2025 (10) TMI 182 - AT - FEMA

Appeal partly allowed: s.6(3) omission effective 15.10.2019; FEMA penalty reduced to Rs.7,50,000; s.13(2) confiscation set aside

Shri Mohammad Iqbal Siddiqi Versus The Special Director Directorate of Enforcement, Kolkata

AT allowed the appeal in part. Tribunal found s.6(3) omission effective from 15.10.2019 and that s.6(3) remained operative earlier; contravention under ... Contravention of Section 6(3)(i) - Effect of omission of Section 6(3) by the Finance Act, 2015 - requirement of mens rea - penalty imposed on the Appellant and his property comprising of agricultural land - Order of confiscation of the impugned property - Foreign Exchange Management (Acquisition and transfer of Immovable property in India) Regulations, 2000 - Appellant prayed that the impugned property was purchased from the lawful earning of the Appellant while he was working abroad. Ld. Counsel further argued that the bona fide of the Appellant cannot be questioned because he was not even aware of the said provision under FEMA. HELD THAT:- On consideration of the arguments made from both the sides with respect to the omission of Section 6(3) including its clause (i), we find that the omission was made vide Section 139 (C) of the Finance Act of 2015. However, the omission was made with effect from 15.10.2019 vide S.O. 3715 (E). We further note that the Reserve Bank of India, Foreign Exchange Department, Central Office Mumbai issued Notification No. FEMA 21 (R)/2018–RB on 26.03.2018 in exercise of the powers conferred by Clause (i) of Sub-Section (3) of Section 6 read with Sub-Section 2 of Section 47 of FEMA, clearly bringing out that Section 6(3) of FEMA had not been omitted on 14.05.2015. The said Notification was issued in supersession of Notification No. FEMA 21/2000-RB dated 03.05.2000, as amended from time to time. We thus find that there is nothing in the Section which can indicate directly or indirectly requirement of mens rea. Words like “willful”, “deliberately”, “intentionally” etc. are missing. The Hon’ble Supreme Court in the Judgment supra have cited the Judgement in Director of Enforcement vs. MCTM Corporation Pvt. Ltd. and Ors. [1996 (1) TMI 351 - SUPREME COURT] wherein even for FERA 1947 it was held that the contravention shall be breach of a civil obligation which would attract penalty irrespective of the fact whether the contravention was made with any guilty intention or not. The Judgement supra cited a number of previous judgements wherein it was held that mens rea is not an essential element for imposing penalty for breach of civil obligations. His Lordships have clarified that the case of Hindustan Steel Ltd. Vs. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] pertained to criminal/quasi criminal proceeding as the provisions of the Act under consideration in that case imposed a punishment of imprisonment and fine as well. The present appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13(1) of FEMA which provides for penalty only, up to thrice the sum involved in such contravention. The provisions of Section 13 (2) allow the Adjudicating Authority, if it thinks fit that in addition to the penalty imposed, confiscation be ordered of the property in respect of which the contravention has occurred. It is obvious from the language of Section 13(2) that the penal action of confiscation of the property involved in the contravention is in addition to the pecuniary penalty imposed under Section 13(1). The Order of confiscation has been left to the discretion of the Adjudicating Authority which necessarily is to be exercised judiciously. It therefore follows that the Order of confiscation is not mandatory and shall depend upon the facts and circumstances of each case. We therefore find that the penalty of full amount of the cost of the land and in addition its confiscation is more than proportionate to the offence committed by the Appellant. We also note that the Appellant has claimed to have deposited Rs. 7,50,000/- in compliance to the Order dated 25.09.2024 of this Tribunal as pre-deposit amount of the penalty. We believe that the interest of justice will be served, if the penalty amount is reduced to Rs. 7,50,000/- from Rs. 15,00,000/- and if the Order of confiscation is set aside. Appeal is hereby disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether invocation of Section 6(3)(i) of FEMA and related Regulations in proceedings initiated on 22.05.2015 was valid despite omission of Section 6(3) by the Finance Act, 2015. 