2024 (9) TMI 561 - AT - FEMA

Bank penalized for unauthorized foreign transfers without RBI permission despite funds being returned later

M/s Standard Chartered Bank, Shri J.N. Khanna (since deceased) Through Legal Heirs, Shri K.K. Kuda (since deceased) Through Legal Heirs Versus The Special Director, Directorate of Enforcement, Delhi

The Appellate Tribunal under SAFEMA upheld contraventions of the Foreign Exchange Management Act 1973 by a bank and its officers for repeatedly ... Penalty imposed under the Foreign Exchange Management - non-convertible amount was transferred out of India not on one occasion but on many occasions - Negligence vs. connivance of appellants - HELD THAT:- Appellants had acted in contravention of the provisions of the act of 1973 to make non-convertible amount to be convertible without prior permission of the RBI. Subsequently, if the amount was brought back, the contravention of the provisions of the Act of 1973 cannot be ignored. It may be due to inadvertence. The officers of the bank transferred the non-convertible amount to make it convertible. If we go deep into the issue and refer the facts, even connivance of the officers would come on record but in view of the order of the Delhi High Court, we are considering the issue whether there was negligence on the part of the appellant. We find that the appellants were negligent in making non-convertible amount to be convertible. It cannot occur due to inadvertent error because the non-convertible amount was transferred out of India not on one occasion but on many occasions. Thus, negligence on the part of the appellants gets well proved on the facts of the case. Appellants submitted that there is no loss of foreign currency as it was brought back to India. It has already been clarified that contravention of the provisions of the Act of 1973 would not get nullified if the currency was subsequently brought back to India. In fact, if the negligence of the appellants is ignored, then it would be nothing but to endorse their action in contravention of the provisions of the Act of 1973. If such arrangements are permitted and ignored, it may have serious consequence. Only for the reason that the money was alleged to have been brought back, no penalty could have been imposed, we do not find aforesaid ground to be tenable. Whether respondent/Adjudicating Authority is justified in imposing the penalty of Rs.65 lakhs on the appellant bank and Rs. 10 lakhs each on its officers - We have gone through the record and also the judgment of the Delhi High Court [2010 (1) TMI 1313 - DELHI HIGH COURT] The Delhi High Court has restricted the case in reference to allegation of negligence and not for any other issue. Adjudicating Authority ought to have decided the Show Cause Notice in reference to the aforesaid. We find that the learned Adjudicating Authority has taken into consideration each aspect of the matter raised before it and thereupon passed a detailed speaking order. In doing so, it did not become judge of its own cause, rather order was passed based on material and otherwise the appellants themselves have admitted their error in transferring of non-convertible funds making it convertible. The Adjudicating Authority has meticulously considered each aspect of the matter and finding contravention of the provisions of the Act of 1973, appropriate penalty was imposed but has been questioned. As emphatically argued that without there being any representation of ED, the Adjudicating Authority has passed the order. We find no substance in the argument aforesaid. As per the procedure for passing Adjudication Order, the entire material issent to the Adjudicating Authority who cause a Show Cause Notice to invite reply of the person contravened the provisions of the Act of 1973. After receipt of the reply and the material, the Adjudicating pass an appropriate order. In the instant case, the procedure aforesaid was adopted thus we do not find that the Adjudicating Authority became judge of its own cause. Penalty could have been imposed after taking note of the judgment of the High Court. However, in the instant case, a penalty disproportionate to the default and the contravention has been imposed. It is a fact that non-convertible currency was made convertible in violation of the Act of 1973 but for the aforesaid contravention, the penalty is disproportionate. The Delhi High Court has taken it to be a case of negligence thus the penalty should have been restricted to the allegation of negligence. We are not in agreement with the argument raised by the appellants that there was no contravention of the provisions of the Act of 1973, we find the penalty to be on the higher side. When the non-convertible amount was brought back, the fact aforesaid could not have been ignored by the Adjudicating Authority though bringing the currency back to India does not absolve the appellant for contravention of the provisions of the Act of 1973. Thus, while we find contravention of the provisions of the Act of 1973, the penalty imposed for different contravention is disproportionate. We find reasons to cause interference in the quantum of penalty which is reduced from Rs.65 lakhs to Rs.30 lakhs on the appellant bank and Rs.10 lakhs to Rs.3 lakhs on the individual appellant. The amount of pre-deposit has been satisfied by depositing 50% of the amount by appellant Standard Chartered Bank and 30% each by its officers/other appellants. Therefore, the appellants have already satisfied the equivalent amount or even deposited higher amount pursuant to the order for pre-deposit. Since the amount has been satisfied by the appellants, no other amount would be recoverable, rather if any amount received by the respondent is in excess to the penalty imposed by this Tribunal, it would be refundable. Issues:- Challenge to penalty imposed under the Foreign Exchange Management Act, 1999- Allegation of contravention of provisions of the Foreign Exchange Regulation Act, 1973- Negligence vs. connivance of appellants- Adjudicating Authority passing order without ED's representation- Justification of penalty imposedAnalysis:The judgment pertains to a batch of appeals challenging an order passed under the Foreign Exchange Management Act, 1999. The appellants, including a bank and its employees, were penalized for contravening provisions of the Foreign Exchange Regulation Act, 1973 by allowing non-convertible funds to be transferred and made convertible without permission. The bank account in question belonged to a person who initially claimed to be a resident of Libya but later resided in India. The appellants argued that the transfer was inadvertent due to the account holder's change in status. However, the authorities found negligence on the part of the appellants for allowing the conversion of non-convertible funds. The appellants contended that no loss occurred as the funds were brought back, but the contravention of the law remained. The High Court's judgment limited the case to negligence. The Adjudicating Authority imposed penalties, which the appellants challenged on various grounds.The appellants argued that the penalty was excessive considering the inadvertent nature of the transfer and the subsequent return of the funds. They also contended that the Adjudicating Authority acted as a judge of its own cause by not involving the ED in the proceedings. However, the Tribunal found that the Authority considered all aspects of the case and did not overstep its jurisdiction. The penalty was deemed disproportionate to the contravention, leading to a reduction in the amount imposed. The Tribunal reduced the penalty from Rs. 65 lakhs to Rs. 30 lakhs on the bank and from Rs. 10 lakhs to Rs. 3 lakhs on individual appellants. As the pre-deposit requirements were already met by the appellants, no further amounts were deemed recoverable. The appeals were disposed of accordingly.