2025 (5) TMI 799 - AT - FEMA

SAFEMA Tribunal dismisses appeal for penalty enhancement in Section 8 FEMA export proceeds violation case

Union of India, Mumbai Versus M/s. Access Diamonds Pvt. Ltd. and Shri Hanvant Singh Inda, Director

The Appellate Tribunal under SAFEMA dismissed an appeal seeking enhancement of penalty in a FEMA violation case. The respondent contravened Section 8 of ... Offence under FEMA - Adequacy of penalty imposed - Contravention of Section 8 of FEMA read with Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 by failing to realize export proceeds within the stipulated period without prior permission from the Reserve Bank of India (RBI) - penalty imposed u/s 42(1) of FEMA - HELD THAT:- On reading of Section 13 (1) FEMA it is 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 13(1) FEMA, 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 him. The appellant has stressed that in the present case the Adjudicating Authority has imposed the penalty to the extent of one percent to the contravened amount not realized by the respondents. The question as to when a penalty is to be regarded as either low or high is at best answered subjectively. In the present case it is seen that the Adjudicating Authority has not only taken notice of the facts of the case but also has evaluated the evidence on record to infer for imposing penalty on the lower side. The perusal of order passed by the Adjudicating Authority reflects that he considered the mitigating circumstances for taking the lenient view for imposing the penalty on the lower side. The reading of the Adjudication Order, therefore, reflects objectivity and judiciousness on the part of the Adjudicating Authority. We are not inclined to enhance the quantum of penalty, as there is nothing on record to show that the Adjudicating Authority has not properly and judiciously exercised his discretion. Therefore, the order of the Adjudicating Authority needs no interference. In view of the aforementioned discussions and observations, the appeal for enhancement of penalty fails and is hereby dismissed. The core legal questions considered by the Appellate Tribunal under the Foreign Exchange Management Act, 1999 (FEMA) are:1. Whether the respondents contravened Section 8 of FEMA read with Regulation 3 of the Foreign Exchange Management (Realisation, Repatriation and Surrender of Foreign Exchange) Regulations 2000 by failing to realize export proceeds within the stipulated period without prior permission from the Reserve Bank of India (RBI).2. Whether the penalty imposed by the Adjudicating Authority under Section 42(1) of FEMA was appropriate or requires enhancement, considering the quantum of contravention and the efforts made by the respondents to recover the outstanding export proceeds.3. Whether the Adjudicating Authority exercised its discretion judiciously in imposing the penalty amount, and if the penalty is excessive or inadequate in light of the facts and circumstances of the case.Issue-wise Detailed Analysis:Issue 1: Contravention of Section 8 of FEMA and Regulation 3 of the Foreign Exchange Management RegulationsThe legal framework mandates exporters to realize and repatriate export proceeds within the prescribed period under Section 8 of FEMA and corresponding regulations. Failure to do so without RBI permission constitutes contravention, attracting penalties under Section 42(1) of FEMA.The Adjudicating Authority found the respondents liable for contravention as they failed to realize export proceeds amounting to USD 2,081,686.25 (equivalent to Rs. 10,07,24,207.38) from exports made between June 2009 and July 2016. The respondents admitted the delay but attributed it to the overseas buyers absconding and their ongoing efforts to trace them and obtain RBI permission.The respondents provided documentary evidence of export invoices, correspondence with overseas buyers, and attempts to recover dues, including legal notices. They also highlighted that over 85% of export proceeds were realized timely, and only two transactions remained outstanding due to non-payment by foreign companies whose offices were abandoned.The Adjudicating Authority concluded that despite these efforts, the failure to realize the full export proceeds within the stipulated time constituted a contravention under FEMA provisions.Issue 2: Appropriateness and Quantum of Penalty ImposedSection 13(1) of FEMA prescribes a penalty up to three times the amount involved in the contravention, without fixing a minimum or mandatory quantum. The Adjudicating Authority imposed a penalty of Rs. 8,00,000 on the company and Rs. 2,00,000 on its director, approximately 1% of the outstanding amount, reflecting a lenient approach.The appellant (Enforcement Directorate) contended that the penalty was nominal given the magnitude of contravention and lack of serious recovery efforts, urging enhancement. They argued that no suit for recovery was filed against the defaulting overseas buyers, and the penalty did not reflect the gravity of the violation.The respondents countered that the appeal only sought enhancement of penalty, not a re-examination of merits. They emphasized the discretionary nature of penalty imposition, highlighting mitigating factors such as substantial realization of export proceeds, absence of fraud or suppression, and genuine difficulties in recovery due to foreign buyers' absconding and abandoned offices. They also cited the global recession context and financial constraints that dissuaded costly litigation abroad.The Tribunal examined the evidence, including export records, correspondence, and the respondents' business history, noting that the respondents had earned significant foreign exchange for the country and had made reasonable efforts to recover dues. It was observed that the respondents had no advance export incentives, the exports were genuine and accepted by buyers, and that the counterpart banks were responsible for releasing documents against payment.Legal precedent cited included a Supreme Court ruling that penalty provisions prescribing maximum limits do not mandate fixed or minimum penalties, leaving discretion to adjudicating authorities to impose penalties judiciously.The Tribunal found the Adjudicating Authority had duly considered mitigating circumstances and exercised discretion judiciously in imposing a lenient penalty. It rejected the appellant's argument for enhancement, holding that the penalty was neither excessive nor inadequate in the facts and circumstances.Issue 3: Discretionary Power of the Adjudicating Authority and Scope of AppealThe respondents argued that once a quasi-judicial authority exercises its discretion in penalty imposition, such orders should not be interfered with on appeal unless there is evidence of malafide or arbitrariness. The Tribunal concurred, emphasizing that the Adjudicating Authority's order was based on objective evaluation of evidence and facts, and there was no allegation of bias or improper exercise of discretion.The Tribunal reiterated that the appeal did not challenge the finding of contravention but only sought enhancement of penalty, which is a discretionary matter. Given the Adjudicating Authority's balanced approach and consideration of mitigating factors, the Tribunal declined to interfere with the penalty quantum.Significant Holdings:'From the language of the Section 13(1) FEMA, 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 him.''The reading of the Adjudication Order, therefore, reflects objectivity and judiciousness on the part of the Adjudicating Authority.''In view of the mitigating circumstances... we are not inclined to enhance the quantum of penalty, as there is nothing on record to show that the Adjudicating Authority has not properly and judiciously exercised his discretion.''The statute (FEMA) itself provides for a penalty up to thrice the sum involved in such contravention and thereby gives explicit scope to the Adjudicating Authority to exercise his discretion, albeit judiciously, for imposition of penalty.'The Tribunal established the principle that penalty imposition under FEMA is discretionary and must be exercised judiciously considering the facts, evidence, and mitigating circumstances. It affirmed that appellate interference with penalty quantum is unwarranted absent arbitrariness or malafide.On the facts, the Tribunal upheld the Adjudicating Authority's finding of contravention but declined to enhance the penalty, recognizing the respondents' substantial realization of export proceeds, genuine efforts to recover outstanding dues, and adverse circumstances beyond their control.