2019 (2) TMI 214 - AT - FEMA

Tribunal overturns order, finds appellant compliant with FEMA.

Shri Dr. D. Rewatha Thera, M/s. Maha Bodhi Society of India Versus The Joint Director Directorate of Enforcement, Lucknow

The Tribunal allowed both appeals, setting aside the order dated 29th May, 2014. The appellant did not violate Section 4 of FEMA, 1999, as they legally ... Violation of provisions of section 4 of the Foreign Exchange Management Act, 1999 and Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 - inheritance of foreign exchange - Held that:- There is no dispute that the appellant being a person resident in India has inherited this amount as per the voluntary settlement deed executed by the settlers being person resident outside India - As per settled law, the word inheritance has to be given a wider meaning here. The word inheritance here cannot be limited to mean the asset acquired by a Human being/ natural person upon the death of a natural person because as per section 2(v) of the Act a ‘person resident in India’ includes a legal person. Thus, the property passing upon death of a person being resident outside India to a person resident in India whether the person resident in India is a natural or a legal person. As per Section 9(e) of the Act also if the foreign exchange has been acquired by way of gift or inheritance then even in that situation the provision of section 4 shall not apply. The reserve bank has not prescribed any limit for holding the foreign exchange in case the foreign exchange has been acquired by gift or inheritance - even if for a moment assuming that the provision of section 6(4) and section 9(d), (e) of the Act are not applicable in the instant case even than the appellant should not be held guilty for contravening the provisions of section 4 of the Act The appellant should not be considered to have violated the provisions of section 4 of the Act and Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations, 2000 in view of peculiar facts and circumstances of the present matter - appeal allowed - decided in favor of appellant. Issues Involved:1. Violation of Section 4 of the Foreign Exchange Management Act, 1999.2. Application of Section 6(4) and Section 9 of the Foreign Exchange Management Act, 1999.3. Confiscation of foreign exchange under Section 13(2) of FEMA, 1999.4. Compliance with principles of natural justice.Issue-Wise Detailed Analysis:1. Violation of Section 4 of the Foreign Exchange Management Act, 1999:The appeals were filed against the order dated 29.05.2014 for violating Section 4 of FEMA, 1999. Section 4 prohibits residents in India from holding foreign exchange outside India. The appellant, a society incorporated in India, was accused of holding foreign exchange outside India in violation of this provision. The society had inherited foreign exchange through a will executed by foreign nationals and transferred the amount to an account in Sri Lanka due to pending permission from the Ministry of Home Affairs.2. Application of Section 6(4) and Section 9 of the Foreign Exchange Management Act, 1999:Section 6(4) allows residents in India to hold foreign exchange inherited from persons resident outside India. Section 9(e) exempts foreign exchange acquired by inheritance from the provisions of Section 4. The Tribunal noted that the appellant inherited the foreign exchange legally and took reasonable steps to repatriate the amount to India but was unable to do so due to lack of permission from the Ministry of Home Affairs. Therefore, the appellant did not violate Section 4 of FEMA, 1999.3. Confiscation of Foreign Exchange under Section 13(2) of FEMA, 1999:The adjudicating authority ordered the confiscation of the foreign exchange held in Sri Lanka and the UK. The Tribunal found that the confiscation order was passed without issuing a show cause notice, violating principles of natural justice. The Tribunal emphasized that confiscation orders must be based on clear and cogent evidence, not assumptions. The Tribunal referred to previous cases where confiscation was deemed unjustified under similar circumstances.4. Compliance with Principles of Natural Justice:The Tribunal highlighted that the adjudicating authority failed to issue a show cause notice before ordering confiscation, thereby violating the principles of natural justice. The Tribunal criticized the adjudicating authority for not considering the totality of the facts and circumstances and for passing the confiscation order without proper justification.Conclusion:The Tribunal allowed both appeals, setting aside the impugned order dated 29th May, 2014. The Tribunal did not express any opinion or pass directions regarding the amount lying in foreign land, leaving the appellant free to initiate proceedings as per law. The Tribunal emphasized that the appellant did not act in defiance of the law and had taken reasonable steps to repatriate the foreign exchange to India. The penalty imposed was deemed excessive and unreasonable given the facts of the case.