami transaction within the meaning of the Prohibition of Benami Property Transactions Act, 1988; (ii) whether the Initiating Officer discharged the burden of proving benami character by cogent evidence.

Issue (i): Whether the property transaction in question was a benami transaction within the meaning of the Prohibition of Benami Property Transactions Act, 1988.

Analysis: The transaction was supported by the original booking, the agreement to sell, the GPA, the subsequent payments made by the alleged beneficial owner from her own funds, and the builder's endorsement/transfer in her favour. The record showed that the initial allottee could not complete the payments and the later payments were made by the transferee, who thereafter stood as the real and undisputed owner. The transaction was also examined in the light of the statutory exception relating to possession and part performance under section 53A of the Transfer of Property Act, 1882.

Conclusion: The transaction was not held to be a benami transaction.

Issue (ii): Whether the Initiating Officer discharged the burden of proving benami character by cogent evidence.

Analysis: The controlling principle applied was that the burden lies on the person alleging benami character, and that suspicion cannot replace legal proof. The evidence on record did not establish that the initial payment represented consideration furnished by the alleged beneficial owner or that the statutory ingredients of benami were satisfied. The materials instead showed that the later payments came from the alleged beneficial owner's own account and that the documentary record supported the transfer in her favour. On that footing, the statutory and evidentiary burden was not discharged by the Initiating Officer.

Conclusion: The burden of proof was not discharged by the Initiating Officer.

Final Conclusion: The appeals succeeded and the impugned benami determination was set aside, leaving the property outside the mischief of the Act on the facts found.

Ratio Decidendi: In proceedings alleging benami property, the initiating authority must prove the statutory ingredients by cogent legal evidence, and where the documentary record shows payment, transfer, and ownership in favour of the apparent holder without such proof, the transaction cannot be sustained as benami.

Benami transaction burden of proof failed where documents and payments showed genuine transfer and ownership in the transferee's favour.
A benami allegation under the Prohibition of Benami Property Transactions Act, 1988 failed because the documentary record supported a genuine transfer: original booking, agreement to sell, GPA, later payments from the transferee's own funds, and builder endorsement in her favour. The transaction was also assessed against the section 53A part-performance exception under the Transfer of Property Act, 1882. The initiating authority had to prove benami character by cogent evidence, and suspicion could not substitute for proof. On the facts, the statutory ingredients were not established, the burden was not discharged, and the property was treated as outside the Act's mischief.

Burden of proving benami transaction - Benami transaction - Part performance under section 53A Burden of proving benami transaction - Presumption of apparent ownership - In proceedings under the PBPT Act, the burden to establish that a property is benami rests on the Initiating Officer and does not shift to the noticee in the absence of statutory presumption and cogent evidence. - HELD THAT: - The Tribunal held that the Act contains no provision shifting the initial burden of proof to the alleged benamidar or beneficial owner. The apparent owner is presumed to be the real owner unless the contrary is established by legal evidence of a definite character. Mere suspicion, contradictions in statements, or reliance on conjecture cannot substitute proof. The Initiating Officer was therefore required to prove the benami character of the transaction, including the element of benefit and the source of consideration, and that burden remained undischarged. [Paras 34, 35, 37, 39, 42] The Tribunal held that the Initiating Officer failed to discharge the burden of proving the transaction to be benami. Benami transaction - Part performance under section 53A - Adequate consideration - The transaction concerning the flat did not fall within the definition of a benami transaction under the PBPT Act. - HELD THAT: - The Tribunal found that the original allottee had made the initial booking payment from his own account and there was no evidence that this amount had been provided by the alleged beneficial owner. It was also undisputed that the subsequent and substantial payments to the builder were made by Smt. Pamela Bhardwaj from her own bank account pursuant to the Agreement to Sell and GPA, after which the builder endorsed the flat in her name. The record did not show that she derived any benefit while not holding the property, and the essential ingredient of benefit in favour of an alleged beneficial owner was thus absent. On the admitted facts, the arrangement was treated as a transfer for consideration rather than a benami holding. [Paras 53, 54, 55, 56, 57] The property was held not to be benami, and the impugned order was set aside. Final Conclusion: The Tribunal held that the Initiating Officer had failed to prove the essential ingredients of a benami transaction and that the material on record showed a transfer for consideration in favour of Smt. Pamela Bhardwaj. The impugned order was accordingly set aside and the appeals were allowed.

2019 (6) TMI 1027 - ATFEMA FEMA

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Natural justice and evidence reliability under FEMA led the tribunal to set aside the penalty for alleged foreign exchange contravention.
Unauthorized foreign exchange dealings under FEMA were alleged on the basis of statements, seized documents, and notebook entries, but the tribunal found the evidence insufficiently reliable. It held that unverified diary entries and statements from an absconding witness could not safely support liability, especially where the appellant was denied meaningful cross-examination. The tribunal treated the denial of cross-examination and the resulting breach of natural justice as material defects in the adjudication, and gave the benefit of doubt to the appellant. The impugned penalty order was therefore set aside.

Contravention of Section 3(a) of the Foreign Exchange Management Act, 1999 - Penalty under Section 13(1) of FEMA - Principles of natural justice - right to cross examination - Admissibility and evidentiary value of private notebooks and statements relied upon by enforcement authoritiesContravention of Section 3(a) of the Foreign Exchange Management Act, 1999 - Penalty under Section 13(1) of FEMA - Liability of the appellant for unauthorized dealing in foreign exchange and imposition of penalty under Section 13(1) of FEMA. - HELD THAT: - The Tribunal examined the material relied upon by the Adjudicating Authority and concluded that there was no clear and cogent evidence to establish that the appellant dealt in foreign exchange without RBI permission. The recovery of Indian currency from the appellant and references in the seized note book did not, on the record before the Tribunal, constitute clinching proof of unlawful foreign exchange transactions. The principal witness whose statements formed the core of the prosecution case was absconding and therefore could not be tested by cross examination. In these circumstances the Tribunal held that the benefit of doubt must go to the appellant and that imposition of penalty could not be sustained. [Paras 8, 9, 11]The adjudication holding the appellant liable under Section 3(a) and imposing penalty under Section 13(1) is set aside.Admissibility and evidentiary value of private notebooks and statements relied upon by enforcement authorities - Whether the entries in the seized private note book and the statements relied upon by the Adjudicating Authority constituted admissible and reliable evidence to prove unauthorized foreign exchange dealings by the appellant. - HELD THAT: - The Tribunal analysed the reliance placed on the seized note book and the statements recorded by the enforcement authority and observed that the note book entries alone could not be treated as valid, admissible, and conclusive evidence of illegal foreign exchange transactions. Citing settled precedents on the limitations of such diaries/notes as book of accounts, the Tribunal found that the entries, especially when unexplained and untested by cross examination of the main declarants, did not possess the necessary cogency to support the penalty imposed. [Paras 10]The entries in the seized note book and the relied upon statements were not sufficient or reliable evidence to sustain the adjudication.Principles of natural justice - right to cross examination - Effect of non production of the principal witness for cross examination on the maintainability of the adjudication proceedings. - HELD THAT: - The Tribunal noted that the adjudicating process permitted cross examination of the principal witness but that the witness (allegedly absconding) was not produced and therefore his statement could not be tested. In the factual matrix of the case, where the witness' testimony underpinned the allegation against the appellant, the Tribunal held that the inability to cross examine deprived the appellant of an opportunity to meet the case and significantly diminished the evidentiary value of that testimony. Consequently, reliance on such untested material could not justify the imposition of penalty. [Paras 8, 11]Non production and non cross examination of the principal witness vitiated the evidentiary basis of the case and favoured acceptance of the appellant's claim of doubt.Final Conclusion: On the facts and evidence placed before it the Tribunal allowed the appeal, set aside the adjudicating order imposing penalty on the appellant, and declined to impose costs.

