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2026 (5) TMI 380 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the adjudication proceedings and impugned order were vitiated by delay, want of effective opportunity, or breach of the principles of natural justice, including denial of cross-examination; (ii) Whether an authorised person could be proceeded against under the penalty provision of the Foreign Exchange Management Act, 1999 for contraventions involving dealings with unauthorised persons and failure to comply with the regulatory requirements; (iii) Whether the individual appellant could be fastened with liability under section 42(1) of the Foreign Exchange Management Act, 1999 and as a de facto declarant for the alleged contravention under section 10(6) of the Foreign Exchange Management Act, 1999; (iv) Whether the penalty imposed on the company was sustainable.

Issue (i): Whether the adjudication proceedings and impugned order were vitiated by delay, want of effective opportunity, or breach of the principles of natural justice, including denial of cross-examination?

Analysis: The proceedings were preceded by investigation, issuance of notice, supply of relied-upon documents, invitation of replies, and grant of personal hearing. The plea of inordinate delay was rejected because the record showed sustained investigation and repeated correspondence, and the alleged lapse did not establish any prejudice. On the request for cross-examination, the Tribunal applied the settled principle that such opportunity is not automatic in adjudication proceedings and is required only where prejudice is shown. Since the material relied upon was already disclosed and the appellants did not demonstrate any specific prejudice or loss of a substantive defence, the denial of cross-examination was held not to vitiate the proceedings.

Conclusion: The challenge based on delay and natural justice failed.

Issue (ii): Whether an authorised person could be proceeded against under the penalty provision of the Foreign Exchange Management Act, 1999 for contraventions involving dealings with unauthorised persons and failure to comply with the regulatory requirements?

Analysis: The Tribunal held that the definition of "person" under the Act is broad enough to include an authorised person and that Chapter III does not exclude the applicability of the general penalty provision. It further held that the Reserve Bank of India's power to regulate authorised persons does not bar adjudication by the Enforcement Directorate where contraventions of the Act, rules, regulations, or authorisation conditions are alleged. The Tribunal also held that contraventions under section 3(a) and sections 10(4) and 10(5) were not mutually exclusive on the facts and could be invoked where the authorised person had dealt with unauthorised remitters and issued forex cards without verifying the actual travellers.

Conclusion: The objection to the company's liability as an authorised person was rejected.

Issue (iii): Whether the individual appellant could be fastened with liability under section 42(1) of the Foreign Exchange Management Act, 1999 and as a de facto declarant for the alleged contravention under section 10(6) of the Foreign Exchange Management Act, 1999?

Analysis: The Tribunal found that the individual appellant was not shown to be in charge of the relevant regional operations during the period when the impugned transactions took place. The record instead showed that he was transferred to the relevant role only later. In those circumstances, the vicarious liability imposed under section 42(1) could not stand. The Tribunal further held that treating him as a de facto declarant under section 10(6) was unsustainable because the provision could not be stretched to substitute him for the actual passengers or declarants, especially when he was not responsible for the relevant transactions during the material period.

Conclusion: Liability of the individual appellant was not sustainable.

Issue (iv): Whether the penalty imposed on the company was sustainable?

Analysis: The Tribunal found repeated and large-scale issuance of forex prepaid cards in the names of persons who had not approached the company, receipt of funds from third parties and unauthorised entities, and failure to observe the required due diligence and KYC norms. The Tribunal treated these facts as serious contraventions causing loss of foreign exchange and held that the penalty imposed on the company was proportionate to the contravention amount and warranted on the record.

Conclusion: The penalty on the company was upheld.

Final Conclusion: The appeal of the company failed, while the appeal of the individual appellant succeeded, resulting in retention of the company's penalty and deletion of the individual appellant's liability.

Ratio Decidendi: An authorised person remains amenable to adjudication and penalty under the Act for contraventions involving dealings with unauthorised persons and non-compliance with regulatory safeguards, but vicarious or declaratory liability cannot be imposed on an individual unless his responsibility for the relevant transactions during the material period is established.

FEMA penalty framework: authorised persons remain liable, but individual vicarious liability requires proof of responsibility during the relevant period.
An authorised person under FEMA remains amenable to adjudication and penalty for dealings with unauthorised persons and failure to comply with regulatory safeguards, including KYC and due diligence requirements, and the general penalty provision is not excluded by Chapter III. The Tribunal also held that delay and denial of cross-examination do not vitiate adjudication absent demonstrated prejudice where relied-upon material was disclosed and hearings were granted. However, vicarious liability under section 42(1) cannot be imposed on an individual unless responsibility for the relevant transactions during the material period is shown, and de facto declarant liability under section 10(6) cannot be stretched beyond the actual declarant. The company's penalty was sustained on the facts.

Penalty on authorised person - Delay and Laches - Prejudice Test - Audi Alteram Partem - Delay in issuance of the complaint and show cause notice or by non-compliance with Rule 4 - want of effective opportunity - Definition of "person" - Denial of cross-examination - Breach of the principles of natural justice - Vicarious liability of company officer - contraventions arising from issuance of prepaid forex cards without due diligence and upon receipt of funds from third parties and unauthorised persons - KYC Compliance - Due diligence in foreign exchange transactions - De facto declarant. Rule 4 adjudication procedure - Reasonable period - Natural justice - HELD THAT: - The Tribunal held that the record disclosed a detailed investigation into the impugned forex card transactions and that the appellants had been put to notice through summons during investigation. In that background, the challenge based on delay was rejected as untenable. It further found that after issuance of the show cause notice, relied upon documents were supplied, replies were filed, the Adjudicating Authority recorded its opinion to proceed with inquiry, and personal hearing was granted. The preliminary objection that the complaint was processed too quickly to permit application of mind was treated as conjectural. On these facts, the procedure contemplated under Rule 4 stood satisfied. [Paras 5, 6, 8] The procedural challenge failed and the adjudication was held to be valid. Penalty on authorised person - Authorised person within person - Concurrent contraventions - HELD THAT: - The Tribunal held that the definition of person under FEMA is wide enough to include an individual, a company and, consequently, an authorised person operating under Section 10. Chapter III, which empowers the Reserve Bank of India to issue directions and inspect authorised persons, does not exclude or curtail the adjudicatory and penal power under Section 13. The statutory scheme therefore does not grant any immunity to an authorised person from penalty merely because it is licensed by the Reserve Bank. The Tribunal also rejected the contention that different categories of contravention under Section 13 could not be invoked together, holding that nothing in the statute barred simultaneous invocation where the facts disclose such violations. [Paras 9] The company's plea that only the Reserve Bank could deal with the alleged contraventions was rejected, and its amenability to penalty under Section 13 was affirmed. Denial of Cross-examination and prejudice - HELD THAT: - The Tribunal held that there is no inflexible rule requiring cross-examination in every quasi-judicial proceeding and that the governing test is whether denial has caused prejudice. It found that the transactions with the third parties, the receipt of funds from them, and the issuance of forex cards in the names of persons who had not themselves approached the company were already borne out from the record and substantially admitted. Relied upon documents had also been furnished to the appellants, who failed to show what further material could have been elicited through cross-examination. In these circumstances, denial of cross-examination neither caused prejudice nor vitiated the proceedings. [Paras 12, 13, 14, 15, 16] The objection based on refusal of cross-examination was rejected. Due diligence in foreign exchange transactions - KYC compliance - Unauthorised dealings in foreign exchange - HELD THAT: - The Tribunal found that the company issued a large number of forex travel prepaid cards in the names of persons who either had not received them or had not travelled, and that the company received the consideration not from the named passengers but from third parties and entities. It accepted the finding that the company failed to verify original passports, identify the actual travellers, follow KYC norms, or explain to whom the cards were delivered. The plea that there was no prohibition on receiving funds from third parties was rejected, the Tribunal holding that the very scheme of such cards required prudent verification of genuine passengers and strict compliance with due diligence obligations. The established facts therefore supported the findings of contraventions against the company. [Paras 17, 21, 22, 23] The penalties imposed on the company were upheld and its appeal was dismissed. Vicarious liability of company officer - In-charge of conduct of business - De facto declarant - HELD THAT: - The Tribunal found on the record that the individual appellant was not in charge of the affairs of the company in the relevant southern region during the period when the impugned transactions occurred, and that the contrary view in the impugned order rested on an erroneous reading of the material. That finding displaced the foundation for penalty under Section 42(1). It further held that his later participation in the investigation as the company's representative and his inability to furnish complete details of the actual declarants could not justify treating him as a de facto declarant in place of the persons in whose names the forex cards were issued. On the facts, the statutory obligation under Section 10(6) could not be extended to him personally. [Paras 19, 20, 21, 22, 23] All penalties against the individual appellant were set aside and his appeal was allowed. Final Conclusion: The appeal of the company was dismissed, the Tribunal holding that the adjudication was procedurally valid and that the company, though an authorised person, was liable to penalty for the established FEMA contraventions. The appeal of the individual appellant was allowed, as he was not shown to be in charge of the company during the relevant period and could not be treated as a de facto declarant for fastening personal liability.

2026 (5) TMI 379 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 was established on the basis of the recorded statements and surrounding material; (ii) whether the earlier customs settlement proceedings and the retraction of statements barred or displaced the FEMA proceedings; (iii) whether the penalties required reduction on a proportional basis.

Issue (i): Whether the contravention of Section 3(b) of the Foreign Exchange Management Act, 1999 was established on the basis of the recorded statements and surrounding material.

Analysis: The recorded statements of the managing director were treated as admissible and reliable because they were confirmed before the enforcement authority and were supported by the surrounding material. The reasoning accepted that the import invoices reflected declared values, while the differential value was paid through agents in India to overseas suppliers. The Court also applied the principle that in adjudication proceedings, clandestine violations may be proved on a preponderance of probabilities and need not satisfy the standard of criminal proof.

Conclusion: The contravention was held to be established against the appellants.

Issue (ii): Whether the earlier customs settlement proceedings and the retraction of statements barred or displaced the FEMA proceedings.

Analysis: The customs settlement and the FEMA action were treated as concerning different legal wrongs. The customs settlement dealt with duty-related consequences, whereas the FEMA proceedings arose from compensatory payments made for under-invoiced imports. The retraction was not accepted because the statements had been reiterated before the enforcement authority and no cogent evidence of coercion or duress was produced. Reliance was placed on the principle that a retracted statement may still be acted upon if it is substantially corroborated by independent material.

Conclusion: The FEMA proceedings were held to be maintainable, and the retraction did not discredit the adjudication.

Issue (iii): Whether the penalties required reduction on a proportional basis.

Analysis: Although the contravention was sustained, the Court considered the appellants' plea for proportionality in view of the stated hardship and the impact on the business entities. The original penalties were therefore reassessed in a reduced form.

Conclusion: The penalties were reduced to the extent indicated in the order.

Final Conclusion: The appeals succeeded only to the limited extent of reduction of penalty, while the finding of contravention under FEMA was upheld.

Ratio Decidendi: A retracted statement may be relied upon in adjudication when it is voluntarily recorded or reiterated and is corroborated by independent material, and customs settlement proceedings do not bar FEMA action where the latter concerns a distinct foreign exchange contravention.

Retracted statements and corroborating material can sustain FEMA contravention; separate customs settlement does not bar distinct foreign exchange action.
Recorded statements and surrounding material were treated as sufficient to establish contravention of FEMA where the managing director's statements were confirmed before the enforcement authority and supported by invoice and payment evidence showing differential value remittances through agents. The standard applied in adjudication was preponderance of probabilities, not criminal proof, so clandestine foreign exchange violations could be proved on that basis. Earlier customs settlement proceedings did not bar FEMA action because they addressed a different wrong, and the retraction was rejected for want of cogent proof of coercion and because the statements were independently corroborated. The penalties were reduced on proportionality grounds, while the finding of contravention was upheld.

