Two employees fined Rs. 50,000 each under FEMA Section 5 for carrying unauthorized US$ 50,000 traveler's cheques

The Appellate Tribunal under SAFEMA dismissed appeals by two employees charged under FEMA Section 5 for carrying US$ 50,000 in traveler's cheques to Sri Lanka without RBI permission. The Export Executive appellant claimed ignorance of the violation, while the Finance Manager appellant denied involvement in procuring additional foreign exchange. The Tribunal held both liable - the Export Executive for failing to verify RBI permission despite ignorance of law being no excuse, and the Finance Manager for vicarious liability given his position. However, considering their minor roles as employees compared to company directors, the Tribunal reduced their penalties from Rs. 1,00,000 to Rs. 50,000 each, partially allowing the appeals.

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Issues Involved:
1. Contravention of Section 5 of the Foreign Exchange Management Act, 1999.
2. Violation of Rule 5 of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
3. Non-compliance with Section 10(6) of FEMA, 1999.
4. Jurisdiction and authority of Show Cause Notices (SCNs) issued.
5. Liability of company executives versus the company itself.
6. Penalty imposition and its appropriateness.

Detailed Analysis:

1. Contravention of Section 5 of FEMA, 1999:
The appellants were found to have contravened Section 5 of FEMA, 1999, which allows the sale or drawal of foreign exchange for current account transactions under prescribed conditions. The Adjudicating Authority concluded that the appellants, through joint efforts, acquired foreign exchange totaling US$ 50,000 in Travelers Cheques (TCs) for business travel to Sri Lanka without the necessary permissions, thus violating Section 5 of FEMA, 1999.

2. Violation of Rule 5 of Foreign Exchange Management (Current Account Transactions) Rules, 2000:
Rule 5 states that no person shall draw foreign exchange for transactions included in Schedule III without prior approval of the Reserve Bank of India (RBI). The appellants drew US$ 50,000 in TCs from two different dealers without obtaining the necessary approval from RBI, thereby violating Rule 5.

3. Non-compliance with Section 10(6) of FEMA, 1999:
Section 10(6) stipulates that any person who uses acquired foreign exchange for purposes other than those declared or fails to surrender it within the specified period commits a violation. The appellants were found to have used the foreign exchange for purposes other than those declared in their application, and failed to surrender the unspent amount, thus contravening Section 10(6).

4. Jurisdiction and Authority of SCNs Issued:
The appellants argued that the SCNs were issued without authority as the company was not made a party to the SCNs. They contended that the charges against the Managing Director and other executives were misconceived and not tenable without framing any charge against the company itself.

5. Liability of Company Executives versus the Company Itself:
The appellants argued that the liability for the contravention should lie with the company and not the individual executives. They cited precedents where penalties were not imposed on employees as they acted under the instructions of their employer. The Tribunal, however, held that the executives were aware of the contraventions and were responsible for ensuring compliance with FEMA regulations.

6. Penalty Imposition and Its Appropriateness:
The Adjudicating Authority initially imposed a penalty of Rs. 1,00,000 on the appellants. The Tribunal, considering the minor role of the appellants and their status as employees, reduced the penalty to Rs. 50,000 each. The Tribunal noted that the Managing Director's penalty was also reduced, and thus, it was just to reduce the penalty for the appellants.

Conclusion:
The Tribunal partly allowed the appeals, modifying the impugned review orders to reduce the penalty from Rs. 1,00,000 to Rs. 50,000 for each appellant. It was noted that the appellants had already pre-deposited the penalty amount, and thus, no further payment was required. The judgment was pronounced on July 8, 2024.

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