2019 (6) TMI 863 - ATFEMA FEMA

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Penalty on deceased noticee is void, and abetment liability fails without a reasoned finding against the principal offender.
An adjudication order imposing penalty on a deceased noticee is a nullity and cannot be sustained once the authority has notice of death. The penalty against the alleged abettor also failed because the order contained no substantive reasoning or finding of abetment, and liability for abetment could not survive when the principal offender's order was void. On these grounds, the impugned adjudication was quashed in entirety.

Penalty imposed on deceased renders adjudication nullity - requirement of reasons in adjudication orders - abetment liability dependent on conviction of main offender - abatement of proceedings on death and consequence of acquittalPenalty imposed on deceased renders adjudication nullity - abatement of proceedings on death and consequence of acquittal - Validity of the adjudication order insofar as it imposed penalty on the deceased main noticee - HELD THAT: - The adjudicating authority proceeded to decide merits and impose penalty after disputing but notwithstanding the produced death evidence; the Department conceded that proceedings ought not to have been continued against the dead person. An adjudication order imposing penalty on a person who had died before the order was passed is a nullity; death causes abatement of the proceedings and the presumption of innocence continues in favour of the deceased. Where the order against the main offender is a nullity for being passed against a dead person, consequential liability of an alleged abettor cannot stand in the absence of a valid adjudication against the principal. For these reasons the order imposing penalty on the deceased was quashed and the appeal in respect of the deceased was allowed. [Paras 16, 23, 25, 26, 27]Adjudication order imposing penalty on the deceased is a nullity and is quashed; consequence is that abettor liability cannot be sustained in view of abatement of proceedings against the main offender.Requirement of reasons in adjudication orders - abetment liability dependent on conviction of main offender - Sustainability of the penalty imposed on Shri Bharat Hansraj Thakkar where the adjudication order contains no reasoning as to his guilt for abetment - HELD THAT: - The adjudication order as to the son contains no discussion or recorded reasons attributing guilt for abetment; the adjudicator's findings and reasoning section does not address the son yet proceeds to impose penalty. An adjudication order must disclose reasons for holding a person liable; absence of reasoning renders the order unsustainable. Further, since the order against the principal was quashed as a nullity, the abettor's liability cannot be maintained. On these grounds the impugned penalty against Shri Bharat Hansraj Thakkar was set aside and the appeal allowed. [Paras 21, 22, 24, 25, 26]Penalty imposed on Shri Bharat Hansraj Thakkar is quashed for want of reasons and, additionally, cannot be sustained where the principal's adjudication is a nullity.Final Conclusion: The appeals are allowed: the adjudication order imposing penalty on the deceased is quashed as a nullity, and the penalty imposed on Shri Bharat Hansraj Thakkar is quashed for want of reasoning and in consequence of the abatement of proceedings against the main offender; no costs.

2019 (6) TMI 636 - ATFEMA FEMA

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Pre-FEMA export-proceeds contraventions cannot be pursued after the repeal saving provision's statutory sunset period expires.
Export proceeds from an export made before FEMA commenced remained governed by the repealed FERA regime. The repeal and saving provision barred an adjudicating officer from taking notice of a FERA contravention after two years from FEMA's commencement; proceedings initiated after that sunset period were therefore time-barred. Pending resolution of the alleged short realisation with the authorised dealer also did not justify continuing penalty proceedings under FEMA. The penalty order was set aside and the appeals were allowed.

Temporal application of FEMA to pre-commencement transactions - Repeal and saving clause - Sunset clause for contraventions under the repealed Act - Adjudicating authority's power to take notice within the two-year period - Liability for non-realisation of export proceedsTemporal application of FEMA to pre-commencement transactions - Repeal and saving clause - Sunset clause for contraventions under the repealed Act - Adjudicating authority's power to take notice within the two-year period - Whether the adjudicating authority could invoke provisions of FEMA for an export effected on 29.05.2000 (prior to FEMA coming into force on 01.06.2000) and lawfulness of the penalty confirmed on that basis. - HELD THAT: - The Tribunal held that the export under GR No. 366158 dated 29.05.2000 was governed by the Foreign Exchange Regulation Act, 1973 (FERA) since FEMA came into force only on 01.06.2000. Section 49 of FEMA, read as a repeal and saving provision, preserves continuation of proceedings under the repealed Act only to the extent permitted but bars taking notice of contraventions under the repealed Act after the expiry of two years from FEMA's commencement. The legislative scheme thus contemplates a limited two year window for taking notice of pre commencement contraventions. Consequently, proceedings or penalty under FEMA premised on the alleged contravention arising on 29.05.2000 could not be sustained where the adjudicatory notice was not taken within the two year saving period. Applying this principle to the facts, the Tribunal concluded that the Special Director's confirmation of penalty under FEMA for the export of 29.05.2000 was unsustainable. [Paras 16, 21]Impugned adjudication and confirmed penalty under FEMA in respect of export dated 29.05.2000 set aside as FEMA did not apply to that export and the two year saving in Section 49 governs notice of pre commencement contraventions.Liability for non-realisation of export proceeds - Adjudicating authority's power to take notice within the two-year period - Whether the delay in initiation of enforcement enquiries and the long pendency of the matter with the negotiating bank affected the maintainability of the adjudication. - HELD THAT: - The Tribunal noted the factual delay in initiation of enquiries and that the negotiating banker had been dealing with the matter for several years. While observing that delay alone is not a ground to dismiss a case if the party lacks a reasonable case on merits, the Tribunal clarified that its decision to allow the appeals rested on the legal principle concerning temporal application of FEMA and the saving clause; the delay was not the substantive basis for the order. Accordingly, although delay was remarked upon, the adjudication was set aside on the legally dispositive ground that FEMA could not be invoked for the export dated 29.05.2000 beyond the statutory saving period. [Paras 23, 24]Delay in initiation of enquiries was noted but not relied upon as the decisive ground; the appeals were allowed on the legal ground relating to the temporal applicability and saving clause.Final Conclusion: The appeals are allowed; the impugned order confirming penalties is set aside as FEMA did not apply to the export of 29.05.2000 and the two year saving in Section 49 governs pre commencement contraventions. All appeals and pending applications are disposed of and any pre deposit shall be refunded.

2019 (6) TMI 418 - ATFEMA FEMA

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Issues involved:
Review petitions challenging the order of the Appellate Tribunal dated 24.06.2015, subsequent amended review petition, COD applications for delay, legality of the review order, pre-deposit requirement, jurisdiction to file multiple review petitions, finality of review order, conduct of the appellants, misrepresentation, dismissal of appeals.