Admissibility for use of statements recorded under Customs law in FEMA adjudication - Retracted confession - Corroborative evidence - Preponderance of probabilities - Retraction of inculpatory statements - Independent contravention under FEMA despite Customs settlement - Contravention of Section 3(b) of FEMA - Penalty reduction on proportionality. Use of statements recorded under Customs law in FEMA adjudication - Retraction of inculpatory statements - HELD THAT: - The Tribunal held that the respondent had conducted investigation under FEMA by recording the statement of Shri Laxmi Narayan Gupta, and in that statement he admitted the truth of the statements earlier made before the DRI regarding under-valuation and cash payments of the differential amount through the suppliers' Indian agents. Relying on Vinod M. Chitalia v. Union of India, the Tribunal held that statements made under the Customs Act in relation to the same transaction are capable of being used in FEMA adjudication. It further held that the retraction was unpersuasive because the statements had been confirmed before two authorities on different dates, no material was produced to establish coercion or duress, and the statements were corroborative of the documents and other evidence recovered in investigation. Applying the principles noticed from Vinod Solanki Vs Union of India [2008 (12) TMI 31 - SUPREME COURT] and K.T.M.S Mohamed Vs. Union of India [1992 (4) TMI 6 - SUPREME COURT], the Tribunal concluded that mere retraction does not render such statements involuntary or inadmissible. [Paras 6, 8] The evidentiary challenge failed, and the admitted statements were accepted as reliable material for establishing the FEMA contravention. Independent contravention under FEMA despite Customs settlement - HELD THAT: - On examining the settlement order, the Tribunal found that the immunity granted was in relation to penalty and prosecution under the Customs law in that case. It held that the action initiated by the Enforcement Directorate was for contravention of Section 3(b) of FEMA arising from compensatory payments made for under-invoiced imports, and that offence was distinct from the Customs duty evasion investigated by the DRI under the Customs Act. The Customs settlement, therefore, did not extinguish or preclude FEMA liability for the separate foreign exchange contravention. [Paras 7] The objection founded on the Customs Settlement Commission order was rejected. Contravention of Section 3(b) of FEMA - Penalty reduction on proportionality - The contravention of Section 3(b) of FEMA stood established against the company, the proprietary concern and Shri Laxmi Narayan Gupta, though the penalties were reduced. - HELD THAT: - The Tribunal found that Shri Laxmi Narayan Gupta had admitted the modus operandi of settling the real price with the Chinese suppliers, remitting the invoice value through banks, and paying the differential amount in cash through the suppliers' Indian agents. It held that he was actively involved in the transactions as Managing Director of PTCL and that liability under Section 42 of FEMA was made out against him; the same position applied to MLTI of which he was the proprietor. Having upheld the finding of contravention, the Tribunal nevertheless accepted the plea for reduction of penalty having regard to the circumstances stated on behalf of the appellants, including the health of the individual appellant and the condition of the business concerns, and reduced the penalties accordingly with adjustment of the pre-deposit. [Paras 9, 10] The finding of contravention was affirmed, but the penalties were reduced and the appeals were partly allowed to that extent. Final Conclusion: The Tribunal upheld the finding that the appellants had contravened Section 3(b) of FEMA and that the individual appellant was liable under Section 42. The appeals were partly allowed only to the extent of reduction of penalties, with adjustment of the amounts already deposited.

2026 (5) TMI 206 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Evidentiary proof of FEMA non-compliance failed where contemporaneous records supported share transfer compliance and no corroboration of forgery emerged
The tribunal's analysis on alleged FEMA contravention turned on evidentiary sufficiency: contemporaneous consent letters, pricing undertakings, valuation material, tax-clearance documents and banking records supported the share transfer's compliance with RBI/FEMA requirements. The appellant relied mainly on a Chartered Accountant's denial but produced no independent corroboration of forgery. On that record, the allegation of forged documents and breach of FEMA was not established, and the respondents' exoneration was sustained.

2026 (5) TMI 67 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the proceedings for non-realisation of export proceeds were barred by the earlier FERA proceedings or by the repeal of FERA in view of the extended due date falling under the FEMA regime; (ii) Whether the individual appellants were liable under Section 42 of FEMA for the contraventions relating to export realisation and whether the penalty was sustainable.

Issue (i): Whether the proceedings for non-realisation of export proceeds were barred by the earlier FERA proceedings or by the repeal of FERA in view of the extended due date falling under the FEMA regime.

Analysis: The earlier proceedings were held not to cover the GRs involved in the present case, as the earlier notice related to different GRs and a different period. The Tribunal also accepted that the relevant default would arise only on expiry of the RBI-extended due date for repatriation, which in the present matter fell when FEMA was already in force. The plea based on res judicata and repeal of FERA was therefore rejected, and the action was treated as one correctly taken under FEMA.

Conclusion: The objection based on earlier proceedings and on the repeal of FERA failed, and the proceedings under FEMA were upheld.

Issue (ii): Whether the individual appellants were liable under Section 42 of FEMA for the contraventions relating to export realisation and whether the penalty was sustainable.

Analysis: The Tribunal found that one appellant was admittedly a partner who personally participated in efforts to realise export proceeds and signed export-related documents, while the other appellant, though described as a constituted attorney, also signed letters and participated in the affairs of the firm. On that basis, both were held to have been involved in the conduct of the firm's affairs and responsible for the defaults. The Tribunal further held that no material was shown to establish that they had taken sufficient steps to prevent the contraventions or that the penalty was unwarranted.

Conclusion: Both individual appellants were held liable under Section 42 of FEMA and the penalty was sustained.

Final Conclusion: The challenge to the impugned order failed in its entirety, and the penalty proceedings against both individual appellants were affirmed.

Ratio Decidendi: Where the extended date for repatriation of export proceeds expires after FEMA has come into force, the default is governed by FEMA; and a person who is shown to have participated in the conduct of the firm's export affairs may be held liable under Section 42 even if styled as a partner or constituted attorney.

Export proceeds default governed by FEMA when extended repatriation due date expired after repeal of FERA
Where the RBI-extended due date for repatriation of export proceeds expired after FEMA came into force, the default was treated as governed by FEMA and not barred by earlier FERA proceedings involving different GRs and a different period. The objection based on res judicata and repeal of FERA therefore failed. The Tribunal also held that a partner who personally participated in export realisation efforts and signed export documents, and a constituted attorney who signed letters and participated in the firm's affairs, were both involved in the conduct of the business and liable for the firm's contraventions under FEMA. The penalty was sustained.

Applicability of FEMA to unrealised export proceeds - siphoning of monies - Reasonable steps for realisation of export proceeds - Vicarious liability under Section 42 of FEMA. Applicability of FEMA to unrealised export proceeds - HELD THAT: - The Tribunal accepted the adjudicating authority's findings that the GRs forming the subject matter of the present proceedings were distinct from those covered in the earlier proceedings and that the earlier order could not bar action in respect of different export bills. It further accepted that where the time for repatriation, as extended by RBI, expired when FEMA was in force, the default arose under FEMA and action was therefore competent under that enactment even in relation to earlier exports. The Tribunal also endorsed the finding that mere deposit of amounts in local currency in Sudan did not amount to taking all reasonable steps for repatriation, particularly when the exporters continued dealings with the same buyers and no sufficient material was shown to establish effective preventive or recovery action. [Paras 14, 15] The pleas founded on the earlier FERA order, local-currency deposit, and non-applicability of FEMA were not accepted, and the contraventions of the FEMA provisions stood established. Vicarious liability under Section 42 of FEMA - HELD THAT: - As regards Haresh Sanghvi, the Tribunal found it undisputed that he was a partner and that his own statement and the documents on record showed his involvement in efforts concerning export realisation, execution of export-related papers, and requests for extension of time. As regards Tushar P. Sanghvi, the Tribunal held that liability under Section 42 did not depend on holding the status of a director; his signatures on letters to the bank seeking extension of time and his conduct on behalf of the firm showed participation in running its affairs. In the absence of evidence that either appellant had taken steps to prevent the defaults, both were held answerable for the firm's established contraventions. [Paras 16, 17] Both appellants were rightly held liable for penalty under Section 42 of FEMA. Final Conclusion: The Tribunal upheld the finding of contravention under FEMA and held that both appellants were liable in their individual capacity for the firm's defaults. The appeals were accordingly dismissed.

2026 (5) TMI 16 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the show cause notice was vitiated by delay and laches; (ii) whether the outstanding export proceeds were Rs. 1.8 crores or Rs. 2.34 crores and whether any write-off or settlement was established; (iii) whether the appellants had taken reasonable steps to realise and repatriate the export proceeds and whether the directors and legal heir were liable for penalty; (iv) whether the penalties required reduction.

Issue (i): Whether the show cause notice was vitiated by delay and laches.

Analysis: The delay plea was rejected because the proceedings depended on enquiry with the authorised dealer and the Reserve Bank of India. The record also showed that the company itself was pursuing realisation, settlement, and write-off, so the period could not be counted merely from the date of the last export consignment.

Conclusion: The challenge based on delay and laches failed.

Issue (ii): Whether the outstanding export proceeds were Rs. 1.8 crores or Rs. 2.34 crores and whether any write-off or settlement was established.

Analysis: On the documents produced, the Tribunal accepted that the outstanding amount was Rs. 1.8 crores. However, there was no material to show that the Reserve Bank of India had written off that amount, and the record from the bank and the Reserve Bank did not establish that the dues had been settled or extinguished.

Conclusion: The outstanding amount was accepted as Rs. 1.8 crores, but no write-off or settlement was proved.

Issue (iii): Whether the appellants had taken reasonable steps to realise and repatriate the export proceeds and whether the directors and legal heir were liable for penalty.

Analysis: The Tribunal found that some efforts were made through correspondence and personal visits, but those steps were not sufficient to be treated as reasonable steps for recovery of export proceeds. Liability was upheld against the promoter-managing director who was aware of the affairs of the company and the recovery efforts. The legal heir of the deceased former managing director was held not liable, and the two other directors were also found not liable for want of evidence showing responsibility for the contravention.

Conclusion: Penalty was upheld only against Shri Ashok Kasliwal; the penalties on Shri Mukesh Bhansali, Shri Girish Agrawal and Shri Shailesh Jain were set aside.

Issue (iv): Whether the penalties required reduction.

Analysis: Considering the facts and circumstances, the Tribunal reduced the company's penalty and the penalty on Shri Ashok Kasliwal to lesser amounts, with adjustment of the pre-deposit already made.

Conclusion: The penalties on the company and Shri Ashok Kasliwal were reduced.

Final Conclusion: The appeals were disposed of by upholding contravention as against the company and Shri Ashok Kasliwal, while granting relief to the other appellants by setting aside their penalties and reducing the remaining penalties.

Ratio Decidendi: In proceedings for non-realisation of export proceeds under FEMA, partial recovery efforts do not suffice unless the appellant shows reasonable steps taken to realise and repatriate the dues, but penalty cannot be fastened on persons against whom no evidence of responsibility for the contravention exists.

Non-realisation of export proceeds: partial recovery efforts were insufficient, and penalty applied only where responsibility was proved.
In proceedings concerning non-realisation of export proceeds, delay and laches were rejected because the enquiry depended on correspondence with the authorised dealer and the Reserve Bank, and the company's own recovery efforts meant time could not run only from the last export shipment. The outstanding export proceeds were accepted at Rs. 1.8 crores, but no write-off or settlement by the Reserve Bank was proved. The Tribunal found that partial correspondence and visits were not reasonable steps to repatriate the dues, upheld penalty only against the promoter-managing director, exonerated the legal heir and the other directors for lack of evidence of responsibility, and reduced the penalties on the company and the liable director.

Validity of the show cause notice - Delay and laches in adjudication proceedings - Vicarious liability of directors and legal heirs - Export proceeds realisation and repatriation - Reasonable steps to realise foreign exchange - contravention in terms of Section 42 of FEMA - imposition of penalty. Whether the Appellant took all reasonable steps to realise and repatriate to India foreign exchange equivalent to Rs. 1.8 Crores, which was due on account of the exports made. - HELD THAT: - The Tribunal accepted the appellant's material showing adjustment of certain receipts, returned goods and advance remittance, and therefore accepted that the unrealised export proceeds were Rs. 1.8 Crore. However, it found no material to show that this amount had been written off by RBI or finally settled through Dena Bank. On the question of compliance, the Tribunal held that repeated calls, letters, faxes and personal visits did indicate efforts, but those efforts did not amount to reasonable steps for realisation of export proceeds, particularly when there was nothing to show that assistance of the Indian Mission/Consulate, Chambers of Commerce or other trade bodies had been sought. [Paras 7, 8, 9] The finding of contravention against the company was sustained, but on the basis that the outstanding export proceeds were Rs. 1.8 Crore. Delay and laches in adjudication proceedings - HELD THAT: - The Tribunal held that the notice could be issued only after necessary enquiry with the authorised dealer bank and RBI. It also noted that the appellant company itself was continuing efforts for recovery, bank settlement and RBI write-off. In those circumstances, the period could not be reckoned merely from the date of the last export consignment. [Paras 10] The plea of delay and laches against the show cause notice was rejected. Vicarious liability of directors and legal heirs - HELD THAT: - The Tribunal found that the later Managing Director took over only in 2006, by which time the impugned exports had already taken place and the earlier efforts for recovery had also been made. It therefore held that neither he nor his legal heir could be made liable. As regards the two directors, the Tribunal found no evidence showing their involvement in the day-to-day affairs of the company or responsibility for the export transactions, and consequently no basis to fasten penalty on them under the provision dealing with liability of persons in charge of the company. [Paras 11, 12] The penalties imposed on Shri Mukesh Bhansali as legal heir, and on Shri Girish Agrawal and Shri Shailesh Jain, were set aside. Vicarious liability of managing director - Reduction of penalty - HELD THAT: - The Tribunal relied on the admitted position that Shri Ashok Kasliwal was the promoter and Managing Director from inception till around 2006, was regularly concerned with the running of the company and its business, and was fully aware of the efforts made to realise the outstanding export proceeds. Since the company's contravention stood established, his liability for penalty was upheld. At the same time, having regard to the facts and circumstances, the Tribunal reduced the penalty on both the company and Shri Ashok Kasliwal. [Paras 13, 14] Liability of Shri Ashok Kasliwal was sustained, but the penalty on him and on the company was reduced. Final Conclusion: The appeals were partly allowed. The company's contravention and the liability of its then Managing Director were upheld subject to reduction of penalty, while the penalties imposed on the legal heir of the later Managing Director and on the two other directors were set aside.

