2025 (7) TMI 1267 - AT - FEMA

Enforcement Directorate's penalty enhancement appeal dismissed under Section 13(1) FEMA for export proceeds violation

The Appellate Tribunal under SAFEMA at New Delhi dismissed an appeal by the Enforcement Directorate seeking enhancement of penalty imposed under Section ... Penalty for contravention of Section 7 & 8 of FEMA - failing to realize exports proceeds - enhancement of penalty is filled by the appellant under Section 19 (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 only 100 percent to the contravened amount of export proceeds not realized by the respondents from the foreign based importer. 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 to the extent of only 100%. The reading of the Adjudication Order, therefore, reflects objectivity and judiciousness on the part of the Adjudicating Authority. After hearing the appellant ED, we find the total penalty imposed on the appellants comes to 25 crores, which is about 200% more than the contravened amount. We fail to understand that instead of executing the said order for recovery, the appellant ED adopted the course of action for filing appeal for the enhancement of penalty, by ignoring the fact that the respondents are not traceable, and thereby, any chance of recovery of the penalty amount became negligible during this intervening period. Hence, practice of filing of such appeals for enhancement of penalty amount by the appellant ED needs to be deprecated. We are not inclined to enhance the quantum of penalty, as adequate penalty is imposed by the Adjudicating Authority. 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. ISSUES: Whether the penalty imposed under Section 13(1) of FEMA for contravention of Section 7 & 8 of FEMA and relevant Regulations is adequate or requires enhancement.Whether the Adjudicating Authority exercised proper discretion in imposing penalty amounting to 100% of the contravened amount.Whether failure to realize export proceeds and absence of serious efforts to recover the amount from foreign importers justifies enhancement of penalty.Whether filing an appeal for enhancement of penalty is appropriate when respondents are untraceable and recovery chances are negligible. RULINGS / HOLDINGS: The penalty imposed by the Adjudicating Authority, being 100% of the contravened amount, is within the discretionary power granted under Section 13(1) FEMA and is not liable to enhancement.The Adjudicating Authority's imposition of penalty reflects 'objectivity and judiciousness' after evaluating facts and evidence, and thus its discretion was properly exercised.The absence of serious efforts by the respondents to realize export proceeds does not warrant enhancement of penalty beyond what was imposed.The practice of filing appeals for enhancement of penalty when respondents are untraceable and recovery is unlikely is discouraged and deprecated. RATIONALE: The Court applied Section 13(1) of FEMA, which prescribes a maximum penalty of 'three times the amount of contravention' but does not mandate a minimum or fixed penalty, thereby granting discretion to the Adjudicating Authority to impose penalty judiciously.Precedent from the Supreme Court was referenced, affirming that statutory provisions prescribing maximum penalties do not compel authorities to impose the maximum or a fixed penalty, preserving adjudicatory discretion.The Court emphasized the need for discretion to be exercised 'judiciously' and found no error in the Adjudicating Authority's assessment or penalty quantum.The Court noted practical considerations regarding enforcement and recovery, highlighting that pursuing enhancement of penalty in absence of respondents' traceability is counterproductive.