Analysis:
1. The review petitions were filed challenging the Appellate Tribunal's order dated 24.06.2015, alleging it was null and void due to the Tribunal's acceptance of an extension for realization of export proceeds. The appellants also filed COD applications for the delay in filing the review petitions.

2. A stay order was initially passed in 2009, requiring a 10% pre-deposit of the penalty amount. Subsequently, a modification application was made to dispense with the entire amount. One appellant's order was quashed by the High Court. The detailed review order of 24.06.2015 rejected the review petition due to delay and the appellant's conduct.

3. During the hearing, the appellant's counsel argued the case on merits, claiming the orders were null and void without proper authority. The respondent objected, citing the appellants' disregard for legal procedures and the lack of provision for multiple review petitions.

4. The respondent contended that the review order had attained finality as it was not challenged in the High Court, and the appellants failed to pre-deposit the required amount. The sequence of events indicated the appellants' attempt to mislead the Tribunal and disregard legal provisions.

5. The Tribunal noted that review petitions can only be filed for errors apparent on the face of the order, which was not the case here. The review order of 24.06.2015 was final, and the appellants' conduct reflected an attempt to manipulate the system. The review application was dismissed for lack of cogent reasons and failure to pre-deposit as mandated by FEMA.

6. The Tribunal dismissed the review application and the appeals due to the appellants' failure to comply with the pre-deposit requirement and their repeated attempts to challenge the review order. One appeal was listed for final hearing, while the others were dismissed.

This comprehensive analysis covers the issues involved in the legal judgment, addressing the key arguments, decisions, and legal principles applied by the Tribunal.

Tribunal dismisses review and appeals for non-compliance with pre-deposit rules.
The Tribunal dismissed the review application and appeals due to appellants' failure to comply with pre-deposit requirements, challenging the review order multiple times without valid reasons. The review order of 24.06.2015 was deemed final, with appellants' conduct reflecting an attempt to manipulate the system. The Tribunal emphasized that review petitions can only be filed for errors apparent on the face of the order, which was not the case. The appeals were dismissed for lack of cogent reasons and failure to pre-deposit as mandated by FEMA, except for one appeal listed for final hearing.

Review confined to errors apparent on the face of the record - finality of a review order - no successive review against a review order - condonation of delay - pre-deposit mandatory under Section 19 of FEMA, 1999Review confined to errors apparent on the face of the record - no successive review against a review order - finality of a review order - Maintainability of the amended review petitions filed in 2018-2019 seeking review of the Tribunal's review order dated 24.06.2015. - HELD THAT: - The Tribunal held that review is available only for errors apparent on the face of the record and that there is no provision for repeatedly filing review petitions against a review order. The review order dated 24.06.2015 was a speaking order which addressed the appellants' conduct and grounds; it had attained finality because it was not challenged before the High Court. The appellants' attempt to re-agitate merits and to treat the earlier review order as void without seeking appropriate appellate remedy was rejected. [Paras 5]The successive review petitions against the review order dated 24.06.2015 are not maintainable and are dismissed.Condonation of delay - review confined to errors apparent on the face of the record - Allowance of condonation of delay for filing the review petitions. - HELD THAT: - The appellants sought condonation of delay but failed to furnish any cogent reason for the long delays in filing the review petitions. The Tribunal observed that the grounds were available earlier and the conduct of the appellants indicated negligence and an attempt to mislead. In these circumstances, condonation of delay was not justified. [Paras 1, 5, 6]The applications for condonation of delay are rejected and the review petitions are dismissed for want of valid explanation for delay.Pre-deposit mandatory under Section 19 of FEMA, 1999 - Consequences of failure to make the pre-deposit directed by the Tribunal's stay order dated 14.07.2009. - HELD THAT: - The Tribunal's stay order of 14.07.2009 required a pre-deposit of 10% of the penalty. The appellants failed to make the pre-deposit as directed. Given the mandatory requirement under Section 19 of FEMA, 1999 and the lapse of considerable time since the stay order, the appeals arising from FPA-FE-266/JL/2008 and FPA-FE-267/JL/2008 could not be permitted to proceed. [Paras 2, 6]Appeals FPA-FE-266/JL/2008 and FPA-FE-267/JL/2008 are dismissed for non-compliance with the pre-deposit direction.Procedural listing for final hearing - Proceedings in FPA-FE-268/JL/2008. - HELD THAT: - The Tribunal recorded that the matter bearing FPA-FE-268/JL/2008 will be taken up separately for final hearing and is to be listed in due course. No adjudication on merits was made in respect of that matter in the present order. [Paras 6]FPA-FE-268/JL/2008 is listed for final hearing at a future date.Final Conclusion: The amended review petitions seeking reconsideration of the Tribunal's review order dated 24.06.2015 are dismissed for being untenable and time barred; applications for condonation of delay are rejected; for failure to make the mandated pre-deposit the appeals FPA-FE-266/JL/2008 and FPA-FE-267/JL/2008 are dismissed, while FPA-FE-268/JL/2008 is ordered to be listed for final hearing.

2019 (5) TMI 1573 - ATFEMA FEMA

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Issues: Stay petition against adjudication order imposing penalties under FEMA for failure to comply with RBI regulations on foreign remittances and share issuance.

Issue 1: Merits of the Penalty Imposed
The appellants argued that the failure to comply with RBI regulations was a technical offense and did not warrant a penalty. They claimed lack of intent to contravene the law and highlighted their attempt to seek compounding from RBI. They relied on the case law of Bank of Baroda vs. ATFE to support their argument. However, the respondent contended that mens rea was not required in civil proceedings as per the Supreme Court judgment in The Chairman, SEBI vs. Shriram Mutual Fund & Anr. The respondent also emphasized that the absence of compounding from RBI indicated a violation of the law rather than a technical offense.

Issue 2: Prima Facie Case
The tribunal examined the arguments from both parties and referred to the principles outlined in the Bank of Baroda case regarding establishing a prima facie case. It was noted that the appellants did not dispute the delay in informing RBI about the remittances or issuing shares to foreign investors within the stipulated time frame. Instead, the funds were diverted for other purposes. The tribunal highlighted that the appellants had acknowledged their liability in the stay petition and failed to challenge RBI's decision on compounding since 2012. Moreover, the appellants' claim of financial hardship was unsupported by any documentary evidence.

Issue 3: Decision
After careful consideration, the tribunal found that the appellants had not established a prima facie case in their favor. Consequently, the stay petition was rejected. However, to ensure justice, the tribunal directed the appellants to predeposit 50% of the penalty within two months. The compliance was scheduled for reporting on 30th July 2019.

In conclusion, the judgment addressed the arguments presented by both parties regarding the penalty imposed under FEMA for non-compliance with RBI regulations on foreign remittances and share issuance. The tribunal emphasized the importance of establishing a prima facie case and considered factors such as non-compliance history, lack of challenge to regulatory decisions, and absence of evidence supporting financial hardship claims. The decision to reject the stay petition while requiring a partial predeposit aimed to balance the interests of justice and regulatory compliance.

