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2019 (3) TMI 824 - ATFEMA FEMA

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Dismissal of Appeal Upholding FEMA Penalty for Unauthorized Funds Receipt; Coercion Claims Rejected
The appeal was dismissed on merits, upholding the penalty imposed under FEMA for contraventions amounting to receiving unauthorized funds in India. The appellant's claims of coercion in statement recordings were refuted, and the denial of cross-examination was deemed non-prejudicial. The ownership claim over seized funds was rejected as unsubstantiated. Despite financial hardship, the appellant was exempted from paying the penalty due to his dire financial situation. The tribunal affirmed the seizure of funds and contraventions under FEMA.

Contravention of Section 3(c) of the Foreign Exchange Management Act - Corroboration of confessional statements by seized documents - Forfeiture of seized currency - Penalty for FEMA contravention - Natural justice-right to cross examine - Imposition and waiver of pre deposit on grounds of undue hardshipContravention of Section 3(c) of the Foreign Exchange Management Act - Corroboration of confessional statements by seized documents - Whether the appellant contravened Section 3(c) of FEMA by receiving foreign exchange related payments in India without RBI permission. - HELD THAT: - The Tribunal accepted the findings that searches were conducted at the appellant's residence on 10.01.2004 and incriminating documents together with Indian currency were seized. The appellant's statements recorded by the Assistant Director explained the contents of the seized documents and his modus operandi; many seized documents were acknowledged as written by the appellant. Investigation identified persons from whom amounts were received and other searches and statements provided corroboration of the appellant's statements. The appellant's later retraction was made after a long interval and was held to have little evidentiary value. The Tribunal also rejected the contention that the statements were recorded by another officer and found they were recorded by Shri B.C. Mahey. Applying these findings, the Tribunal concluded that it was established beyond reasonable doubt that during the years 2002 and 2003 the appellant received amounts in India on behalf of a person resident abroad without RBI permission and thereby contravened Section 3(c) of FEMA. [Paras 15, 16, 17, 19, 20]The finding of contravention of Section 3(c) of FEMA for the years 2002 and 2003 is upheld and the seized amount was held to be involved in the contraventions.Forfeiture of seized currency - Whether the seized Indian currency recovered from the appellant's residence should be retained and forfeited by the respondent. - HELD THAT: - Having upheld the finding of contravention based on the seized material and corroborative evidence, the Tribunal found no ground to interfere with the order keeping the seized currency with the respondent and directing its forfeiture. [Paras 22]The seizure of Rs. 21,75,000/- is to be kept by the respondent and forfeited; no interference is warranted.Penalty for FEMA contravention - Imposition and waiver of pre deposit on grounds of undue hardship - Validity of the penalty imposed and whether the appellant should be required to deposit the penalty amount. - HELD THAT: - The Tribunal agreed that penalty was rightly imposed for the contraventions. However, on the material before it (affidavit and supporting deed) the Tribunal found the appellant to be in indigent financial circumstances, unemployed and dependent on charitable support, and there was no contrary material from the respondent to rebut the claim of undue hardship. In exercise of its discretion and having regard to the appellant's financial condition, the Tribunal modified the impugned order in respect of the penalty component and waived the requirement to deposit the penalty amount. [Paras 21, 23, 24, 25]The penalty is sustained on merits but the requirement to deposit the penalty is waived and the appellant is exempted from making the pre deposit on grounds of undue hardship.Natural justice-right to cross examine - Whether denial of the appellant's request to cross examine the Enforcement Officer rendered the proceedings vitiated for violation of natural justice. - HELD THAT: - The Tribunal examined the contention that statements were recorded under duress by another officer and that cross examination was wrongly disallowed. It found the statements were recorded by the Assistant Director Shri B.C. Mahey and that the statements, read with seized documents, did not support the claim of coercion. The retraction came after a long delay and was treated as an afterthought. On these findings the Tribunal held that denial of the requested cross examination did not vitiate the proceedings. [Paras 17, 18, 19]No violation of natural justice is found; the challenge based on denial of cross examination fails.Final Conclusion: The appeal is dismissed on merit. The Tribunal upholds the finding of contravention of Section 3(c) of FEMA for 2002 and 2003 and the forfeiture of the seized currency, but in view of the appellant's proved financial hardship the Tribunal waives the requirement to deposit the penalty and modifies the impugned order only insofar as the penalty pre deposit is concerned.

2019 (3) TMI 823 - ATFEMA FEMA

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Issues:
1. Whether the appellants contravened provisions of Section 3(a), Section 4, and Section 10(4) of FEMA, 1999.
2. Whether the Varanasi branch of the company and the zonal manager are liable for penalties under FEMA, 1999.

Analysis:
1. The appellants contended that the Varanasi branch had the RBI's license, but it was later found that the branch did not have a valid license at the relevant time. They argued that the transactions were based on a letter dated 02.01.2007, which was later alleged to be forged. The appellants also claimed that the adjudicating authority did not investigate the role of the other party involved in the transaction. They cited legal judgments to support their arguments. However, the tribunal found that the Varanasi branch undertook foreign exchange dealings without authorization, contravening Section 3(a) of FEMA, 1999.

2. In the case of the zonal manager, it was argued that he acted in good faith based on information provided by a state head regarding the availability of foreign currency. The zonal manager approved the transaction after verifying the empanelment of the other party. It was later revealed that the other party was not authorized by the RBI for foreign exchange dealings. The zonal manager denied direct involvement and argued that there was no evidence against him except for a statement by another employee. The tribunal, however, found emails indicating the zonal manager's knowledge and involvement in the transaction, holding him liable under Section 42(2) of FEMA.

3. The respondent argued that the company and its branches are collectively responsible, emphasizing that the company benefited from the illegal transaction. The company's decision to file a criminal complaint against its employees indicated acknowledgment of FEMA violations. Regarding the zonal manager, the respondent pointed to evidence suggesting direct involvement and knowledge of the transaction. The tribunal concurred, holding both the Varanasi branch and the zonal manager liable for penalties under Section 13 of FEMA, 1999.

In conclusion, the tribunal found both the Varanasi branch and the zonal manager guilty of contravening FEMA provisions. While reducing the initially imposed penalties, the tribunal held the appellants liable for penalties under FEMA, 1999 due to unauthorized foreign exchange dealings and the zonal manager's involvement in the transaction.

Tribunal Penalizes Varanasi Branch & Manager for FEMA Violations
The tribunal found both the Varanasi branch and the zonal manager guilty of contravening FEMA provisions. Despite reducing the penalties initially imposed, the tribunal held the appellants liable for penalties under FEMA, 1999 due to unauthorized foreign exchange dealings by the Varanasi branch and the zonal manager's involvement in the transaction.

Dealing in foreign exchange without RBI authorization (contravention of Section 3(a) of FEMA) - liability of a company for acts of its branch - deemed culpability of an employee under Section 42(2) of FEMA - penalty under Section 13 of FEMADealing in foreign exchange without RBI authorization (contravention of Section 3(a) of FEMA) - liability of a company for acts of its branch - Whether M/s. Reliance Money Express Ltd., Varanasi branch contravened FEMA by undertaking foreign exchange transactions without RBI authorization and whether it could rely on the main company's RBI licence. - HELD THAT: - The Varanasi branch was not authorised by the RBI at the relevant time and nonetheless undertook the foreign exchange transaction with M/s. Global Forex & Travels; the fact of the transaction and the origin of the consignment from Varanasi establish the branch as the actor. The company cannot shelter the Varanasi branch under the main company's licence because the RBI grants licence separately to the company and to its branches; a branch's lack of licence is therefore a distinct disqualification. Consequently the Varanasi branch contravened the prohibition on dealing in foreign exchange by unauthorised persons and is liable for that contravention. [Paras 5]RMEL Varanasi held to have contravened the prohibition on unauthorised dealings in foreign exchange and liable under FEMA.Deemed culpability of an employee under Section 42(2) of FEMA - penalty under Section 13 of FEMA - Whether Shri Souvik Dasgupta, the zonal manager, is liable under Section 42(2) of FEMA for the contravention and the quantum of penalty to be imposed on the company and on him. - HELD THAT: - Emails and contemporaneous material, not denied by the appellant, show Mr. Dasgupta's involvement and knowledge of the transaction and the movement of the consignment from Varanasi; the statement of the state head reporting to him corroborates his supervisory role. Under Section 42(2) he is therefore deemed guilty of the contravention. While liability is established for both the branch/company and the zonal manager, the adjudicating authority's penalty was found excessive on the facts of the case and reduced in exercise of appellate powers. [Paras 5, 6]Shri Souvik Dasgupta held liable under Section 42(2) of FEMA; penalties upheld in principle but reduced in amount on appeal.Final Conclusion: Both RMEL Varanasi and Shri Souvik Dasgupta were held to have contravened FEMA by unauthorised dealing in foreign exchange and deemed guilty under Section 42(2); penalties affirmed but reduced - the adjudicating authority's penalty was moderated on appeal.

2019 (2) TMI 1039 - ATFEMA FEMA

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Tribunal: FEMA Penalty Disproportionate, Appellants' Compliance Recognized
The Tribunal found in favor of the appellants, highlighting non-compliance with FEMA regulations regarding penalties imposed. It concluded that the penalties were disproportionate, considering the appellants' compliance with equity participation regulations and engagement in legitimate business activities. The Tribunal noted violations of natural justice principles and directed the appellants to deposit a lump sum within eight weeks, expediting the appeal hearing. The liability of directors was also examined, with no evidence of personal gain or wrongdoing found. The Tribunal emphasized that its observations were provisional and would not impact the final appeal outcome.

Penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - direct investment outside India - Regulation 6(4) of the FEMA (Transfer or Issue of Any Foreign Security) Regulations, 2004 - ex post facto approval - compounding application - pre deposit for stay - prima facie case - balance of convenience - disproportionality of penalty / Article 14Pre deposit for stay - penalty under Section 13(1) of the Foreign Exchange Management Act, 1999 - prima facie case - balance of convenience - disproportionality of penalty / Article 14 - Interim application for dispensation of depositing the penalty and for stay of operation of the adjudicating order - HELD THAT: - The Tribunal found that the appellants have established a strong prima facie case and that the balance of convenience lies in their favour, noting various contentious legal issues in the impugned adjudicating order which require consideration on merits. The Tribunal observed that the penalty imposition raised arguable points including compliance with Regulation 6(4) of FEMA 120/2004, the effect of ex post facto approval and compounding proceedings, and the contention that the penalty is grossly disproportionate (implicating Article 14). In view of these factors and the need to preserve the parties' position pending final disposal, the Tribunal directed an interim arrangement to strike a balance between competing interests while recording that its observations are tentative and will not influence the final outcome. [Paras 29, 30, 31, 32]Without prejudice, appellants to deposit a lump sum of Rs. 2 Crores with the respondent within eight weeks; hearing of the appeals to be expedited and listed on 1st July, 2019; all pending applications disposed of; observations are tentative and shall not influence final adjudication.Final Conclusion: Interim relief granted subject to a lump sum deposit of Rs. 2 Crores within eight weeks; appeals to be expedited and heard on merits, with the Tribunal's prima facie observations recorded as tentative.

2019 (2) TMI 214 - ATFEMA FEMA

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Tribunal overturns order, finds appellant compliant with FEMA.
The Tribunal allowed both appeals, setting aside the order dated 29th May, 2014. The appellant did not violate Section 4 of FEMA, 1999, as they legally inherited foreign exchange and made efforts to repatriate it to India. The confiscation order was overturned due to lack of a show cause notice, violating principles of natural justice. The Tribunal criticized the excessive penalty imposed and emphasized the appellant's compliance with the law. The appellant was granted the freedom to pursue legal proceedings regarding the foreign exchange held abroad.

Prohibition on resident acquiring or holding foreign exchange under section 4 of FEMA - holding of foreign exchange by a resident after inheritance - inheritance exception to prohibition on holding foreign exchange - exemption from realization and repatriation where foreign exchange is acquired by gift or inheritance - reasonable steps to realize and repatriate foreign exchange - Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - confiscation under section 13(2) of FEMA - penalty discretion and proportionality - principles of natural justice in confiscation proceedingsHolding of foreign exchange by a resident after inheritance - inheritance exception to prohibition on holding foreign exchange - exemption from realization and repatriation where foreign exchange is acquired by gift or inheritance - prohibition on resident acquiring or holding foreign exchange under section 4 of FEMA - Whether the appellant contravened the prohibition on residents holding foreign exchange by possessing amounts inherited under a will executed by persons resident outside India - HELD THAT: - The tribunal found that the sum in question was inherited by the society under a voluntary settlement deed (in effect a will) executed by persons who were resident outside India and that the society is a person resident in India. The court applied the statutory exceptions permitting a person resident in India to hold foreign exchange or foreign security acquired by inheritance and noted that Section 9(e) exempts foreign exchange acquired by gift or inheritance from the operation of the prohibition. The tribunal also recorded that the society had applied for prior permission from the Central Government before realization and, faced with no grant of permission, instructed the trustee to transfer and park the funds in the society's account abroad to preserve the entitlement and to take steps for repatriation. In these factual circumstances the tribunal concluded that the possession of the foreign exchange did not amount to a culpable contravention of the prohibition in Section 4. [Paras 15, 16, 17, 18, 19]The holding of the foreign exchange by the appellant pursuant to inheritance and the steps taken to realize and repatriate it do not constitute a violation of the prohibition in Section 4 in the circumstances of this case; the impugned finding of contravention is set aside.Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - reasonable steps to realize and repatriate foreign exchange - Whether the appellant breached Regulation 3 by failing to take reasonable steps to realize and repatriate the foreign exchange - HELD THAT: - The tribunal analysed Regulation 3 which obliges a person entitled to foreign exchange to take reasonable steps to realize and repatriate it and to avoid conduct that would delay or defeat receipt. The tribunal found that the society had actively sought Central Government permission prior to realization, repeatedly applied thereafter for repatriation, and had the funds transferred to and preserved in a foreign account to prevent loss of the entitlement; consequently the steps taken satisfied the requirement of taking reasonable steps and avoided the risks Regulation 3 seeks to prevent. On these facts there was no culpable omission attracting liability under Regulation 3. [Paras 18, 19]No breach of Regulation 3 is established on the facts; the impugned finding of contravention under Regulation 3 is set aside.Penalty discretion and proportionality - Whether imposition of the monetary penalty was justified and proportionate - HELD THAT: - Applying settled principles governing the exercise of penal discretion, the tribunal observed that where a breach is technical or flows from a bona fide belief, imposing the prescribed minimum or any penalty may be unjustified. The adjudicating authority had not shown deliberate or conscious disregard of law by the appellant; on the contrary, the appellant acted on a legitimate expectation and took steps to obtain governmental permission and to preserve the funds. In view of the absence of mala fides and the peculiar facts, the tribunal held the penalty to be excessive and unreasonable. [Paras 20]The monetary penalty imposed by the adjudicating authority is unjustified in the circumstances and is set aside.Confiscation under section 13(2) of FEMA - principles of natural justice in confiscation proceedings - Whether the order of confiscation was validly made - HELD THAT: - The tribunal found that the adjudicating authority ordered confiscation of amounts abroad without issuing any separate show cause notice specific to confiscation and without giving reasons addressing confiscation; that procedure offended principles of natural justice and that confiscation is a penal power which must be exercised on cogent and clear evidence after affording adequate opportunity. Reliance was placed on earlier authorities holding that confiscation cannot be based on assumptions and must be justified by material. In these circumstances the tribunal concluded that the confiscation direction could not be sustained. [Paras 21, 22]The confiscation order is invalid for want of procedure and reasoned justification and is set aside.Final Conclusion: Both appeals are allowed; the impugned order dated 29.05.2014 is set aside insofar as it found contraventions, imposed penalties and ordered confiscation. The tribunal expresses no further opinion or directions regarding the funds lying abroad; the appellants remain free to pursue appropriate legal remedies concerning those funds.

2019 (1) TMI 980 - ATFEMA FEMA

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Issues:
Appeal against impugned order under FEMA for contravention of regulations, penalty imposition, stay application for waiver of pre-deposit, jurisdiction of RBI, delay in settlement of import dues, violation of FEMA provisions, undue hardship, interpretation of agreements, validity of penalty amount, relevance of previous legal decisions.

Analysis:
1. The appeals were filed against an order alleging contravention of FEMA regulations, resulting in a penalty imposed by the Adjudicating Authority. The appellant sought a stay on the penalty pending appeal.
2. The respondent accused the appellants of violating FEMA provisions and imposed penalties on the company and its directors. The appellant argued that the transactions in question did not involve borrowing or lending in foreign exchange under FEMA.
3. The appellant contended that the delay in settling dues to Google Ireland and Google USA was due to genuine reasons and had been regularized by permissions granted by the RBI. The respondent opposed the delay and insisted on dealing with the breach of FEMA provisions.
4. The appellant highlighted that the RBI had jurisdiction over foreign exchange remittances and had granted permissions after due diligence, ensuring no pecuniary gain or violations of FEMA provisions.
5. The appellant emphasized the undue hardship they would face if required to deposit the penalty amount, citing legal precedents supporting their claim of irregularities in the impugned order.
6. The Tribunal found that the appellant had demonstrated no violations of FEMA provisions and that the delay in settlement had been regularized by RBI permissions, leading to a stay on the operation of the impugned order pending final hearing.
7. Legal arguments were made regarding the jurisdiction of the RBI, interpretation of agreements, relevance of previous legal decisions, and the disproportionate nature of the penalty imposed, supporting the appellant's plea for a stay on the penalty.

This detailed analysis covers the various legal issues raised in the judgment, including the interpretation of FEMA provisions, the role of the RBI, the regularization of delays in settlement, undue hardship faced by the appellant, and the validity of the penalty imposed.

Tribunal Stays Penalty in FEMA Case, Cites RBI Permissions and Legal Precedents
The Tribunal granted a stay on the penalty imposed by the Adjudicating Authority under FEMA regulations, pending appeal. It found no violations of FEMA provisions by the appellant, emphasizing that the delay in settling dues had been regularized by RBI permissions. The appellant's argument of undue hardship in depositing the penalty amount was supported by legal precedents, leading to the stay on the impugned order. Legal arguments on the jurisdiction of the RBI, interpretation of agreements, and proportionality of the penalty were considered in favor of the appellant.

