Tribunal rejects stay petition on FEMA penalties, directs 50% predeposit for regulatory compliance

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

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

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

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

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

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

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