2. Whether omission of a statutory provision (here Section 6(3) of FEMA) negates continuance of rights, liabilities, notifications and proceedings under that provision, or whether Sections 6, 6A and 24 of the General Clauses Act preserve such continuance. 3. Whether mens rea (intent) is a precondition for imposition of penalty under Section 13(1) of FEMA for contravention of its provisions and Regulations. 4. Whether the adjudicating authority's exercise of discretion to impose a pecuniary penalty equal to the amount involved and additionally confiscate the immovable property was proportionate and justified under Section 13(1)-(2) of FEMA, and whether confiscation ought to be set aside or mitigated. ISSUE-WISE DETAILED ANALYSIS - 1. Validity of invoking Section 6(3) and Regulations (timing) Legal framework: Section 6(3) of FEMA empowered RBI to make regulations in respect of capital account transactions including acquisition of immovable property by NRIs; Regulations of 2000/2018 prescribed conditions for acquisition. Omission of Section 6(3) was effected by the Finance Act, 2015 (notified 14.05.2015) but brought into effect w.e.f. 15.10.2019 by S.O. 3715(E). RBI Notification FEMA 21(R)/2018 dated 26.03.2018 continued Regulation 3 governing acquisition/transfer by NRIs. Precedent treatment: The Tribunal relied on its earlier Final Order (08.04.2024) and on Supreme Court authority (Fibre Boards v. CIT and Shree Bhagwati Steel Rolling Mills) interpreting interaction between omission/repeal and General Clauses Act provisions. Interpretation and reasoning: The Tribunal found that the complaint and show-cause dated 22.05.2015 fall within the period when Section 6(3) remained in force; further, subsequent notifications (2018) and the delayed effective date of omission (15.10.2019) confirm that Section 6(3) was not effectively omitted on 14.05.2015. Consequently invocation of Section 6(3)(i) read with the Regulations in force at the relevant time was lawful. Ratio vs. Obiter: Ratio - where statutory omission is shown to have an effective date later than notification of proceedings, invocation of the provision and Regulations in force at the time of the offending act or initiation of proceedings is valid. The Tribunal's reliance on the factual chronology (dates of Finance Act notification, effective date via S.O., RBI notification) is determinative. Conclusion: Invocation of Section 6(3)(i) and applicable Regulations in the show-cause and complaint dated 22.05.2015 was in accordance with the law in force at the relevant time and therefore valid. ISSUE-WISE DETAILED ANALYSIS - 2. Effect of omission and applicability of Sections 6, 6A and 24 of the General Clauses Act Legal framework: Sections 6, 6A and 24 of the General Clauses Act address effect of repeal, repeal by textual omission and continuation of subordinate legislation when an Act/Regulation is repealed and re-enacted. Precedent treatment (followed/distinguished/overruled): The Tribunal followed the Supreme Court's analysis in Fibre Boards (and Shree Bhagwati Steel Rolling Mills) which held that an omission can amount to repeal for the purposes of the General Clauses Act and that Sections 6/6A/24 can preserve prior operation and proceedings. The Tribunal examined and distinguished earlier Constitution Bench dicta in Rayala Corporation and Kolhapur Cane Sugar Works to the extent they were inconsistent with Fibre Boards, treating the latter as authoritative and clarifying that omission may be equivalent to repeal and relevant savings/continuance provisions apply. Interpretation and reasoning: The Tribunal accepted the reasoning that Section 6A contemplates repeal by express omission and that Fibre Boards clarified the interchangeable nature of 'repeal' and 'omission' for the purpose of preserving prior rights, liabilities and subordinate legislation. It relied on the principle that unless a different intention appears, repeal/omission will not affect previous operation or pending proceedings. The Tribunal reasoned that this interpretation avoids public mischief and preserves continuity of enforcement and subordinate instruments made under the earlier statutory scheme. Ratio vs. Obiter: Ratio - omission of a provision can amount to repeal within meaning of Sections 6, 6A and 24 of the General Clauses Act; consequently notifications/regulations and proceedings under the omitted provision may continue unless contrary intention appears. Obiter - detailed critique of prior Constitution Bench reasoning insofar as it suggested omission is categorically distinguishable from repeal (the Tribunal