Stay of operation - Waiver of pre-deposit under FEMA proceedings - Regularization by RBI permission from foreign exchange angle - Scope of Adjudicating Authority to reinterpret RBI permissions - Prima facie case, balance of convenience, and undue hardship in grant of interim relief - Master Circular on Imports - settlement of import dues beyond six months by AD BanksWaiver of pre-deposit under FEMA proceedings - Prima facie case, balance of convenience, and undue hardship in grant of interim relief - Whether the appellants were entitled to stay of operation of the Adjudicating Authority's order and waiver of pre-deposit of the penalty - HELD THAT: - The Tribunal, on consideration of the pleadings and materials, prima facie found that the appellants had established a triable case and that irreparable and disproportionate hardship would result if interim protection were denied. The Tribunal noted that nothing contrary emerged from the respondent's investigation and that RBI had earlier granted permissions from the "foreign exchange angle" regularizing settlement of the dues; on that basis the delay in remittance stood regularized. The Tribunal applied settled principles that an interim protective order may be granted where, on a cursory glance, the demand appears to lack a leg to stand and where balance of convenience and hardship favour protection - referencing the approach in LIC v. Escorts and the proposition extracted from Monotosh Saha . The Tribunal also observed that the Master Circular on Imports contemplates AD Banks permitting settlement of import dues beyond six months in specified circumstances and that the factual material showed AD Bank and RBI involvement before remittances were effected. In these circumstances the Tribunal concluded that the chances of success on the merits of the appeal outweighed the risk of failure and that a stay and waiver of pre-deposit were justified pending final disposal. [Paras 21, 22, 23, 24, 30]Grant of interim relief: stay of operation of the impugned order and disposal of the miscellaneous application allowing waiver of pre-deposit until final decision of the appealsRegularization by RBI permission from foreign exchange angle - Scope of Adjudicating Authority to reinterpret RBI permissions - Master Circular on Imports - settlement of import dues beyond six months by AD Banks - Whether the Adjudicating Authority could disregard or reinterpret the RBI permissions and treat the delayed remittances as contraventions of FEMA - HELD THAT: - The Tribunal observed prima facie that RBI had, after exercising jurisdiction, granted permissions specifically from the "foreign exchange angle under FEMA" and had imposed conditions requiring AD Bank verification of genuineness and absence of pecuniary gain. The Tribunal held that, as a matter of principle, an authority cannot re-interpret or nullify permissions granted by RBI under its FEMA jurisdiction; the apparent tenor of the agreements and RBI's exercise of discretion merited deference. The Tribunal also noted that the Master Circular and AP (Dir) Circular provisions permit AD Banks to permit settlement beyond six months in specified circumstances, and that there was prima facie material showing such processes were followed. On that basis the Tribunal concluded that the respondent's attempt to treat the transactions as borrowings/deferred payment arrangements without accounting for RBI's regularisation was unsustainable at the interim stage. [Paras 16, 17, 19, 21, 22]Prima facie finding that RBI's permissions regularized the transactions from the FEMA angle and that the Adjudicating Authority lacked jurisdiction to reinterpret those permissions for the purpose of denying interim reliefFinal Conclusion: The miscellaneous applications for stay were allowed: operation of the impugned Adjudicating Authority order was stayed and pre-deposit of the penalty was waived pending final hearing of the appeals; the appeals were listed for final hearing on 1 April 2019.

2019 (1) TMI 190 - ATFEMA FEMA

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Remittance dispute required RBI response before adjudication, leading to remand for fresh consideration and hearing
An adjudication concerning a disputed remittance could not be sustained because the adjudicating authority had not obtained the Reserve Bank of India's response before deciding the matter. The record indicated that the RBI had not rejected the request and was still considering it, so the authority was expected to consult the RBI, particularly because the proceedings originated from information received from that source. The matter was remanded for fresh consideration, with directions to obtain the RBI's response and pass a fresh speaking order after giving the appellants an opportunity of hearing.

Remand for fresh consideration - Requirement to consult regulatory authority - Non-availability of prior approval from Reserve Bank of India - Speaking order and opportunity of hearing - Retrospective application of beneficial circularsRemand for fresh consideration - Requirement to consult regulatory authority - Non-availability of prior approval from Reserve Bank of India - Speaking order and opportunity of hearing - Remand to the original authority to obtain RBI's response and to pass a fresh speaking order after hearing the appellants. - HELD THAT: - The Tribunal found that the determinative factual and legal matrix turned on whether prior approval of the Reserve Bank of India for the excess remittance was available. The record showed that RBI had been seized of the matter and had not rejected the appellants' request (RBI letter dated 18.11.2002). Given that the information which triggered the impugned order originated from the RBI, the Tribunal held it was appropriate for the adjudicating authority to consult RBI and secure its response before finalising the decision. In these circumstances the Tribunal did not decide the merits of the alleged contravention but directed a fresh adjudication: the original authority is to obtain the necessary response/reply from the RBI, afford the appellants an opportunity of being heard, and thereafter pass a fresh speaking order. The Tribunal also noted the need for expedition, observing the matter pertained to 2002 and prescribing a six months timeline for disposal by the adjudicating authority.Matter remanded to the original authority to obtain RBI's response and to pass a fresh speaking order after giving the appellants an opportunity of being heard; to be disposed within six months.Final Conclusion: The appeals succeed to the extent of directing remand for fresh consideration: the original authority must obtain RBI's response, hear the appellants and pass a fresh speaking order within six months; no adjudication on merits is recorded by the Tribunal.

2018 (12) TMI 1765 - ATFEMA FEMA

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Tribunal overturns penalties against Company for FEMA violations, MD absolved of liability
The tribunal found in favor of the Company, setting aside the penalties imposed for alleged violations of FEMA. It was determined that the Company had lawfully conducted transactions through an authorized dealer and had obtained exemptions from RBI, rendering the contraventions null. The Managing Director was absolved of vicarious liability as they were not in charge during the relevant period. The tribunal concluded that the allegations were unfounded, overturning the penalties and allowing the appeal with no costs.

Effect of ex post facto exemption/permission granted by Reserve Bank of India on alleged contravention under FEMA - Applicability of obligations under Section 10(5) and Section 10(6) of FEMA to transactions already undertaken by an Authorised Dealer - Scope and applicability of Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - Vicarious liability of a managing director under Section 42 of FEMA where company is not found guilty and the director was not in charge during the relevant period - RBI as custodian of foreign exchange and effect of directions/exemptions issued by RBIEffect of ex post facto exemption/permission granted by Reserve Bank of India on alleged contravention under FEMA - RBI as custodian of foreign exchange and effect of directions/exemptions issued by RBI - Whether the ex post facto no objection/exemption communicated by Reserve Bank of India in respect of non production of Bill of Entry precludes a finding of contravention under FEMA and bars imposition of penalty by the Enforcement Directorate. - HELD THAT: - The Tribunal accepted the appellants' submission that RBI, being the custodian of foreign exchange, granted an ex post facto no objection to the authorised dealer not to insist upon production of Bill of Entry in respect of the advance remittance. The adjudicating authority's conclusion that such ex post facto exemption, expressed "without prejudice" to Enforcement Directorate's action, empowered the ED to declare contravention and impose penalty was held to be without force. The Tribunal observed that contraventions under FEMA are subject to RBI's permission and that what is permitted or exempted by RBI cannot be questioned; consequently an ex post facto exemption by RBI removes the scope for a contravention in respect of the specific obligation exempted. [Paras 15, 16, 17, 26]Ex post facto exemption/permission granted by RBI in respect of the production of Bill of Entry precludes a finding of contravention on that ground and bars imposition of penalty by the Enforcement Directorate in respect thereof.Applicability of obligations under Section 10(5) and Section 10(6) of FEMA to transactions already undertaken by an Authorised Dealer - Scope and applicability of Regulation 6 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - Whether Sections 10(5) and 10(6) of FEMA and Regulation 6 of the 2000 Regulations applied to the appellants' case and supported a finding of contravention. - HELD THAT: - The Tribunal held that Section 10(5) pertains to obligations of an Authorised Dealer prior to undertaking a transaction and, in the present case, the authorised dealer (HSBC) had undertaken the transaction after obtaining declarations and being satisfied. The submission of Bill of Entry is a later, post import event and thus Section 10(5) had no application. Section 10(6) is consequential on Section 10(5) and does not arise where the foreign exchange was used for the declared purpose. The Tribunal further observed that Regulation 6 applies to a resident who fails to use the foreign exchange for the declared purpose and is required to surrender unused foreign exchange; it did not apply where the authorised dealer had been exempted by RBI from insisting on Bill of Entry and where the foreign exchange was used for the declared purpose but goods were not received due to the supplier's bankruptcy. [Paras 20, 21, 22, 23, 24]Sections 10(5) and 10(6) of FEMA and Regulation 6 of the 2000 Regulations were not attracted to the facts; no contravention arises from the non production of Bill of Entry where RBI has granted exemption and the transaction was undertaken by an authorised dealer in accordance with law.Vicarious liability of a managing director under Section 42 of FEMA where company is not found guilty and the director was not in charge during the relevant period - Whether penalty could be imposed on the Managing Director under Section 42 by way of vicarious liability where the company was held not liable and the MD was appointed after the relevant period. - HELD THAT: - The Tribunal noted that the person in charge and responsible during the relevant period was an earlier official (Head of Finance) who had left the company and was not arraigned; the present Managing Director had been appointed only on 27/08/2015 and therefore was not the person in charge during the impugned period. Given that the company itself was held not liable, the precondition for imposing vicarious liability on the managing director was absent. The adjudication and penalty against the Managing Director were therefore set aside as devoid of valid reason. [Paras 28, 29]Penalty imposed on the Managing Director under Section 42 is not sustainable where the company is not held guilty and the Managing Director was not in charge or responsible during the relevant period.Final Conclusion: The appeal is allowed: the adjudication against the company and the penalty imposed on the Managing Director are set aside in view of RBI's ex post facto exemption and the non applicability of the provisions invoked; no costs.

