2023 (7) TMI 1478 - AT - FEMA

SAFEMA Tribunal upholds FEMA violations for unauthorized Geneva bank accounts, reduces penalties to Rs. 72.5 lakhs

The Appellate Tribunal SAFEMA upheld FEMA violations for holding unauthorized Geneva bank accounts without RBI approval. The Tribunal rejected the mens ... Offence under FEMA - Appellants held the Bank Accounts in Geneva without the approval of RBI - penalty imposed - deliberate intent on the part of the Appellants to bypass the Indian Laws - Adjudicating Authority held that the generation of the money from consultancy charges could not be proved by the Appellants in the absence of documentary evidence like invoice etc. and Appellants did not take any reasonable steps to bring back the foreign exchange as their correspondence with the account holder in Dubai did not corroborate such efforts HELD THAT:- As there is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like 'willful', 'deliberately', 'intentionally' etc. are missing. The Hon'ble Supreme Court in the Judgment supra has cited the judgment M.C.T.M. Corpn. (P.) Ltd. [1996 (1) TMI 351 - SUPREME COURT] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgment supra cited a number of previous judgments wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. The appellants have brought back the entire amount of Foreign Exchange worth Rs. 6,14,56,000/- and have paid Rs. 3,05,53,769/- towards Income-tax and Interests, thus inclined to restrict and reduce the penalty amount to the pre-deposits of the penalties already made by the two Appellants. While it is true that the Foreign Exchange of Rs. 6,14,56,000/- earned and retained abroad has been admittedly been divided between the Appellant No. 1 and the Appellant No. 2 in the ratio of 30 is to 70, I have restricted and reduced the penalties from Rs. 1.5 crore to Rs. 37.5 lakhs for Appellant No. 1 and from Rs. 3.5 crores to Rs. 35 lakhs for Appellant No. 2. This is justified on the grounds that after the initial deposit in Deutsche Bank in Geneva in the names of the two appellants, subsequently the amount was transferred to account in HSBC Bank in Geneva which was in the name of the Appellant No. 1 and his wife. Further the said amount was transferred to an account in HSBC Bank in Dubai in the name of the cousin of the Appellant No. 1. It is also on record that in 2019 the entire amount of remittance from abroad took place into the account of the Appellant No. 1 in the Central Bank of India Mumbai. Appellant No.1 has been more active in the transfer of the said amount between the accounts abroad. Hence, the pre-deposits of the penalties of the respective amounts of Rs. 37.5 lakhs made by the Appellant No. 1 Shri Kumar Satur Nathani and Rs. 35 lakhs made by the Appellant No. 2 Shri Roop Krishanch and Khemani are to be adjusted as respective penalties for the two appellants. Issues:1. Appeal against Adjudication Order under FEMA.2. Allegations of contravention of FEMA provisions.3. Imposition of penalties on appellants.4. Pre-deposit of penalty amounts.5. Arguments regarding consultancy fees and tax payments.6. Legal arguments on contraventions under FEMA.7. Interpretation of penalty provisions under FEMA.Analysis:1. The judgment pertains to Appeals No. FPA-FE-41/MUM/2018 & FPA-FE-42/MUM/2018 challenging an Adjudication Order under FEMA issued by the Additional Director of the Enforcement Directorate, Mumbai. The appellants sought to set aside the said order dated 13-4-2018.2. The complaint alleged that the appellants maintained a joint account in a foreign bank where consultancy earnings were deposited and subsequently transferred to accounts in Geneva and Dubai without RBI approval. The Adjudication Order found charges established, leading to penalties of Rs. 1.5 crores and Rs. 3.5 crores on the appellants, respectively, for contraventions of FEMA provisions.3. The Tribunal allowed pre-deposits of penalty amounts by the appellants. The appellants argued that the funds were consultancy fees from Nigeria, and they had paid taxes on the foreign exchange. They also highlighted compliance efforts and previous tribunal decisions in their favor.4. The respondent contended that the appellants violated FEMA by depositing foreign exchange abroad without RBI permission, and the offense was completed due to delayed remittance. The respondent emphasized deliberate intent in holding foreign funds abroad and argued against the appeal.5. The judgment analyzed the contraventions under FEMA and the imposition of penalties. It referenced a Supreme Court decision stating that penalty imposition does not require mens rea. The FEMA provisions clearly outlined penalties for contraventions without specifying mens rea, emphasizing civil obligations over intent.6. Considering the facts and actions of the appellants, including bringing back the foreign exchange and paying taxes, the penalties were reduced to the pre-deposit amounts. The division of funds between the appellants led to adjusted penalties of Rs. 37.5 lakhs and Rs. 35 lakhs for each appellant, respectively, based on their involvement in the fund transfers.7. The judgment partly allowed the appeals, acknowledging the appellants' compliance efforts and tax payments while reducing the penalties to the pre-deposit amounts. The decision was based on the interpretation of FEMA provisions and previous legal precedents regarding penalty imposition without requiring mens rea.