Tribunal rejects stay petition on FEMA penalties, directs 50% predeposit for regulatory compliance
The tribunal rejected the stay petition against the adjudication order imposing penalties under FEMA for non-compliance with RBI regulations on foreign remittances and share issuance. The appellants failed to establish a prima facie case, leading to the rejection of the petition. However, the tribunal directed the appellants to predeposit 50% of the penalty within two months to ensure justice and regulatory compliance. Compliance reporting was set for 30th July 2019.

Prima facie case - compounding of foreign exchange contraventions - technical contravention - mens rea not required in civil proceedings - judicial discretion to grant stay and prescribe pre depositPrima facie case - technical contravention - mens rea not required in civil proceedings - Whether appellants have made out a prima facie case for grant of stay of the adjudication order levying penalty for contraventions of foreign exchange norms - HELD THAT: - The Tribunal examined the appellants' pleadings and documents and found that the appellants did not dispute the core factual findings - failure to intimate the Reserve Bank of India within the prescribed period and failure to issue shares within 180 days, and diversion of received inward remittances to purchase properties contrary to the purpose of the remittances. The appellants' reliance on the contention that the contravention was only "technical" and that there was no mens rea was considered in light of the settled position that mens rea is not required in civil proceedings of this nature. Their assertion that they had applied for compounding before the RBI did not assist them because the RBI had returned their compounding application and the appellants did not pursue an appeal or representation against that return. The appellants also pleaded financial hardship but produced no supporting documentary evidence. On this record the Tribunal concluded that the appellants had not demonstrated an arguable or triable case sufficient to justify grant of stay. [Paras 5, 6]Stay petition rejected for failure to establish a prima facie case.Judicial discretion to grant stay and prescribe pre deposit - compounding of foreign exchange contraventions - Whether any interim condition should be imposed despite refusal of stay - HELD THAT: - Although the Tribunal found no prima facie case, it exercised discretion in the interest of justice to mitigate hardship by prescribing an interim compliance measure. Taking into account the appellants' pleaded financial hardship (unsupported by documents) and the nature of the adjudication, the Tribunal directed a conditional predeposit of a portion of the penalty as a balance between refusal of stay and affording the appellants an opportunity to pursue their appeal. The Tribunal therefore ordered deposit of 50% of the penalty within two months and listed the matter for reporting compliance. [Paras 6]Appellants directed to predeposit 50% of the penalty within two months; matter listed for reporting compliance.Final Conclusion: The stay petitions were dismissed for lack of a prima facie case; however, in exercise of discretion the appellants were directed to predeposit 50% of the penalties within two months and the matter was listed for compliance on the specified date.

2019 (5) TMI 1466 - ATFEMA FEMA

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Tribunal Orders BCCI to Deposit Rs. 10 Crores, Emphasizes Procedural Fairness
The Tribunal directed BCCI to deposit Rs. 10 crores by way of a Bank Guarantee, without prejudice to the final outcome of the appeals. The Tribunal emphasized the importance of procedural fairness and proportionality in imposing penalties. The appeals were scheduled for a final hearing, with the Tribunal indicating that the issues raised required thorough examination and consideration.

Dispensation of pre-deposit of penalty under Section 19(1) of FEMA - vicarious liability under Section 42 of FEMA - current account transaction versus capital account transaction under FEMA - compliance with Rule 4 (4), (5) and (9) of the Adjudication Rules and principles of natural justice - formation of opinion under Rule 4(3) of the Adjudication Rules - duties of an authorised person under Section 10(4) and (5) of FEMA - principle of parity in vicarious liability - no penalty for venial or bona fide breach in quasi criminal proceedingsDispensation of pre-deposit of penalty under Section 19(1) of FEMA - Interim dispensation from deposit of penalties and the terms on which provisional security was to be furnished - HELD THAT: - The Tribunal, on a prima facie assessment, found force in appellants' contentions on procedural infirmities and on the substantive questions (not finally decided) about nature of the transactions. In the exercise of interim jurisdiction it directed BCCI to furnish a bank guarantee for Rs. 10 crores on its behalf and on behalf of appellants nos. 2 to 9 within four weeks, to be initially valid for six months (renewable for a further six months). Appellant nos. 10 and 11 were granted interim relief without condition. The Tribunal emphasised that this direction is provisional and that the final merits will be decided at the hearing listed for 29.07.2019, and that the tentative findings have no bearing on the final adjudication. [Paras 63, 74, 75, 76, 77]BCCI to furnish a bank guarantee of Rs. 10 crores within four weeks (initial six months), appellants nos. 2-9 covered thereby; appellants nos. 10 and 11 granted interim relief without condition; appeals listed for final hearing.Compliance with Rule 4 (4), (5) and (9) of the Adjudication Rules and principles of natural justice - formation of opinion under Rule 4(3) of the Adjudication Rules - Prima facie non-compliance with Rule 4 and breach of principles of natural justice in respect of some noticees (requiring final adjudication) - HELD THAT: - The Tribunal recorded that Rule 4 (including the duty to explain contraventions under Rule 4(4) and to permit production of evidence and adjournment under Rule 4(5)) and the requirement to record reasons under Rule 4(9) had not been complied with, at least in relation to certain noticees (notably Shri M.P. Pandove). The Tribunal observed that cross-examination opportunities granted to some co-noticees were not equally extended to others and that this prima facie affected parity and natural justice. The Tribunal did not finally decide these issues on merits but treated them as important matters reserved for final hearing and as a basis for granting interim relief. [Paras 34, 35, 39, 40, 73]Found prima facie that Rule 4 procedural requirements and natural justice concerns arose and should be considered at final hearing; these concerns contributed to grant of interim relief.Current account transaction versus capital account transaction under FEMA - Whether the remittances by BCCI to CSA were current account transactions or capital account transactions was left open for final adjudication, but prima facie view favoured appellants' contention for further consideration - HELD THAT: - The Tribunal noted the central substantive controversy-whether the remittances were permissible current account transactions or prohibited capital account transactions requiring RBI permission. While the Adjudicating Authority treated certain remittances as creating contingent liabilities (capital account), the Tribunal held that this cannot be finally concluded at the interim stage and observed that prima facie arguments and the legislative scheme (Section 5 and the Current Account Rules) lend force to the appellants' contention that the transactions may fall within current account heads. The Tribunal reserved the issue for final hearing. [Paras 61, 62, 63]Issue of current vs capital account transactions left for final disposal; prima facie the appellants' argument merits full consideration at final hearing.Vicarious liability under Section 42 of FEMA - principle of parity in vicarious liability - Applicability of Section 42 vicarious liability to BCCI and its office bearers reserved for final determination; prima facie doubts recorded - HELD THAT: - The Tribunal acknowledged conflicting authorities and substantial submissions on whether BCCI (a society/association of associations) fits within the Explanation to Section 42 (company/association of individuals) for imposition of vicarious liability on office bearers. The Tribunal recorded that the issue is important, undecided at this stage, and prima facie raised forceful arguments in favour of appellants; accordingly the question is to be argued and decided at final hearing. The Tribunal also observed parity concerns where some co noticees were exonerated while penalties were imposed on others. [Paras 42, 57, 59, 60, 73]Applicability of Section 42 to BCCI and the basis for vicarious liability on individual noticees is left for final adjudication; interim relief granted in light of prima facie doubts.Duties of an authorised person under Section 10(4) and (5) of FEMA - no penalty for venial or bona fide breach in quasi criminal proceedings - Prima facie findings on bank's responsibility and scope of penalty to be examined at final hearing; penalty imposition viewed as excessive at interim stage - HELD THAT: - The Tribunal recorded appellants' submissions that the bank (State Bank of Travancore / SBI) complied with required declarations and RBI reporting and that Section 10(4)-(5) carve out the bank's duties when transactions on their face satisfy regulatory requirements. The Tribunal observed established principles that penalties in quasi criminal contexts ought not be imposed for venial or bona fide breaches and that penal provisions must be strictly construed. On the record, the Tribunal considered the total penalties excessive and reserved final determination of the bank's liability for the merits hearing. [Paras 23, 69, 70, 73]Bank's liability under Section 10(4)/(5) and appropriateness/quantum of penalties to be finally decided; interim relief granted and penalties provisionally stayed subject to the bank guarantee direction.Final Conclusion: The Tribunal granted interim relief by permitting BCCI to furnish a bank guarantee of Rs. 10 crores (covering BCCI and appellants nos. 2-9) and by allowing unconditional interim relief to appellants nos. 10 and 11; it recorded prima facie infirmities in procedure (Rule 4 and natural justice), raised substantial questions on vicarious liability under Section 42 and on whether the remittances were current account or capital account transactions, and found the penalties prima facie excessive; all such substantive and procedural issues are reserved for final hearing listed on 29.07.2019, and the Tribunal clarified that its interim observations are tentative and without prejudice to the final decision.