2018 (12) TMI 2001 - APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI FEMA

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Section 37-A FEMA seizure orders upheld as specific provisions override general appellate powers during pending adjudication
The Appellate Tribunal under SAFEMA dismissed an appeal challenging seizure orders under Section 37-A of FEMA. The Tribunal held that specific provisions prevail over general provisions, and Section 37-A(4) being specific would override general appellate powers. Regarding retrospective application, the Tribunal found Section 37-A actually enlarged parties' rights by providing adjudication procedures before confiscation, unlike the previous more draconian system of direct confiscation. Since adjudication proceedings under Section 37-A(4) were pending and seizure must continue until disposal, the Tribunal found no legal grounds to interfere. Appellants retained liberty to appeal the final adjudication order under Section 19 of FEMA.

Seizure confirmed under Section 37-A pending adjudication - Retrospective operation of statute - Section 37-A of FEMA as a beneficial/procedural provision enlarging remedies - Conflict between general and specific statutory provisions - Continuing offence doctrineSeizure confirmed under Section 37-A pending adjudication - Conflict between general and specific statutory provisions - Whether the Appellate Tribunal should set aside the Competent Authority's order confirming seizure under Section 37-A(3) before completion of adjudication under Section 37-A(4). - HELD THAT: - The Competent Authority's confirmation of seizure under Section 37-A(3) continues until disposal of the adjudication proceedings under Section 37-A(4), which specifically requires the Adjudicating Authority to pass appropriate directions regarding the seizure after adjudication. Section 19(3) confers general appellate powers on the Tribunal, but Section 37-A(4) is a specific provision governing the temporal effect of a confirmation of seizure. Applying the principle that a specific provision prevails over a general one, the Tribunal should not quash the confirmation of seizure under Section 37-A(3) prior to completion of the statutory adjudication process mandated by Section 37-A(4). The court must not read into an unambiguous statute provisions that would render the specific scheme redundant; interference at this stage would circumvent the two-stage procedure created by Section 37-A. The appellants retain the remedy of appealing the eventual adjudication order under the statute. [Paras 5, 6, 7, 10]No interference with the Competent Authority's confirmation of seizure at this stage; appeal dismissed.Retrospective operation of statute - Section 37-A of FEMA as a beneficial/procedural provision enlarging remedies - Continuing offence doctrine - Whether Section 37-A, introduced in 2015, operates retrospectively so as to invalidate seizures arising from contraventions alleged to have occurred in 2007-2009. - HELD THAT: - The Court applied established principles that statutes are prima facie prospective unless a contrary intention appears, and that retrospection should not impair accrued rights or create new liabilities. Section 37-A does not create the substantive offence (Section 4 existed earlier) but provides an additional procedural regime - a two-stage mechanism involving confirmation of seizure and subsequent adjudication - which offers an enlarged grievance-remedy to affected parties compared to the earlier regime under Section 13. Seizure and confiscation are distinct; Section 37-A introduces procedural safeguards and channels for relief that did not previously exist. As Section 37-A confers procedural/beneficial rights and does not retrospectively create substantive liability or remove previously existing rights, its application in the present proceeding is not barred by the doctrine against retrospectivity. [Paras 8]Section 37-A may be applied in the present proceedings and does not impermissibly operate retrospectively to the detriment of the appellants.Final Conclusion: The appeal is dismissed. The Competent Authority's order confirming seizure under Section 37-A(3) remains effective pending adjudication under Section 37-A(4); the appellants may raise all contentions before the Adjudicating Authority and, subsequently, on appeal under the statute.

2018 (12) TMI 445 - ATFEMA FEMA

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Natural justice and pre-deposit: repeated hearing opportunities defeated full waiver, but partial relief was granted.
Repeated opportunities for personal hearing and cross-examination were given, including adjourned dates fixed for that purpose, and the appellant failed to avail them. On that record, the Tribunal found no denial of natural justice and no basis to grant complete dispensation of pre-deposit. However, because the same issues arose across four appeals, it granted partial relief in the interests of justice by directing a reduced pre-deposit of 50 per cent of the total penalty.

Principles of natural justice - pre-deposit for grant of stay - adjournment and opportunity to cross-examine witnesses - adjudicating authority's power to proceed in absence of party under FEMA rules - condtional stay subject to depositPrinciples of natural justice - adjournment and opportunity to cross-examine witnesses - Whether the adjudicating authority breached the principles of natural justice in conducting adjudication - HELD THAT: - The Tribunal examined the sequence of hearings recorded in the adjudicating order (paras 57-64) and noted repeated opportunities afforded to the appellant to appear, to seek adjournments, to file replies and to cross examine prosecution witnesses. The adjudicating authority fixed multiple dates, issued summonses and permitted examination of the investigating officer, yet on several adjourned dates the appellant's counsel did not appear to conduct cross examination. Those facts are not controverted by the appellant. On these findings the Tribunal held that the adjudicating authority had actively facilitated hearing and cross examination and that no denial of natural justice occurred. [Paras 4, 5]No violation of the principles of natural justice by the adjudicating authority; opportunities were afforded but not availed by the appellant.Pre-deposit for grant of stay - condtional stay subject to deposit - Whether the pre deposit should be dispensed with - HELD THAT: - The appellant sought dispensation of the pre deposit largely on the ground of alleged denial of natural justice but did not press any contention on merits or plead financial hardship despite inquiry. Having held that there was no breach of natural justice, and noting the absence of any claim of undue hardship or merit to justify waiver, the Tribunal found no reason to waive the statutory pre deposit requirement. [Paras 5]Dispensation of the pre deposit is refused; no grounds made out for waiver.Pre-deposit for grant of stay - conditional stay subject to deposit - adjudicating authority's power to proceed in absence of party under FEMA rules - What interim relief, if any, should be granted pending compliance with pre deposit requirement - HELD THAT: - Although pre deposit was not waived, in the interests of justice the Tribunal exercised its discretion to moderate the financial burden by directing an interim condition covering all four appeals. The Tribunal ordered the appellant to deposit fifty per cent of the total penalty within two months and listed the matter for reporting compliance, thereby granting conditional relief while preserving the requirement of pre deposit under the statutory scheme. [Paras 6, 7]Appellant directed to deposit 50% of the total penalty (covering the four appeals) within two months; matter listed for reporting compliance.Final Conclusion: The Tribunal held that there was no denial of natural justice, refused to dispense with the pre deposit, but in the exercise of discretion directed deposit of 50% of the total penalty within two months as a condition for interim relief and listed the matter for reporting compliance.

2018 (12) TMI 444 - ATFEMA FEMA

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Foreign exchange contravention requires clear evidence of foreign exchange dealings and nexus; Indian currency alone was insufficient.
A contravention under the Foreign Exchange Regulation Act, 1973 requires evidence of foreign exchange dealings and a clear nexus between the alleged conduct and the statutory prohibition. The adjudication order was founded mainly on loose sheets recovered from the main accused's residence and the appellant's statement, but the record did not show what investigation was conducted or how any alleged payment in Indian currency established a breach. No evidence proved that the appellant received or made foreign exchange payments, and mere holding or dealing in Indian currency was not treated as a violation. The alleged contravention was therefore not proved and the order could not be sustained against the appellant.

2018 (11) TMI 1672 - APPELLATE TRIBUNAL FOR SAFEMA, FEMA, PMLA, NDPS & PBPT ACT AT NEW DELHI FEMA

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Court stresses prima facie case, defers plea on natural justice principles, grants relief to select parties.
The court emphasized the need to establish a prima facie case and deferred detailed examination to the final hearing. The appellant's plea regarding principles of natural justice was deferred pending submission of an affidavit. Financial hardship claims were dismissed for most parties except M/s. Queen Forex Pvt. Ltd and M/s. Cheap Cloth Store. The judgment directed specific individuals to pre-deposit amounts as per the order within five months, except for the mentioned companies. Compliance reporting was required, and copies of the order were to be provided to the parties.

