2024 (9) TMI 1032 - AT - FEMA

Bank penalized for facilitating unauthorized credits to non-resident accounts under FERA Sections 64(2), 6(4), 6(5), 49

M/s. Alliance Leicestar Plc Ltd, John Baden Versus The Assistant Director, Directorate of Enforcement, Mumbai

The Appellate Tribunal under SAFEMA upheld FERA contraventions against a bank for facilitating 20 unauthorized credits to non-resident convertible rupee ... Applicability of FERA provision to not resident in India - transfers to non-resident convertible rupee accounts enabled payments to be made in Foreign Exchange to a person resident outside India - Appellant Bank has been charged for contravention of Section 64 (2) read with Section 6 (4), Section 6 (5) and Section 49& 73 (3) of FERA - Contraventions in terms of Section 64 (2) of FERA for having abetted the Standard Chartered Bank, Mumbai. HELD THAT:- Section 6 (4) and 6 (5) and 49 & 73 (3) of FERA require that the banks which are ADs shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of its authorization as AD and to obtain necessary declarations in this regard from the person on whose behalf it undertakes such transactions as well as shall comply with the conditions of such permission. It is on 20 different occasions that the non-resident convertible rupee accounts of the Appellant Bank were credited. 19 transactions of credit occurred in its account with the ANZ Grindlays Bank between 24.07.1991 and 22.08.1991 and 1 transaction of credit happened in its account with the Standard Chartered Bank on 28.02.1991. The credits which happened in the ANZ Grindlays Bank were in a short period of about a month. The record reveals that there were telex messages from the Appellant Bank to the ANZ Grindlays Bank for ensuring that the impugned credits were made to its account with the ANZ Grindlays Bank. One of such specific instance has been brought out by the Ld. Adjudicating Authority in the paragraphs cited earlier. It is from the facts and circumstances of a case that the intention, instigation and engagement are to be ascertained. The facts of the present case speak for themselves. The plea that the Appellant Bank was not part of the Bilateral Group but was included in External Group does not help its case. In fact, the Appellants should have been more careful in facilitating credits in their accounts with the ANZ Grindlays Bank and with the Standard Chartered Bank by virtue of not being part of the Bilateral Group. Repeatedly credits were being facilitated in non-resident convertible rupee account by the Appellant Bank. The circumstances and the evidence in the present case reverse the burden on to the Appellant which it has failed to discharge. Therefore, the charge of the abetment against the Appellant Bank stands established as it contravened Section 64 (2) read with Section 6 (4), Section 6 (5) and Section 49 and Section 73 (3) of FERA. Charge against the individual Appellant/CEO - Adjudicating Authority has observed in the Impugned Order that no evidence was placed before him that the contraventions by the Appellant Bank had taken place without the knowledge of the CEO or that he exercised all due diligence to prevent such contravention. Mr. John Baden, then CEO of the Appellant Bank paid penalty of Rs. 500 imposed on him in the Impugned Order dated 11.02.2010 and has not filed Appeal against the said Order. We therefore find that the charge against the individual Appellant for the aforementioned contraventions in terms of Section 68 (1) of FERA is established in so far as his Appeal No. FPA-FE-195/MUM/2008 is concerned. Quantum of penalty imposed on the Appellant - In the facts and the circumstances of the case we do find that that amount of penalty is disproportionate to the allegation made against the Appellants. We accordingly reduce the penalties of Rs. 13,28,82,000/- on the Appellant Bank and Rs. 6,64,41,000/- on the individual Appellant in the Impugned Order dated 09.07.2008 to Rs. 1,00,00,000/- (Rupees One Crore Only) on the Appellant Bank and to Rs. 5,00,000/- (Rupees Five Lakhs Only) on the individual Appellant, which would meet the ends of justice. Issues Involved:1. Jurisdiction of Indian authorities under FERA.2. Charge of abetment under Section 64(2) of FERA.3. Violation of principles of natural justice.4. Quantum of penalties imposed.Issue-wise Detailed Analysis:1. Jurisdiction of Indian authorities under FERA:The appellants contended that FERA provisions were inapplicable as they were not residents of India. The adjudicating authority, however, rejected this contention, stating that FERA extends to the whole of India and applies to any transaction taking place in India, irrespective of the nationality of the contraveners. The adjudicating authority emphasized that the transactions in question involved credits in the non-resident convertible rupee account of the appellant bank in India, thereby invoking FERA's jurisdiction. The tribunal upheld this view, noting that the appellants, by maintaining accounts in Indian banks, were bound by Indian regulations governing foreign exchange transactions.2. Charge of abetment under Section 64(2) of FERA:The appellants argued that the charge of abetment was not substantiated and that their role in the transactions was not adequately established. The adjudicating authority, however, found that the appellant bank had instigated the ANZ Grindlays Bank to credit funds into its account, despite discrepancies in the instruments. The tribunal agreed, emphasizing that the appellants' actions facilitated credits in non-resident convertible rupee accounts, which were subsequently converted to foreign exchange. The tribunal referenced Section 107 of the Indian Penal Code to define abetment and concluded that the appellants' actions constituted instigation and facilitation of the contraventions.3. Violation of principles of natural justice:The appellants contended that certain documents relied upon by the adjudicating authority were not shared with them, thus violating principles of natural justice. The tribunal acknowledged that the minutes of a meeting between ANZ Grindlays Bank and the appellant bank were not subjected to cross-examination. However, it found that the telex message from the appellant bank to ANZ Grindlays Bank was part of the correspondence and was known to the appellants. The tribunal concluded that the charge of abetment could stand even without the minutes of the meeting, as the telex message alone was sufficient to establish the appellants' role in the contraventions.4. Quantum of penalties imposed:The appellants argued that the penalties imposed were disproportionately high. The tribunal partially agreed, reducing the penalties from Rs. 13,28,82,000/- to Rs. 1,00,00,000/- for the appellant bank and from Rs. 6,64,41,000/- to Rs. 5,00,000/- for the individual appellant. The tribunal reasoned that while the charge of abetment was established, the penalties should be commensurate with the nature of the contraventions.Conclusion:The tribunal dismissed the appeal against the order dated 11.02.2010 and partially allowed the appeals against the order dated 09.07.2008, reducing the penalties imposed. The tribunal upheld the jurisdiction of Indian authorities under FERA, confirmed the charge of abetment, and addressed the concerns regarding the principles of natural justice.