2026 (5) TMI 1102 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the penalty could be sustained under the borrowing and lending in rupees regulations when the funds received were FDI towards equity and preferential capital and not borrowing. (ii) Whether the impugned order could validly rest on downstream investment, Regulation 14 and Section 6(3)(e) of FEMA, 1999 when those bases were not properly pleaded in the show cause notice and the recipient was a society, not an Indian company.

Issue (i): Whether the penalty could be sustained under the borrowing and lending in rupees regulations when the funds received were FDI towards equity and preferential capital and not borrowing.

Analysis: The material on record showed that the inflows were received as foreign direct investment against equity and preferential capital. The borrowing and lending in rupees regulations apply to borrowing in rupees by a person resident in India from a non-resident, and therefore presuppose a borrowing transaction. The Court found that the case did not involve borrowing by the appellant company; the subsequent use of FDI funds could not convert equity capital into a borrowing transaction. On that footing, the reliance on the rupees-borrowing regulations was misplaced.

Conclusion: The penalty could not be upheld on the basis of Regulation 4 and Regulation 6 of the Borrowing and Lending in Rupees Regulations, 2000, and this issue was decided in favour of the appellants.

Issue (ii): Whether the impugned order could validly rest on downstream investment, Regulation 14 and Section 6(3)(e) of FEMA, 1999 when those bases were not properly pleaded in the show cause notice and the recipient was a society, not an Indian company.

Analysis: The show cause notice did not clearly allege contravention of Regulation 5 or Regulation 14 of the transfer or issue of security regulations, nor did it disclose the factual foundation necessary to sustain an allegation of prohibited FDI in a service sector entity or downstream investment. The Court noted that downstream investment under Regulation 14 contemplates indirect foreign investment by one Indian company into another Indian company by subscription or acquisition, whereas the alleged onward deployment of funds was to a society under a management arrangement. The invocation of Section 6(3)(e) was also found inapposite because the case was not one of borrowing or lending in rupees in the statutory sense. The Court further held that the order could not be sustained on a basis beyond the scope of the notice and the disclosed material.

Conclusion: The findings on downstream investment, Regulation 14 and Section 6(3)(e) could not support the penalty, and this issue was also decided in favour of the appellants.

Final Conclusion: The impugned penalty orders were set aside because the alleged contraventions were not made out on the facts and the regulatory bases relied upon were either inapplicable or beyond the scope of the show cause notice.

Ratio Decidendi: A penalty under FEMA cannot be sustained where the regulatory provision invoked does not fit the nature of the transaction and where the adjudication is founded on allegations or statutory bases not properly disclosed in the show cause notice.

FEMA penalty cannot rest on inapplicable borrowing rules or unpleaded downstream investment allegations
FEMA penalty proceedings were analysed on whether funds received as FDI against equity and preferential capital could be treated as borrowing under the Borrowing and Lending in Rupees Regulations, 2000. The tribunal found that the regulations presuppose an actual rupee borrowing transaction and that equity inflows do not become borrowing merely because the funds were later used onward. It also noted that downstream investment, Regulation 14 and Section 6(3)(e) could not sustain the penalty where the show cause notice did not properly plead those bases and the alleged onward deployment was to a society, not an Indian company. The penalty orders were therefore set aside.

Applicability of borrowing and lending regulations - Foreign direct investment and downstream investment - Scope of adjudication vis-a-vis show cause notice - FDI in trusts - Downstream Investment - Vicarious liability under FEMA - Principles of Natural Justice. Applicability of borrowing and lending regulations - Receipt of FDI towards equity and preferential capital could not be treated as borrowing in rupees so as to attract Section 6(3)(b) read with Regulations 4 and 6 of the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000. - HELD THAT: - The Tribunal held that the show cause notices themselves proceeded on the basis that the appellant company had received inward remittances as FDI towards equity and preferential capital from non-resident investors. Regulations 4 and 6 of the Borrowing and Lending in Rupees Regulations apply to borrowing in rupees and to use of borrowed funds, whereas the transaction in question was not borrowing by the appellant company from a non-resident. Mere subsequent use of FDI funds for advancing monies under the management arrangement could not convert the original FDI transaction into a borrowing transaction. Consequently, the penalty founded on Section 6(3)(b) read with Regulations 4 and 6 was held to be based on provisions inapplicable to the facts. [Paras 40, 41, 49] The finding of contravention under Section 6(3)(b) read with Regulations 4 and 6 of the Borrowing and Lending in Rupees Regulations, 2000 was unsustainable. Scope of adjudication vis-a-vis show cause notice - Downstream investment - TISPRO Regulations - The adjudicating authority could not sustain adverse findings on Regulations 5 and 14 of the TISPRO Regulations and on alleged impermissible downstream investment when those provisions and the necessary foundational allegations were not set out in the show cause notices. - HELD THAT: - While the Tribunal accepted the general proposition that mere non-reference to a provision does not by itself divest jurisdiction if the material facts disclosing that contravention are stated, it found that the show cause notices in the present case were framed on the footing of misuse of FDI under the borrowing regulations and did not disclose the factual basis later adopted for applying Regulations 5 and 14 of the TISPRO Regulations. The finding that the appellants were operating in infrastructure and service sector so as to render the FDI impermissible was not founded on the show cause notices. Further, Regulation 14 defining downstream investment was introduced by amendment in 2013, and in any event its definition covers indirect foreign investment by one Indian company into another Indian company by subscription or acquisition. Here, the allegation itself was of loans advanced to Lahore Hospital Society, which was found to be a society registered under the Societies Registration Act, 1860 and not another Indian company. The respondent could not show how indirect foreign investment or downstream investment was made out on those facts. [Paras 44, 45, 46, 47, 48] The findings based on Regulations 5 and 14 of the TISPRO Regulations and on the theory of downstream investment were held not maintainable on the pleadings and facts of the case. FDI in trusts - FDI policy - Show cause notice - The reliance on the FDI policy restriction on FDI in trusts was untenable since the case was not one of bringing FDI into a trust and Lahore Hospital Society was shown on record to be a society, not a trust. - HELD THAT: - The Tribunal held that paragraph 3.3.3 of the circular restricting FDI in trusts other than venture capital funds did not apply on the facts found. Even according to the case against the appellants, the FDI had been received by the Indian company and not by Lahore Hospital Society. Further, the record showed that Lahore Hospital Society was registered under the Societies Registration Act, 1860, and no material was produced to establish that it was a trust registered under the Indian Trust Act, 1882. The penalty with reference to contravention of the FDI policy was also found to be unsupported because such contravention had not been specifically alleged in the show cause notices. [Paras 51] No contravention of the FDI policy on the footing of FDI in a trust was made out. Section 6(3)(e) - Borrowing or lending in rupees - Issue of securities - Section 6(3)(e) had no application because the case concerned investment in securities and not borrowing or lending in rupees between a resident and a non-resident. - HELD THAT: - The Tribunal observed that Section 6(3)(e) deals with borrowing or lending in rupees in whatever form between a person resident in India and a person resident outside India. The present matter, however, related to non-resident investment in the appellant company by way of equity and preferential capital, a field separately governed by the regulations dealing with transfer or issue of security. The adjudicating authority had intermingled the regime governing borrowing and lending with the separate regime governing issue of securities. Even assuming the authority could look beyond the precise provision cited in the notice, the facts disclosed did not attract Section 6(3)(e). [Paras 50] Section 6(3)(e) was held inapplicable to the transactions in question. Vicarious liability under FEMA - Section 42 - The penalty on the Managing Director under Section 42 could not survive once the principal contravention against the company itself failed. - HELD THAT: - Having held that no contravention was made out against the appellant company under Section 6(3)(b), the borrowing regulations, or the FDI policy, the Tribunal held that the vicarious penalty imposed on the Managing Director under Section 42 could not be sustained. The individual liability was consequential to the alleged company contravention and therefore necessarily fell with it. [Paras 54] The penalty imposed on the Managing Director under Section 42 was also set aside. Final Conclusion: The Tribunal held that the impugned penalties were founded on statutory provisions and regulatory concepts inapplicable to the transactions in question and, in part, on grounds travelling beyond the show cause notices. The impugned orders were therefore set aside and all the appeals were allowed.

2026 (4) TMI 436 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether non-realisation of export proceeds and failure to take reasonable steps to recover them constituted contravention of the export realisation framework under FEMA and the Export Regulations; (ii) Whether failure to ship goods against advance payments within one year attracted contravention under the advance payment regulation; (iii) Whether the directors were liable under the company liability provision, and whether one appellant director had established absence of responsibility.

Issue (i): Whether non-realisation of export proceeds and failure to take reasonable steps to recover them constituted contravention of the export realisation framework under FEMA and the Export Regulations.

Analysis: The export proceeds remained unrealised for a prolonged period, and the appellants did not produce satisfactory material showing effective recovery measures, extension of time, or claims pursued before appropriate foreign recovery fora. The regulatory framework required realisation and repatriation of export value within the prescribed period, with extension available only on sufficient cause. The record did not establish that such cause was substantiated or that proper steps were taken to secure recovery.

Conclusion: The finding of contravention for non-realisation of export proceeds was upheld against the appellants other than the appellant who was found not responsible.

Issue (ii): Whether failure to ship goods against advance payments within one year attracted contravention under the advance payment regulation.

Analysis: The regulation imposed a primary obligation to ensure shipment within one year from receipt of advance payment. The proviso concerning refund with prior approval did not dilute that obligation. The material on record, including the statement of a director, showed that certain exports were not effected against the advances received, and no satisfactory explanation was furnished for the default.

Conclusion: The contravention relating to advance payments was sustained.

Issue (iii): Whether the directors were liable under the company liability provision, and whether one appellant director had established absence of responsibility.

Analysis: The company liability provision deems persons in charge of and responsible for the conduct of the business to be guilty unless they prove lack of knowledge or due diligence. The evidence showed that the relevant directors were concerned with the conduct of the company and no contrary material or due diligence defence was established. However, as regards one appellant director, the record showed that she was only a housewife and there was nothing to show her involvement in day-to-day affairs or knowledge of the default.

Conclusion: Liability was affirmed against all appellant directors except the appellant who was held not responsible and whose appeal was allowed.

Final Conclusion: The impugned order was sustained against the directors found responsible for the contraventions, while the appeal of the appellant found uninvolved in the company's affairs was allowed.

Ratio Decidendi: In export realisation matters, prolonged non-recovery without proof of effective recovery efforts or granted extension constitutes contravention, and company liability attaches to directors only if they were in charge of and responsible for the business or fail to establish lack of knowledge or due diligence.

Export realisation defaults and director liability under FEMA sustained where recovery steps and due diligence were not proved.
Prolonged non-realisation of export proceeds without proof of effective recovery steps, sanctioned extension, or pursuit of foreign remedies was treated as contravention of the export realisation framework under FEMA and the Export Regulations, and the finding was sustained against the responsible appellants. Failure to ship goods against advance payments within one year also constituted contravention because the shipment obligation remained primary and the refund proviso did not dilute it. Under the company liability provision, directors in charge of and responsible for the business were liable unless they proved lack of knowledge or due diligence; liability was upheld for the directors shown to be involved, while the appellant who was not shown to participate in day-to-day affairs was excluded.