Stay of adjudication order - prima facie case - principles of natural justice - undue hardship - pre-deposit directionPrima facie case - stay of adjudication order - The appellants have not established a prima facie case for grant of interim relief at the stay stage. - HELD THAT: - The Tribunal observed that the learned counsel sought to establish a chain of linkages between various parties referred to in the Adjudication Order, but such factual and evidentiary linkages require detailed examination and cannot be resolved on an application for interim stay. In view of the absence of such demonstrable linkages at the interlocutory stage, the Tribunal held that a prima facie case was not made out for the stay application.No interim stay was granted on the ground of a prima facie case; the stay application was not allowed on that basis.Principles of natural justice - Allegation of breach of principles of natural justice was not finally adjudicated; the appellant was directed to file an affidavit and the contention will be considered at the final hearing. - HELD THAT: - The Tribunal noted that although the adjudication order records that the appellant was heard, the counsel asserted non-compliance with principles of natural justice. Rather than deciding the contention on the stay application, the Tribunal required the appellant to file an affidavit substantiating the claim of not being heard, and recorded that the allegation will be examined at the stage of final hearing.The natural justice grievance was left open for consideration at the final hearing upon filing of an affidavit; it was not decided on the stay application.Undue hardship - pre-deposit direction - Direction as to pre-deposit of the amount in the impugned order was issued differently for individual appellants and two corporates based on their financial filings. - HELD THAT: - The Tribunal examined the Income Tax Returns produced by the appellants for relevant years and observed that the financial condition of the individual appellants appeared comfortable, whereas the returns of M/s Queen Forex Pvt. Ltd and M/s Cheap Cloth Store indicated poor financial status for the years 2017-18 and 2018-19. On that basis, and in the exercise of its interlocutory power, the Tribunal directed the individual appellants to pre-deposit the entire amount as per the impugned order, while staying the requirement of pre-deposit in respect of the two corporate respondents. The Tribunal prescribed that all deposits be made within five months and listed the matter for reporting compliance.Shri Rajinder Singh Duggal, Shri Vishal Arora and Shri Sunil Gupta were directed to pre-deposit the entire amount; pre-deposit was stayed in favour of M/s Queen Forex Pvt. Ltd and M/s Cheap Cloth Store; deposits to be made within five months and compliance to be reported on the listed date.Final Conclusion: On the interim applications the Tribunal found no prima facie case for stay, left allegations of breach of natural justice to be examined at the final hearing upon filing of an affidavit, directed the three individual appellants to pre-deposit the entire amount, stayed pre-deposit for two corporate appellants, and ordered compliance within five months with reporting on the listed date.

2018 (11) TMI 367 - ATFEMA FEMA

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Natural justice challenge and foreign exchange contravention upheld where voluntary statements and customs material proved fictitious exports.
The natural justice challenge failed because the relied-upon documents were repeatedly supplied and the appellant was given several hearing opportunities after remand, which were not effectively used. The alleged retraction was unproved, as no certified copy was produced, and there was no credible basis to dislodge the finding that the earlier statements were voluntary. On merits, the statements, together with customs investigation material on fictitious exports, established receipt of foreign exchange against non-existent exports and supported contravention of the prohibitory foreign exchange provision. The Tribunal also accepted that material from the customs investigation could be relied on in the foreign exchange adjudication arising from the same transaction.

Natural justice - supply of relied upon documents and opportunity of personal hearing - voluntariness and admissibility of statements recorded by enforcement/customs authorities - reliance on Customs investigation/materials in FERA/FEMA adjudication - remand compliance - jurisdiction of appellate forum to entertain the appeal - delay and abuse of process - receiving payment from abroad in contravention of FERANatural justice - supply of relied upon documents and opportunity of personal hearing - remand compliance - Whether principles of natural justice were complied with by supplying the relied upon documents and affording opportunity of personal hearing as directed on remand. - HELD THAT: - The Tribunal found that a fresh set of documents was sent to the appellant in April 2008 and again on 06.12.2013, facts which the appellant did not meaningfully dispute. The adjudicating authority's chronology of repeated hearing dates (including adjournments sought by the appellant) demonstrates that opportunities for personal hearing were afforded but not availed. The Tribunal held that the remand direction of the earlier order had been complied with in 2008 and there was no obligation on the authority to keep re-forwarding the same documents; the appellant's reliance on a single notice of 06.12.2013 and on non-identification of the exact time on 16.12.2013 did not establish denial of natural justice when earlier notices and hearings remained unutilised by him. [Paras 6]Principles of natural justice were observed; remand directions were complied with and the appellant failed to avail the opportunities given.Voluntariness and admissibility of statements recorded by enforcement/customs authorities - reliance on Customs investigation/materials in FERA/FEMA adjudication - receiving payment from abroad in contravention of FERA - Whether the statements recorded from the appellant were voluntary and admissible and whether Customs investigation material could be relied upon in the FERA proceedings to establish offence and involvement. - HELD THAT: - The Tribunal recorded that the appellant gave three statements admitting non-occurrence of exports and receipt of foreign remittances, and that he was unable to produce any certified copy of any alleged retraction despite being granted time to do so; counsel conceded inability to rely on the retraction. On these facts the Tribunal held the statements to be voluntary and probative of involvement. The Tribunal further accepted the appellate court authority reasoning that statements and materials gathered under the Customs/DRI investigation relating to the same transaction can be utilised in FERA/FEMA adjudication, and that clandestine transactions may require assessment from a practical common-sense perspective rather than imposing an unrealistically rigid burden of proof. [Paras 5, 7]The statements were voluntary and admissible; Customs investigation material was rightly relied upon to establish the offence and appellant's involvement.Jurisdiction of appellate forum to entertain the appeal - Whether the Appellate Tribunal before which this appeal was heard had jurisdiction to entertain the appeal despite the respondent's preliminary objection. - HELD THAT: - The Tribunal noted the respondent's preliminary objection regarding the proper appellate forum but recorded that an earlier bench of the erstwhile Tribunal for Foreign Exchange had allowed the present appeal to be heard by this Tribunal by order dated 05.10.2016. The Tribunal therefore proceeded to hear and dispose of the appeal here, observing that that decision would not have precedent value. [Paras 6]The appeal was properly heard by this Tribunal in view of the earlier order permitting hearing here; the objection was not sustained.Final Conclusion: The appeal is without merit: natural justice requirements and remand compliance were satisfied, the appellant's statements and Customs investigation material were rightly relied upon to establish the offence and involvement, the Tribunal had jurisdiction to hear the appeal, and the appeal is dismissed.

2018 (10) TMI 1420 - ATFEMA FEMA

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Tribunal Invalidates Penalty for FERA Offences Post Sunset Clause
The Tribunal held that the Show Cause Notice (SCN) issued after the sunset clause of FERA was invalid, following the precedent set in a similar case. It was determined that the Directorate lacked jurisdiction under FEMA for offences committed during the FERA regime post the sunset clause. The penalty imposed on the appellant was deemed unreasonable and arbitrary, failing to consider the appellant's efforts to realize export proceeds. The Tribunal found the treatment of the appellant compared to similarly situated exporters to be discriminatory. The impugned order was set aside, and the appeal was allowed with no costs awarded.

Continuing offence - statutory bar of sunset clause - jurisdiction under FEMA - binding precedent - null and void ab initioStatutory bar of sunset clause - jurisdiction under FEMA - continuing offence - binding precedent - Validity of issuance of show cause notice under FEMA in respect of alleged contraventions completed during the FERA regime after expiry of the sunset clause - HELD THAT: - The Tribunal examined whether the Directorate could lawfully issue an SCN under FEMA for export-related contraventions that were completed during the FERA regime (exports made in December 1995-1996) after the sunset clause expired on 1.6.2002. The Tribunal found that the question of continuing offence and thus jurisdiction under FEMA had been considered and finally decided by the High Court of Delhi in Bhupinder V. Shah, where the continuing-offence argument was rejected in circumstances comparable to the present case. Relying on that binding decision, the Tribunal held that once the alleged offence was complete in the FERA period, issuance of an SCN under FEMA after the sunset clause is impermissible because of the statutory bar. The Tribunal noted the respondent's contention of continuing offence but observed that the High Court had rejected similar contentions and that the judgment had attained finality. On that basis the Tribunal concluded that the Directorate lacked jurisdiction to proceed under FEMA in respect of the completed FERA-period offence. [Paras 20, 22]SCN issued under FEMA for contraventions completed during the FERA regime after 1.6.2002 was held to be invalid for want of jurisdiction.Null and void ab initio - penalty - Consequences of lack of jurisdiction on the adjudication and penalty imposed - HELD THAT: - Having held the SCN to be impermissibly issued under FEMA for offences completed during the FERA regime, the Tribunal addressed the legal consequence for the adjudication that followed. The Tribunal concluded that the entire proceedings founded on the illegally issued SCN are null and void ab initio. In view of want of jurisdiction at the inception of proceedings, the adjudication order imposing penalty could not stand and therefore the penalty imposed by the adjudicating authority was set aside. The Tribunal recorded that the appeal was allowed and that the penalty was untenable by force of law. [Paras 23, 24]The adjudication proceedings based on the illegally issued SCN are null and void ab initio and the penalty imposed is set aside.Final Conclusion: Appeal allowed; proceedings based on the SCN issued under FEMA in respect of export transactions completed during the FERA regime are void for lack of jurisdiction after the sunset clause, and the penalty imposed is quashed.

2018 (10) TMI 1081 - ATFEMA FEMA

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Tribunal dismisses appeals for filing delays under FEMA, stresses timely submissions. Appellant failed to show "sufficient cause."
The tribunal dismissed all four appeals due to significant delays in filing, as the appellant failed to demonstrate "sufficient cause" for condonation under Section 19 of FEMA. The delays ranged from seven and a half to nine years, with reasons such as improper service of orders and incarceration not deemed as justifications. The tribunal emphasized the importance of timely filing, citing the need for a liberal but bona fide approach and balanced justice. The appellant's lack of effort to inform the respondent of address changes and attempts to cover up the delay led to the denial of justice to the respondent.

