Penalty upheld under FEMA Section 13(1) for illegal land purchase; residency requires 182-day stay rule compliance

The AT upheld the penalty imposed under Section 13(1) of FEMA for contravention of Section 6(3)(i), ruling that the appellant was not a person resident in India under Section 2(v)(i) at the relevant time, as he did not meet the 182-day stay requirement in the preceding financial year. The appellant's purchase of agricultural land in 2012-13 from foreign earnings was therefore impermissible. The Tribunal confirmed that mens rea is not required for imposing penalties under FEMA, which are civil in nature. Considering the appellant's payment from lawful foreign earnings and partial pre-deposit of the penalty, the AT reduced the penalty from Rs. 8,00,000 to Rs. 2,00,000, allowing adjustment against any pre-deposit made.

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ISSUES:

Whether the omission of Section 6(3)(i) of FEMA by the Finance Act, 2015 affects the validity of proceedings initiated under that provision prior to its omission.Whether the appellant qualifies as a "person resident in India" under Section 2(v)(i) of FEMA at the time of acquisition of immovable property.Whether mens rea (intention or knowledge of wrongdoing) is a necessary element for imposition of penalty under Section 13(1) of FEMA for contravention of its provisions.Whether the quantum of penalty imposed for contravention of Section 6(3)(i) of FEMA is excessive and warrants reduction.

RULINGS / HOLDINGS:

The omission of Section 6(3)(i) of FEMA by the Finance Act, 2015 does not invalidate proceedings initiated prior to the effective date of omission, as the omission was effective from 15.10.2019, while the complaint and show cause notice were issued in 2015; thus, invocation of Section 6(3)(i) was "correct and in accordance with law in force then".The appellant cannot be regarded as a person resident in India under Section 2(v)(i) of FEMA at the relevant time because he did not stay in India for more than 182 days in the preceding financial year (2011-12) and returned permanently only in May 2012, which falls in the next financial year; therefore, he is covered by Section 2(w) of FEMA as a person resident outside India.Mens rea is not a requirement for imposition of penalty under Section 13(1) of FEMA, as the provision does not contain language indicating the need to establish intention; penalty is attracted "as soon as the contravention of the statutory obligation" is established, irrespective of guilty intention.The penalty imposed is reduced from Rs. 8,00,000/- to Rs. 2,00,000/- considering the circumstances including lawful earnings abroad and partial pre-deposit, making the penalty proportional to the contravention.

RATIONALE:

The Court applied the provisions of Section 6, 6A, and 24 of the General Clauses Act, which preserve the operation of repealed or omitted enactments and allow continuation of legal proceedings and penalties incurred prior to repeal or omission. The Supreme Court's judgment in Fibre Boards Pvt. Ltd. clarified that "repeal" includes "repeal by express omission," thus overruling earlier precedents that distinguished omission from repeal.The Court analyzed the definition of "person resident in India" under Section 2(v)(i) of FEMA, emphasizing the requirement of physical presence of 182 days in the preceding financial year or arrival and stay in India in that same year to qualify. The appellant's return in May 2012 post-dated the preceding financial year, disqualifying him as resident for the relevant period.The Court relied on Supreme Court precedent holding that penalties under FEMA are civil in nature and do not require mens rea, distinguishing the case from criminal or quasi-criminal proceedings where mens rea is essential. The language of Section 13(1) FEMA does not include terms like "willful" or "intentional," supporting imposition of penalty upon contravention alone.The Court exercised discretion in reducing the penalty amount, acknowledging the appellant's lawful source of funds and partial compliance with pre-deposit requirements, thereby aligning penalty proportionality with the nature of contravention.

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