Export realisation and repatriation of export proceeds - failing to realise export proceeds within the prescribed period and by not taking reasonable steps to recover outstanding amounts - Vicarious liability of directors - Burden of proof - non-shipment against advance remittances within one year attracted contravention under the Export Regulations. It is the case where export proceeds amounting to US $117,315,207.13 with respect of 417 export invoices remained unrealized beyond the prescribed period and the appellants failed to take reasonable and effective steps to realize the said proceeds. The respondent contended that M/s J.B. Diamonds Ltd. failed to export goods against the receipt of advance amounting to a total sum of INR 3,77,21,139/- from its overseas buyers within twelve months from the date of receipt of such advance thereby contravening section 7 of FEMA, 1999 read with Regulation 16(1)(i) of Export regulation. Realisation and repatriation of export proceeds - Reasonable steps for recovery - HELD THAT: - The Tribunal held that Section 7 of FEMA read with the export regulations casts an obligation on the exporter to realise and repatriate the full export value within the stipulated period, with extension being permissible only on sufficient cause shown to the Reserve Bank of India or the authorised dealer. On the material on record, the outstanding export proceeds had remained unrealised for several years, and there was no satisfactory documentary evidence showing effective recovery action during the period when the overseas buyers were still in business. The appellants also failed to establish that any extension had in fact been obtained, and the material relied upon to show liquidation of overseas buyers was not supported by official records or by proof of claims before liquidators or other concrete recovery proceedings. The plea based on recession and financial distress of foreign buyers was therefore found insufficient to establish due diligence or reasonable steps. [Paras 15, 16, 17, 18] The finding of contravention in relation to non-realisation of export proceeds was sustained. Advance payment against exports - Shipment within one year - HELD THAT: - The Tribunal rejected the contention that Regulation 16(1)(i) would be attracted only if advance amounts were refunded after one year without Reserve Bank approval. It held that, on a plain reading, the regulation imposes a primary obligation on the exporter to ensure shipment of goods within one year from receipt of advance payment, and the proviso concerning refund after expiry of that period does not dilute that basic requirement. Since it was admitted that exports were not made against certain advances received from overseas buyers, and no satisfactory explanation was furnished for non-shipment within the prescribed time or for adjustment of those advances against other export obligations, the adjudicating authority's conclusion was held to be justified. [Paras 19] The finding of contravention of Section 7 read with Regulation 16(1)(i) was affirmed. Vicarious liability of directors - Persons in charge of and responsible for the conduct of business - All directors except one appellant were liable under the provision governing contravention by companies, as they were shown to be responsible for the conduct of the company's business and failed to prove lack of knowledge or due diligence. - HELD THAT: - The Tribunal held that where the contravention is by a company, every person who was in charge of and responsible for the conduct of its business at the relevant time is deemed guilty unless that person proves lack of knowledge or due diligence. On the record, it stood admitted that the named directors were responsible for the conduct of the company's business, and no material was produced to displace that position or to show that they had exercised due diligence to prevent the contraventions. However, in the case of one appellant, the Tribunal found that she was only a housewife, was not concerned with the day-to-day affairs of the company, and there was nothing to show her knowledge of the exports or the non-realisation of proceeds. [Paras 20, 21] Liability under the provision relating to contravention by companies was upheld against all appellant directors except Smt. Kalavatiben V. Surani, whose appeal was allowed. Final Conclusion: The Tribunal upheld the findings of contravention against the company's responsible directors in relation to non-realisation of export proceeds and non-shipment against advances received. The appeal of Smt. Kalavatiben V. Surani alone was allowed, and the appeals of the other directors were dismissed.

2026 (4) TMI 1668 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) whether Section 37A of the Foreign Exchange Management Act, 1999 could be invoked on the facts of the case despite the timeline of the transactions and whether the appeal by the Union of India through the Assistant Director was maintainable; (ii) whether the outward remittances were made on false declarations under the automatic route and in contravention of Section 4 of the Foreign Exchange Management Act, 1999; (iii) whether failure to report step-down subsidiaries and the absence of bona fide business use justified seizure; and (iv) whether the respondent was denied a fair opportunity of defence.

Issue (i): whether Section 37A of the Foreign Exchange Management Act, 1999 could be invoked on the facts of the case despite the timeline of the transactions and whether the appeal by the Union of India through the Assistant Director was maintainable

Analysis: Section 37A provided for seizure of equivalent assets where foreign exchange or foreign security held outside India was suspected to be in contravention of Section 4, and the Tribunal held that the provision was available on the date of invocation. The Tribunal also treated the contravention as continuing and found that transactions both before and after the amendment could be considered together. On maintainability, the appeal was treated as one by the Union of India through the authorised officer, and the expression "person aggrieved" in Section 37A(5) was given a broad and inclusive meaning.

Conclusion: The challenge to the applicability of Section 37A and to the maintainability of the appeal was rejected.

Issue (ii): whether the outward remittances were made on false declarations under the automatic route and in contravention of Section 4 of the Foreign Exchange Management Act, 1999

Analysis: The Tribunal found that the ODI forms contained incorrect declarations regarding pending investigations and that the respondent had proceeded under the automatic route despite the disclosure requirements then operating in the ODI framework. It held that the declaration of "No" was false in light of the admitted investigation against the promoter, and that the remittances were routed without the conditions required for automatic approval. The Tribunal concluded that the foreign exchange and foreign securities were acquired and held in a manner not permitted by the Act.

Conclusion: The remittances were held to be in contravention of Section 4 of the Foreign Exchange Management Act, 1999.

Issue (iii): whether failure to report step-down subsidiaries and the absence of bona fide business use justified seizure

Analysis: The Tribunal relied on the reporting obligation under the ODI regime concerning step-down subsidiaries and found that the respondent had not made the required disclosures. It further held that the overseas entities had no meaningful operational revenue, the funds were parked idle or diverted as unsecured interest-free advances, and the investments did not satisfy the commercial rationale expected for ODI. On that basis, the Tribunal treated the outward remittances as lacking bona fide business purpose and as channelising funds out of India.

Conclusion: The failure to report step-down subsidiaries and the absence of bona fide use supported seizure under Section 37A.

Issue (iv): whether the respondent was denied a fair opportunity of defence

Analysis: The Tribunal found that summons had been served, replies had been filed on multiple dates, and additional time had in fact been granted. It held that the objection based on the manner of summons and the alleged insufficiency of time was hyper-technical and unsupported by the record. The Tribunal concluded that there was no violation of natural justice.

Conclusion: The plea of denial of fair hearing was rejected.

Final Conclusion: The Tribunal found that the seizure order ought to be restored, the impugned order of the Competent Authority could not stand, and the appeal succeeded on merits.

Ratio Decidendi: Where foreign investments are routed through false declarations, without the conditions for automatic approval and without bona fide business use, the resulting holdings may be treated as assets held in contravention of Section 4 and subjected to seizure under Section 37A, and an appeal by the Union of India through its authorised officer is maintainable as an action by the aggrieved person.

False ODI declarations and lack of bona fide business use can justify FEMA seizure under Section 37A.
Section 37A of FEMA was treated as available on the date of invocation where foreign exchange or foreign securities were suspected to be held in contravention of Section 4, and the Tribunal read the contravention as continuing so that transactions before and after the amendment could be considered together. It also adopted a broad reading of "person aggrieved" for maintainability of the Union's appeal through the authorised officer. On the facts, false ODI declarations, non-disclosure of step-down subsidiaries, absence of bona fide business use, and routing funds without the conditions for automatic approval were treated as showing contravention of FEMA and supporting seizure. No denial of natural justice was found.

Maintainability of appeal - Applicability of Section 37A - outward remittances - seizure of equivalent assets - false declarations under the automatic route and in contravention of Section 4 - expression "person aggrieved" in Section 37A(5) - failure to report step-down subsidiaries and the absence of bona fide business - denial of a fair opportunity for defence - violation of principles of natural justice. Maintainability of appeal by aggrieved person - inclusive definition of person - continuing contravention under FEMA - HELD THAT: - The Tribunal held that the challenge to invocation of Section 37A failed because the alleged contraventions were not confined to a period prior to insertion of that provision; the seizure was largely referable to transactions after the amendment, and even earlier acts could be taken into account where the contravention continued till and beyond the amendment. On maintainability, the appeal was found to have been filed by the Union of India through the Assistant Director, who was a notified authorised officer, and not by the Assistant Director in his personal capacity. Section 37A(5) uses the expression person aggrieved, and the inclusive definition of person under the Act could not be given a narrow construction so as to exclude the Union of India from challenging an adverse order of the Competent Authority. [Paras 7, 9, 10, 11, 15] The preliminary objections to applicability of Section 37A and to the maintainability of the appeal were rejected. False declaration in ODI filings - automatic route and approval route - protective seizure - HELD THAT: - The Tribunal found that the case had to be examined as a composite contravention covering remittances both before and after 01.01.2016. In respect of the ODI filings made before 01.01.2016, the forms specifically required disclosure whether the applicant party, its promoters or directors were under investigation, yet the respondent marked the column as 'NO' despite pendency of investigation. The Tribunal held that, even if the respondent wished to contend that the declaration was not attracted in a particular manner, it could not furnish a false answer. The Competent Authority was therefore wrong in treating the issue as concluded in favour of the respondent by reference to the later change in ODI forms and by effectively treating the form requirement as inconsistent with the regulations. The Tribunal further held that seizure under Section 37A operated as a protective measure pending adjudication, and the Competent Authority ignored that character while setting aside the seizure. [Paras 25, 26, 27, 28] The finding that no actionable false declaration existed was held erroneous, and the basis for refusing confirmation of seizure on that count was rejected. Non-reporting of step-down subsidiaries - bona fide overseas direct investment - perverse findings - HELD THAT: - Referring to the regulatory requirement to report decisions relating to step-down subsidiaries and to include them in annual reporting, the Tribunal held that the Competent Authority's view that such reporting obligation effectively arose only after insertion in the ODI form was contrary to the governing regulations. The Tribunal also found that the Competent Authority accepted the respondent's case on utilisation of funds without documentary support demonstrating actual business activity, deployment of ODI funds in business, or revenue-generating operations. Mere assertions that business was being run, or references to commercial risk and later events such as Covid-19, were held insufficient. On the record, the Tribunal accepted the appellant's grievance that the overseas entities had no demonstrated operational revenue and that the findings of the Competent Authority were vitiated by non-application of mind and perversity. [Paras 32, 33, 34, 35, 36] The exoneration recorded by the Competent Authority on reporting obligations and bona fides of ODI utilisation was set aside as unsustainable. Natural justice - fair opportunity of defence - HELD THAT: - The Tribunal held that the objections founded on the form of summons and alleged inadequacy of time were hyper-technical. The respondent had in fact received the summons, submitted replies on multiple dates, furnished extensive material, and was granted further time even after those replies. No attempt was made to produce the allegedly withheld material before the appellate forum by seeking to place additional evidence on record. In these circumstances, the Competent Authority had no basis to hold that fair opportunity had been denied. [Paras 38, 39, 40] The finding of breach of natural justice was rejected. Final Conclusion: The Tribunal held the appeal by the Union of India through the Assistant Director to be maintainable, upheld invocation of Section 37A on the facts, found the Competent Authority's reasoning on false declaration, reporting obligations, bona fides of ODI utilisation and natural justice to be unsustainable, and set aside the impugned order. The seizure under Section 37A was restored and the appeal was allowed.

2026 (5) TMI 515 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the commission paid by the overseas buyer to the overseas agent formed part of the appellants' export value and was required to be repatriated under FEMA. (ii) Whether the appellants were bound by the RBI Master Circular governing payment of agency commission when no commission payment was made by them. (iii) Whether the penalty for alleged contravention of the export declaration and repatriation obligations could be sustained in the facts of the case. (iv) Whether the prior customs settlement order barred FEMA proceedings on the same facts.

Issue (i): Whether the commission paid by the overseas buyer to the overseas agent formed part of the appellants' export value and was required to be repatriated under FEMA.

Analysis: The export contracts and surrounding materials showed that the appellants were entitled only to the invoice value of the iron ore and not to the commission paid by the foreign buyer to the foreign agent. The commission was not established to be a sum due to, or accruing in favour of, the appellants. On the record, the amount was an overseas payment between non-residents and did not represent foreign exchange receivable by the exporter. The Tribunal also treated the statement of the witness relied upon by the department as hearsay to the extent it concerned transactions predating his appointment and found no reliable basis to include the commission in the export value for FEMA purposes.

Conclusion: The issue was answered in favour of the appellants; the commission was not required to be repatriated by them as part of export proceeds.

Issue (ii): Whether the appellants were bound by the RBI Master Circular governing payment of agency commission when no commission payment was made by them.

Analysis: The Master Circular was framed to regulate remittance or deduction of agency commission by an exporter. On the facts found, the appellants had not made the commission payment, and the payment was made directly by the overseas buyer to the overseas agent. In such a situation, the compliance conditions in the Master Circular were held inapplicable to the appellants' case. The Tribunal accepted that the circular could not be used to convert a non-recipient sum into export proceeds of the exporter.

