Company and director penalized for 24-day delay in reporting USD 3.09 million FDI receipt under FEMA Section 6(3)(b)

The AT upheld penalty imposition on a company and director for 24-day delay in reporting USD 3.09 million FDI receipt, violating FEMA Section 6(3)(b) and Regulation 5(1) of 2000. The appellant's excuse of online reporting system teething problems was rejected as the system operated for a year before becoming mandatory. The tribunal found the company had previous reporting delays, indicating non-compliance pattern. While confirming liability, the AT reduced penalty from Rs. 20 crores to Rs. 2 crores for the company and Rs. 5 crores to Rs. 5 lakhs for the director, citing excessiveness of original quantum.

---

---

Issues Involved:
1. Validity of penalty imposed under a repealed provision of FEMA.
2. Justification for delay in reporting FDI due to technical difficulties.
3. Determination of whether the delay constitutes a technical default.
4. Appropriateness of the quantum of penalty imposed.

Issue-Wise Detailed Analysis:

1. Validity of Penalty Imposed Under a Repealed Provision of FEMA:
The primary legal issue was whether the penalty imposed on the appellant under Section 6(3)(b) of FEMA, which was repealed effective 15.10.2019, was valid. The appellant argued that since the provision was omitted, any action based on it was unsustainable. The Tribunal referred to the General Clauses Act, particularly Sections 6, 6A, and 24, to determine that the repeal or omission of a provision does not affect actions taken under it unless a different intention is expressed. The Tribunal relied on the Supreme Court's judgment in the case of Fibre Boards Pvt. Ltd., which clarified that repeals and omissions are interchangeable and covered by the General Clauses Act, thereby validating the penalty despite the repeal.

2. Justification for Delay in Reporting FDI Due to Technical Difficulties:
The appellant contended that the delay in reporting the FDI was due to teething issues with the new online reporting system introduced by the RBI. However, the Tribunal found that the online system had been operational since 12.02.2015, with compulsory reporting from 08.02.2016, and the appellant failed to provide substantial evidence of technical difficulties. The Tribunal concluded that the appellant's claim of technical difficulties was unsubstantiated and could not justify the delay.

3. Determination of Whether the Delay Constitutes a Technical Default:
The appellant argued that the delay was a technical default and should not attract a penalty. The Tribunal, however, emphasized the importance of adhering to statutory timelines for reporting FDI to maintain the integrity of legal provisions. It was noted that if delays were excused as technical defaults without penalties, it would undermine compliance with the law. The Tribunal concluded that the delay was not merely technical but a violation of statutory provisions, warranting penal consequences.

4. Appropriateness of the Quantum of Penalty Imposed:
The Tribunal reviewed the penalty amounts of Rs. 20 crores on the company and Rs. 5 crores on the director, considering them excessive. It was noted that while penalties need not be based on actual loss, they should be reasonable. Given the circumstances, including the appellant's history of delayed reporting and the amount involved, the Tribunal reduced the penalties to Rs. 2 crores for the company and Rs. 5 lakhs for the director. This adjustment was made to ensure the penalty was proportionate to the offense while maintaining the legal and factual findings of the Adjudicating Authority.

The appeal was disposed of with modifications to the penalty amounts, affirming the Tribunal's stance on legal and factual issues.

---