2024 (11) TMI 796 - AT - FEMA

Company penalized for failing to file Form FC-GPR under FEMA Paragraph 9(1)(B) despite meeting other compliance requirements

The Assistant Director, Directorate of Enforcement, Bhubaneshwar Versus M/s Orissa Sponge Iron & Steel Ltd

The Appellate Tribunal for SAFEMA at New Delhi enhanced penalties imposed under FEMA for non-compliance with Paragraph 9(1)(B) of Schedule 1 to FEMA ... Penalty imposed under FEMA - contravention on the part of the Respondent company was the non-compliance to the provisions of Paragraph 9(1)(B) of the Schedule 1 to FEMA Regulations, 2000 - HELD THAT:- Reading of Section 13 of FEMA,1999 which is a Section under which penalty is imposed for contravention of any of the provisions of the Act or any Rule, Regulation, Notification, Direction, Order or any condition subject to which an authorization is issued by the RBI makes it obvious that the language of the Section does not require intention for penalizing of contravention. On reading of Section 13 (1) FEMA, 1999, it is also obvious that the maximum amount of penalty which can be imposed under the Section is three times the amount of contravention involved. From the language of the Section, it is clear that the Section has not prescribed either a fixed amount of penalty or minimum amount of penalty. it therefore, follows that the amount of the penalty which is to be imposed by the Adjudicating Authority is a matter of discretion which, of course, is necessarily required to be exercised judiciously after taking into account the facts of the case and the evidence placed before it. While the Respondents have met with the compliances required under Paragraph 9(1)(A), they have failed to meet with the compliances required under Paragraph 9(1)(B). It does appear that the failure to comply with the requirements of Paragraph 9(1)(B) was due to unawareness of such requirements. However, the satisfaction of the conditionalities imposed under Paragraph 9(1)(A) did bring the fact of inflow of foreign remittance for issuance of share by the Appellant Company, to the knowledge of the RBI. Failure to report in Form FC-GPR deprived the RBI of the information about the compliances required to be met while issuing the shares by the Company. It is also noted that there is no dispute about the Appellant individual being the Director of the Company at the relevant time, who was responsible for its day to day operations. Thus, penalties imposed by the Ld. Adjudicating Authority on the two Appellants deserves to be enhanced and made to Rs. 20 lakhs and Rs. 10 lakhs respectively. The Appeal is accordingly disposed of. Issues:- Imposition of penalty under FEMA Regulations, 2000 for non-compliance with reporting requirements.- Discrepancy in penalty amount imposed by the Adjudicating Authority.- Arguments regarding the adequacy of penalties imposed.- Compliance with specific provisions of FEMA Regulations, 2000.- Judicial discretion in imposing penalties for contraventions.Detailed Analysis:1. The judgment dealt with an appeal filed by the Directorate of Enforcement against an order imposing penalties under FEMA Regulations, 2000 for contravention of reporting requirements. The penalties were imposed on a company and its director for not submitting Form FC-GPR within the stipulated time period, as mandated by Paragraph 9(1)(B) of the Schedule 1 to FEMA Regulations, 2000. The total penalty amount imposed was Rs 15,00,000, which was challenged by the appellant as inadequate considering the magnitude of the contravention.2. The appellant argued that the penalties imposed did not reflect the seriousness of the non-compliance, as the company failed to report foreign direct investment of Rs. 67,50,00,000 within the specified timeframe. The appellant contended that the penalties were arbitrary and insufficient, undermining the purpose of the FEMA Act, 1999, and failing to ensure strict compliance with the regulations.3. On the other hand, the respondents claimed compliance with Paragraph 9(1)(A) of the FEMA Regulations, 2000, by reporting the receipt of foreign remittances for share issuance. However, they admitted to the non-submission of Form FC-GPR within the required period. The respondents argued that the penalties imposed were reasonable, considering the technical nature of the breach and the absence of any disproportionate gain or loss of foreign exchange.4. The judgment highlighted the specific provisions of Paragraph 9(1)(B) of the Schedule 1 to FEMA Regulations, 2000, which necessitate the submission of Form FC-GPR to inform RBI about compliance with various regulatory requirements for issuing shares to foreign investors. The failure to submit this form hampers RBI's oversight of necessary compliances in share issuance against foreign remittances.5. The Adjudicating Authority noted the lack of evidence of compliance with the reporting requirements under Paragraph 9(1)(B) by the respondents. Despite efforts claimed by the respondents, the non-filing of Form FC-GPR was confirmed, leading to a breach of regulatory obligations. The judgment cited legal precedents emphasizing that penalties for statutory non-compliance are not contingent on intent but on the contravention itself.6. Ultimately, the Appellate Tribunal intervened to enhance the penalties imposed on the company and its director to Rs. 20 lakhs and Rs. 10 lakhs, respectively. This decision was based on the failure to meet reporting requirements under Paragraph 9(1)(B) and the need to ensure judicious exercise of discretion in penalizing contraventions under FEMA, 1999. The appeal was disposed of with the revised penalty amounts.