2019 (5) TMI 817 - ATFEMA FEMA

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Tribunal Overturns Penalties for FEMA Violations, Appellants Cleared of Charges
The Tribunal ruled in favor of the appellant company and its director, setting aside penalties imposed on them for alleged violations of FEMA regulations. The appellants were cleared of contravening Regulation 3 and Schedule 1 of Regulation 5(1) of FEMA, as the transactions in question were deemed permissible under the automatic route for Foreign Direct Investment. Additionally, they were exonerated of the charge of transferring foreign exchange outside India under Section 4 of FEMA. The Tribunal found the penalties unjustified, citing misapplication of regulations and lack of evidence. The appeal filed by the respondent was dismissed, and all pending matters were resolved without costs.

Regulation 5(1) - Foreign Direct Investment scheme and automatic route - Automatic Route for FDI in townships, housing and construction-development projects - Minimum capitalization condition for automatic route - Regulation 3 - Restriction on issue or transfer by a person resident outside India - Exoneration under Section 4 of FEMA - Vicarious liability of director for FEMA contraventionRegulation 3 - Restriction on issue or transfer by a person resident outside India - Applicability of Regulation 3 to the appellant company and SDRPL - HELD THAT: - On plain reading Regulation 3 applies to a person resident outside India and prohibits issue or transfer of securities by such person. Both DFS (the appellant) and SDRPL are persons resident in India. Therefore Regulation 3 is not attracted to the transactions under challenge and its inclusion in the charge was misplaced. The Tribunal so held and set aside any finding based on Regulation 3. [Paras 9]Regulation 3 does not apply to DFS or SDRPL; the charge under Regulation 3 is misplaced.Regulation 5(1) - Foreign Direct Investment scheme and automatic route - Automatic Route for FDI in townships, housing and construction-development projects - Minimum capitalization condition for automatic route - Whether the sale of SDRPL shares to M2N2 contravened Reg.5(1)/Schedule I because M2N2 was not eligible for the automatic route or failed to comply with conditions - HELD THAT: - The Tribunal examined the 2005 amendment to Schedule I (serial no.23) which brought townships, housing and construction-development projects within the automatic route for foreign companies subject to prescribed conditions. As SDRPL was engaged in township development and M2N2 (a foreign company) made the investment in March 2007, the automatic route, as amended in 2005, was available. The Adjudicating Authority had incorrectly applied the pre-2005 understanding and relied on the earlier serial no.2 to restrict automatic route to NRIs. Further, the minimum capitalization condition requires the specified funds to be brought in within six months of commencement of business; because the respondent's own actions (investigation) prevented commencement of business, applying the minimum capitalization requirement at that stage was premature. The adjudicating finding of contravention under Reg.5(1)/Schedule I as regards SDRPL was therefore misapplied and unsustainable. [Paras 26, 27, 28, 29, 30]The finding of contravention under Reg.5(1)/Schedule I in respect of the SDRPL transaction is quashed; the automatic route under the 2005 amendment applied and the minimum capitalization condition was misapplied and premature.Exoneration under Section 4 of FEMA - Validity of the adjudicating authority's exoneration of the appellants on the charge under Section 4 of FEMA - HELD THAT: - The adjudicating order had found the charge under Section 4 not made out for want of essential ingredients and relevant evidence. The Tribunal recorded that the appellants were exonerated of the Section 4 charge in the impugned order and there is no challenge to that conclusion in the appeals before it. [Paras 5]The appellants were exonerated of the charge under Section 4 of FEMA; that finding stands.Vicarious liability of director - Liability of Shri Ashok Jain for the alleged contravention by the company - HELD THAT: - The adjudicating authority had fastened vicarious liability on Shri Ashok Jain. The Tribunal found no specific averments of incriminating acts of commission or omission against him and noted that he had carried out the transaction with due diligence and complied with post-transaction reporting prescribed by RBI. Given that the company was held not guilty of contravention, and absent evidence of disregard or neglect by the director, the order imposing penalty on him was set aside. [Paras 30, 31]Penalty and findings against Shri Ashok Jain are set aside; he is not liable for the contravention.Final Conclusion: The impugned adjudicating order is quashed and set aside insofar as it holds the appellants guilty of contravention in respect of the SDRPL share transfer; the charges under Regulation 3 were misplaced, the automatic route under Regulation 5(1) as amended in 2005 applied to the township activity, the minimum capitalization condition was misapplied and premature, the Section 4 charge remained exonerated, and the penalty and findings against the director Ashok Jain are set aside. All appeals and pending applications disposed of; no costs.

2019 (5) TMI 478 - ATFEMA FEMA

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Tribunal sets aside order, emphasizes substantive evidence & burden of proof in FEMA violations.
The Tribunal allowed the appeals, setting aside the impugned order and disposing of all appeals without costs. The judgment emphasized the need for substantive evidence and proper burden of proof in establishing violations under FEMA, 1999.

