Company and individual penalties reduced under FEMA Section 6(3)(a) for unintentional subsidiary reporting omissions

The Appellate Tribunal under SAFEMA reduced penalties imposed for FEMA Section 6(3)(a) contraventions. The company's penalty was reduced from Rs.70 lakhs to Rs.35 lakhs, and the individual's penalty from Rs.28 lakhs to Rs.8 lakhs. The tribunal found the original penalties disproportionate considering the unintentional nature of omissions regarding step-down wholly owned subsidiaries, prior RBI clearance obtained, and subsequent RBI approval for closure. While contraventions were not contested, the reduction was based on peculiar facts and circumstances of the case.

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Issues:
Challenge to penalty imposed under Foreign Exchange Management Act, 1999 read with Regulations, 2000; Consideration of legal issues framed by the High Court; Disproportionality of penalty imposed.

Analysis:

The judgment pertains to an appeal challenging the penalty imposed under the Foreign Exchange Management Act, 1999 (FEMA) for contravention of Section 6(3)(a) read with Regulations 5, 6, and 13 of the Regulations, 2000. The appeal contested the penalty of Rs.70 lakhs on a company and Rs.20 lakhs on an individual. Initially dismissed by the Tribunal, the appeal was successful in the Bombay High Court, leading to a remand of the case to consider the legal issues framed by the High Court. However, due to delays, the appellant decided not to press the appeal on the contravention but limited it to the disproportionality of the penalty.

The case involved investments made by the company in its subsidiaries without prior permission from the Reserve Bank of India (RBI). Despite having received clearance from the RBI for investments, certain omissions were found in disclosing details of the subsidiaries. The appellant justified the omissions as unintentional due to compliance with local laws in different countries where the subsidiaries were located. The RBI later approved the closure of the subsidiary, indicating some justification for the appellant's actions.

The appellant argued for a reduction in the penalty based on the circumstances of the case and the initial RBI permission granted. The Tribunal found the penalty amount disproportionate and reduced it to Rs.35 lakhs for the company and Rs.8 lakhs for the individual. The reduction was based on the peculiar facts and circumstances of the case, not solely on the proportionality ground.

The appellant did not contest the contravention of FEMA and Regulations, 2000 but focused on the penalty amount. The Tribunal modified the impugned order by reducing the penalty amounts, considering the appellant's arguments and the overall facts of the case. The appeal was disposed of based on the agreement of the appellant not to press the appeal on legal issues framed by the Bombay High Court, leading to the reduction in the penalty amount and the disposal of the appeal.

In conclusion, the judgment addressed the challenge to the penalty imposed under FEMA, focusing on the disproportionality of the penalty and the circumstances surrounding the investments made by the company. The reduction in the penalty amounts was based on the specific facts of the case, leading to the modification of the impugned order and the disposal of the appeal.

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