2019 (9) TMI 940 - AT - FEMA

Appeals granted, penalty increased to Rs. 50 lakhs. Emphasis on natural justice, ex-post facto permissions. Fair adjudication process.

Shri Adnan Sami Khan, Smt. Sabah Sami Khan Versus The Special Director Directorate of Enforcement, Mumbai

The Tribunal partly allowed the appeals, setting aside the confiscation order and enhancing the penalty to Rs. 50 lakhs. The decision emphasized the ... Contravention of Regulation 7 of Foreign Exchange Management (Acquisition and Transfer of Immovable property in India) Regulations, 2000 - Confiscation of 8 flats and five car parking - penalty under section 13(2) of the FEMA Act - HELD THAT:- National of the countries specified under Regulation 7 of the Regulations can acquire or transfer immovable properties in India, provided that such a person obtains the requisite permission from the Reserve Bank of India. If the national so fails to apply for such a permission, the Reserve Bank of India has the power to accord an ex post facto permission with regards to the said transaction. The transaction in question is not a commercial transaction; as a matter of fact the Appellant still resides in the Flats. The Flats were purchased by Indian Rupees, out of monies earned in India on which Income Tax has been paid, as well as monies loaned from India banks. The loans have been duly repaid. The Appellant pursuant to purchase of the Flats had also applied to the Government of India for grant of Citizenship and as stated above was granted a certificate of naturalization on 01.01.2016. It is stated that Sami is residing in five flats out of the said eight flats with his wife and their two years old daughter. The interse dispute between the Appellant and the appellant in Appeal No. 17/2011 is outside the purview of the present appeal. The impugned order is set-aside as far as exercise of discretion under Section 13(2) of the Act. The finding arrived under section 13(1) shall remain intact. Mr. Sami shall deposit the remaining ₹ 40 Lakhs with the respondent with three months from today. As no case of under section 13(2) (about confiscation of eight flats and five parking space), the said findings and part of the order is quashed. However, the penalty amount under the said provision of Section 13(1) is enhance to ₹ 50 Lakhs from ₹ 20 Lakhs. In view of changing his stand from time to time. This tribunal is empowered to increase the penalty amount under section 19(6) of the Act. Issues Involved:1. Contravention of FEMA provisions regarding acquisition of immovable property.2. Legality of the purchase of immovable properties without RBI permission.3. Validity of subsequent transfer of properties.4. Right to cross-examine witnesses.5. Adjudication procedure and principles of natural justice.6. Discretionary power of the Adjudicating Authority under Section 13(2) of FEMA.7. Impact of ex-post facto permission from RBI.8. Confiscation of properties and imposition of penalties.Issue-wise Detailed Analysis:1. Contravention of FEMA Provisions Regarding Acquisition of Immovable Property:The appellant, a Pakistani national, was charged with acquiring immovable properties in India without the permission of the Reserve Bank of India (RBI), in violation of Section 6(3)(i) of FEMA and Regulation 7 of the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. The properties in question included 8 flats and 5 parking spaces, purchased for a total consideration of Rs. 2,53,34,750. The Special Director held that these properties were acquired in contravention of FEMA provisions and ordered their confiscation.2. Legality of the Purchase of Immovable Properties Without RBI Permission:The appellant argued that he was unaware of the requirement for RBI permission and claimed that the application for such permission was made by the builder's advocate without his knowledge. The Tribunal found this contention to be false, noting that it was the appellant's duty to inquire about the legal formalities, especially since he had engaged the advocate. The Tribunal held that the appellant's acquisition of the properties without RBI permission was indeed in violation of FEMA provisions.3. Validity of Subsequent Transfer of Properties:The appellant had transferred some of the properties to his ex-wife through a registered gift deed. The Tribunal noted that since the initial purchase was illegal, the subsequent transfer was also illegal. The ex-wife, being a UAE citizen, was not subject to the same restrictions, but the properties were still acquired initially without the necessary RBI permission, making the transfer invalid.4. Right to Cross-Examine Witnesses:The appellant's request to cross-examine witnesses whose statements were relied upon by the Enforcement Directorate was denied. The Tribunal found this to be a violation of the principles of natural justice, as the appellant was not given an opportunity to challenge the evidence against him. The Tribunal cited the Supreme Court's judgment in Andaman Timber Industries v. CCE, which emphasized the importance of cross-examination in ensuring a fair trial.5. Adjudication Procedure and Principles of Natural Justice:The Tribunal noted that the adjudicating authority had not provided the appellant with a reasonable opportunity to be heard, as his request for adjournment was denied, and the matter was decided in haste. The Tribunal emphasized that the principles of natural justice were not followed, as the appellant was not allowed to cross-examine witnesses or present his defense adequately.6. Discretionary Power of the Adjudicating Authority Under Section 13(2) of FEMA:The Tribunal highlighted that Section 13(2) of FEMA provides discretionary power to the adjudicating authority to confiscate properties involved in contravention. However, this discretion must be exercised judiciously, considering the facts and circumstances of each case. The Tribunal found that the discretion was not properly exercised in this case, as the confiscation order was passed without considering the appellant's arguments and the lack of foreign exchange involvement.7. Impact of Ex-Post Facto Permission from RBI:The appellant had applied for ex-post facto permission from RBI, which, if granted, would have regularized the transaction. The Tribunal noted that the adjudicating authority should have waited for the RBI's decision before proceeding with the confiscation order. The Tribunal referenced the Supreme Court's judgment in Life Insurance Corporation of India v. Escorts, which allowed for ex-post facto permission in certain cases.8. Confiscation of Properties and Imposition of Penalties:The Tribunal set aside the confiscation order, stating that the penalty imposed under Section 13(1) of FEMA should be increased instead. The Tribunal enhanced the penalty from Rs. 20 lakhs to Rs. 50 lakhs, considering the appellant's changing stands and the need to uphold the principles of justice. The Tribunal emphasized that confiscation should be a discretionary measure, not mandatory, and should be applied judiciously.Conclusion:The Tribunal partly allowed the appeals, setting aside the confiscation order and enhancing the penalty to Rs. 50 lakhs. The Tribunal emphasized the importance of following principles of natural justice, the discretionary nature of confiscation under Section 13(2) of FEMA, and the need to consider ex-post facto permissions from RBI. The Tribunal's decision underscored the necessity of a fair and just adjudication process, respecting the rights of the parties involved.