Probative value of extraneous cash books and diary entries - onus of proof on investigating authority to gather corroborative evidence - requirement to record statements of persons who authored impugned entries - investigative absence and insufficiency of entries as substantive evidence - contraventions of foreign exchange regulations - Sections 3(a), 3(b), 6(3)(g) and 10(6) of FEMA - imposition and sustainment of penalties in absence of independent investigationProbative value of extraneous cash books and diary entries - investigative absence and insufficiency of entries as substantive evidence - Whether entries in the seized cash books, not maintained by the appellants and not corroborated by independent investigation, can constitute substantive evidence to sustain penalties under FEMA. - HELD THAT: - The Tribunal held that the impugned order rested predominantly on reading and interpreting entries in cash books which were not admitted by the partners and were maintained by third persons whose statements were not recorded. In the absence of corroborative evidence, independent investigation in India or abroad, recovery of foreign currency, admissions or other documentary proof, such entries cannot be treated as substantive evidence to establish contraventions of FEMA. Reliance on mere entries, without further proof or corroboration, is impermissible and cannot support penal consequences. [Paras 12, 15, 18, 20, 21]Entries in the seized cash books, standing alone and uncorroborated, are insufficient to sustain penal findings under FEMA and cannot be treated as substantive evidence.Onus of proof on investigating authority to gather corroborative evidence - requirement to record statements of persons who authored impugned entries - Whether the department fulfilled its burden of proof by failing to record statements of the persons who maintained the cash book and by not conducting independent corroborative investigation. - HELD THAT: - The Tribunal observed that the department chose not to record statements of the persons (Shri Pankaj and Shri Dinesh) who purportedly maintained the cash book and did not undertake steps to summon them or to conduct independent inquiries either domestically or overseas. The burden to prove the alleged contraventions lay on the department; it could not shift that burden to the appellants by faulting them for not producing those witnesses. The absence of such investigative steps and corroborative materials vitiated the conclusions drawn in the adjudicating order. [Paras 9, 19, 21, 22, 23]Failure of the department to record statements of the alleged authors of the entries or to carry out independent corroborative investigation undermines the prosecution's burden and renders the penal findings unsustainable.Contraventions of foreign exchange regulations - Sections 3(a), 3(b), 6(3)(g) and 10(6) of FEMA - imposition and sustainment of penalties in absence of independent investigation - Whether the alleged contraventions under Sections 3(a), 6(3)(g), 3(b) and 10(6) of FEMA were established so as to justify the penalties imposed on the firm and its partners. - HELD THAT: - Applying the conclusions on evidentiary insufficiency and defective investigation, the Tribunal found no material to establish that Shri Prasanna Bhautoria acquired and carried USD 41,000 in contravention of Sections 3(a) and 6(3)(g), nor that the firm and its partners paid overseas suppliers through non-banking channels or made excess advance remittances unexplained under Section 10(6) or Section 3(b). The impugned adjudicating authority's findings were premised on assumptions drawn from cash book entries without corroboration; consequently the penalties levied could not be sustained and were set aside. [Paras 16, 17, 20, 24, 27]The adjudicating authority failed to prove contraventions under the stated provisions of FEMA; the penalties imposed on the firm and its partners are unsustainable and are set aside.Final Conclusion: The appeals are allowed; the adjudicating authority's order imposing penalties based on uncorroborated cash book entries and without requisite independent investigation or recording of relevant witnesses is set aside and the appeals are disposed of with no costs.

2019 (5) TMI 477 - ATFEMA FEMA

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Natural justice limits adjudication beyond the show-cause notice, and disproportionate FEMA penalties may be reduced.
An adjudicating authority cannot sustain a finding by enlarging the charge beyond the show-cause notice, as doing so breaches natural justice. In proceedings concerning alleged non-compliance with FEMA reporting requirements for issue of shares by a person resident outside India, the Tribunal found that the impugned order added a further contravention not specifically alleged in the notice and was therefore unsustainable to that extent. It also held that the penalty was excessive and not commensurate with the alleged technical contravention, so the penalty was reduced and modified under FEMA.

Adjudication beyond show-cause notice - violation of principles of natural justice - reporting requirement in Form FC-GPR under para 4 of Schedule I to Regulation 5(1) - penalty assessment under Section 13(1) of FEMA, 1999 - appropriation of deposit towards penaltyAdjudication beyond show-cause notice - violation of principles of natural justice - reporting requirement in Form FC-GPR under para 4 of Schedule I to Regulation 5(1) - Adjudicating Authority exceeded the charge in the show-cause notice by adding contravention of sub para (3) while the complaint/SCN alleged only contravention of sub para (2) of para 4 of Schedule I to Regulation 5(1). - HELD THAT: - The complaint and SCN framed the charge only in respect of the requirement to furnish details in the form specified in Annexure C within 30 days (sub para (2) of para 4). During adjudication the Authority additionally held the appellants guilty of contravening sub para (3) (quarterly return in Annexure D) and treated the contravention as if all sub paras of para 4 were breached. Such addition of a distinct charge at adjudication stage goes beyond the particulars set out in the SCN and thereby prejudices the appellants' opportunity to meet the case made against them. The impugned order accordingly adjudicated issues not pleaded in the SCN, infringing the principles of natural justice. The Tribunal notes these defects in para 9 and paras 22-25 of the impugned order and treats the over reach as unsustainable. [Paras 22, 23, 25]Findings and penalties premised on contravention of sub para (3) were beyond the scope of the SCN and thus unsustainable; the adjudication cannot stand to the extent it relies on those additional charges.Penalty assessment under Section 13(1) of FEMA, 1999 - appropriation of deposit towards penalty - Appropriate disposal of penalty already deposited and final disposition of the revision petition filed by the respondent. - HELD THAT: - Noting the procedural infirmities in the impugned order and that the appellants had deposited an amount during stay proceedings, the Tribunal modified the impugned adjudication order in light of the defects and directed that the amount already deposited be appropriated by the respondent as penalty. Given this modification and appropriation, the respondent's revision petition seeking enhancement of penalty became infructuous. The Tribunal, while observing the technical nature of the alleged contraventions, exercised its discretion to finalise the matter by settlement through appropriation rather than remanding the case for fresh adjudication. [Paras 27, 28]Penalty deposit to be appropriated by the respondent; impugned order modified accordingly and the respondent's revision petition rendered infructuous.Final Conclusion: The Tribunal found that the Adjudicating Authority exceeded the scope of the SCN by adding a charge under sub para (3) of para 4 while the complaint alleged only contravention of sub para (2), a procedural defect amounting to violation of natural justice; accordingly the impugned order was modified, the amount deposited by the appellants during stay proceedings was appropriated as penalty, and the respondent's revision petition was held infructuous. All petitions were disposed with no costs.

2019 (4) TMI 332 - ATFEMA FEMA

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Finality of prior ruling on seized diary entries bars fresh reliance on the same evidence in later adjudication.
Where a later adjudication rests on the same seized diary entries and the same legal issue already decided on merits, the prior final ruling governs. The earlier High Court decision had held that diary entries, by themselves, are not substantive evidence of unlawful foreign exchange transactions and cannot establish contravention. Because the Supreme Court dismissed the challenge to that ruling, the determination attained finality. In these circumstances, the Tribunal declined to depart from the binding earlier view and treated the subsequent order and show cause notice founded on the diary entries as unsustainable.