Conclusion: The issue was answered in favour of the appellants; the Master Circular did not govern the transaction in the manner contended by the department.

Issue (iii): Whether the penalty for alleged contravention of the export declaration and repatriation obligations could be sustained in the facts of the case.

Analysis: The Tribunal held that the alleged under-realisation of export proceeds on the commission component was not established because the amount was not due to the appellants in the first place. It further noted that the realisation shown in the bank certificates matched the final invoices and that the adjudicating authority had itself dropped the second charge regarding the remaining export consignments. In the absence of proof of any loss of foreign exchange or legally recoverable export proceeds, the foundation for penalty under FEMA was not made out.

Conclusion: The issue was answered in favour of the appellants; the penalty could not be sustained.

Issue (iv): Whether the prior customs settlement order barred FEMA proceedings on the same facts.

Analysis: The Tribunal held that the enforcement authorities were entitled to proceed on the basis of independent evidence collected in the FEMA investigation and were not disabled merely because of the earlier customs settlement. However, it clarified that the customs settlement did not by itself determine the FEMA controversy, and the present case had to be decided on the evidence and obligations arising under FEMA. The earlier settlement therefore did not create a bar to adjudication under FEMA, although the appellants still succeeded on merits.

Conclusion: The issue was answered against the appellants on maintainability, but it did not affect the final result in their favour.

Final Conclusion: The impugned penalty order was set aside and the appeals were allowed, as the alleged commission component was not shown to be foreign exchange due to the appellants and no sustainable contravention warranting penalty was established.

Ratio Decidendi: A sum paid by a foreign buyer directly to a foreign agent does not become export proceeds of the Indian exporter unless it is shown to be legally due to the exporter or part of the exporter's receivable export value; FEMA penalty cannot rest on a notional inclusion of such amount absent proof of a recoverable foreign exchange entitlement.

Foreign buyer commission not export proceeds absent exporter's receivable entitlement; FEMA penalty fails on that basis.
A foreign buyer's commission paid directly to a foreign agent was not treated as export proceeds of the Indian exporter because it was not shown to be legally due to the exporter or part of its receivable export value. The RBI Master Circular on agency commission was held inapplicable where the exporter itself made no commission payment. On that basis, the alleged FEMA contravention and penalty could not stand absent proof of recoverable foreign exchange entitlement or under-realisation. The prior customs settlement did not bar FEMA proceedings, but it did not alter the result on the merits under FEMA.

Territorial Jurisdiction - Full export value of goods - Export contracts - Repatriation of foreign exchange due or accrued - Overseas commission paid by foreign buyer - Master Circular governing payment of agency commission when no commission payment - Hearsay evidence - contravention of the export declaration and repatriation obligations - Conclusive Settlement Order. Finality of settlement proceedings - Independent FEMA adjudication - HELD THAT: - The Tribunal held that Section 127J of the Customs Act did not preclude action under FEMA merely because the same factual background had been examined in settlement proceedings under the Customs Act. FEMA was treated as a self-contained code, and the enforcement authority was competent to proceed on the basis of evidence independently collected in the FEMA investigation rather than on the settlement order itself. The Tribunal, however, left open the sufficiency and quality of such evidence for separate examination on merits. [Paras 7] The objection founded on Section 127J of the Customs Act was rejected. Full export value of goods - Repatriation of foreign exchange due or accrued - Overseas commission paid by foreign buyer - Export Regulations - Master Circular - HELD THAT: - The Tribunal found it to be an admitted position that the commission was paid by the foreign importer to the overseas agent and not by the appellants. On the record, there was no material to show that the agent had been engaged by the exporter for certification or that the exporter had any enforceable claim to receive that commission amount. The Tribunal held that, even if the allegation of non-disclosure were assumed, the commission remained payable to the foreign agent and therefore did not become foreign exchange due or accrued to the exporter. Since the invoice value of the exported goods had been realised in India, there was no loss of foreign exchange and no failure to repatriate export proceeds within the meaning of Sections 7 and 8 of FEMA. On that reasoning, the Tribunal further held that the RBI Master Circular dealing with remittance of commission by an exporter had no application where no commission was paid by the exporter, and that contravention of the Export Regulations could not be sustained. The Tribunal also accepted that, in the absence of involvement of a resident person in the impugned payment between two non-residents, FEMA liability could not be fastened on the appellants on that basis. [Paras 8, 9, 10, 12, 13] The principal charge of non-declaration and non-repatriation of the commission amount failed, and the related findings under FEMA and the allied regulations were set aside. Hearsay evidence - Personal knowledge - Selective reliance on statements - HELD THAT: - The Tribunal held that the statement of Mr. Mukesh Saglani could not carry evidentiary value on matters relating to export transactions that had taken place before he became a director. In the absence of any authentic source shown for his knowledge of those earlier transactions, the relevant part of his statement was treated as hearsay and contrary to the company record. The Tribunal further held that selective reliance on his statement, while no material statement had been elicited from the person alleged to have been in charge at the relevant time on the specific arrangement concerning commission, rendered the evidentiary basis of the impugned order unsustainable. [Paras 5, 11] The statement of Mr. Mukesh Saglani was discarded for the purpose of proving the alleged contravention. Final Conclusion: The Tribunal allowed the appeals and set aside the penalties. It held that the commission paid abroad by the foreign buyer to the foreign agent was not export proceeds due to the appellants under FEMA, while the principal statement relied upon by the enforcement authority was hearsay and insufficient to sustain the contravention.

2026 (5) TMI 514 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Form FC-GPR reporting delay cannot be fastened on company where authorised dealer bank caused the forwarding lapse.
Delayed reporting of Form FC-GPR under FEMA could not be attributed to the company where the evidence showed that the form and supporting documents had been lodged with the authorised dealer bank and acknowledged by it. The bank's later correspondence to RBI also indicated uncertainty about when the documents were forwarded and sought condonation of its own delay. On that record, the alleged reporting contravention was not proved against the company, and the penalty was unsustainable. The adverse FEMA finding was set aside, with consequential refund of the pre-deposit.

2026 (4) TMI 531 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the appellants were liable to pay the commission amount to the overseas agent and whether the overseas agent was engaged by the appellants; (ii) whether reliance could be placed on the statement of a director who had no personal knowledge of the export transactions; (iii) whether the commission paid by the foreign buyer to the foreign agent formed part of the export value and was required to be repatriated by the exporter under Sections 7 and 8 of FEMA, and whether the Master Circular and Export Regulations were attracted; (iv) whether the prohibition under Section 127J of the Customs Act barred proceedings under FEMA on the same facts; (v) whether the provisions of FEMA could be invoked to penalise the appellants on the facts of the case.

Issue (i): Whether the appellants were liable to pay the commission amount to the overseas agent and whether the overseas agent was engaged by the appellants?

Analysis: The record did not show that the appellants had paid any commission to the overseas agent. The materials instead showed that the foreign buyer made the payment directly to the overseas agent. The agreements and invoices did not establish any contractual obligation on the appellants to pay commission or certification charges to that agent. In the absence of evidence that the agent was engaged by the appellants for the disputed payment, the alleged commission could not be treated as an amount payable by the appellants.

Conclusion: The issue is answered in favour of the appellants.

Issue (ii): Whether reliance could be placed on the statement of a director who had no personal knowledge of the export transactions?

Analysis: The director whose statement was relied upon had joined the company only after the relevant exports had taken place. He therefore had no personal knowledge of the transactions from the relevant period. His statement on matters predating his appointment was treated as hearsay and was not supported by authentic contemporaneous records. Selective reliance on that statement, without corroboration and without eliciting comparable facts from the director actually connected with the transactions, was not justified.

Conclusion: The issue is answered in favour of the appellants.

Issue (iii): Whether the commission paid by the foreign buyer to the foreign agent formed part of the export value and was required to be repatriated by the exporter under Sections 7 and 8 of FEMA, and whether the Master Circular and Export Regulations were attracted?

Analysis: The obligation under Section 7 is to declare the full export value of goods, and the obligation under Section 8 is to realise and repatriate foreign exchange that is due to or accrued in favour of the exporter. On the facts found, the commission amount was neither payable to the appellants nor due to them as export proceeds. The amount was a payment between two non-resident parties and did not constitute foreign exchange due to the appellants. The Master Circular governing agency commission presupposed a commission arrangement to be handled by the exporter, which was not established here. The reasoning that the commission should have been included in the export value and repatriated by the appellants was therefore unsustainable, and the alleged contravention of the Export Regulations also failed.

Conclusion: The issue is answered in favour of the appellants.

Issue (iv): Whether the prohibition under Section 127J of the Customs Act barred proceedings under FEMA on the same facts?

Analysis: The Tribunal held that FEMA proceedings could proceed on the basis of independent material collected during the FEMA investigation and were not barred merely because the Customs Settlement Commission had passed an order on connected facts. The conclusiveness of a settlement order under the Customs Act did not prevent action under FEMA where the enforcement authority relied upon its own evidence and statutory mandate.

Conclusion: The issue is answered against the appellants.

Issue (v): Whether the provisions of FEMA could be invoked to penalise the appellants on the facts of the case?

Analysis: Since the commission was not shown to be an amount payable by or due to the appellants, there was no failure to repatriate foreign exchange belonging to them, and no sustainable basis for treating the disputed amount as part of the appellants' export proceeds. The second charge had already been dropped by the adjudicating authority, and the remaining charge also failed on the Tribunal's findings on payment, knowledge, and liability. In the absence of a proved contravention, the penalty could not stand.

Conclusion: The issue is answered in favour of the appellants.

Final Conclusion: The penalty order was unsustainable and the appeals succeeded, with the impugned penalties set aside and the deposit directed to be returned.

Ratio Decidendi: A payment made by a foreign buyer directly to a foreign agent, when not shown to be due to the exporter, does not constitute foreign exchange due or accrued to the exporter under FEMA and cannot be penalised as non-repatriated export proceeds on the basis of uncorroborated hearsay alone.

Foreign exchange repatriation fails where buyer-paid agent commission is not shown to be due to the exporter.
A foreign buyer's direct payment to a foreign agent was held not to be commission payable by the exporter where the record showed no contractual obligation or proof that the agent was engaged by the appellants. A director who joined after the exports lacked personal knowledge, so his statement was treated as hearsay and could not by itself support liability. On those facts, the amount was not foreign exchange due to or accrued in favour of the exporter under FEMA, so it was not required to be repatriated and the related export-regulation theory failed. The Tribunal also held that FEMA action was not barred merely because of a Customs settlement order on connected facts, but no penalty could survive without a proved contravention.

Full export value of goods - Repatriation of foreign exchange due or accrued - Commission paid by overseas buyer to overseas agent - Applicability of Master Circular contemplated remittance or deduction of commission at the instance of the exporter and presupposed a commission arrangement attributable to the exporter - Hearsay statement - statement/admission concerning the export transactions - Extraterritorial Application - absence of any authentic source for acquiring this knowledge - Imposition of penalty - Settlement Commission Finality - Proportionality Of Penalty - Independent Evidence - Export Valuation. Whether Section 127J of Customs Act prohibits reopening of proceedings under FEMA on the same facts and circumstances as the Settlement Order? - HELD THAT: - The Tribunal held that Section 127J of the Customs Act did not restrict the Enforcement Directorate from proceeding under FEMA on the strength of independent evidence gathered in a FEMA investigation. FEMA was treated as a self-contained code for adjudication of contraventions under that enactment, and the bar against reopening matters covered by a customs settlement order was therefore not accepted as disabling such action. The Tribunal, however, expressly left aside the question of the quality of the evidence while answering this legal objection. [Paras 7] The objection founded on Section 127J of the Customs Act was rejected. Whether selective reliance can be placed on statements of Mr. Saglani while disregarding statements of Mr. Arjun Salgaocar? - HELD THAT: - The Tribunal found that the export transactions in question had taken place before Mr. Mukesh Saglani became a director. In that situation, any assertion by him about those transactions lacked personal knowledge; and in the absence of any authentic source for such knowledge, that part of his statement was held to be hearsay. The Tribunal further held that such statement could not be selectively relied upon, especially when the person who was director at the relevant time had not been examined on the material circumstances now relied upon. [Paras 5, 11] The statement of Mr. Mukesh Saglani, to the extent relied upon for the alleged contravention, was discarded. Caluation of 'full export value of goods' under FEMA - Repatriation of foreign exchange due or accrued - Commission paid by overseas buyer to overseas agent - Export Regulations - Master Circular - contravention of Regulations 3, 9 and 13 of the Export Regulations - HELD THAT: - The Tribunal recorded as an admitted position that the commission was paid by the foreign importer to the overseas agent and not by the appellants. It further found no material to show that the overseas agent had been engaged by the exporter for certification or that the exporter had any liability to reimburse such amount. On that basis, the Tribunal held that where commission was not payable to the exporter, the question of its realization or repatriation by the exporter did not arise, since it was never foreign exchange due or accrued to the exporter. The Tribunal also accepted that the RBI Master Circular governing remittance of commission by an exporter had no application where the exporter itself had made no such payment. For the same reason, contravention of the Export Regulations was not made out. The Tribunal additionally held that, on the record, FEMA provisions could not be invoked in respect of a transaction wholly between non-residents, there being no material to show involvement of the appellants in any indirect payment of commission. It also observed that even on the respondent's own version there was no loss of foreign exchange, as the invoice value had been realized in India and the commission, if brought in, would still have been payable to the overseas agent. [Paras 8, 9, 10, 12, 13] The charge based on alleged non-declaration and non-repatriation of the commission amount was decided in favour of the appellants, and the alleged contraventions under FEMA and the Export Regulations were held not established. Final Conclusion: The Tribunal allowed the appeals and set aside the penalties imposed on both appellants. It held that the alleged commission paid abroad by the overseas buyer to the overseas agent was not shown to be part of the export proceeds due to the exporter, and the evidentiary basis relied upon by the adjudicating authority was insufficient.

