2019 (8) TMI 133 - AT - FEMA

FEMA Penalties Reduced for Companies & Individuals, Directors' Penalties Altered Based on Involvement

M/s. Jaipur IPL Cricket Pvt. Ltd., Mr. Ranjit Barthakur, Mr. Raghuram Iyer, Mr. Fraser Castellino, M/s. EM Sporting Holdings Ltd., Mr. Bishwarnath Bachun, Ms. Samila Sivaramen, M/s. Barbara Jacqueline Ltd., Mr. Suresh Chellaram, M/s. ND Investments And Mr. Manoj Badale Versus The Special Director Directorate of Enforcement, Bangalore

M/s. Jaipur IPL Cricket Pvt. Ltd., Mr. Ranjit Barthakur, Mr. Raghuram Iyer, Mr. Fraser Castellino, M/s. EM Sporting Holdings Ltd., Mr. Bishwarnath Bachun, ... Issues Involved:1. Whether there has been a breach/contravention of the provisions of FEMA and Regulations made thereunder.2. Whether the breach/contravention of the provisions of FEMA and Regulations made thereunder are technical/venial in nature.3. Whether imposition of any penalty was justified on the companies and individuals in question.4. The quantum of penalty proportional to the gravity of the alleged breach.5. The liability of directors under Section 42(1) of FEMA.Issue-Wise Detailed Analysis:1. Breach/Contravention of FEMA Provisions:The case revolves around the alleged contraventions of the provisions of FEMA, 1999 by the appellants. The contraventions pertain to inward remittances made into India in 2008, which were used for securing and making operational the 'Rajasthan Royals' IPL franchise. The Enforcement Directorate found that the appellants violated Section 3(b), Section 6(2), 6(3)b, and Section 42(1) of FEMA, 1999, along with related regulations under FEMA. The main allegations were that the remittances were either made by the wrong entity or received by the wrong entity, and the necessary regulatory approvals were not obtained.2. Technical/Venial Nature of Breach:The appellants argued that the alleged contraventions were technical and venial in nature. They emphasized that all remittances were made through normal banking channels, the funds remained in India, and were used for the intended purpose of securing and operationalizing the IPL franchise. They also highlighted their bona fide efforts to seek approval from regulatory authorities (RBI and FIPB) and the fact that no shares were issued against the remittances for over 11 years, causing financial detriment to the investors.3. Justification for Imposition of Penalty:The Enforcement Directorate imposed a total penalty of Rs. 98.35 crores on the appellants. However, the Tribunal noted that the imposition of penalty in quasi-criminal proceedings must be guided by the principles of proportionality and fairness. The Tribunal found that the penalties imposed were exorbitant and not justified given the technical nature of the contraventions, the bona fide conduct of the appellants, and the lack of any loss to the exchequer.4. Quantum of Penalty:The Tribunal reduced the total penalty from Rs. 98.35 crores to Rs. 15 crores, considering the technical nature of the contraventions, the bona fide efforts of the appellants, and the lack of any financial gain or loss to the exchequer. The penalties were adjusted based on the roles and involvement of the individuals and entities in the contraventions.5. Liability of Directors under Section 42(1) of FEMA:The Tribunal examined the liability of individual directors under Section 42(1) of FEMA, which holds individuals in charge of the company liable for contraventions. The Tribunal found that the imposition of penalties on individuals was not justified as there was no evidence that they were involved in the day-to-day management of the companies at the time of the contraventions. The penalties on several individuals were set aside, while limited penalties were imposed on others based on their involvement.Conclusion:The Tribunal modified the impugned order, reducing the total penalty to Rs. 15 crores, which was already deposited by the appellants. The penalties on individual directors were either set aside or reduced based on their involvement and roles in the contraventions. The Tribunal also allowed the appellants to seek regulatory approval for issuing shares to the remitters or refund the inward remittances as per the provisions of FEMA.