Condonation of delay under Section 19 of the Foreign Exchange Management Act - service of adjudication orders under Rule 9 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 - sufficiency of cause for delay - effect of incarceration on limitationCondonation of delay under Section 19 of the Foreign Exchange Management Act - sufficiency of cause for delay - Whether the delay in filing each of the four appeals was a sufficient cause to be condoned under the proviso to Section 19 of FEMA. - HELD THAT: - The Tribunal framed the limited question whether the prolonged delay (ranging around seven to nine years) in filing the appeals could be condoned as "sufficient cause" under Section 19. Applying the established principles of liberal but not unfettered judicial approach to condonation of delay, the Tribunal examined the material showing service of orders and the conduct of the appellant. The appellant admitted that copies of the orders were received by the advocate who had appeared before the adjudicating authority; attempts were made to serve by RPAD which were returned with postal endorsements, and ultimately the orders were pasted at the last known addresses under mazhar. The appellant did not notify any change of address after adjudication, did not rebut the postal endorsements or mazhar, and offered incarceration from February 2017 as the explanation for delay although the orders dated 2008-2009 predated that incarceration. On the facts and applying the principles in Esha Bhattacharjee and related authority, the Tribunal found no sufficient cause for condonation of inordinate delay and noted that lack of bona fides and gross negligence are relevant considerations where delay is lengthy. [Paras 5, 6, 12, 13]The delay in filing all four appeals is not condonable; all four appeals are dismissed as barred by limitation.Service of adjudication orders under Rule 9 of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 - Whether the adjudication orders were validly served on the appellant in accordance with Rule 9 before resort to affixation under Rule 9(c). - HELD THAT: - The Tribunal examined the service record and accepted that the adjudication orders were served on the appellant's advocate who had appeared in the proceedings, that RPAD attempts to the last known addresses were made and returned with endorsements of "No Such Addressee", and that the orders were thereafter pasted on the last known premises under mazhar. The Tribunal held that service by delivery to the appearing advocate constituted service on a duly authorised person and that attempts by registered post and subsequent affixation under mazhar were demonstrably undertaken. The appellant did not produce evidence to displace these factual findings or to show that the department failed to comply with Rule 9(a) or 9(b) before resorting to 9(c). [Paras 6, 7, 8]Service of the adjudication orders was effected in accordance with Rule 9 (by the advocate appearing and by efforts of RPAD and eventual affixation under mazhar); the appellant's challenge to service is rejected.Effect of incarceration on limitation - Whether the appellant's incarceration since February 2017 entitled her to condonation of the prior years' delay in filing appeals against orders of 2008-2009. - HELD THAT: - The Tribunal noted that the appellant herself admitted being sent to jail only in February 2017 whereas the impugned orders were dated 2008-2009. Given the admitted timeline and the fact that service had been effected earlier, incarceration commencing in 2017 could not explain or excuse the long delay in filing appeals years earlier. The Tribunal therefore held that incarceration, as relied upon by the appellant, did not constitute a sufficient cause for condoning the inordinate delay. [Paras 3, 9, 12]Incarceration from February 2017 does not furnish a sufficient cause to condone delay in respect of orders dated 2008-2009; the plea is rejected.Final Conclusion: All four appeals are dismissed on the ground of limitation; the Tribunal found service proper and no sufficient cause (including the appellant's later incarceration) to condone the inordinate delay.

2018 (10) TMI 1015 - ATFEMA FEMA

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Tribunal sets aside FEMA penalty due to procedural errors
The Tribunal allowed both appeals, setting aside the penalty imposed under FEMA due to discrepancies in the proceedings, lack of clarity in charges, and the initiation of investigations post-settlement by the Directorate of Enforcement.

Operability of Section 127J bar on reopening settled matters - requirement of specific and intelligible show cause notice - need for independent investigation under FEMA before initiating proceedings - burden to corroborate allegations of unauthorised foreign exchange transactions - legal effect of settlement by the Settlement Commission on subsequent proceedingsLegal effect of settlement by the Settlement Commission on subsequent proceedings - operability of Section 127J bar on reopening settled matters - Whether initiation of enforcement proceedings under FEMA based solely on the DRI case, after the matter had been settled and closed by the Settlement Commission, was permissible. - HELD THAT: - The Tribunal held that once the Customs matter was finally settled by the Settlement Commission and the order attained finality, the same subject-matter could not be reopened in proceedings under another enactment. Proceeding on the basis of the DRI record without independent inquiry was impermissible because the Settlement Commission's order closed the question and bars reopening under the statutory mandate embodied in the provision preventing relitigation of matters covered by such orders. Reliance by the Enforcement Directorate exclusively on documents and findings from the DRI proceeding, which had been the subject of settlement, rendered the FEMA adjudication wrongful and vulnerable to being set aside. [Paras 16, 17]Proceedings under FEMA initiated on the basis of the settled Customs case were barred and such proceedings could not be sustained; the penalty order was set aside.Requirement of specific and intelligible show cause notice - need for independent investigation under FEMA before initiating proceedings - burden to corroborate allegations of unauthorised foreign exchange transactions - Whether the show cause notice and the material relied upon discharged the initial burden of specifying intelligible charges and providing independent corroborative evidence to sustain penalties under FEMA. - HELD THAT: - The Tribunal found the show cause notice to be lacking in clarity and specificity as to the alleged contraventions and the evidence relied upon. It emphasised that mere reliance on presumptions, third party documents from the DRI record and prior custodial statements (some of which were retracted) did not satisfy the requirement to plead and prove unauthorised foreign exchange transactions. In absence of cogent, independent evidence and an intelligible notice enabling the appellants to meet the case, the adjudication could not stand. [Paras 11, 12, 13, 15]The show cause notice and material before the Authority failed to discharge the initial burden of specification and corroboration; the adjudication was unsustainable.Final Conclusion: Both appeals are allowed; the impugned penalty order dated 06.01.2014 is set aside because the FEMA proceedings were initiated without independent investigation and in respect of matters finally settled by the Settlement Commission, and the show cause notice lacked requisite clarity and corroborative material.

2018 (9) TMI 1150 - ATFEMA FEMA

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Issues:
1. Confirmation of seizure of mutual funds under Section 37(A)(3) of FEMA, 1999
2. Application for setting aside seizure based on subsequent developments
3. Jurisdiction of the Tribunal to review seizure orders
4. Interpretation of Section 37(A)(4) proviso regarding setting aside seizure
5. Appellate Tribunal's limited jurisdiction in appeals against Competent Authority's orders

Analysis:

1. The judgment deals with the confirmation of the seizure of mutual funds under Section 37(A)(3) of FEMA, 1999, amounting to Rs. 10,35,20,000 or US $16,00,000 held outside India by the appellant. The Competent Authority (CA) confirmed the seizure through an order dated 18.05.2018.

2. The appellants filed an application to set aside the seizure based on subsequent developments, specifically the repatriation of foreign exchange back to India after the passing of the impugned order. The appellant argued that as per Section 37(A)(4) proviso, the Competent Authority had the power to review its own order upon disclosure of bringing back foreign exchange into India.

3. The tribunal examined whether it had jurisdiction to review the seizure orders and considered the arguments presented by both parties. The respondent contended that the Tribunal cannot delve into new issues not addressed in the impugned order and highlighted the provisions of Section 37(A)(4) regarding the continuation of seizure until adjudication proceedings.

4. The Tribunal analyzed the provisions of Section 37(A)(4) and the power granted to the Competent Authority or the Adjudicating Authority to set aside the seizure upon the disclosure of bringing back foreign assets into India. The Tribunal clarified that the Competent Authority or Adjudicating Authority has the power to deal with the seizure order and not review its own order under Section 37(A)(3).

5. The Tribunal emphasized the limited jurisdiction of the Appellate Tribunal in hearing appeals against orders passed by the Competent Authority under Section 37(A)(3). The Tribunal concluded that the Competent Authority has the power to confirm or reject seizures under Section 37(A)(1), and the Appellate Tribunal's powers are restricted to hearing appeals. The judgment disallowed the application to set aside the seizure based on subsequent developments.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's interpretation of relevant legal provisions in the context of the case.

Tribunal Upholds Seizure of Mutual Funds Under FEMA, Rejects Set-Aside Application
The Tribunal confirmed the seizure of mutual funds under Section 37(A)(3) of FEMA, 1999, totaling Rs. 10,35,20,000 or US $16,00,000 held outside India by the appellant. The Competent Authority's order confirming the seizure was upheld, rejecting the application to set aside the seizure based on subsequent developments, emphasizing the limited jurisdiction of the Appellate Tribunal in appeals against Competent Authority's orders. The Tribunal clarified that the Competent Authority has the power to deal with seizure orders and not review its own order under Section 37(A)(3), ultimately disallowing the application for setting aside the seizure.