2026 (4) TMI 435 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Penalty for non-submission of Bill of Entry upheld in principle, but reduced on evidentiary and factual grounds
Penalty for non-submission of the relevant Bill of Entry was examined on the basis of whether the remittances were covered by the stated import document. The Tribunal found that the handwritten noting did not conclusively prove full customs duty coverage or authorised certification, while the RBI confirmed that the Bills of Entry for the remittances were not submitted to the authorised dealer. On that evidentiary record, contravention was maintained, but the penalty was moderated having regard to the surrounding facts and proof. The penalty was therefore upheld in principle and reduced in quantum.

2026 (4) TMI 434 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the data retrieved from the seized pen drive was admissible and reliable evidence; (ii) whether the appellant's retracted statement could be acted upon when corroborated by other material; (iii) whether Section 16(6) of the Foreign Exchange Management Act, 1999 was mandatory; and (iv) whether the penalties required interference.

Issue (i): Whether the data retrieved from the seized pen drive was admissible and reliable evidence.

Analysis: The statutory presumption under Section 39 of the Foreign Exchange Management Act, 1999 was applied to documents produced or seized from custody or control, and the evidentiary presumption under Section 132(4A) of the Income-tax Act, 1961 was treated as applicable to electronic records as well. The retrieval of data from the pen drive was supported by the seizure record, the panchnama, and the contemporaneous extraction of information during the investigation. The challenge of tampering was rejected in view of the surrounding circumstances and corroborative material.

Conclusion: The pen drive data was held to be admissible and authentic, against the appellant.

Issue (ii): Whether the appellant's retracted statement could be acted upon when corroborated by other material.

Analysis: The retraction was found insufficient to displace the earlier statement because there was no convincing material showing that the statement was involuntary. The statement was also supported by the documentary record, the seized electronic data, and the statements of other witnesses. A retracted statement can be relied upon when it is corroborated by independent material, and that principle was applied here.

Conclusion: The retracted statement was held to be usable against the appellant, as it stood corroborated.

Issue (iii): Whether Section 16(6) of the Foreign Exchange Management Act, 1999 was mandatory.

Analysis: The provision was treated as directory rather than mandatory, so delay or non-compliance of that nature did not vitiate the adjudication. On that footing, the complaint of procedural illegality was rejected.

Conclusion: No infirmity in the proceedings was found on the alleged breach of Section 16(6) of the Foreign Exchange Management Act, 1999.

Issue (iv): Whether the penalties required interference.

Analysis: The findings on the electronic record, the statements, and the surrounding evidence established contraventions of the foreign exchange restrictions alleged in the proceedings. At the same time, the quantum of penalty was reconsidered on the facts and circumstances, and the adjudicated penalties were scaled down to twenty per cent of the original amounts.

Conclusion: The contraventions were upheld, but the penalties were reduced.

Final Conclusion: The appeal succeeded only to the limited extent of reduction in penalty, while the findings of contravention under the foreign exchange law were maintained.

Ratio Decidendi: Electronic records seized during investigation may be relied upon when supported by statutory presumptions and contemporaneous corroboration, and a retracted statement can sustain adverse findings if independently corroborated.

Electronic records and corroborated retracted statements can support foreign exchange contraventions; penalty was reduced on appeal.
Electronic records seized during investigation were treated as admissible when supported by statutory presumptions, the seizure record, the panchnama and contemporaneous extraction material; the challenge to tampering was rejected. A retracted statement was also held usable because it was independently corroborated by documentary records, electronic data and witness statements, and no convincing material showed it was involuntary. Section 16(6) of FEMA was treated as directory, so the alleged delay or non-compliance did not vitiate the adjudication. The contraventions were upheld, while the penalties were reduced on the facts and circumstances.

Admissibility of electronic evidence - Pen-drive data and printouts seized from the premises of a third party - Retracted statement and corroboration - Unauthorized foreign exchange transactions - powers of search and seizure, the officers of the Directorate of Enforcement - Non-banking channel - contravention of Section 3(b), Section 3(c) and Section 3(d) of FEMA, 1999 various provisions of Foreign Exchange Management Act, 1999. Admissibility of electronic evidence - Presumption as to seized documents - HELD THAT: - The Tribunal held that under the statutory presumption applicable to documents produced, furnished or seized, the contents of such material are presumed to be true unless disproved. It further held that the same principle extends to electronic material found in a pen-drive. On the record, the seizure, retrieval and printout of the data were treated as having been done in the presence of the concerned persons and witnesses, with passwords being supplied at the time of access, and no contemporaneous dispute as to the contents having been raised. In that view, the allegation of tampering or inadmissibility was rejected, and the electronic data was accepted as authentic evidence. [Paras 5] The objection to the admissibility and authenticity of the pen-drive data was rejected. Retracted statement and corroboration - Identification despite spelling variation - HELD THAT: - The Tribunal held that a bare retraction or denial, without material showing that the statement was involuntary, carries no value. It found that the appellant's statements stood corroborated by other material on record, including the statements of Ratan Das and the electronic records recovered during investigation. Relying on A. Tajudeen Vs. Union of India [2014 (10) TMI 367 - SUPREME COURT], the Tribunal accepted that a retracted statement can be acted upon when supported by independent material. It further held that the different spellings of the appellant's name in the mobile data and pen-drive were merely phonetic or clerical variations and did not negate that the reference was to the appellant. [Paras 6] The retraction and the objection based on name variation were rejected. Violation of section 16 (6) of FEMA - The Tribunal held that the provision relied upon by the appellant was advisory in nature and not mandatory. Consequently, delay in conclusion of the adjudication did not, by itself, invalidate the proceedings or the order passed therein. [Paras 7] The challenge founded on alleged violation of section 16(6) of FEMA was rejected. Contravention under FEMA - Reduction of penalty - HELD THAT: - After accepting the statements of Ratan Das, Srinivas and the appellant, along with the corroborative electronic and documentary material, the Tribunal held that the record established contravention of the FEMA provisions invoked against the appellant. However, on the facts and circumstances of the case, it considered the quantum of penalty excessive and reduced the penalties to 20% of what had been imposed by the adjudicating authority. [Paras 8, 9] The contraventions were upheld, but the penalties were reduced to 20% of the amounts originally imposed. Final Conclusion: The Tribunal rejected the appellant's objections to the admissibility of the seized electronic record, the retraction of his statements, and the alleged breach of the time requirement under section 16(6) of FEMA. The finding of contravention was maintained, but the appeal was partly allowed by reducing the penalties to 20% of those imposed by the adjudicating authority.

2026 (4) TMI 378 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether proceedings under FEMA were barred by the settlement order under the Customs Act. (ii) Whether commission paid by the overseas buyer to the overseas agent formed part of the export value requiring repatriation under FEMA. (iii) Whether the penalty imposed for alleged contravention of the export declaration and repatriation requirements could be sustained.

Issue (i): Whether proceedings under FEMA were barred by the settlement order under the Customs Act.

Analysis: The settlement order under the Customs Act did not exclude independent action under FEMA. The Tribunal held that the enforcement authority could proceed on the basis of evidence gathered in the FEMA investigation and was not barred merely because the same underlying transactions had earlier been the subject of customs settlement proceedings.

Conclusion: The bar under the Customs settlement order did not prevent FEMA proceedings; the issue was decided against the appellants.

Issue (ii): Whether commission paid by the overseas buyer to the overseas agent formed part of the export value requiring repatriation under FEMA.

Analysis: The Tribunal found that the appellants had not paid the commission, the relevant witness lacked personal knowledge of the earlier export transactions, and the statement relied upon was hearsay. It further held that the commission paid directly by the foreign buyer to the foreign agent was not shown to be an amount due or accrued to the appellants, and therefore did not amount to foreign exchange required to be repatriated by them. The Tribunal also accepted that the Master Circular governing exporter-paid agency commission did not fit the factual situation where the exporter had not made the payment.

Conclusion: The commission amount was not required to be repatriated by the appellants; this issue was decided in favour of the appellants.

Issue (iii): Whether the penalty imposed for alleged contravention of the export declaration and repatriation requirements could be sustained.

Analysis: In view of the absence of any liability on the appellants to remit the foreign buyer-paid commission, and in light of the finding that the key witness statement was not reliable for the relevant period, the foundation for the first charge failed. The Tribunal also noted that the second charge had already been dropped by the adjudicating authority. On the material before it, the impugned penalty order could not stand.

Conclusion: The penalty was unsustainable and the issue was decided in favour of the appellants.

Final Conclusion: The impugned penalty order was set aside and the appeals succeeded, with consequential return of pre-deposit, if any.

Ratio Decidendi: A sum paid by an overseas buyer directly to an overseas agent does not become an amount due or accrued to the Indian exporter for the purpose of FEMA unless the exporter is shown to have a legal entitlement to that sum or a proved obligation to remit it; proceedings under FEMA may also proceed independently on their own evidentiary basis notwithstanding prior customs settlement.

FEMA repatriation liability: overseas buyer-paid commission not treated as exporter's export value; penalty set aside.
Proceedings under FEMA were held not to be barred merely because the same transactions had earlier been the subject of a customs settlement order, as FEMA enforcement could proceed on its own evidentiary basis. Commission paid by an overseas buyer directly to an overseas agent was held not to form part of the Indian exporter's export value where the exporter had no proven legal entitlement to that sum and no obligation to remit it; the amount was therefore not required to be repatriated. In light of that finding, and because the key witness evidence was unreliable and one charge had already been dropped, the penalty order could not stand and was set aside.