Admissibility of seized diaries as evidence - protection against self-incrimination under Article 20(3) - statutory presumptions under FERA regarding documents and culpable mental state - burden of proof on the noticee under FERA - binding effect of higher court decisions under Article 141 - finality of earlier adjudication on identical factsAdmissibility of seized diaries as evidence - protection against self-incrimination under Article 20(3) - Whether the entries in the seized diary marked M-207/93 (including the entry dated 6th Nov) are admissible and can sustain proceedings/penalty against the appellant. - HELD THAT: - The Tribunal accepted the conclusions reached by the Hon'ble High Court in Criminal Appeal No. 340 of 2008 that the seized diary entries are inadmissible as substantive evidence and at best are corroborative. The High Court had held that the appellant was justified in invoking Article 20(3) and that statements under Section 40 FERA did not permit drawing adverse inferences amounting to presumed admissions; consequently the diary entries could not, by themselves, prove acquisition of foreign exchange. The Tribunal therefore treated the entries in M-207/93 as falling within the scope of that earlier decision and held that the same observations and principles apply to the entry dated 6th Nov, leading to the conclusion that the entry cannot sustain the contravention or penalty. [Paras 8, 10]The diary entry in M-207/93 (6th Nov) is inadmissible for proving the contravention relied upon and cannot sustain the penalty.Binding effect of higher court decisions under Article 141 - finality of earlier adjudication on identical facts - burden of proof on the noticee under FERA - Whether the Tribunal could re open or re decide the same issues after the High Court and Supreme Court had rendered final orders in connected proceedings. - HELD THAT: - The Tribunal observed that the subject matter of the present appeal is the same as the subject matter of the earlier, connected appeals which were considered by the Hon'ble High Court and whose finality was affirmed by the Supreme Court by dismissal of the SLP. Under Article 141, the rulings of the higher courts are binding on the Tribunal. Where legal and factual issues are identical to those finally adjudicated, the respondent could not re agitate the same arguments or take a different view. Applying that principle, the Tribunal held that the impugned adjudicating order based on the same diary entries had to yield to the prior final decisions. [Paras 7, 9, 16, 17]The prior final decisions of the High Court and Supreme Court are binding; the impugned order is set aside and the show cause notice dated 6.11.1996 is quashed.Final Conclusion: The Tribunal set aside the impugned adjudicating order and quashed the show cause notice dated 6.11.1996, holding that the seized diary entries relied upon are inadmissible in view of earlier final decisions of the High Court (affirmed by the Supreme Court); no costs were awarded.

2019 (4) TMI 138 - ATFEMA FEMA

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Reasonable steps to realise export proceeds rebut the presumption of contravention and defeat penalty under foreign exchange law.
Where an exporter shows that all reasonable and permissible steps were taken to recover unpaid export proceeds, the rebuttable presumption of contravention under Section 18(3) of the Foreign Exchange Regulation Act, 1973 stands displaced. The record showed commercial correspondence, requests for intervention, legal action in Doha, engagement of counsel, and repeated applications for extension before the Reserve Bank of India. On that basis, the non-realisation of the balance proceeds was attributable to circumstances beyond control, so penalty for contravention under Section 18(2) could not be sustained. The appeal succeeded and the penalty was set aside.

Repatriation of export proceeds under Section 18(2) and Section 18(3) of FERA, 1973 - Rebuttable presumption under Section 18(3) - What constitutes taking all reasonable steps to realize export proceeds - Ex parte adjudication and principles of natural justice - Pendency of Reserve Bank of India extension/write off applications as affecting adjudicationEx parte adjudication and principles of natural justice - Whether the impugned adjudication order dated 27.09.2013 was a valid non ex parte adjudication consistent with the remand direction and principles of natural justice - HELD THAT: - The Tribunal had earlier quashed the original adjudication and remanded the matter for fresh decision after granting full opportunity of hearing. The Adjudicating Authority issued call notices for de novo adjudication which were returned by postal authorities marked "Left/Refused" and an alleged hearing date notice was not received by the appellant. Notwithstanding non appearance at the hearing, the adjudicatory process was examined in light of the documents and steps taken by the appellant to pursue recovery. The Court considered whether the remand required fresh adjudication on the basis of documents even if personal hearing did not take place, and proceeded to assess the merits. Having found on the facts that the appellant had taken sufficient steps to realise the export proceeds and that the proceedings were premature in view of pending RBI applications, the adjudication was set aside and the appellant exonerated. The impugned order was therefore quashed rather than sustained as a valid ex parte order contrary to the remand direction. [Paras 5, 6, 7, 26, 28]The adjudication dated 27.09.2013 was set aside and the appellant was exonerated, the impugned order being quashed.Repatriation of export proceeds under Section 18(2) and Section 18(3) of FERA, 1973 - What constitutes taking all reasonable steps to realize export proceeds - Rebuttable presumption under Section 18(3) - Whether the appellant rebutted the presumption under Section 18(3) by proving that all reasonable steps were taken to realize the unpaid export proceeds - HELD THAT: - The Court interpreted the statutory test: contravention under Section 18(2) turns on lack of reasonable efforts, and Section 18(3) creates a rebuttable presumption of contravention which the exporter can dispel by proving reasonable steps. The material on record showed repeated communications with the overseas buyer and its new owners, approaches to the Indian Embassy, filing and active pursuit of civil suit in Doha, payments to local counsel and court appointed expert, and repeated ETX applications to RBI through the authorised dealer seeking extension/write off which remained pending. The Court applied the commercial standard of a prudent businessman and concluded that the appellant had taken sufficient, timely and legally permissible steps within its means to attempt realization. The Department did not prove that acts of the appellant caused non realization. Consequently the statutory presumption was rebutted and the appellant discharged the burden under Section 18(2) read with Section 18(3). [Paras 10, 16, 24, 26, 27]The presumption under Section 18(3) was rebutted; the appellant had taken all reasonable steps and is not liable for contravention under Section 18(2) read with Section 18(3).Pendency of Reserve Bank of India extension/write off applications as affecting adjudication - Whether initiation or completion of adjudication proceedings was premature while the appellant's applications for extension of time/write off were pending with the Reserve Bank of India - HELD THAT: - The Court noted that ETX (extension) applications had been filed repeatedly with RBI through the authorised dealer and were acknowledged but not finally disposed of. It observed that during the pendency of RBI's decision on extension or write off, initiation of adjudication to charge the exporter under Section 18 provisions would be premature. Having regard to the acknowledged applications and the ongoing recourse to RBI, the Court held that the appellant could not be penalised while the regulatory process remained pending, and that this factor supported quashing the impugned adjudication. [Paras 16, 19, 26]Adjudication while RBI's extension/write off applications were pending was premature; this supported setting aside the impugned order.Final Conclusion: The appeal is allowed. The Tribunal found that the appellant had taken sufficient and reasonable steps to realize the unpaid export proceeds, successfully rebutted the statutory presumption under Section 18(3), and that adjudication was premature while RBI applications were pending; the penalty order dated 27.09.2013 is set aside and the appellant exonerated. No costs.

2019 (3) TMI 1518 - ATFEMA FEMA

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Tribunal sets aside penalties under FEMA for lack of evidence
The Tribunal allowed the appeals filed by the appellants, setting aside the penalties imposed under FEMA, 1999 for contraventions related to foreign exchange management. The liability of the appellants to pay the penalties was not established, and the Tribunal emphasized the importance of proper evidence and compliance with statutory provisions. The judgment underscored the need for a thorough consideration of evidence and understanding between parties, ultimately ruling in favor of the appellants without imposing any costs.