Power to set aside seizure under the proviso to Section 37(A)(4) - seizure to continue till disposal of adjudication proceedings - appellate jurisdiction under Section 37(A)(5) limited to orders under Section 37(A)(3) - absence of original jurisdiction in the Appellate Tribunal to entertain subsequent developments - Competent Authority's confirmatory power under Section 37(A)(3)Appellate jurisdiction under Section 37(A)(5) limited to orders under Section 37(A)(3) - absence of original jurisdiction in the Appellate Tribunal to entertain subsequent developments - Whether the Appellate Tribunal may set aside the seizure by taking cognisance of foreign exchange repatriated to India after the Competent Authority's order. - HELD THAT: - The Tribunal held that its jurisdiction is confined to hearing appeals against orders passed by the Competent Authority under Section 37(A)(3). It has no original jurisdiction to adjudicate on matters or developments not dealt with by the Competent Authority, including events occurring subsequent to the impugned order. The judgments relied upon by the appellants were held to pertain to different facts and confer exceptional equitable powers on courts which this statutory tribunal, being a creature of statute, does not possess. Consequently the Tribunal cannot, on its own, set aside the seizure on account of repatriation that took place after the Competent Authority's order. [Paras 4, 5]Application to set aside the seizure before this Tribunal on the ground of subsequent repatriation is not maintainable and is dismissed.Power to set aside seizure under the proviso to Section 37(A)(4) - Competent Authority's confirmatory power under Section 37(A)(3) - seizure to continue till disposal of adjudication proceedings - Whether the Competent Authority or the Adjudicating Authority alone may deal with an application seeking setting aside of seizure when the aggrieved person brings back foreign exchange into India. - HELD THAT: - The Tribunal interpreted the proviso to Section 37(A)(4) as conferring power exclusively on the Competent Authority or, as the case may be, the Adjudicating Authority to pass an appropriate order (including setting aside the seizure) upon receipt of an application by the aggrieved person disclosing repatriation. Section 37(A)(4) also provides that the seizure continues until disposal of adjudication proceedings, and the adjudication process remains the appropriate forum to consider subsequent developments. The Competent Authority's role is to confirm or otherwise the seizure under Section 37(A)(3); it does not possess a broader review power beyond the statutory scheme. [Paras 4, 5]The power to deal with the application to set aside the seizure on account of repatriation lies with the Competent Authority or the Adjudicating Authority under the proviso to Section 37(A)(4); the Tribunal cannot exercise that power.Final Conclusion: The application to set aside the seizure is dismissed: the Appellate Tribunal lacks original jurisdiction to adjudicate subsequent repatriation and the statutory power to set aside the seizure vests only with the Competent Authority or the Adjudicating Authority; the seizure remains effective until disposal of adjudication proceedings.

2018 (9) TMI 933 - ATFEMA FEMA

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Appellate Tribunal ATFEMA case: Export discrepancies, legal arguments, Bill of Lading issues, remand decision
The Appellate Tribunal ATFEMA case addressed discrepancies in export destinations, legal arguments on fulfillment of obligations, conflicting Bill of Lading documents, lack of investigation, and the decision to remand for a comprehensive review. The judgment highlighted the need for thorough examination and fair adjudication regarding foreign exchange regulations and export compliance. The case was remanded to the adjudicating authority for further review and a comprehensive decision after considering all evidence and allowing the appellants to present their case.

Bill of lading veracity - destination-based currency realization - foreign exchange regulation compliance - remand for fresh adjudication - speaking order requirement - opportunity of hearingBill of lading veracity - destination-based currency realization - foreign exchange regulation compliance - Whether the adjudicating authority had sufficiently investigated the authenticity of competing Bills of Lading and the alleged diversion of consignments such that the penalties and charges under FEMA-related regulations could be sustained. - HELD THAT: - The Tribunal found that two conflicting sets of Bills of Lading exist for the same shipments - the appellants relying on B/Ls showing St. Petersburg (Russia) as destination and the respondent relying on documentary material from the Indian High Commission, Lagos and the EFCC, Nigeria indicating delivery at Tin Can Island, Lagos. The adjudication order under challenge did not resolve which B/L was authentic nor did it record any definitive findings on the EFCC/High Commission material placed before the adjudicating authority. Enquiries from the steamer agent were initiated but the impugned order contains no conclusion arising from those enquiries. In view of these unresolved factual contradictions going to the core question whether payment should have been realized in a currency appropriate to the final destination, the Tribunal concluded that the matter requires fresh consideration by the adjudicating authority with proper investigation of the veracity of the competing documents and related enquiries. [Paras 4, 5]Matter remanded to the adjudicating authority for fresh adjudication on the authenticity of the Bills of Lading and related factual enquiries before any determination under the FEMA-related regulations is made.Speaking order requirement - opportunity of hearing - remand for fresh adjudication - The procedural requirement that the adjudicating authority must pass a reasoned (speaking) order after affording the appellants an opportunity to be heard. - HELD THAT: - The Tribunal observed that the impugned adjudication order failed to address crucial documentary material (the Indian High Commission/EFCC correspondence) and did not record outcomes of the steamer agent's enquiries. Given the lacunae in fact-finding and absence of a reasoned analysis on contested documents, the Tribunal directed that on remand the adjudicating authority must afford the appellants an opportunity of hearing, examine and record findings on the veracity of the competing evidence, and pass a speaking order dealing with all relevant material and contentions. [Paras 4, 5]Adjudicating authority to afford opportunity of hearing and to pass a speaking, reasoned order dealing with the authenticity of documents and enquiries on remand.Final Conclusion: Appeal allowed by way of remand; the adjudicating authority is directed to investigate the authenticity of the competing Bills of Lading and related enquiries, consider the EFCC/High Commission material, afford the appellants an opportunity of hearing, and thereafter pass a speaking order dealing with all relevant issues under the FEMA-related regulations.

2018 (9) TMI 669 - ATFEMA FEMA

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Issues: Jurisdiction of appeal under FEMA

Analysis:
The judgment revolves around the jurisdiction issue raised by the respondent's counsel regarding the appeal process under FEMA. The respondent argued that since the impugned adjudication order was issued by the Deputy Director, the appeal should be directed to the Special Director (Appeals) as per Section 17 of FEMA. On the other hand, the appellant contended that since the appeal was initially filed under FERA before the enactment of FEMA, it should be heard by the Tribunal as FERA did not provide for appeals to the Special Director (Appeals). The Tribunal examined Section 17(2) of FEMA, which clearly states the procedure for appeals against orders made by the Adjudicating Authority.

The judgment referred to a significant decision by the Bombay High Court in the case of Premier Limited vs. Union of India, where the court addressed the transition from FERA to FEMA and the implications on appeal procedures. The court emphasized that with the establishment of FEMA, all appeals against adjudication orders, whether under FERA or FEMA, should be directed to the appellate forums constituted under FEMA. The court highlighted the provisions of Section 49(5) of FEMA, which deem actions taken under FERA to be under the corresponding provisions of FEMA. Consequently, adjudication orders under FERA by the Assistant Director/Deputy Director of Enforcement are considered orders under FEMA, making appeals against them maintainable before the Special Director (Appeals).

In conclusion, the judgment dismissed the appeal, directing the appellant to file it before the Special Director (Appeals) in compliance with the jurisdictional requirements under FEMA. The dismissal was accompanied by the liberty for the appellant to re-file the appeal before the appropriate authority. Importantly, the issue of limitation was addressed, clarifying that the timely filing of the appeal with the Tribunal/Appellate Board would not pose a limitation issue if re-filed before the Special Director (Appeals). The judgment thus provides a clear interpretation of the jurisdictional framework for appeals under FEMA, ensuring adherence to the statutory provisions and legal precedents.

Dismissed appeal requires refiling with Special Director (Appeals) under FEMA, not subject to time limitations.
The appeal was dismissed, directing the appellant to file before the Special Director (Appeals) under FEMA jurisdiction, following the transition from FERA to FEMA for adjudication orders. The judgment clarified that timely re-filing with the appropriate authority would not pose a limitation issue, emphasizing adherence to statutory provisions and legal precedents.

Appeal to Special Director (Appeals) - Jurisdiction of Appellate Tribunal - Transference of appeals from FERA to FEMA - Deemed continuation of actions under FERA as under FEMA - Limitation not to operate where appeal was timely filed before the Tribunal/Appellate BoardAppeal to Special Director (Appeals) - Jurisdiction of Appellate Tribunal - Transference of appeals from FERA to FEMA - Deemed continuation of actions under FERA as under FEMA - Appeal against an adjudication order passed by an Assistant Director/Deputy Director of Enforcement is maintainable before the Special Director (Appeals) and not before the Appellate Tribunal. - HELD THAT: - Section 17(2) of FEMA provides that persons aggrieved by orders of an Assistant Director or Deputy Director of Enforcement may prefer an appeal to the Special Director (Appeals). Applying the legislative scheme effected by FEMA, and following the reasoning in Premier Limited v. Union of India, the repeal of FERA and constitution of FEMA did not leave appeals which were previously maintainable before the Appellate Board to remain before the Tribunal where FEMA has established two appellate fora. Actions and adjudication orders under FERA are to be treated as having been taken under corresponding provisions of FEMA, and consequently appeals against adjudication orders by Assistant/Deputy Directors under FERA are to be instituted before the Special Director (Appeals) under FEMA rather than before the Appellate Tribunal.The appeal before the Appellate Tribunal is not competent and appeals against orders of Assistant/Deputy Directors of Enforcement must be filed before the Special Director (Appeals).Limitation not to operate where appeal was timely filed before the Tribunal/Appellate Board - Filing of the appeal before the Tribunal/Appellate Board within time preserves the appellant's right to file afresh before the Special Director (Appeals) without being barred by limitation. - HELD THAT: - The Tribunal dismissed the appeal for lack of jurisdiction but granted liberty to the appellant to institute the appeal before the Special Director (Appeals). The Tribunal recorded that, because the appeal was originally filed in time before the Tribunal/Appellate Board, the period for limitation will not be a bar if the appellant institutes the appeal before the Special Director (Appeals). This protects the appellant from a limitation defence solely because of the change in competent forum arising from the transition from FERA to FEMA.Appeal dismissed for want of jurisdiction with liberty to the appellant to file the same before the Special Director (Appeals); limitation will not be a ground for rejection if so filed.Final Conclusion: The appeal before the Appellate Tribunal is dismissed for lack of jurisdiction; the appellant is granted liberty to file the appeal before the Special Director (Appeals) and, since the appeal was timely filed before the Tribunal/Appellate Board, the defence of limitation shall not apply to such refiling.