Transaction Value - determination of full export value under FEMA - evasion of customs export duty by suppressing the real transaction value of the goods exported - Repatriation of foreign exchange - Commission paid by an overseas buyer to an overseas agent - Hearsay evidence - RBI Master Circular - Conclusive effect of settlement order - extraterritorial nature of the commission payment - Noticee Company evading custom export duty in their export of iron ore by undervaluing iron ore exported from different ports. Whether Section 127J of Customs Act prohibits reopening of proceedings under FEMA on the same facts and circumstances as the Settlement Order? - HELD THAT:- The Tribunal held that FEMA is a self-contained code for imposition of penalty on the basis of material gathered in investigation under that enactment. It therefore concluded that the enforcement authority was not precluded by Section 127J of the Customs Act from proceeding under FEMA, so long as the action was founded on independent evidence and not merely on the settlement order under the Customs Act. [Paras 7] The objection founded on Section 127J of the Customs Act was rejected. Hearsay evidence - Personal knowledge - Selective reliance on statements - Whether selective reliance can be placed on statements of Mr. Saglani while disregarding statements of Mr. Arjun Salgaocar? - HELD THAT: - The Tribunal found that the export transactions had taken place before Mukesh Saglani's appointment as director. In the absence of any authentic source showing how he acquired knowledge of those earlier transactions, the relevant part of his statement was treated as hearsay and contrary to the company's records. On that footing, selective reliance on his statement, while no comparable factual foundation was obtained from the person admittedly connected with the relevant period, was held unsustainable. [Paras 5, 11] The evidentiary foundation of the impugned order, insofar as it rested on Mukesh Saglani's statement, was discarded. Overseas commission - Full export value of goods - Exporter's liability - HELD THAT: - The Tribunal recorded that it was an admitted position that the commission was paid by the foreign importer to the overseas agent and not by the appellants. It further found no material to show that the agent had been engaged by the exporter for certification or that any analysis charges had been claimed in the GR-I form or final invoice. On the contractual material, the Tribunal inferred that the payment was at the buyer's expense. Since the appellants neither paid nor were shown to be liable to pay the commission, the amount could not be brought into the export value on the facts found. [Paras 4, 6, 8] The alleged commission amount was held not includible in the appellants' export value. Repatriation of foreign exchange - Foreign exchange due or accrued - No loss of foreign exchange - HELD THAT: - The Tribunal held that even assuming the commission had not been disclosed in the export invoice, the question of its realisation by the exporter did not arise because the amount was payable to the foreign-based commission agent, whether directly by the exporter or through the foreign importer. The invoice value of the exported goods had been realised in India, and there was no case that the disputed amount ever became due or payable to the appellants. The determinative principle applied was that only foreign exchange due or accrued to the resident exporter can attract the obligation of realisation and repatriation; an amount belonging to the overseas agent does not answer that description. On that basis, the Tribunal also held that no loss of foreign exchange had been caused. [Paras 8, 12, 13] No contravention of Sections 7 and 8 of FEMA was made out on the commission amount. RBI Master Circular - Agency commission - HELD THAT: - The Tribunal accepted the appellants' contention that the circular regulates cases where commission is paid by the exporter, either by remittance or by deduction from invoice value. Since the factual foundation found by the Tribunal was that the appellants had not made any such payment, the requirement of compliance with the conditions in the circular did not arise in the present case. [Paras 9] Non-compliance with the Master Circular could not be used against the appellants. Export regulations - Full export value of goods - HELD THAT: - The Tribunal held that the same reasoning which excluded the commission amount from the appellants' export value under FEMA also answered the alleged breach of the Export Regulations. As the amount in question was neither part of the export value nor an amount expected to be received by the appellants on sale of goods, there was no failure to declare, realise or secure payment of export proceeds within the meaning of those regulations. [Paras 10] The alleged contraventions of Regulations 3, 9 and 13 were decided in favour of the appellants. Extraterritorial application - Transactions between non-residents - HELD THAT: - The Tribunal accepted the appellants' contention that there was nothing on record to show their involvement in any indirect payment of commission. Proceeding on that factual conclusion, it held that neither the appellants nor any other person could be made liable on account of the impugned transaction between the two non-resident parties. [Paras 12] The invocation of FEMA against the appellants in relation to the overseas commission payment was held unsustainable. Final Conclusion: The Tribunal held that, although proceedings under FEMA were not barred by Section 127J of the Customs Act, the impugned commission paid by the overseas buyer to the overseas agent was neither part of the appellants' realisable export value nor foreign exchange due to them. The statements relied upon by the adjudicating authority having been found hearsay and the substantive FEMA and regulatory contraventions having failed, the penalties were set aside and the appeals were allowed.

2026 (4) TMI 377 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether the funds remitted by the non-resident investor to the company were on non-repatriation basis so as to attract Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, and whether the resulting contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were made out. (ii) Whether the denial of cross-examination and the quantum of penalty warranted interference.

Issue (i): Whether the funds remitted by the non-resident investor to the company were on non-repatriation basis so as to attract Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, and whether the resulting contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were made out.

Analysis: The remittances were held not to be covered by Regulation 5(3)(ii) read with Schedule 4, because the amount was not shown to be a genuine non-repatriation investment. The company's own records treated the receipt as unsecured borrowing and later as share application money, while part of the amount was repatriated back to the remitter. No shares were issued within the stipulated period, no proper intimation was made to the Reserve Bank of India or the authorised dealer bank, and the amount retained as well as the amount repatriated after expiry of 180 days fell within the cited regulatory framework. The contraventions were therefore treated as established.

Conclusion: The remittance was rightly treated as falling under Regulation 5(1), and the contraventions under Section 6(3)(b) of the Foreign Exchange Management Act, 1999 were upheld.

Issue (ii): Whether the denial of cross-examination and the quantum of penalty warranted interference.

Analysis: The denial of cross-examination caused no prejudice because the alleged breaches were supported by bank records, statutory filings, and other documentary material, and not by the impugned statement alone. On penalty, the decision proceeded on the basis that contravention under FEMA is a civil liability and mens rea is not essential for imposition of penalty. However, the penalty was found liable to be moderated on the facts and the extent of the contraventions.

Conclusion: The refusal of cross-examination was sustained, but the penalties were reduced on proportionality considerations.

Final Conclusion: The findings of contravention were maintained, but the monetary consequences were substantially reduced, resulting in partial relief to the appellants.

Ratio Decidendi: Where documentary evidence establishes FEMA contraventions, absence of mens rea or denial of cross-examination does not negate liability, though the penalty may be moderated on proportionality grounds.

FEMA non-repatriation remittances and civil penalty principles applied, with contravention sustained and penalty moderated.
Funds remitted by a non-resident investor were treated as falling within Regulation 5(1) because the record did not show a genuine non-repatriation investment under Schedule 4. The company's treatment of the receipt as unsecured borrowing and later as share application money, the absence of share issuance within the stipulated period, and the lack of proper intimation to the RBI and authorised dealer supported findings of contravention under FEMA. Denial of cross-examination caused no prejudice where the breaches were proved by documentary material. Penalty under FEMA was described as a civil liability not requiring mens rea, but the monetary sanction was moderated on proportionality grounds.

Funds remitted by the non-resident investor to the company - Repatriation basis of investment - Applicability of FDI scheme under Regulation 5(1) - Non-reporting of foreign investment - Failure to allot shares or refund within stipulated period - Penalty for civil contravention without mens rea - Liability of person in charge - Violation of the principles of natural justice - denial of cross-examination. Whether the transfer of Funds by the individual Appellant to the Appellant Company was on repatriation basis or not - HELD THAT: - The Tribunal held that the appellants' plea of non-repatriation basis was contradicted by the record. The admitted position was that no shares were ever issued, and part of the amount received was thereafter remitted back to the individual appellant. In the absence of any allotment, the transaction could not be treated as one falling under the scheme governing purchase of shares on non-repatriation basis. The treatment of the amount in the company's balance sheet as long-term borrowing, followed by subsequent change in description after commencement of investigation, and the admitted repatriation from the funds received, justified the conclusion that the investment was on repatriation basis and attracted Regulation 5(1). [Paras 11] The Tribunal affirmed the finding that the transaction was covered by Regulation 5(1) and rejected the appellants' reliance on Regulation 5(3)(ii) read with Schedule 4. Non-reporting of foreign investment - Failure to allot shares or refund within 180 days - Quantifiable contravention - HELD THAT: - Once Regulation 5(1) was found applicable, compliance with the reporting and post-receipt conditions under Schedule I became mandatory. The Tribunal recorded that no intimation of receipt of funds was made to RBI as required. It further accepted the adjudicating authority's approach in adhering to the amounts stated in the show cause notice, since the appellants had not produced clear evidence to establish that larger remittances constituted refund of the share application money in the manner contemplated by the Regulations. The Tribunal also held that, irrespective of dispute over exact break-up between the amount retained and the amount repatriated, the contravention under paragraph 8 had in any event occurred because shares were not issued and the funds were not dealt with in conformity with the prescribed requirements. [Paras 12, 13] The findings of contravention for non-reporting and for failure to issue shares or refund the amount within the stipulated period were upheld. Liability of person in charge - Section 42 liability - The individual appellant, being the Managing Director and person in charge of the company, was liable for penalty under Section 42. - HELD THAT: - The Tribunal found that the individual appellant was directly connected with the transactions in question. The funds were remitted by him to the company, amounts were repatriated to his account, and the company's financial filings bore his signature along with that of another director. On these facts, and in the absence of proof that the contraventions occurred without his knowledge or despite due diligence on his part, the statutory conditions to avoid liability under Section 42 were not satisfied. [Paras 14] The penalty liability of the individual appellant under Section 42 was sustained. Penalty for civil contravention without mens rea - Inapplicability of Hindustan Steel principle - Absence of intention or bona fide belief did not bar imposition of penalty under Section 13(1) of FEMA. - HELD THAT: - The Tribunal held that Section 13(1) creates liability for civil contravention and does not incorporate any requirement of mens rea. Since the statutory language does not use expressions importing intent, penalty follows upon establishment of the breach itself. Relying on The Chairman, SEBI v. Shriram Mutual Fund [2006 (5) TMI 191 - SUPREME COURT] and the principle noticed therein from Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors.[1996 (1) TMI 351 - SUPREME COURT], the Tribunal held that guilty intention is irrelevant for such civil penalty provisions. Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] was treated as inapplicable, being concerned with a different statutory setting involving criminal or quasi-criminal consequences. [Paras 15, 16] The plea that the contraventions were unintentional was rejected, and the Tribunal held that penalty under FEMA was legally imposable notwithstanding absence of mens rea. Denial of cross-examination - HELD THAT: - The Tribunal agreed that no prejudice had been caused by refusal of cross-examination. It noted that the statement of the manager had been made under express authorisation from the individual appellant and was later affirmed by him on affidavit. More importantly, the contraventions were supported by independent documentary material, namely bank statements and statutory filings before the Registrar of Companies, and were not founded solely on the statement sought to be tested. In those circumstances, the request for cross-examination was rightly declined as not serving any useful purpose. [Paras 17] The challenge based on violation of natural justice was rejected. Proportionality of penalty - Reduction of penalty - HELD THAT: - While sustaining the contraventions and the individual appellant's liability, the Tribunal held that the ends of justice would be met by reducing the penalties. It accordingly fixed a consolidated reduced penalty for the company in respect of all three contraventions and a corresponding reduced penalty for the individual appellant for the same contraventions read with Section 42, with adjustment of the pre-deposit towards the reduced amounts. [Paras 18] The appeals were partly allowed only to the extent of reduction of penalty. Final Conclusion: The Tribunal upheld the findings of contravention under FEMA, including the individual appellant's liability under Section 42, and rejected the pleas based on non-repatriation basis, absence of mens rea and denial of cross-examination. The appeals were partly allowed only by reducing the quantum of penalties, with adjustment of the pre-deposit towards the reduced amounts.

2026 (4) TMI 376 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether import of consignments on credit is a current account transaction or a capital account transaction; (ii) whether the appellants contravened Section 6(3)(d) of the Foreign Exchange Management Act, 1999 read with Regulation 3 and Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000; (iii) whether the penalty required reduction.

Issue (i): Whether import of consignments on credit is a current account transaction or a capital account transaction.

Analysis: The definition of current account transaction excludes capital account transactions, while capital account transaction covers borrowing or lending in foreign exchange and transactions altering assets or liabilities. Import on credit, where remittance is deferred beyond the stipulated period, was treated as falling within the capital account side of the transaction framework for the purposes of the regulatory breach found in the case.

Conclusion: Import of consignments on credit was not accepted as a mere current account transaction for the purpose of the impugned contravention.

Issue (ii): Whether the appellants contravened Section 6(3)(d) of the Foreign Exchange Management Act, 1999 read with Regulation 3 and Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000.

Analysis: Regulation 5(3) permits an importer to avail foreign currency credit for a period not exceeding six months. The remittances against the import were made after expiry of the permissible six-month period, and the Tribunal held that proof of a separate loan contract was not necessary where the credit-based import and delayed remittance were apparent on record. Regulation 3 was treated as not technically applicable, but Regulation 5(3) squarely applied.

Conclusion: The appellants were held to have contravened the said provisions.

Issue (iii): Whether the penalty required reduction.

Analysis: The breach was treated as a technical violation arising from delay in remittance, and the entire remittance had already been made. On that basis, the Tribunal considered the original penalties excessive and reduced them substantially.

Conclusion: The penalty was reduced.

Final Conclusion: The appeals succeeded only to the limited extent of reduction of penalty, while the finding of contravention was maintained.

Ratio Decidendi: An importer who avails foreign currency credit for import beyond the prescribed six-month period contravenes Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000, and the absence of a separate loan contract does not negate the breach where the delayed credit-based remittance is established on record.

Foreign currency credit for imports beyond six months breaches exchange regulations; penalty reduced despite upheld contravention.
Import of consignments on credit was treated as falling within the foreign exchange borrowing framework rather than a mere current account transaction for purposes of the regulatory breach. The Tribunal held that where an importer avails foreign currency credit beyond the permitted six-month period and remittance is made after expiry of that period, Regulation 5(3) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 is contravened; proof of a separate loan contract was not necessary. The breach was considered technical because the remittance had been completed, so the penalty was reduced substantially while the finding of contravention was maintained.

