2015 (10) TMI 2684 - AT - FEMA

Tribunal rules on FEMA contravention, reduces penalties, clarifies liability

The Tribunal found the appellants liable for contravening Section 8 of FEMA, 1999 by failing to repatriate export proceeds but dismissed allegations of ... Contravention of Sections 7 and 8 of FEMA, 1999 read with Regulations 3, 8, 9 and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 involving export value of US $ 8,67,275.20 - unrealised GRI forms the authorized dealer had not contacted the Enforcement Directorate - Held that:- Since a period of almost 15 years has passed since the transactions took place and the RBI permitted authorized dealer to allow write off in respect of the two disputed GRI forms also subject to obtaining no objection however the authorized dealer did not approach the Enforcement Directorate. In our estimation there must have been some degree of satisfaction that is why approval to the authorized dealer to grant write off subject to certain conditions was allowed, the situation remains that the write off in respect of the two transactions through two disputed GRI forms has not been finally allowed. The contravention of Section 8 of FEMA, 1999 against the appellant company and the appellant G. Rama Raju, Managing Director r/w Section 42(1) of FEMA is made out. Since the amount of penalty imposed against the company as well as against the appellant G. Rama Raju, Managing Director has been imposed without assigning any reason for determination of the amount, therefore considering the long gap of the alleged contravention in our opinion the ends of justice will be met if the penalty of ₹ 40 lakhs imposed against the company M/s. Siris Ltd. is reduced to ₹ 30 lakhs while the penalty of ₹ 5 lakhs imposed against G. Rama Raju is reduced to ₹ 3 lakhs and the order of the Adjudicating Officer regarding imposition of penalty against appellant G. Subha Raju, Executive Director appellant is set aside. Issues Involved:1. Contravention of Sections 7 and 8 of FEMA, 1999.2. Alleged violation of Regulations 3, 8, 9, and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.3. Imposition of penalties under Section 13 of FEMA, 1999.4. Liability of Managing Director and Executive Director under Section 42(1) of FEMA, 1999.5. Authority and procedure for obtaining no objection certificate from the Enforcement Directorate.Issue-wise Detailed Analysis:1. Contravention of Sections 7 and 8 of FEMA, 1999:The appellants were accused of failing to realize and repatriate export proceeds amounting to US $1,27,384.20 within the prescribed period, violating Sections 7 and 8 of FEMA, 1999. The Tribunal found no specific allegation or evidence of violation of Section 7 by the appellants, thus deeming the Enforcement Directorate's claim unsustainable. However, the Tribunal upheld the contravention of Section 8, as the appellants failed to provide substantial evidence of bona fide attempts to realize the export proceeds.2. Alleged violation of Regulations 3, 8, 9, and 13 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000:The Tribunal examined the relevant clauses of the Regulations, 2000 and found no evidence of violation of Regulations 3, 8, 9, and 13 by the appellants. The Tribunal noted that the RBI had approved write-offs for most GRI forms, except two, subject to obtaining a no objection certificate from the Enforcement Directorate. The Tribunal concluded that the appellants were wrongly indicted for contravention of these regulations.3. Imposition of penalties under Section 13 of FEMA, 1999:The Special Director imposed penalties of Rs. 40,00,000 on the company and Rs. 5,00,000 each on the Managing Director and Executive Director under Section 13 of FEMA, 1999. The Tribunal found the penalties excessive and arbitrary, as no reasons were provided for the determination of the amounts. Considering the long gap since the transactions, the Tribunal reduced the penalties to Rs. 30,00,000 for the company and Rs. 3,00,000 for the Managing Director, while setting aside the penalty against the Executive Director.4. Liability of Managing Director and Executive Director under Section 42(1) of FEMA, 1999:The Tribunal emphasized the need for specific evidence of the roles and involvement of the Managing Director and Executive Director in the company's affairs. The Tribunal found no discussion or evidence of the Executive Director's involvement, thus setting aside the penalty against him. However, the Tribunal held the Managing Director liable due to his designation and presumed involvement in the company's activities.5. Authority and procedure for obtaining no objection certificate from the Enforcement Directorate:The Tribunal clarified that the authorized dealer (State Bank of Mauritius) was responsible for obtaining the no objection certificate from the Enforcement Directorate, not the appellants. The Special Director, acting as the Adjudicating Officer, had no authority to grant or refuse the no objection certificate. The Tribunal cited the Supreme Court's judgment in LIC v. Escorts Ltd., emphasizing that the RBI alone decides on granting permissions related to foreign exchange.Conclusion:The Tribunal modified the impugned order, holding the company and the Managing Director liable for contravention of Section 8 of FEMA, 1999, and reducing the penalties accordingly. The penalty against the Executive Director was set aside. The appeals were disposed of with no order as to costs, and the appellants were entitled to adjustments or refunds of any pre-deposits made.