Contravention of FEMA - penalty under Section 13(1) of FEMA - transfer of export proceeds by a person other than the exporter (Regulation 12) - requirement of Shipping Declaration Form (SDF) - onus of proof on the enforcement authority - procedural compliance versus substantive complianceContravention of FEMA - transfer of export proceeds by a person other than the exporter (Regulation 12) - requirement of Shipping Declaration Form (SDF) - onus of proof on the enforcement authority - procedural compliance versus substantive compliance - Whether the penalties imposed on M/s. Graphite India Ltd. and Shri A. Manani for alleged receipt/realisation of export proceeds in contravention of FEMA were sustainable. - HELD THAT: - The Tribunal found that the enforcement authority failed to discharge the onus of proving that the Shipping Declaration Form (SDF) was not filed and that the conditions of Regulation 12 permitting receipt/realisation of export proceeds by a person other than the exporter were not complied with. The order of the respondent rejected the applicability of Regulation 12 mainly on a presumption that Padmaja Impex had not filed the SDF, without adducing evidence or conducting enquiry to establish absence of the SDF or non-compliance by the Authorised Dealer. Given that the Letter of Credit was negotiated by the Authorised Dealer against the shipping documents, the Tribunal held that, in absence of any evidence to the contrary or action against the Authorised Dealer, it could not be presumed that procedural formalities (SDF) were not complied with. The Tribunal emphasised that procedural deviations which do not affect the substantive requirement may be condoned, and noted that export proceeds were realised and repatriated and that the penalty on Padmaja had been deposited. On these findings the Tribunal concluded that the enforcement authority did not establish the alleged contravention by the appellants and that the penalties imposed therefore could not be sustained. [Paras 15]Impugned order imposing penalties on M/s. Graphite India Ltd. and Shri A. Manani is set aside and the appeals are allowed.Final Conclusion: The appeals are allowed; the order imposing penalties on the appellants is set aside. No costs.

2019 (3) TMI 1517 - ATFEMA FEMA

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Issues: (i) Whether penalty under section 18 of the Foreign Exchange Regulation Act, 1973 could be sustained where the exporter had obtained extension of time for realisation of export proceeds in respect of Iraqi exports and waiver applications remained pending for other outstanding amounts; and (ii) whether personal penalties on the directors could be sustained in the absence of specific averments establishing their responsibility for the company's export business and non-realisation of export proceeds.

Issue (i): Whether penalty under section 18 of the Foreign Exchange Regulation Act, 1973 could be sustained where the exporter had obtained extension of time for realisation of export proceeds in respect of Iraqi exports and waiver applications remained pending for other outstanding amounts.

Analysis: The statutory scheme treated non-realisation of export proceeds as actionable only when the prescribed period, or the period extended by the Reserve Bank, had expired and no effective permission or approval existed. Where extension of time had been granted, no contravention could be fastened during the extended period. Likewise, where applications for write-off or waiver were pending consideration, adjudication on non-realisation was premature. The record showed that the major Iraqi dues were covered by extension of time and that the smaller balance amounts were subject to pending waiver requests, making the penalty unsustainable on the merits and under the governing regulatory framework.

Conclusion: The penalty imposed on the company could not be sustained and was rightly set aside.

Issue (ii): Whether personal penalties on the directors could be sustained in the absence of specific averments establishing their responsibility for the company's export business and non-realisation of export proceeds.

Analysis: Vicarious liability under section 68 required clear pleadings and material showing that the directors were in charge of and responsible for the conduct of the business at the relevant time. Mere mention of their names or a bare reproduction of statutory language was insufficient. The notice and the adjudication order did not contain specific allegations attributing the contravention to each director, and one director was not even in office during the relevant export period. In the absence of the foundational facts necessary to attract vicarious liability, the personal penalties could not stand.

Conclusion: The personal penalties on the directors were unsustainable and were set aside.

Final Conclusion: The appeals succeeded, the impugned order was annulled in full, and no penalty survived against either the company or the directors.

Ratio Decidendi: Where export realisation is protected by extension of time or pending waiver consideration, penalty for non-realisation cannot be imposed, and vicarious liability of directors cannot be fastened without specific pleadings and proof of their responsibility for the contravention.

Export proceeds penalty and director liability fail where time extension exists and no specific responsibility is pleaded.
Penalty for non-realisation of export proceeds under the Foreign Exchange Regulation Act, 1973 could not be sustained where the exporter had obtained extension of time for Iraqi export receipts and waiver applications for other outstanding amounts were still pending; on that basis, adjudication was premature and the company penalty was set aside. Personal penalties on directors also failed because vicarious liability under section 68 required specific pleadings and material showing that each director was in charge of, and responsible for, the company's export business and the non-realisation in question. Mere recital of names or statutory language was insufficient, and one director was not shown to be in office during the relevant period. The penalties against the directors were therefore set aside.

Contravention of Section 18(2) read with Section 18(3) of the Foreign Exchange Regulation Act - effect of RBI extension/waiver on liability under Section 18(2) - prematurity of adjudication during pendency of RBI write off/waiver applications - reasonableness of steps to recover export proceeds - vicarious liability of directors under Section 68 of FERAContravention of Section 18(2) read with Section 18(3) of the Foreign Exchange Regulation Act - effect of RBI extension/waiver on liability under Section 18(2) - prematurity of adjudication during pendency of RBI write off/waiver applications - reasonableness of steps to recover export proceeds - Validity of the penalty imposed on M/s. Hindustan Lever Ltd. for non realisation of export proceeds in respect of exports during 1982-1991. - HELD THAT: - The Tribunal held that where the Reserve Bank of India has granted an extension of time for realisation of export proceeds or where an application for write off/waiver is pending consideration by the RBI, no contravention under Section 18(2) can be presumed or adjudicated until the RBI has refused permission or the extended period has expired. Applying the principle established in the cited precedents, the Tribunal found that a major portion of the disputed amount (relating to Iraq) was covered by RBI extension/waiver processes and that write off/waiver applications in respect of other small outstanding amounts were pending when the adjudicating order was passed. The Tribunal further noted that where recovery is impossible or disproportionate (for example due to UN embargo, collapse of erstwhile USSR entities, or disproportionate cost of litigation), the exporter's conduct may be bona fide and reasonable and hence not attract penalty under Section 18(2). In view of these conclusions, the adjudication was premature and the penalty could not be sustained. [Paras 39, 40, 41, 42, 43]Penalty imposed on M/s. Hindustan Lever Ltd. set aside.Vicarious liability of directors under Section 68 of FERA - requirement of specific allegations to fasten personal liability - Validity of personal penalties imposed on the three directors. - HELD THAT: - The Tribunal applied settled law that vicarious liability of directors cannot be automatically imputed; the adjudicating authority must plead and prove how a director was 'in charge of and responsible' for the acts constituting the contravention. The Show Cause Notice here merely named the directors without specifying how they were in charge or responsible as contemplated under Section 68. Affidavits and record showed the directors were not in charge of exports (and one was not a director during the relevant export period). On these facts and in light of binding authorities, the imposition of personal penalties was unsustainable. [Paras 44, 45, 46, 47, 48]Penalties imposed on the three directors set aside.Final Conclusion: All four appeals are allowed: the adjudicating order dated 17.07.2000 is set aside and the penalties imposed on the company and on the three directors are quashed; no costs.

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