Nature of import of consignments on credit - current account transaction or a capital account transaction - Import of goods on credit, with remittance to the overseas supplier made beyond six months - contravention of Section 6(3)(d) of FEMA read with Regulation 5(3) - Imposition of penalty. Import on credit - Whether appellants have contravened the provisions of Section 6(3)(d) of FEMA, 1999 r/w Regulation 3 & 5(3) of FEM (Borrowing or Lending in Foreign Exchange) Regulation, 2000. - HELD THAT: - The Tribunal held that a current account transaction under FEMA is one other than a capital account transaction, and that import on credit alters the resident importer's liabilities outside India until remittance is made. On that basis, import of the consignment on credit was treated as falling within the expression of borrowing in foreign exchange in whatever form or by whatever name called. The Tribunal further held that, on the facts, Regulation 5(3), which permits foreign currency credit for import only up to six months, was directly attracted, whereas Regulation 3 was technically not applicable. Since the payments to the overseas supplier were made long after expiry of six months and without RBI approval, the contravention stood established. The reliance placed by the appellants on Motia Rani Bhatia v. Additional Director of Enforcement and Others [1982 (10) TMI 190 - HIGH COURT OF DELHI] was rejected as inapplicable to the facts. [Paras 7] The findings of contravention were upheld, and the issue was decided in favour of the respondent. Imposition of penalty - Quantum of penalty - Mitigation of penalty - HELD THAT: - While affirming the contravention, the Tribunal treated the breach as technical, arising from delayed remittance against a single import consignment, and noted that the entire outstanding amount had already been remitted to the overseas supplier. On that basis, it found the penalties imposed by the adjudicating authority excessive and reduced them. [Paras 8, 9] The penalties on the company and its directors were reduced, and the appeals were partly allowed to that extent. Final Conclusion: The Tribunal held that delayed remittance beyond six months for goods imported on credit amounted to contravention of FEMA read with Regulation 5(3), though Regulation 3 was held technically inapplicable. The finding of contravention was sustained, but the penalties were substantially reduced on the footing that the breach was technical and the full remittance had already been made.

2026 (3) TMI 1319 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Deemed liability under FEMA cannot survive once the firm's contravention is finally set aside; partner's penalty and confiscation fall.
Section 42 of the Foreign Exchange Management Act, 1999 imposes deemed liability on a firm and on persons in charge of its business only where contravention by the firm is first established. Here, the firm's liability had already been set aside and that decision had attained finality after further appeals were dismissed. On that basis, the Tribunal held that the partner's derivative liability could not survive independently on the same allegations, and the penalties and confiscation against him were unsustainable. The impugned penalty and confiscatory orders were therefore quashed, and the seized amounts and pre-deposit were ordered to be released in the appellant's favour.

Vicarious liability of partners under Section 42 of FEMA - principle of deemed liability to a firm and to the persons in charge of its business - Effect of exoneration of firm on partner's penalty - application of mutatis mutandis - association of acquisition of an asset/ property outside India - Admissibility of Retracted Statements - Corroborative Evidence - contraventions of the provisions of Section 3(b), (c) & (d) read with Section 42 of FEMA - Imposition of penalty and confiscation. Where the Order against the Company stands quashed, then can imposition of penalty on its Directors and Employees for the contravention of the said provisions invoked in terms of provisions of Section 42 of FEMA survive. - HELD THAT: - The Tribunal noted that, in the earlier appellate order concerning the same impugned adjudication order, the penalty and confiscation against M/s S.R. & Co. had been set aside and that order was not displaced thereafter. Proceeding on Section 42 of FEMA, read with its explanation applying the provision to a firm and its partners, the Tribunal held that the section creates derivative liability: where contravention by the company or firm is not established, penalty on directors or partners cannot stand. The earlier findings also recorded that the present appellant's alleged acts were treated as independent of the firm's business. In that background, and with the order exonerating the firm having attained finality, the appellant's penalty under Section 42 read with Section 3(b), 3(c) and 3(d) could not be sustained. [Paras 12, 13, 14, 15] The impugned order was set aside qua the appellant, the penalties were quashed, and the seized/confiscated amounts along with the pre-deposit were directed to be released to him. Final Conclusion: The appeal was allowed. Since the firm had already been exonerated and Section 42 fastens only consequential liability on partners where contravention by the firm is established, the penalty and consequential confiscation against the appellant were quashed.

2026 (4) TMI 1802 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Foreign exchange contravention upheld as unauthorised dealing was proved, but the penalty was reduced in partial relief.
Contravention of foreign exchange law was upheld where contemporaneous statements and record evidence showed recovery of foreign currency from the appellant's personal custody at the shop premises, and the explanation that it belonged to a customer was rejected. The material supported a finding that the appellant dealt in foreign exchange without authority, attracting liability under FEMA. However, the penalty was moderated in the interest of justice, and the amount was reduced, granting partial relief while sustaining the contravention and penalty liability.

2026 (3) TMI 987 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Issues: (i) Whether M/s Zaveri Exports Pvt. Ltd. and its director contravened Sections 3(a), 3(b) and 42(1) of the Foreign Exchange Management Act, 1999; (ii) Whether the penalties imposed under Section 13(1) of the Foreign Exchange Management Act, 1999 required reduction.

Issue (i): Whether M/s Zaveri Exports Pvt. Ltd. and its director contravened Sections 3(a), 3(b) and 42(1) of the Foreign Exchange Management Act, 1999.

Analysis: The decision examines contemporaneous entries in a seized spiral pad, WhatsApp chats, and voluntary statements recorded under Section 37 of the Foreign Exchange Management Act, 1999. The entries in the company records are corroborated by admissions that payments were made in cash to agents on instructions of Dubai-based dealers and by electronic contemporaneous material identifying a specific payment. The standard of proof applicable to adjudicatory proceedings under the Foreign Exchange Management Act, 1999 is preponderance of probabilities. The phraseology of Section 3(b) of the Foreign Exchange Management Act, 1999 covers payments made in India to agents acting on behalf of persons resident outside India, and such payments fall within the prohibition unless routed through an authorised person. Evidence of unaccounted sales and unexplained excess stock buttress the inference that the transactions were not conducted through authorised import channels. The director's position as promoter, major shareholder, and person in charge, together with his admissions, establishes knowledge and involvement relevant to liability under Section 42(1) of the Foreign Exchange Management Act, 1999.

Conclusion: The contraventions of Sections 3(a) and 3(b) of the Foreign Exchange Management Act, 1999 by M/s Zaveri Exports Pvt. Ltd. and the imposition of liability on Shri Sunil Kumar Tayal under Section 42(1) of the Foreign Exchange Management Act, 1999 are upheld.

Issue (ii): Whether the penalties imposed under Section 13(1) of the Foreign Exchange Management Act, 1999 require reduction.

Analysis: While the adjudicatory finding of contravention is maintained, the record does not contain an adequate, reasoned quantification explaining exercise of discretion to impose maximum penalties. Principles of proportionality andreasoned exercise of discretion in penalty imposition require that the quantum be related to the amount of contravention, nature of the contravention, and admissions on record. Having regard to established contraventions quantified from the material on record, a reduction of penalty to an amount equivalent to the proved contravention on the corporate respondent and a proportionate reduction for the director is warranted.

Conclusion: The penalty on M/s Zaveri Exports Pvt. Ltd. is reduced to Rs. 13,00,00,000 and the penalty on Shri Sunil Kumar Tayal is reduced to Rs. 3,00,00,000; the remainder of the penalties as originally imposed are set aside.

Final Conclusion: The adjudicatory findings of contravention under the Foreign Exchange Management Act, 1999 are affirmed while the penalties are moderated on grounds of proportionality and inadequate quantification by the Adjudicating Authority; the appeals are disposed of accordingly.

Ratio Decidendi: Admissions recorded under Section 37 of the Foreign Exchange Management Act, 1999 together with contemporaneous business records and electronic communications can constitute sufficient corroborative evidence under the preponderance of probabilities to establish payments made for or on behalf of persons resident outside India, and penalties under Section 13(1) of the Foreign Exchange Management Act, 1999 must be quantified by a reasoned exercise of discretion proportionate to the established contravention.

Preponderance of probabilities: contemporaneous records and admissions suffice to establish foreign-directed payments; penalties must be proportionate.
Adjudicatory findings that the corporate respondent contravened prohibitions on payments for or on behalf of persons resident outside India and that its director bore liability were affirmed on the basis that contemporaneous business records, electronic communications and admissions (recorded under Section 37) corroborated cash payments and unaccounted sales; the applicable standard was preponderance of probabilities. The tribunal held that penalties require a reasoned, proportionate quantification tied to proved contraventions and accordingly moderated the corporate and director penalties while setting aside the remainder of the imposed fines.

Foreign exchange - purchase of Gold from Dubai illegally through several persons and made payments in Cash - contravention of foreign exchange regulations - payments for or on behalf of persons resident outside india - contemporaneous entries in a seized spiral pad, WhatsApp chats, and voluntary statements recorded under Section 37 - Evidentiary value of admissions corroborated by contemporaneous records - requirement of authorised banking channels for permitted INR payments for imports - judicial restraint and proportionality in quantification of penalty under FEMA. Admissibility and sufficiency of spiral-pad entries, WhatsApp chats and voluntary statements to establish contravention of FEMA - HELD THAT: - The Tribunal held that the spiral-pad entries are not uncorroborated loose sheets because they are substantially corroborated by the voluntary statements of the director recorded under Section 37 of FEMA and by WhatsApp chats; therefore, these materials together suffice on the preponderance of probabilities in adjudicatory proceedings under FEMA to establish that the payments recorded were connected with persons resident outside India. [Paras 17, 18] The entries, statements and WhatsApp chats together establish the contraventions; the evidentiary material is sufficient to support the finding of contravention. Prohibition on payments to persons resident outside India otherwise than through an authorised person - wide ambit of "in any manner" in payments to persons outside India - HELD THAT: - The Tribunal construed Section 3(b) as covering payments made in India to agents acting on behalf of persons resident outside India because the phrase "in any manner" includes such transfers; the appellant's contention that payments in INR to local persons cannot amount to dealing in foreign exchange was rejected since the material showed payments were made for and on behalf of persons resident outside India and involved conversion into USD equivalents. [Paras 19] Payments made in India to agents on instructions of foreign dealers fell within the mischief of Section 3(b) and supported findings of contravention under Sections 3(a) and 3(b). Applicability of Regulation 6(2)(ii) of the FEM (Manner of Receipt and Payment) Regulations, 2016 to payments made in the case - HELD THAT: - The Tribunal held that Regulation 6(2)(ii) permits payment in INR for imports only in accordance with prescribed banking channels and regulatory compliance; since the admitted mode of payment was cash handed to agents outside authorised channels, the regulation did not apply to absolve the appellants' conduct. [Paras 20] Regulation 6(2)(ii) does not validate the cash payments made outside authorised channels and cannot be relied upon to negate contraventions. Liability of persons in charge for contraventions by the company - HELD THAT: - The Tribunal found that the director was a promoter, major shareholder and person in charge of day-to-day affairs and that the contraventions were committed with his knowledge and active involvement as reflected in his statements; on that basis invocation of Section 42(1) was held to be justified. [Paras 21] The director is liable under Section 42(1) for the contraventions committed by the company. Appropriateness of the quantum of penalty imposed by the Adjudicating Authority - HELD THAT: - While affirming that contraventions were established, the Tribunal observed that the Adjudicating Authority had not explained the basis for quantifying maximum penalties and that discretion under Section 13 must be exercised judiciously considering amount involved, nature of contravention and proportionality; applying that principle the Tribunal reduced the company's penalty to an amount equivalent to the established contravention and reduced the director's penalty on the same grounds. [Paras 22] Penalty on the company reduced to amount equivalent to the contravention and penalty on the director reduced correspondingly. Final Conclusion: The Tribunal upheld the finding of contravention by the company and its director based on corroborated contemporaneous records and admissions, rejected the appellants' statutory defenses, but reduced the penalties for lack of satisfactory quantification by the Adjudicating Authority; the appeals were disposed with the penalties reduced as indicated.

2026 (3) TMI 923 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI FEMA

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Foreign exchange contravention sustained, but prolonged adjudication delay justified reduction of penalty and partial relief.
Seized documents, corroborating statements and surrounding enquiries were treated as sufficient to establish contravention of foreign exchange provisions, and the appellant's failure to rebut that material meant the finding on merits was sustained. However, prolonged delay in adjudication was accepted as a mitigating factor affecting punishment, even though earlier pre-deposit dispensation did not end the proceedings. On that basis, the Tribunal upheld the adjudication on liability but reduced the penalty, granting partial relief because the lapse of time justified moderation of the penal consequence.

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