2025 (8) TMI 1226 - AT - FEMA

Appeal denied to enhance penalty under s.19(1) FEMA; lenient fine for failure to realize exports and s.8, reg.3/42(1) breach upheld

Union of India Versus M/s. Trikesh Trade Lind Pvt. Ltd. And Shri Sarju Kr. Khandelwal

Union of India Versus M/s. Trikesh Trade Lind Pvt. Ltd. And Shri Sarju Kr. Khandelwal - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal should enhance the penalty imposed by the Adjudicating Authority under Section 13(1) FEMA for failure to realize export proceeds and contravention of Section 8 read with Regulation 3 of the Realisation, Repatriation and Surrender Regulations. 2. Whether the Adjudicating Authority exercised its discretion judicially in imposing a comparatively low penalty (approximately 1% of the contravened amount) and whether that discretionary exercise is susceptible to interference on appeal. 3. Whether mitigating factual circumstances (efforts to recover dues, majority of export proceeds realized, insolvency/absence of overseas buyers, prohibitive cost and low prospects of successful foreign recovery) justify a reduced penalty and preclude enhancement. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to impose and enhance penalty under Section 13(1) FEMA Legal framework: Section 13(1) FEMA prescribes penal consequences for contraventions and sets a maximum penalty (up to three times the amount involved) but does not prescribe a minimum or fixed quantum for penal levy; the Adjudicating Authority is empowered to exercise discretion in fixing the amount. Precedent treatment: The Tribunal follows the principle in the cited Supreme Court authority that a statutory maximum does not oblige the authority to levy the maximum or any fixed multiple and that discretion must be exercised judiciously. Interpretation and reasoning: Because Section 13(1) provides only an upper limit, the Adjudicating Authority's selection of penalty quantum is a discretionary judicial act requiring assessment of facts and evidence. The Tribunal notes the statutory scheme contemplates variable penalties commensurate with circumstances. Ratio vs. Obiter: Ratio - statutory maximum does not preclude judicial discretion to impose a lesser penalty; authorities must apply discretion having regard to facts. Obiter - none additional. Conclusion: The Adjudicating Authority was entitled to fix a penalty below the statutory maximum; enhancement on appeal is not warranted merely because a higher amount could have been imposed. Issue 2 - Reviewability on appeal of discretionary penalty amount Legal framework: Appeals under the scheme permit scrutiny of adjudicatory orders but do not convert appellate forum into one that routinely substitutes its view for a conscious discretionary order unless that discretion was not judicially or properly exercised. Precedent treatment: Tribunal applied the Supreme Court principle that discretion vested in quasi-judicial authorities must be respected if exercised bona fide and in accordance with law. Interpretation and reasoning: The Tribunal examined the Adjudicating Authority's order and found it recorded and evaluated mitigating and aggravating factors, demonstrating considered exercise of discretion rather than caprice. The Tribunal held that absent illegality, mala fides or perversity in the discretion exercised, an appellate enhancement is inappropriate. Ratio vs. Obiter: Ratio - appellate interference with discretionary penalty requires demonstration that discretion was not judiciously or properly exercised (e.g., arbitrary, mala fide, or lacking consideration of material factors). Obiter - discussion of general reluctance to disturb discretionary penalty where statutory ceiling exists. Conclusion: The Adjudicating Authority's discretionary imposition of a modest penalty will not be disturbed on appeal where the record shows objective and judicious consideration of circumstances. Issue 3 - Relevance of mitigating factual circumstances to quantum of penalty Legal framework: Relevant mitigating circumstances for penalty assessment include bona fide conduct, steps taken to realize dues, absence of mens rea (no under-invoicing or suppression), proportion of proceeds realized, and practical obstacles to recovery (e.g., foreign counterparty abandoned, prohibitive costs of foreign litigation). Precedent treatment: The Tribunal relied on established principles that mitigating circumstances must be considered before fixing penalty; identical factual scenarios considered in an earlier Bench order were noted by counsel but the Tribunal reached its conclusion on facts before it. Interpretation and reasoning: The Tribunal catalogued specific mitigating factors: no evidence of bogus export or inferior quality, acceptance of invoices by foreign buyers without protest, release of documents through banking channels, numerous reminders and legal notices sent, discovery that overseas offices were abandoned, prohibitive cost and low chance of foreign recovery, and realization of approximately 75% of export proceeds from other buyers. These factors collectively supported lenity. The Tribunal treated the absence of mens rea (no under-invoicing or suppression) as material to penalty quantum though not negating contravention. Ratio vs. Obiter: Ratio - where exporters have taken reasonable steps within means to recover dues and the circumstances show absence of culpable intent or fraudulent conduct, mitigation is appropriate and may justify substantially lower penalty than the theoretical maximum. Obiter - comments on economic recession and sectoral impact as contextual background. Conclusion: The mitigating circumstances justified the Adjudicating Authority's imposition of a modest penalty; there was no basis to enhance the penalty. Cross-Reference between Issues The Tribunal's refusal to enhance (Issue 1 and 2) directly rests upon the evaluation of mitigating facts (Issue 3); discretionary deference to the Adjudicating Authority is warranted when record shows consideration of those mitigating circumstances. Final Conclusion (Ratio of the Judgment) The Adjudicating Authority acted within its statutory discretion under Section 13(1) FEMA in imposing a low quantum of penalty after taking into account material mitigating circumstances; absent any demonstrable arbitrariness, mala fides or failure to consider relevant factors, the appellate forum will not enhance the penalty. The appeal for enhancement is therefore dismissed.