2024 (9) TMI 562 - AT - FEMA

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

M/s. Tips Industries Ltd. Versus The Special Director Directorate of Enforcement, Mumbai And Mr. Kumar S. Taurani Versus The Special Director Directorate of Enforcement, Mumbai

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 ... Order passed by the Special Director imposing the penalty - contravention of Section 6(3)(a) of FEMA - HELD THAT:- As explained that the omissions to give particulars of the step-down WOSs were shown to be unintentional and occasioned only for the reason that the Company had disclosed its business plans to the entities named above and it was to prevent the Company from the local laws applicable in different countries where the entities were situated. It thus became clear that though the appellant company was having letter of clearance from the RBI dated 22.11.2001, certain omissions were found but it cannot be said that the appellants were not vigilant to seek clearance/approval before making investments. As also a fact that on 20.07.2005, the RBI accorded its approval on the Company’s application for closure of the WOS and advised the Company to surrender its holding license, if issued, and to produce evidence of repatriation towards realization of equity investment. Therefore, some justification in reference to the facts of this case and the act of the appellant has been given though contested by the respondent. The facts aforesaid are relevant only for the purpose of considering the quantum of penalty otherwise the contravention of Section 6(3)(a) of the Act of 1999 and Regulations 5,6 and 13 of the Regulations, 2000 has not been contested Taking into consideration the overall facts which include the initial permission of RBI, we find penalty amount to be disproportionate and accordingly the penalty of M/s Tips Industries is reduced from Rs.70 lakhs to Rs.35 lakhs and for Shri Kumar S. Taurani, it is reduced from Rs.28 lakhs to Rs.8 lakhs. The reduction of the penalty is even looking to the amount involved and the reason of contravention. Accordingly, it would not be taken as an order on the proportionality groundbut the reduction of the amount is in the peculiar facts and circumstances of the case. We cause interference in the impugned order only in regard to the imposition of penalty which seems to be disproportionate and, therefore, the penalty of Rs.70 lakhs is reduced to Rs.35 lakhs on the appellant company while the penalty of Rs.28 lakhs is reduced to Rs.8 lakhs on the individual and with the aforesaid the impugned order is modified. As clarified that the appellant had approached Bombay High Court where certain issues were framed for adjudication. However, appellant did not press the appeal in reference to those issues, rather volunteered for adjudication of the appeal only in reference to the amount of penalty. Hence, he has not pressed for an order in reference to the judgment of Bombay High Court. It is on his agreement and when he did not press the appeal to answer the issues framed by the Bombay High Court that we have disposed of the appeal. The learned counsel was otherwise fair enough to state that legal issues framed by Bombay High Court are not made out on the facts of the case and accordingly we proceeded to dispose of the appeal in reference to the rival arguments. Thus, with the reduction of the penalty amount, appeal is disposed of. 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.