2018 (9) TMI 193 - ATFEMA FEMA

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Statutory limitation and invalid service of notice rendered penalty proceedings unsustainable and the order was set aside.
Penalty proceedings were held unsustainable because they were initiated after the statutory limitation period had expired and the record did not establish valid service of the adjudication notice. The purported substituted service by affixture failed to satisfy the mandatory requirements for such service, and jurisdiction was assumed without proof of due notice to the appellant. The proceedings were therefore contrary to natural justice, and the penalty order was set aside.

Limitation under Sec. 49 of FEMA - Service by affixture and requirement of due and reasonable diligence under Order V CPC - Principles of natural justice and ex parte adjudication - Relevance of documentary evidence to establish compliance with exchange control requirements - Prima facie case and undue hardship in considerations for pre-depositLimitation under Sec. 49 of FEMA - Principles of natural justice and ex parte adjudication - Validity of the adjudicating authority's initiation of proceedings and imposition of penalty given the expiry of limitation and absence of service of show cause notice prior to the relevant cut-off - HELD THAT: - The Tribunal found that the Adjudicating Officer assumed jurisdiction and passed the impugned adjudication order long after the two-year limitation period specified in Sec. 49 of FEMA had expired. The record indicates no evidence of service of the initial show cause notice on the appellant before the relevant date; consequently the adjudication proceeded effectively behind the appellant's back. In these circumstances the assumption of jurisdiction and the order passed without affording the appellant an opportunity to be heard violated principles of natural justice and rendered the proceedings and resulting penalty untenable. [Paras 19, 31, 32]The adjudicating authority's order was set aside on the ground that proceedings were time-barred and conducted without proper service and opportunity to be heard.Service by affixture and requirement of due and reasonable diligence under Order V CPC - Validity of service by affixture effected on 13-07-2004 - HELD THAT: - The Tribunal recorded that notices were affixed on 13-07-2004 but found no indication that the mandatory procedure prescribed by Order V (rules 17 and 19) of the CPC-requiring that affixture be a measure of last resort after due and reasonable diligence-was followed. Evidence showed the company's office had shifted from the address where affixture occurred, and the process report did not establish the necessary attempts at personal service. In light of these facts, service by affixture was held not to constitute valid service. [Paras 20, 23, 25, 26]Service by affixture was invalid as the mandatory procedural safeguards were not shown to have been complied with.Relevance of documentary evidence to establish compliance with exchange control requirements - Prima facie case and undue hardship in considerations for pre-deposit - Whether documentary evidence showing utilisation of foreign exchange was considered and its effect on the merits of initiating penalty proceedings - HELD THAT: - The Tribunal noted that the appellant had produced documentary evidence (acknowledgements, bills of entry and correspondence with the authorised dealer and Enforcement Directorate) demonstrating utilisation of foreign exchange for imports and had responded to enquiries in 2001-2002. The adjudicating authority did not take that material into account before initiating or concluding the penalty proceedings; the Tribunal observed that had such evidence been considered, initiation of penalty proceedings may have been unnecessary. Earlier Tribunal observations on pre-deposit emphasised that existence of a prima facie case is relevant to undue hardship considerations, reinforcing the significance of the appellant's documentary compliance. [Paras 10, 12, 13, 18, 30]The authorities ignored material documentary evidence of compliance; that omission undermined the validity of the penalty proceedings and supported setting aside the impugned order.Final Conclusion: The appeal is allowed: the impugned adjudication order dated 8.9.2004 imposing penalty is set aside on grounds of limitation, defective service and failure to consider documentary evidence of compliance; no costs.

2018 (9) TMI 192 - ATFEMA FEMA

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Issues: (i) Whether the finding of contravention under Section 16(1) of the Foreign Exchange Regulation Act, 1973 for alleged failure to realise foreign exchange was sustainable on the evidence; (ii) Whether the alleged admission regarding receipt of foreign exchange could sustain the penalty in the absence of corroborative material.

Issue (i): Whether the finding of contravention under Section 16(1) of the Foreign Exchange Regulation Act, 1973 for alleged failure to realise foreign exchange was sustainable on the evidence.

Analysis: The liability was founded mainly on the complaint and statements of a disgruntled brother who had earlier made allegations before other forums, while the contemporaneous material did not disclose independent documentary support for the alleged contract, receivable, or remittance. The defence that no such contract existed and that the allegations had earlier been rejected in connected proceedings remained unrebutted by reliable evidence. In the absence of corroboration, the adjudication was based on hearsay and untested assertions rather than proof of the alleged foreign exchange contravention.

Conclusion: The finding of contravention under Section 16(1) was not sustainable and was set aside.

Issue (ii): Whether the alleged admission regarding receipt of foreign exchange could sustain the penalty in the absence of corroborative material.

Analysis: The statement attributed to the managing director regarding receipt and settlement of foreign exchange was not supported by any independent documentary evidence, and the maker was not confronted with material proving the transaction. The record showed internal inconsistencies in the complainant's version and no reliable proof that the company or its directors had actually received the amounts alleged. A bare statement, particularly when alleged to have been obtained under pressure, could not justify penal consequences without supporting evidence.

Conclusion: The alleged admission could not, by itself, sustain the penalties imposed under the Act.

Final Conclusion: The impugned adjudication failed for want of cogent and independent evidence, and the appeal succeeded with the penalties quashed.

Ratio Decidendi: A penal finding under the Foreign Exchange Regulation Act, 1973 cannot be sustained on uncorroborated statements or hearsay allegations in the absence of independent evidence proving the alleged foreign exchange contravention.

Uncorroborated statements cannot sustain foreign exchange penalties without independent evidence proving the alleged contravention or receipt.
A penal finding under the Foreign Exchange Regulation Act, 1973 cannot rest on hearsay, untested assertions, or a bare admission when no independent documentary evidence proves the alleged contract, remittance, or receipt of foreign exchange. The record here lacked reliable corroboration, and the complainant's version remained internally inconsistent and unrebutted by cogent material. On that basis, the contravention finding was not sustainable and the penalties imposed under the Act were quashed.

Failure to realize foreign exchange receivable - penalty for contravention of foreign exchange regulations - reliance on complainant's statements without independent corroboration - admissibility of admissions obtained under pressure and requirement of independent corroboration - benefit of doubt where evidence is lacking in adjudication proceedingsFailure to realize foreign exchange receivable - penalty for contravention of foreign exchange regulations - reliance on complainant's statements without independent corroboration - benefit of doubt where evidence is lacking in adjudication proceedings - M/s. Sigmalon Equipment Pvt. Ltd. and Late Shri Ashok Kumar were rightly or wrongly held liable for contravention for alleged failure to realize US$1,50,000 receivable from M/s. EEE during 1990-91 and for imposition of penalties. - HELD THAT: - The Tribunal examined the material relied upon by the Dy. Director and found that the adjudication order was based solely on statements and complaints made by Shri Vinod Kumar without any independent documentary evidence or corroboration. The Company Law Board had earlier considered similar allegations of siphoning of funds and recorded that no documentary evidence was produced to show that the amount was due and paid; that finding was not challenged. The Enforcement Directorate did not produce independent evidence such as contract documents, remittance proofs, bank records or statements of employees, and declined a request to cross-examine the complainant. In these circumstances the Tribunal held that the impugned findings could not be sustained: there was no clear and cogent evidence to establish that the foreign exchange in question was received by Late Shri Ashok Kumar or that the Company failed to realize the amount. Given the absence of supporting evidence and the existence of contradictory and uncorroborated allegations, the benefit of doubt was accorded to the appellants and the adjudication order was set aside. [Paras 19, 21, 22, 29, 30]The adjudication findings and penalties imposed for the alleged failure to realize US$1,50,000 are set aside for lack of independent and cogent evidence; benefit of doubt given to the appellants.Admissibility of admissions obtained under pressure and requirement of independent corroboration - reliance on complainant's statements without independent corroboration - Whether the admission by Late Shri Ashok Kumar regarding receipt of DM40,000 (and related statements) could be relied upon in adjudication absent independent corroborative material. - HELD THAT: - The Tribunal observed that an admission allegedly made by Late Shri Ashok Kumar during a foreign tour was said to be obtained under pressure and that the Enforcement Directorate impermissibly relied on such statements without independent corroboration. The adjudicating authority failed to seek or produce back-up evidence to support the alleged admission (for example, bank records, contractual terms, or contemporaneous documentation). The Tribunal held that an admission, especially one asserted to be obtained under coercion, cannot serve as the sole basis for imposing penalties unless material aspects are corroborated by independent evidence. Consequently, the purported admission did not sustain the allegations against the appellants. [Paras 25, 26, 27]The admission alleged to have been made by Late Shri Ashok Kumar cannot be relied upon as sole proof in the absence of independent corroboration; it does not support the imposition of penalty.Final Conclusion: The appeal is allowed; the impugned adjudication order dated 14.05.2003 imposing penalties on the Company and Late Shri Ashok Kumar is set aside for want of independent and cogent evidence.

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