adopts Fibre Boards as binding clarification). Conclusion: Sections 6, 6A and 24 of the General Clauses Act apply to omission of statutory provisions where repeal by omission has occurred; omission does not per se invalidate proceedings or subordinate instruments made while the provision was in force. The Tribunal applied this to uphold continued applicability of the regulations and proceedings in question. ISSUE-WISE DETAILED ANALYSIS - 3. Requirement of mens rea for penalty under FEMA Legal framework: Section 13(1) of FEMA prescribes penalties for contravention up to thrice the sum involved (or fixed maximum where not quantifiable); Section 13(2) empowers confiscation in addition. Statutory language does not contain words importing criminal culpability (e.g., 'willful', 'intentional'). Precedent treatment: The Tribunal relied on Supreme Court authority (SEBI v. Shriram Mutual Fund and Director of Enforcement v. MCTM Corporation) holding that imposition of penalty under civil regulatory statutes does not require proof of mens rea and that penalty is attracted upon establishment of contravention. Interpretation and reasoning: The Tribunal held that FEMA penalties are civil in nature and attracted once contravention is established; absence of explicit mens rea language in Section 13 and related jurisprudence confirms that intention is irrelevant to liability for penalty. Criminal/quasi-criminal precedents addressing imprisonment were distinguished. Ratio vs. Obiter: Ratio - mens rea is not a precondition for imposition of penalty under Section 13 of FEMA; civil contraventions attract penalty upon proof of breach of statutory obligation. Obiter - distinctions drawn between civil penalty regimes and penal/criminal provisions imposing imprisonment. Conclusion: The Appellant's claimed lack of knowledge or intention does not negate liability to penalty once contravention under FEMA and its Regulations is established. ISSUE-WISE DETAILED ANALYSIS - 4. Proportionality and discretionary confiscation under Section 13(2) Legal framework: Section 13(1) provides for monetary penalty up to thrice the sum involved; Section 13(2) permits, in the adjudicating authority's discretion, confiscation of currency, securities or property in respect of which contravention took place, in addition to penalty. Precedent treatment: The Tribunal referred to the statutory scheme and discretion conferred on adjudicating authorities; it noted jurisprudence that confiscation is an additional discretionary remedy and must be exercised judiciously in view of facts and circumstances. Interpretation and reasoning: The Tribunal found undisputed facts that funds used were lawful earnings remitted by the appellant while resident abroad, that the land remained agricultural in status (no statutory conversion) despite non-agricultural use, and that there was no mis-declaration or clandestine dealing. Given absence of fraudulent conduct and that the monetary penalty originally imposed equaled the amount spent on purchase (Rs.15,00,000), the Tribunal concluded that imposing the full monetary penalty and ordering confiscation together was disproportionate. The Tribunal exercised appellate discretion to reduce penalty to Rs.7,50,000 and to set aside confiscation, observing that confiscation is not mandatory and must be proportionate to culpability and circumstances. Ratio vs. Obiter: Ratio - where contravention is established but the conduct lacks deceit or fraud and the pecuniary penalty equals the amount involved, discretion to confiscate may be judicially moderated; appellate authority may reduce penalty and set aside confiscation as disproportionate. Obiter - observations on potential loss of use (poultry farm development) and equitable considerations influencing mitigation. Conclusion: Confiscation of the impugned property was set aside and penalty reduced from Rs.15,00,000 to Rs.7,50,000 on grounds of disproportionality and in exercise of judicial discretion under Section 13(2); pecuniary penalty was mitigated to serve interests of justice given the factual matrix. Cross-references 1. Issues 1 and 2 are interlinked: chronological effect of omission and statutory interpretative principles under the General Clauses Act determined validity of invoking Section 6(3) and Regulations. 2. Issues 3 and 4 are linked by the civil nature of FEMA penalties: absence of mens rea establishes liability but does not preclude mitigation of monetary penalty or setting aside confiscation in appropriate cases under the discretionary regime of Section 13(2).